As filed with the Securities and Exchange Commission February 5, 1999.
SEC Registration No. 333-_____
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM SB-2 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
U.S. TRUCKING, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Colorado 4213 68-0133692
- ------------------------- ---------------------------- -------------------
(State or Other Jurisdic- (Primary Standard Industrial (IRS Employer Iden-
tion of Incorporation) Classification Code Number) tification Number)
3125 Ashley Phosphate Road, Suite 128, North Charleston, South Carolina 29418
(843) 767-9197
- -----------------------------------------------------------------------------
(Address and Telephone Number of Principal
Executive Offices and Principal Place of Business)
Danny L. Pixler, President
3125 Ashley Phosphate Road, Suite 128, North Charleston, South Carolina 29418
(843) 767-9197
- -----------------------------------------------------------------------------
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Jon D. Sawyer, Esq.
Krys Boyle Freedman & Sawyer, P.C.
600 Seventeenth Street, Suite 2700 South Tower, Denver, Colorado 80202
(303) 893-2300
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
- ----------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------
PROPOSED PROPOSED
TITLE OF EACH AMOUNT MAXIMUM MAXIMUM
CLASS OF SECUR- TO BE OFFERING AGGREGATE AMOUNT OF
ITIES TO BE REGIS- PRICE OFFERING REGISTRATION
REGISTERED TERED PER UNIT(1) PRICE FEE
- ----------------------------------------------------------------------------
Common Stock 1,166,667 $5.625 $6,562,501.88 $1,824.38
No Par Value Shares
(2)
- ----------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 by reference to the average of the closing bid and ask
prices of the Registrant's Common Stock on February 4, 1999, as reported on
the OTC Bulletin Board.
(2) To be offered by Selling Shareholders.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
PROSPECTUS SUBJECT TO COMPLETION DATED FEBRUARY 5, 1999
----------------------------------------------------------------
The information in this Prospectus is not complete and may be
changed. The securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is
effective. This Prospectus is not an offer to sell these securi-
ties and the Selling Shareholders are not soliciting an offer to
buy these securities in any state where the offer or sale is not
permitted.
U.S. TRUCKING, INC.
1,166,667 Shares of Common Stock
The Shares of Common Stock are being offered by certain
Selling Shareholders. We will not receive any of the proceeds
from the sale of the Shares by the Selling Shareholders.
The Common Stock is traded in the over-the-counter market
and is quoted on the OTC Bulletin Board (Symbol: USTK). On
February 4, 1999, the closing bid and ask prices of the Common
Stock were $5.25 and $6.00.
This investment involves a high degree of risk. You should
purchase shares only if you can afford a complete loss. See
"Risk Factors" starting on page 5.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this Prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
_________, 1999
TABLE OF CONTENTS
PAGE
Prospectus Summary .......................................... 3
Risk Factors ................................................ 5
Market Prices and Dividends ................................. 9
Management's Discussion and Analysis ........................ 10
Business .................................................... 15
Management .................................................. 26
Security Ownership of Management, Principal Shareholders
and Selling Shareholders .................................. 30
Transactions With Management and Others ..................... 33
Description of Securities ................................... 35
Plan of Distribution ........................................ 37
Legal Matters ............................................... 38
Experts ..................................................... 38
Additional Information ...................................... 38
Index to Financial Statements ............................... F-1
2
PROSPECTUS SUMMARY
THE COMPANY
U.S. Trucking, Inc. provides transportation and logistics services. We
transport full truckloads of both refrigerated and non-refrigerated
commodities over various distances, primarily east of the Rocky Mountains. We
also provide the following specialized transportation and logistics services:
1. Roller-bed trailer service for UPS and Emery Air
2. Transportation brokerage services
We are a preferred carrier for a number of Fortune 500 companies,
including the following:
1. United Parcel Service of America, Inc.
2. The Trane Company (a division of American Standard, Inc.)
3. Excel Corporation (a division of Cargill Incorporated)
4. Emery Worldwide (a division of CNF Transportation, Inc.)
5. Eaton Corporation
6. The Monfort division of ConAgra, Inc.
7. Consolidated Papers, Inc.
We are actively seeking other companies which are interested in outsourcing
their transportation service needs.
Our truckload division operates approximately 286 tractors (including
approximately 112 tractors which are owned by contractors) and approximately
401 trailers (including approximately 13 which are owned by contractors).
We intend to expand our business through internal growth and
acquisitions. The truckload industry is highly fragmented, which provides a
large number of acquisition opportunities. We are primarily interested in
medium to long haul truckload carriers, with annual revenues of between $5-10
million, which are located close to our current facilities. This should allow
us to consolidate our staffs to reduce common expenses. This is referred to
in our industry as the "Stack Up" concept.
U.S. Trucking, Inc., a Colorado corporation, was incorporated in Colorado
under the name Northern Dancer, Inc. in January 1987, for the purpose of
acquiring an operating company. It completed a small public offering in 1988.
In September 1998 it acquired U.S. Trucking, Inc., a Nevada corporation, which
is now a wholly-owned subsidiary of the Company. We refer to this company as
U.S. Trucking-Nevada. U.S. Trucking-Nevada has two operating subsidiaries
which it acquired in early 1997, just after it was incorporated. These are
Gulf Northern Transport, Inc. and Mencor, Inc. We refer to these two
companies throughout this Prospectus as Gulf Northern and Mencor.
Unless the context otherwise requires, the term "Company" in this
Prospectus refers to U.S. Trucking, Inc. and all of its subsidiaries.
Our offices are located at 3125 Ashley Phosphate Road, Suite 128, North
Charleston, South Carolina 29418. Our telephone number is (843) 767-9197.
3
OFFERING SUMMARY
Securities Offered: 1,166,667 Shares of Common Stock offered by
Selling Shareholders
Common Stock Presently
Outstanding: 7,343,557 Shares
FINANCIAL SUMMARY
This financial summary does not include all of the information in the
financial statements. You should read the financial summary along with the
financial statements and the notes to the financial statements which are
included in this Prospectus.
Balance Sheet Data:
As of As of
December 31, Sept. 30,
1997 1998
(Audited) (Unaudited)
------------ -----------
Current Assets $ 2,834,848 $ 3,538,714
Fixed Assets 6,818,517 6,013,068
Other Assets 707,400 901,693
----------- -----------
Total Assets $10,360,765 $10,453,475
Current Liabilities $ 4,444,404 $ 4,516,200
Other Liabilities 3,133,193 2,363,609
Stockholders' Equity 2,783,168 3,573,666
----------- -----------
Income Statement Data:
Eleven Month Nine Months
Period Ended Year Ended Ended
December 31, December 31, Sept. 30,
1997 1996 1998
(Audited)* (Audited) (Unaudited)
------------ ------------ -----------
Net Revenues
(Freight Operations) $17,469,281 $14,847,335 $15,827,179
Income from Operations $ 1,034,767 $ 1,873,559 $ 669,160
Net Income (Loss) $(1,531,200) $ (294,602) $ 209,960
* Represents the combined results of the Company's two operating subsidiaries,
Gulf Northern and Mencor.
4
RISK FACTORS
Some of the statements contained in this Prospectus discuss future
expectations, contain projections of results of operations or financial
condition or state other "forward-looking" information. Those statements are
subject to known and unknown risks, uncertainties and other factors that could
cause the actual results to differ materially from those contemplated by the
statements. Factors that could cause the results to differ include the risk
factors discussed below.
Investing in the Shares is very risky. You should be able to bear a
complete loss of your investment. You should carefully consider the following
factors, among others:
1. Prior Losses. Although the Company was organized in 1987, it never
engaged in any business, other than seeking an
acquisition or merger, until September 1998 when it
acquired U.S. Trucking - Nevada. U.S. Trucking -
Nevada incurred a net loss of ($294,602) on revenues
of $14,847,335 during the year ended December 31, 1996,
and a net loss of ($1,531,200) on revenues of
$17,469,281 during the eleven month period ended
December 31, 1997. While we earned $209,960 on
revenues of $15,827,179 during the first nine months of
1998, there are no assurances that we will continue to
operate profitably in the future. Our ability to
operate profitably will depend on our ability to
upgrade the age of our tractors and trailers, to
refinance our existing debt and factoring arrangements,
to make good acquisitions and to increase our level of
revenues.
2. Need for Addi- At September 30, 1998, we had a working capital deficit
tional Financing. of $977,486. U.S. Trucking-Nevada has been running
negative cashflows since it began operations in 1997,
and we need additional funds for operations and for
expansion.
Our industry is extremely capital intensive. We depend
on cash from operations, asset-based debt financing,
and equity investments for funds to maintain our
equipment and to expand the size of our fleet. We
cannot assure you that funds will be available, or if
they are available, that the terms will be acceptable.
If we are unable to obtain financing when needed, we
would need to operate our current fleet of tractors and
trailers for longer periods, which could have a
material adverse effect on our operating results due to
higher maintenance costs. If funds are unavailable for
acquisitions, our plans for growth would be curtailed.
3. Dependence on A significant portion of our revenue is generated from
Key Customers. key customers. During 1997, our top 10 customers
accounted for 59.4% of revenues. Our largest customer,
Consolidated Papers, Inc. accounted for 19.2% of
revenues. We do not have long-term contractual
relationships with any of our customers. The loss of
5
business from any of our key customers would probably
have a material adverse effect on our business and
operating results.
4. Control by As of the date of this Prospectus, our Officers and
Management. Directors beneficially own approximately 55.7% of our
outstanding shares. Upon completion of the sale of
all of the shares by the Selling Shareholders, our
Officers and Directors will continue to beneficially
own approximately 55.7% of the outstanding shares.
This will enable management to be able to elect the
Company's entire Board of Directors and to have
virtually complete control over our affairs.
5. General Economic Our business is dependent upon a number of factors
and Business beyond our control that may have a material adverse
Factors. effect on our business. These factors include excess
capacity in the trucking industry and significant
increases or rapid fluctuations in fuel prices,
interest rates, fuel taxes, tolls, license and
registration fees and insurance premiums. It is
difficult at times for us to attract and retain
qualified drivers and owner-operators. Our operations
also are affected by recessionary economic cycles and
downturns in our customers' business cycles,
particularly in market segments and industries (such as
retail and paper products) in which we have a
significant concentration of customers. Seasonal
factors could also adversely affect us. Customers
tend to reduce shipments after the winter holiday
season and our operating expenses tend to be higher
in the winter months primarily due to increased
operating costs in colder weather and higher fuel
consumption due to increased idle time. Regional or
nationwide fuel shortages could also adversely affect
us.
6. Competition. The trucking industry is very competitive and
fragmented. Our primary competition is other truckload
carriers, but we also compete with railroads, water and
air transportation. The competition has caused a
downward pressure on the prices we can charge. There
are a number of other trucking companies that have
greater financial resources, own more equipment and
carry a larger volume of freight than we do.
7. Risks Associated We plan to expand our business by making acquisitions
with Acquisi- of trucking companies. However, we expect to compete
tions with other transportation companies for the acquisition
opportunities which come available. There are a number
of risks associated with financing these acquisitions
and integrating them in our business including the
following:
6
1. Our profitability could be affected by servicing
the additional debt and amortizing the expenses
related to goodwill and intangible assets.
2. The issuance of additional equity would dilute
the interests of current shareholders.
3. It could be difficult to assimilate the acquired
company's employees, equipment, and operations.
4. The acquisition could divert management's
attention from other business concerns.
5. The acquired company could operate in markets
with which we have little or no familiarity.
6. There could be undisclosed or unforeseen
liabilities associated with the acquired
company.
7. We could lose key employees, drivers or
customers of the acquired company.
8. Dependence on Our business is highly dependent upon the services of
Management. Mr. Danny L. Pixler, President, and W. Anthony Huff,
Executive Vice President. The loss of the services of
Mr. Pixler or Mr. Huff could have a material adverse
effect on our operations and future profitability.
We have employment agreements with Mr. Pixler and Mr.
Huff which run through September 2003. We do not
maintain key man life insurance on either Mr. Pixler
or Mr. Huff.
9. Regulation. We are regulated by the United States Department of
Transportation and by various state agencies. These
regulatory authorities exercise broad powers governing
activities such as authorization to engage in motor
carrier operations, determination of rates and charges,
and compliance with safety requirements. In addition,
our operations are subject to various environmental
laws and regulations dealing with the transportation,
storage, presence, use, disposal and handling of
hazardous materials, and underground fuel storage
tanks. If we should be involved in a spill or other
accident involving hazardous substances or if we were
found to be in violation of applicable laws or
regulations, it could have a material adverse effect on
our business and operating results.
10. Claims Exposure; We currently carry insurance in the amount of $250,000
Insurance. per occurrence for liability resulting from cargo loss,
$100,000 for each claim for personal injury and
property damage, $100,000-$500,000 per claim for
worker's compensation (depending on the state), and
$100,000 per claim for employee medical and
hospitalization. We believe these amounts are adequate
and comparable to the insurance maintained by other
companies operating in our business. However, to the
extent we were to experience an increase in the
7
number of claims, or claims greater than the amounts of
these policies, our operating results would be
materially adversely affected. In addition, signifi-
cant increases in insurance costs, to the extent not
offset by freight rate increases, would negatively
impact our operating results.
11. Potential Our Shares are not listed on Nasdaq or any exchange.
Liquidity Trading is conducted in the over-the-counter market
Problems. on the OTC Bulletin Board, which was established for
securities that do not meet the Nasdaq or exchange
listing requirements. Consequently, selling U.S.
Trucking shares is more difficult because smaller
quantities of shares are bought and sold and security
analysts' and news media's coverage of U.S. Trucking
is limited. These factors could result in lower prices
and larger spreads in the bid and ask prices for our
shares.
12. Risks of low- Because our Shares are not currently listed on Nasdaq
priced Shares. or an exchange, they are subject to Rule 15g-9 under
the Exchange Act. That rule imposes additional sales
practice requirements on broker-dealers that sell
low-priced securities to persons other than estab-
lished customers and institutional accredited in-
vestors. For transactions covered by this rule, a
broker-dealer must make a special suitability
determination for the purchaser and have received
the purchaser's written consent to the transaction
prior to sale. Consequently, the rule affects the
ability of broker-dealers to sell our shares and may
affect the ability of shareholders to sell our shares
in the secondary market.
13. No Dividends We intend to retain any future earnings to fund the
Anticipated. operation and expansion of our business. We do not
anticipate paying cash dividends on our shares in
the foreseeable future.
14. Shares Eligible We currently have 7,343,557 shares of Common Stock
for Future Sale. outstanding and the following is a breakdown of these
shares:
We cannot pre- * Free Trading 1,241,152
dict the de- * Restricted: 6,102,405
pressive effect Currently eligible for
of resales. sale under Rule 144 48,438 Shares
Being offered in this
Prospectus 1,166,667 Shares
Will be eligible for
sale in September
1999 4,887,300 Shares
We are unable to predict the effect that sales made
in this offering or under Rule 144 may have on the
then prevailing market price of our Shares. It is
likely that market sales of large amounts of these
or other U.S. Trucking shares (or the potential for
those sales even if they do not actually occur), will
have the effect of depressing the market price of our
shares.
8
MARKET PRICES AND DIVIDENDS
The Company's Common Stock trades in the over-the-counter market, under
the symbol "USTK". There were no quotations for the Company's Common Stock
during the last three years until after the closing of the reverse acquisition
of U.S. Trucking-Nevada. Quotations resumed during September 1998. The
following table shows the high and low bid prices for the Company's Common
Stock for the periods indicated as reported by the OTC Bulletin Board. These
prices are believed to be inter-dealer quotations and do not include retail
mark-ups, mark-downs, or other fees or commissions, and may not represent
actual transactions.
Quarter Ended High Bid Low Bid
-------------- -------- -------
September 30, 1998 $1.875 $0.002
December 31, 1998 $4.50 $0.75
As of January 26, 1999, the Company had approximately 156 shareholders of
record. This does not include shareholders who hold stock in their accounts
at broker/dealers.
Holders of Common Stock are entitled to receive dividends declared by the
Company's Board of Directors. No dividends have been paid on the Company's
Common Stock and no dividends are anticipated to be paid in the foreseeable
future.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements of the Company and related footnotes
appearing in this Prospectus.
GENERAL
The Company was established in March of 1997 by combining under U.S.
Trucking-Nevada the operations of Gulf Northern, a mid- to long-haul truckload
carrier, Mencor, a third party logistics (brokerage) company, selected assets
of another truckload company, and the customer base of a small specialized
truckload air freight company. The latter two divisions were contributed to
U.S. Trucking-Nevada by U.S. Transportation Services, Inc. ("USTS"). During
1997, the Company consolidated operations, implemented manpower reductions,
and blended all trucking operations under Gulf Northern and all brokerage
operations under Mencor.
The Company's operating results are primarily driven by the results of
the truckload business of its primary operating subsidiary, Gulf Northern.
The Company suffered an extraordinary loss in the year ended December 31,
1997, due to expenses associated with combining highly unprofitable operations
of the two divisions from USTS with Gulf Northern and Mencor, and from
extraordinary amortization and depreciation charges. The problems associated
with combining these operations were eliminated by the end of the first
quarter of 1998.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
Revenues increased $1.7 million or 12.6% to $15.8 million in the first
nine months of 1998 as compared to $14.1 million in the first nine months of
1997. This increase was primarily the result of internal growth of the
Company's long-haul division.
The Company's operating ratio (operating expenses divided by operating
revenues) decreased from 105.3% in the first nine months of 1997 to 95.8% in
the first nine months of 1998. This reduction in the Company's operating
ratio was primarily due to (1) the lower fuel cost resulting from lower fuel
prices and greater usage of owner-operators which provide their own fuel, (2)
lower insurance and claims, and (3) lower salaries, wages and benefits
resulting from a reduction of driver payroll caused by greater use of owner-
operators and a reduction in the wages paid to the drivers in one of the
divisions acquired from USTS.
Total operating expenses for the first nine months of 1998 increased
$240,312 to $15.1 million, as compared to $14.9 million, for the first nine
months of 1997 primarily due to the $907,336 increase in purchased
transportation costs as the Company increased its use of owner/operators.
General and administrative expenses increased $150,856 due primarily to an
increase in accounting fees related to preparing the Company for a transaction
with a public shell, and a general increase in a number of other components
due to the increased level of activity. These increases were offset by a
$372,960 decline in fuel costs due to lower fuel prices and fewer miles driven
by the Company's vehicles, a $270,027 decline in insurance and claims
attributable to the Company changing over to a captive insurance program in
10
early 1998, and a $51,279 decline in salaries, wages and benefits. The rates
of pay of the drivers absorbed from other USTS operations were reduced to
bring them into line with those of the Gulf Northern drivers.
Salaries, wages and employee benefits expenses decreased $51,279 to $4.0
million for the first nine months of 1998 as compared to $4.05 million for the
first nine months of 1997, and decreased as a percentage of total operating
revenues from 28.6% in the first nine months of 1997 to 25.3% for the first
nine months of 1998. This decrease as a percentage of revenue was primarily
due to increased use of owner-operators and the decrease in the actual dollar
amount was due to reduced driver payrolls.
Payments to owner-operators increased $1 million or 32% to $4 million
for the first nine months of 1998 as compared to $3 million for the first nine
months of 1997. This was mainly the result of a growth in sales generated by
owner-operators of more than 27% in the first nine months of 1998 as compared
to the first nine months of 1997.
Depreciation and amortization expense for the first nine months of 1998
increased $17,672 to $1.2 million or 7.5% of revenue, as compared to $1.18
million or 8.3% of revenue, for the first nine months of 1997. The increase
in the actual amount of deprecation and amortization was due primarily to
increased amortization costs due to the restructuring of certain loan costs.
Deprecation and amortization decreased as a percentage of total revenues due
to the increase in revenues from owner-operators which provide their own
tractors.
Interest expense for the first nine months of 1998 decreased $44,000 or
7.8% to $513,000 as compared to $557,000 for the first nine months of 1997.
This decrease was the result of lower cost of borrowing as the result of
restructuring loans on the Company's equipment debt, lower interest rates on
the more recent portions of other equipment loans and lower factoring fees due
to improved collections of the Company's receivables.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues for the year ended 1997 were $18.5 million compared to net
revenues of $14.8 million for the year ended 1996. The increase in revenues
was primarily due to the fact that the 1996 results included only Gulf
Northern and Mencor while 1997 also included the business of the two divisions
of USTS which were combined with Gulf Northern and Mencor when the Company was
formed.
Operating expenses for 1997 were $17.0 million, or 92% of revenue, as
compared to $13.0 million, or 88% of revenue, for 1996 (an increase of 31%).
This increase was due primarily to the increase in business associated with
the operations added in early 1997, which yielded higher driver payroll,
increase in percentage paid to owner-operators, higher fuel costs and higher
maintenance costs as a percentage of revenue. Fuel expenses increased $766,00
or 46% to $2,480,000 from $1,720,000 for fiscal 1996.
Salaries, wages, employee benefits and other administrative expenses for
the year ended 1997 were $2,150,000, or 11.6% of revenue, compared to
$2,030,000, or 13.7% of revenue, for the year ended 1996. The increase in the
dollar amount was due to the addition of the new businesses. The decrease of
such costs as a percentage of revenue was due to decreases in fixed costs,
such as administrative payroll, rents, communications expenses and health
insurance costs.
11
Depreciation and amortization expenses for 1997 were $1.44 million, or
7.8% of revenue, as compared to $977,000, or 6.6% of revenue, for 1996. This
increase was due to additional equipment being added to the Company's fleet,
increased amortization costs due to the restructuring of certain loans and
increased depreciation due to certain capitalized repairs.
Interest expense for 1997 was $703,000, or 3.8% of revenue, as compared
to $649,000, or 4.4% of revenue, for the year ended 1996. The increased
interest expense was due to the increase in the amount of debt outstanding due
to the debt assumed in connection with the additional tractors and trailers
contributed to the Company by USTS.
Freight settlements paid to outside carriers decreased $209,000 or 10.4%
(to 90.9% of revenues) for the year ended 1997 as compared to $2.0 million or
90.1% of revenues for the prior year. This decrease resulted from slightly
fewer loads being brokered in 1997.
CAPITAL RESOURCES AND LIQUIDITY
As of September 30, 1998, the Company had a working capital deficit of
$(977,486) compared to a deficit of $(1,609,556) at December 31, 1997.
Effective February 1, 1997, the Company acquired all of the outstanding
capital stock of Gulf Northern and of Mencor, as well as selected assets
(tractors and trailers) of Jay & Jay Transport for the assumption of debt.
The Company has assumed various notes as the schedule below indicates.
Following is a schedule of the Company's existing long-term debt as of
September 30, 1998:
Monthly
Creditor Balance Payments
-------- ---------- --------
Associates Leasing Corp. $ 464,000 $ 31,497
(Milwaukee)
Associates Leasing Corp. 520,000 26,597
(Buffalo & Philadelphia)
ITC (Indianapolis) 373,000 16,000
GECC 1,630,000 45,000
Navistar Financial 318,000 12,933
GECC (Columbus) 421,000 14,528
---------- --------
Total $3,726,000 $146,555
At times, the Company enters into leasing agreements for short- or long-
term equipment needs. The Company currently has three leasing agreements in
place for tractors and trailers. The expenses are booked as straight
operating expenses on a month-to-month basis.
The Company has from time to time been in arrears with its equipment
lenders, but the Company has maintained excellent working relations with all
of its lenders and management believes that it continues to be in good status
with all of its lenders. The Company is seeking a bundled refinancing at this
time to consolidate its debt, lower interest expense and expand its operating
line. (See below.)
12
During August and September 1998, the Company raised $575,000 in a
private offering of Common Stock. The proceeds from the private offering were
used for the retirement of debt related to receivables financing, payment of
fees incurred in connection with the acquisition of U.S. Trucking-Nevada by
the Company and working capital.
The Company anticipates that the proceeds of the recent offering,
together with projected cash flow from operations, will be sufficient to fund
the Company's operations for at least 12 months. In order to expand, the
Company intends to raise additional funds through private placements of equity
and/or debt securities. During January 1999, the Company commenced a private
offering of 2,000,000 shares of Series B 8% Convertible Preferred Stock at a
price of $3.00 per share on a 150,000 share minimum, 2,000,000 share maximum
basis. Each share of Series B 8% Convertible Preferred Stock will be
convertible into one share of Common Stock. The proceeds, if any, from this
offering would be used for working capital, debt reduction and acquisitions.
During December 1998, the Company closed two financing transactions with
General Electric Capital Corporation ("GE Capital"). One transaction involves
a revolving credit facility in an amount up to $5,000,000 which replaced the
existing accounts receivable factoring facility. The other transaction
includes an equipment refinance loan in an amount of approximately $3,332,000,
an equipment lease for approximately $1,120,000, and an equipment lease for
approximately $2,944,150.
The revolving credit facility provides that the lender will loan up to
85% on the Company's eligible accounts receivable at an interest rate equal to
a defined rate which is the 30-day dealer commercial paper rate plus 4.5
percent. The loan has a three year term and it is secured by all existing and
after-acquired assets of the Company other than encumbered rolling stock.
Approximately $100,000 in fees were paid and this facility was personally
guaranteed by Dan Pixler and Anthony Huff.
The other transaction includes one loan and two lease transactions. The
loan for approximately $3,332,000 was used to refinance two existing GE
Capital loans, and several other existing loans. This loan has a three year
term and it is secured by the tractors and trailers which collateralize the
existing loans less the collateral which GE Capital agrees may be sold. The
first lease transaction in the amount of approximately $1,120,000 was used to
acquire twenty-five (25) 1996 or 1997 tractors. This lease has a four year
term. The second lease in the amount of approximately $2,944,150 was used to
acquire forty-three (43) new Wabash 53' air ride refrigerated trailers and
forty-five (45) new Wabash 53' air ride dry vans with logistics systems. This
lease has a seven year term. The loan and the two leases were personally
guaranteed by Dan Pixler and Anthony Huff.
Under these transactions, the Company's monthly debt service remained
virtually the same, but the Company's fleet was expanded and upgraded.
YEAR 2000 COMPLIANCE
The Company is in the midst of implementing its plan to ensure year 2000
compliance of its computer hardware and software. The plan is centered around
the purchase of a new hardware system consisting of a Compaq proliant P2 300
300 MHz processor, 320 MB RAM, 2/9.1 GB mirror hard drive, and a Server Tower
which is installed in the Charleston, South Carolina, location. From the
system will be generated all functions of the Company's operating systems
including, but not limited to, the initiation of loads, dispatch, billing,
accounts payable and receivable, general ledger functions and preparation of
13
financial statements. All maintenance records for all of the trucks,
inventory records for all parts and supplies, claim records and accident
records as well as fuel and mileage for taxing bodies will be supplied.
Information from the Company's fuel provider, Comdata, will be downloaded into
the system over the Internet on a daily basis. The Company has received data
from Comdata with respect to their program for year 2000 compliance and is
satisfied that they will be in total compliance.
The new software system has been fully operational for the agent program
and brokerage business since November 1998. The Company anticipates the
complete system to be installed and begin operating Company-wide by March 1,
1999. At present, the Company is working with its hardware provider to have
installed PC workstations for use with a Windows NT User Network, MS Exchange
50 User Internal E-mail. Each workstation is a Compaq Deskpro EP Pentium 333
Mhz. Protrip software from Computerized Management Services of Sioux Falls,
South Dakota, will be used. The Company is currently also preparing and
reviewing its database information on its current system for transfer to the
new system in an effort to streamline the flow of information from one system
to the other.
The Company may also be vulnerable to the failure of other companies to
be year 2000 compliant. The Company has commenced its assessment of whether
third parties with whom the Company has material relationships are year 2000
compliant. The Company is evaluating its vendors and suppliers to determine
if there would be a material effect on the Company's business if they do not
timely become year 2000 compliant. The same analysis is being made for
significant customers. The Company has not yet initiated formal contingency
planning processes to mitigate the risk to the Company if any vendors or
customers are not prepared for the year 2000, but the Company intends to
complete this process by June 30, 1999.
Although the Company expects its internal systems to be year 2000
compliant, the failure of any of its significant vendors or customers to
correct a material year 2000 problem could result in an interruption in
certain normal business activities and operations. Due to the general
uncertainty inherent in the year 2000 problem, resulting in part from the
uncertainty of the year 2000 readiness of third parties which the Company
relies on, the Company is unable to determine at this time whether the
consequences of year 2000 failures will have a material adverse impact on the
Company's results of operations, but the Company believes that with the
implementation of its new computer system and completion of its assessment of
its vendors and customers, the possibility of significant interruptions of
normal operations should be reduced.
14
BUSINESS
GENERAL
U.S. Trucking, Inc. provides transportation and logistics services. We
transport full truckloads of both refrigerated and non-refrigerated
commodities over various distances primarily east of the Rocky Mountains. We
also provide the following specialized transportation and logistics services:
1. Roller-bed trailer service for UPS and Emery Air
2. Transportation brokerage services
We are a preferred carrier for a number of Fortune 500 companies,
including:
1. United Parcel Service of America, Inc.
2. The Trane Company (a division of American Standard, Inc.)
3. Excel Corporation (a division of Cargill Incorporated)
4. Emery Worldwide (a division of CNF Transportation, Inc.),
5. Eaton Corporation
6. The Monfort division of ConAgra, Inc.
7. Consolidated Papers, Inc.
We are actively seeking other companies which are interested in outsourcing
their transportation service needs.
Our truckload division operates approximately 170 tractors (including
approximately 65 tractors which are owned by contractors) and over 230
trailers (including approximately 25 which are owned by contractors).
We intend to expand our business through internal growth and
acquisitions. The truckload industry is highly fragmented, which provides a
large number of acquisition opportunities. We are primarily interested in
medium to long haul truckload carriers, with annual revenues between $5-10
million, located close to the Company's current facilities. This should allow
us to consolidate our staffs to reduce common expenses. This is referred to
in our industry as the "Stack Up" concept.
U.S. Trucking, Inc., a Colorado corporation, was incorporated in Colorado
under the name Northern Dancer, Inc. in January 1987, for the purpose of
acquiring an operating company. It completed a small public offering in 1988.
In September 1998, it acquired U.S. Trucking-Nevada which is now a wholly-
owned subsidiary of the Company. U.S. Trucking-Nevada has two operating
subsidiaries which it acquired in early 1997 just after it was incorporated.
These are Gulf Northern and Mencor.
The Company's primary operating subsidiary, Gulf Northern, has operated
as a truckload carrier since it was formed in 1991. In an effort to increase
the size and scope of its business and to obtain access to expansion capital,
its management sold it to U.S. Transportation Systems, Inc. ("USTS") in early
1997 in exchange for a 25% ownership interest in U.S. Trucking-Nevada. The
remainder of U.S. Trucking-Nevada was owned by U.S. Transportation Systems,
Inc. ("USTS"), at the time, a publicly-traded transportation company. As it
became clear that the expected benefits from affiliating with USTS would not
be forthcoming, Messrs. Huff and Pixler arranged for Logistics Management, LLC
to repurchase the majority position held by USTS in May 1998.
15
THE TRUCKLOAD SEGMENT OF THE TRANSPORTATION INDUSTRY
The Company estimates that the for-hire truckload market segment of the
transportation industry accounted for more than $165 billion of revenue in
1997. The truckload transportation industry currently is undergoing changes
that affect both shippers and carriers. Shippers (the customers of trucking
companies) have been focusing their capital resources on their primary
businesses and are outsourcing their transportation and logistics
requirements. Shippers increasingly have been seeking to reduce the number of
authorized carriers they utilize and to establish service-based, long-term
relationships with smaller groups of preferred or "core carriers" who are
often able to provide a wide range of services. In order to compete with
shippers for preferred or core carrier status , a carrier must have sufficient
available equipment and drivers and other logistical capabilities to meet the
shippers' requirements. While the truckload transportation market remains
highly fragmented, there is an emerging trend among carriers toward
consolidation in order to become better positioned with customers as core
carriers. Carriers are also consolidating to take advantage of economies of
scale in purchasing equipment, in purchasing insurance, and in recruiting and
retaining drivers.
The truckload transportation market generally consists of a service-
sensitive segment and a price-sensitive segment. Shippers of high value or
time-sensitive goods tend to be more concerned with the service capability of
the carrier than simply obtaining the lowest priced transportation. In many
cases, carriers choose either to provide premium service and charge rates
consistent with that service or to compete primarily on the basis of price.
The truckload market is further segmented on the basis of length of haul. In
the long haul market, the average length of haul is greater than 1,500 miles.
In this segment, truckload carriers compete with air freight on the basis of
lower prices and with railroads on the basis of time of delivery. In the
medium-to-long haul segment, the average length of haul ranges from 750 miles
to 1,500 miles. The Company's average length of haul is approximately 880
miles.
TRANSPORTATION BROKERAGE SERVICES
The Company offers transportation brokerage services through its wholly-
owned subsidiary Mencor. The Department of Transportation granted Mencor a
license in April 1994 which provides it with authority to engage as a freight
broker in interstate commerce. Mencor arranges return hauls for common
carriers and corporations transporting their own goods who have completed
their initial delivery. This enables the carrier to cover the cost of
returning to their home location. For this service we receive the difference
between the amount we pay with the returning shipper or carrier to effect the
move, and the amount we receive from the shipper.
OPERATING STRATEGY
The Company's operating strategy is to provide high quality
transportation and logistics services that position the Company as a preferred
supplier or "core carrier" to major shippers. The Company does not compete
primarily on a price basis. The Company seeks to effect this strategy by
providing reliable time-definite pick up and delivery services. An important
factor in the Company's ability to effect this strategy is the ready
availability of drivers. The Company seeks to address the chronic driver
shortage in the trucking industry through a variety of practices. See
"Drivers" below. Management believes its driver retention history is
significantly better than the industry average.
16
Management believes that the Company's operating strategy has positioned
it to capitalize on evolving trends in the transportation industry. Shippers
are reducing their number of approved carriers to a small group of core
carriers, and often outsourcing their transportation needs entirely to
logistics providers. The small carriers, without the capacity to adequately
service these shippers or offer logistics services will not benefit from this
trend. As a medium size carrier with the capability to also offer logistics
and warehousing services (which helps in obtaining business from companies
utilizing "just-in-time" distribution methods), the Company is well-suited to
capitalize on this trend.
The Company has also recently instituted an agent program, pursuant to
which the Company allows small carriers to operate under the Company's
authority as an agent of the Company. In this program the agent provides its
customers and business. The Company collects all of the revenues from the
shippers and pays the agent 85% of the revenue less certain expenses paid by
the Company such as fuel costs and pallet costs. The Company provides the
agent with liability insurance coverage and certain administrative services
such as billing and collecting receivables. The Company also provides the
agent with access to the Company's other insurance coverages such as medical
and hospitalization insurance. The agent is required to deposit one percent
(1%) of its revenue in an escrow to cover any bad debts, and it must pay all
cash expenses including tolls, tractor washes, and any of its own other
operating expenses.
ACQUISITION STRATEGY
The Company intends to actively seek acquisition candidates to expand its
business and to increase its market share. The Company plans to use what has
been described as the "Stack Up" concept. Stack Up refers to seeking
acquisitions of companies with facilities located in the same geographical
locations as the Company, whenever possible, allowing for faster consolidation
of staffs and faster reduction of duplicated costs. Management believes that
a Stack Up strategy is appropriate for the Company because the medium to long-
haul trucking industry is characterized by several large companies and many
small companies ("Mom and Pops") which are not able to achieve competitive
advantages related to size, yet are too small ($5 to $10 million revenues) to
attract the interest of the larger operators. The Mom and Pops constitute a
large and fragmented segment of the industry. These companies do not have
sufficient resources to serve as "core" carriers or to afford the technology
required to operate as efficiently and cost-effectively as their larger
competitors.
The Company believes that through careful selection of acquisition
candidates, certain small operators can be acquired on terms favorable to the
Company and that the operating results of these firms will improve as they are
integrated into the Company's logistical framework. The Company intends to
use a combination of cash, stock, debt and equity securities to facilitate its
acquisition and expansion plans. No assurance can be given that the Company
will be able to effect this strategy. The Company is currently holding
discussions relating to several potential acquisitions, but does not
anticipate making any acquisitions until adequate financing is in place.
LETTER OF INTENT AND MANAGEMENT SERVICES AGREEMENT WITH MID-CAL EXPRESS, INC.
AND MID-CAL LOGISTICS, INC.
The Company has entered into a letter of intent with Mid-Cal Express,
Inc. and Mid-Cal Logistics, Inc. (collectively referred to as "Mid-Cal") which
relates to the purchase by the Company of substantially all of the assets of
17
Mid-Cal. According to the letter of intent, the Company would pay 400,000
shares of its Common Stock for these assets. The closing of this transaction
will be subject to the completion of due diligence by the Company, the
execution of a definitive agreement by the parties, approval by the Board of
Directors of the Company, and approval by any other parties such as banks,
lessors or creditors whose consent is required.
Mid-Cal is a truckload carrier which transports a range of commodities,
including refrigerated food products, manufactured goods, retail store
merchandise, paper products, beverages, parts and chemicals between the
Western and Northeastern United States and the provinces of Ontario and
Quebec, Canada. Mid-Cal also operates a logistics business. Mid-Cal's gross
revenue for the fiscal year ended December 31, 1997, was approximately $15.9
million and it had a net loss of approximately $695,000. Mid-Cal Express,
Inc. and Mid-Cal Logistics, Inc. are subsidiaries of Prime Companies, Inc., an
SEC reporting company.
In furtherance of the Letter of Intent, the Company has entered into a
Management Services Agreement with Mid-Cal effective December 30, 1998,
whereby the Company agreed to manage Mid-Cal's freight transportation and
terminal operations until February 28, 1999, subject to an extension at the
Company's discretion until June 30, 1999. The agreement provides that the
Company will render management services in connection with the day-to-day
operations of Mid-Cal including rendering advisory services with respect to
(a)dealings with lenders, (b) insurance issues, (c) negotiating owner-operator
settlements, and (d) matters related to the continued employment or severance
of employees. The Company is also responsible for all billings and
collections for all shipping contracts, terminal charges, and all other
revenue producing activities of Mid-Cal. The Company will be paid management
fees equal to 2% of all revenues collected pursuant to the agreement up to a
maximum of $40,000.
The agreement also provided that the Company would use its best efforts to
renegotiate various equipment financing and lease agreements on Mid-Cal's
rolling stock, many of which are past due.
The purpose of this agreement was to allow the Company and Mid-Cal to
negotiate an agreement whereby the Company would acquire substantially all of
the operating assets of Mid-Cal in exchange for 400,000 shares of the
Company's common stock. Such a transaction will not be consummated until
satisfactory arrangements are in place for the payment of amounts owing to
Mid-Cal's creditors, or other arrangements satisfactory to Mid-Cal's
creditors have been agreed upon.
Since December 30, 1998, the Company has been actively involved re-
negotiating the principal equipment financing and lease agreements, and it
has been doing so in the name of the Company, with the Company becoming the
owner or lessee of the equipment. Therefore, as of February 5, 1999, the
Company has effectively taken ownership or control of nearly all of Mid-
Cal's tractors and trailers.
MARKETING
The Company markets high quality, "just-in-time", temperature-sensitive
and dry freight truckload services in the truckload carrier market. These
services include roller-bed trailer services to select air freight companies
such as UPS and Emery. The Company also provides small package pickup and
delivery services for air freight forwarders in three Florida cities.
18
The Company's operations are primarily east of the Rocky Mountains with
an emphasis on the Midwest, Southeast and Northeast United States. The
Company believes that it has established a presence in these regions and has
developed a competitive ability for the return shipment of goods, which
reduces the amount of empty truck miles and increases overall productivity and
profitability.
Marketing personnel emphasize the Company's commitment to high levels of
service, flexibility, responsiveness, analytical planning and information
management in order to position the Company to serve customers' demands for
time definite pickup and delivery. The Company's marketing personnel seek to
strengthen the company's position with existing customers and establish it
with prospective customers.
Dan L. Pixler, the Company's President & CEO, is directly involved in
marketing the Company's services at the national account level and he also
supports local sales activity. The Company also has an eastern sales manager.
The Company's largest 15 customers are: Consolidated Papers, Inc., The
Trane Company, Revco D.S., Inc., Excel Corporation, Pharmor, Cadbury
Schweppes, Emery Worldwide, United Parcel Service of America, Inc., Seneca
Foods Corporation, Eaton Corporation, Weyerhauser Company, Copps Distributing,
Blue Berry Confections, Bi-Lo Sales and services, and OK Grocery.
Consolidated Papers, Inc. accounted for 16% of the Company's revenues during
the year ended December 31, 1997.
The Company maintains a strong commitment to expanding its relationships
with existing customers. Customer shipping patterns are monitored daily,
allowing the Company flexibility in responding rapidly to the varying service
demands of its customers. The Company has written motor carrier contracts
with approximately 90% of its customers. The contracts generally specify
lanes to be serviced (regions) and negotiated price agreements; they do not
have any provision regarding the volume to be carried. The loss of the
Company's largest customers could materially adversely affect the Company's
operating results.
OPERATIONS
All of the Company's offices and terminals are leased. The Company's
executive office is located in North Charleston, South Carolina, where
billing, collections, brokerage, banking and overall management of the Company
take place. The lease, which expires November 1, 1999, covers 5,000 square
feet of rental space and provides for monthly rent of $2,800. The Company
believes that this facility is adequate for its present needs.
The Company also maintains the following other office, terminal and
warehouse locations:
Location Description
-------- -----------
Wisconsin Rapids, Wisconsin A 3,000 square foot office, a
9,800 square foot warehouse, and a
four bay repair shop leased for
$6,500 per month (this facility is
owned by Messrs. Huff and Pixler)
Kansas City, Missouri A 900 square foot office and a two
bay repair shop leased for $3,150
per month
19
Savannah, New York A 2,000 square foot office and two
bay repair shop leased for $2,024
per month (this facility is owned by
Mr. Pixler)
Orlando, Florida A 500 square foot office
leased for $550 per month
Jacksonville, Florida A 375 square foot office and a
1,125 square foot warehouse leased
for $1,003 per month
W. Palm Beach, Florida A 568 square foot office and a
1,500 square foot warehouse leased
for $1,100 per month
Each of the Company's terminals is headed by a terminal manager. Some
locations include maintenance facilities and driver lounges, and all are
active in the recruiting of drivers and all provide local or regional customer
service and dispatch functions.
The Company utilizes various computer systems, which enable order taking,
driver tracking, billing and cash application procedures. The Company is in
the process of enhancing these systems by adding new servers, new personal
computers and new software, all of which will contribute to the Company's Year
2000 readiness. When completed this will enable the Company to track its
tractors and trailers more effectively, and to handle billing and maintenance.
The Company currently does not anticipate introducing satellite driver
communications in the near future, although the Company's new computer systems
will be compatible with, and able to accommodate, such a system.
TRACTORS AND TRAILERS
The Company operates a fleet of approximately 286 tractors, including 112
tractors that are owned by independent contractors, and 401 trailers,
including 13 trailers that are owned by independent contractors. Since the
closing in December 1998 of the financing with General Electric Capital
Corporation, the Company has traded 18 older tractors for 20 newer tractors.
The Company has also traded 91 aged trailers for 63 new trailers which
includes 43 refrigerated trailers and 20 dry vans. The Company has also
recently added 65 tractors which are all 1996 or newer and 149 refrigerated
trailers. (See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- CAPITAL RESOURCES AND LIQUIDITY.")
The Company's policy is to purchase quality late-model tractors and
refrigerated and dry trailers that meet the Company's specifications. The
Company had financed its tractor and trailer purchases through several asset-
based finance agreements. The Company also contracts with owner-operators to
provide additional tractors and trailers. The Company has established
standard specifications for the purchase of equipment replacements. Each of
the Company's tractors is equipped with a sleeper cab to permit the drivers to
comply conveniently and cost effectively with the DOT hours of service
guidelines and to facilitate team operations when necessary.
The Company is developing a plan to replace it tractors every four years
and its trailers every seven years. The Company maintains warranties that
extend beyond the four year life of the tractors on all engines,
transmissions, drive axles and running gear.
20
The Company has established a maintenance program that tracks service
intervals, repairs, and component history and management believes that this
program will increase the number of miles achieved between engine overhauls.
Most of the Company's maintenance is performed at its Wisconsin Rapids,
Wisconsin and Savannah, New York terminals.
DRIVERS
All of the Company's drivers must meet specific guidelines relating
primarily to safety record, driving experience and personal evaluation,
including DOT mandated drug testing and personal background checks. The
Company recruits and retains drivers by offering competitive compensation
packages, purchasing quality tractors and equipping them with optimal comfort
and safety features (such as air-conditioning, power steering, engine brakes
and sleeper cabs), generating driver friendly freight, maintaining an open
door policy, paying bonuses, providing a stock ownership program, and
emphasizing training and retention programs. The Company maintains
experienced driver recruiters.
The Company requires that prospective drivers have a minimum of one year
of truck driving experience in order to be considered for a position with the
Company. In addition, new drivers are required to meet all DOT requirements.
Upon hiring a driver, the Company conducts an orientation program covering
such topics as the Company's business, policies, procedures, safety, benefits,
maintenance and operation of equipment.
Company drivers and independent contractors are paid a percentage of
loaded revenue, and/or cents per mile. Drivers can earn bonuses on a per mile
basis for safety, paperwork, compliance and number of miles driven each year.
All employees, including drivers, will be eligible to participate in the
Company's 401(k) plan and health and life insurance plans.
Although the Company currently has an adequate number of drivers, there
can be no assurance that the Company will not be affected by a shortage of
qualified drivers in the future. Significant driver turnover is a problem
with the Company and the industry as a whole. In addition, the trucking
industry is experiencing a diminished workforce of qualified drivers. As a
result, the Company must compete with other transportation service companies
for the available drivers. The Company anticipates that the intense
competition for qualified drivers in the trucking industry will continue.
In addition to its driver employees, the Company contracts with a select
group of independent contractors who own and operate their own tractors and
trailers. The Company's selection process for independent owner-operators is
substantially the same as the process for employees. Each owner-operator is
required to enter into an owner-operator lease agreement with the Company
which is cancelable by either party upon thirty days notice. The owner-
operators provide the Company with an additional source of drivers,
particularly during periods of peak demand for transportation services.
INSURANCE AND SAFETY
The Company's safety department is responsible for training and
supervising personnel to keep safety awareness at its highest level. The
Company has implemented an active safety and loss prevention program at its
corporate headquarters and all of its terminals. In July 1994, Gulf Northern
successfully completed a safety audit and compliance review by the Department
of Transportation, Federal Highway Administration and is operating with a
satisfactory rating. The emphasis on safety begins in the hiring and
continues in orientation, safety training, and drug testing. Newly hired
drivers, regardless of experience level, must participate in a training
program.
21
The Company's safety and loss prevention program is comprised of the
ongoing education, training and retraining of drivers regarding safe vehicle
operation, loading and unloading procedures, and accident reporting. It also
includes random drug testing. The program is overseen by the Company's
Director of Safety. It is Company policy to reward drivers who have satisfied
safety performance goals established by the Company. Safe-driver awards are
presented based upon the number of miles a Company driver or owner-operator
accumulates in service without a "chargeable accident" as defined by DOT
regulations. Awards are presented on an annual basis and consist of cash
payments.
The Company has implemented a written disciplinary system for its
employee drivers and owner-operators. Pursuant to this system, disciplinary
action ranges from written warnings to immediate termination depending on the
frequency and severity of the offense. The most serious offenses include
violations of local, state or federal regulations while on duty, unauthorized
use of Company equipment, willful or negligent damage of Company equipment or
property or injury to another person, carrying, possessing or being under the
influence of intoxicants or narcotics while on duty or on Company premises,
possession of firearms or other lethal weapons while on duty or while on
Company premises and other similar offenses. The Company's Director of Safety
continuously monitors driver performance and makes recommendations to the
Company's executive officers regarding employment and retention of drivers.
The Company is committed to securing appropriate insurance coverage at
cost-effective rates. The primary risks that arise in the trucking industry
consist of cargo loss and damage, personal injury, property damage and
workers' compensation claims. The Company maintains insurance that it
believes is adequate to cover its liabilities and risks.
The Company has set up captive insurance arrangements with an insurance
company pursuant to which the Company makes monthly payments into a loss
reserve fund in addition to the payments it makes to the insurance company.
The fund is then used to pay off claims for liability to third parties for
personal injuries and property damage up to $100,000 per occurrence and up to
an aggregate of $615,000. Any claims in excess of these limits are covered by
insurance up to $1 million per occurrence. To the extent that the annual
claims are less than the amount projected by the insurance company, the
Company receives back a portion of the reserve fund.
The Company also has an insurance policy which covers cargo loss and
damage up to $250,000 per occurrence, and an insurance policy which covers
workmen's compensation claims in amounts from $100,000 to $500,000, depending
on the state where the worker lives.
FUEL MANAGEMENT
Motor carrier service is dependent upon the availability of diesel fuel.
The Company manages fuel purchases by directing its drivers to certain truck
stops along designated routes that give the Company certain discounts in
return for volume purchases on a recurring basis. Through the use of
computerized monitoring devices imbedded in the engines of its tractors, the
Company monitors fuel usage, miles per gallon, cost per mile, and cost per
gallon. The Company has not experienced any difficulty in maintaining fuel
supplies sufficient to support its operations. Historically, the Company has
been able to pass on a portion of fuel price increases to its customers.
Nevertheless, shortages of fuel, increases in fuel prices or fuel tax rates or
rationing of petroleum products could have a material adverse effect on the
operations and profitability of the Company.
22
COMPETITION
The trucking industry is highly competitive and fragmented. The Company
competes primarily with other medium to long-haul, temperature-controlled and
dry truckload carriers; internal shipping conducted by existing and potential
customers and, to a lesser extent, railroads and air transportation. Although
the general effect of deregulation of the trucking industry during the 1980's
created substantial downward pressure on the industry's rate structure, the
Company believes that competition for the freight transported by the Company
is based primarily on quality of service (i.e., just-in-time performance) and,
to a lesser degree, on freight rates. There are a number of other trucking
companies which have substantially greater financial resources, operate more
equipment or carry a larger volume of freight than the Company. The Company
also competes with other motor carriers in hiring qualified drivers. The
Company's primary emphasis is service, especially to its core carrier
customers, rather than price alone. However, the industry in which the
Company operates is extremely price sensitive and the Company is responsive to
competitive price pressures.
REGULATION
The trucking industry is subject to regulatory oversight and legislative
changes which can affect the economics of the industry by requiring certain
operating practices or influencing the demand for, and the costs of providing,
services to shippers. The Department of Transportation of the United States
("DOT"), as well as various state agencies that have jurisdiction over the
Company, have broad powers, generally governing such matters as authority to
engage in motor carrier operations, rates and charges, certain mergers,
consolidations and acquisitions, and periodic financial reporting. The rates
and charges of the Company are not directly regulated by these authorities.
As primarily a contract carrier, the Company negotiates competitive rates
directly with customers as opposed to relying on schedule tariffs. State
agencies impose tax, license and bonding requirements.
The Motor Carrier Act of 1980 commenced a program to increase competition
among motor carriers and to diminish regulation in the industry. Following
this deregulation, applicants have more easily been able to obtain DOT
operating authority, and interstate motor carriers such as the Company have
been able to impose certain rate changes without DOT approval. The Motor
Carrier Act also removed many route and commodity restrictions on
transportation of freight. Gulf Northern has held specific commodity and
territory authority from the Illinois Commerce Commission since 1939. Gulf
Northern holds authority to carry general commodities throughout the 48
contiguous states, as both a common and contract carrier, and it holds various
intrastate authorities.
Under the Negotiated Rates Act of 1993, certain procedures must be
followed for resolving claims involving unfiled, negotiated transportation
rates. Generally, when a claim is made by a motor carrier of property (other
than a household goods carrier) for the collection of rates and charges in
addition to those originally billed and collected by the carrier, the person
against whom the claim is made may elect to satisfy the claim pursuant to
certain provisions specified in the Negotiated Rates Act. The Negotiated
Rates Act specifies the types of disputes to be resolved by the ICC and allows
for the nonpayment of the disputed additional compensation until the dispute
is resolved. The Company believes that it is in compliance in all material
respects with the provisions of the Negotiated Rates Act.
23
Interstate motor carrier operations are subject to safety requirements
prescribed by the DOT. Such matters as weight and dimensions of equipment are
also subject to federal and state regulation. All of the Company's drivers
were required to obtain national commercial driver's licenses by April 1,
1992, pursuant to the regulations promulgated by the DOT. Also effective in
1989, DOT regulations imposed mandatory drug testing of drivers. The Company
has implemented a random drug-testing program in accordance with such
regulations. In addition, beginning January 1, 1995, the Company was required
to implement new alcohol and revised drug rules imposed by the DOT which
prohibit any alcohol or drug use prior to and during driving and while
performing safety-sensitive functions such as loading, unloading, inspecting,
waiting for dispatch, resting in a sleeper birth, and other specified times.
Beginning August 15, 1994, the Company was required to implement a certain
split sample urine collection procedure. The Company complies with all
applicable regulations imposed on its employees and owner-operators. The
DOT's national commercial driver's license, drug testing requirements and new
alcohol and drug-use regulations have not to date and are not expected to
adversely affect the availability to the Company of qualified drivers. See
"Business-Safety and Insurance."
The Company's operations are subject to federal, state and local laws and
regulations concerning the environment. The Company has not received any
notices from any regulatory authority relating to any violation of any
environmental law.
EMPLOYEES
As of the date of this Prospectus, the Company employed approximately 227
persons, of whom 150 were drivers and 77 were maintenance and administrative
personnel. None of the Company's employees is represented by a collective
bargaining unit and the Company has never experienced a work stoppage. The
Company believes that its relations with its employees is good.
LEGAL PROCEEDINGS
The Company has been from time to time a party to litigation incidental
to its business, primarily involving claims for personal injury and property
damage incurred in the transportation of freight, and litigation relating to
transactions as to which its affiliates have been involved. As of the date of
this Prospectus, the Company is not party to any litigation which,
individually or in the aggregate, management believes will have a material
adverse effect on the financial condition or operations of the Company. The
Company maintains insurance that it believes is adequate to cover its
liability risks. See "Business-Safety and Insurance."
REPORTS TO SECURITY HOLDERS
The Company is subject to the reporting requirements of Section 13(a) and
to the proxy requirements of Section 14 of the Securities Exchange Act of
1934, as amended, and in accordance therewith files periodic reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information concerning the Company may be inspected or
copied at the public reference facilities at the Commission located at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
Regional Offices in New York, 7 World Trade Center, New York, New York 10048,
and in Chicago, Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such documents can be obtained at
the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web
24
site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file
electronically.
25
MANAGEMENT
DIRECTORS AND OFFICERS
The Directors and Executive Officers of the Company are as follows:
NAME AGE POSITIONS HELD
---- --- --------------
Danny L. Pixler 50 President, CEO and Director
W. Anthony Huff 37 Executive Vice President and Chairman
of the Board
John Ragland 33 Chief Financial Officer
There is no family relationship between any Director or Executive Officer
of the Company.
The Company has audit and compensation committees which both consist of
Danny L. Pixler and W. Anthony Huff.
Set forth below are the names of all directors and executive officers of
the Company, all positions and offices with the Company held by each such
person, the period during which he has served as such, and the principal
occupations and employment of such persons during at least the last five
years:
DANNY L. PIXLER has served as the President, CEO and a director of the
Company since September 8, 1998, when the Company completed its acquisition of
U.S. Trucking-Nevada. He has served as President, Secretary and Treasurer of
U.S. Trucking-Nevada since February 1997, and as a Director since May 1998.
He served as Vice President and a director of Mencor from March 1994 until
July 1998 when he became President. He has served as President, CEO and
director of Gulf Northern since March 1995. From January 1993 until March
1994, he served as President of Joseph Land Group (a transportation company
with annual sales of approximately $130 million). From 1989 until 1993, he
served as President of Apple Lines, Inc., a truckload refrigerated carrier
with $16 million in revenues. From 1983 until 1989, he was employed by D.F.C.
Transportation, the transportation division of Dean Foods, Inc., where his
final position was Executive Vice President and General Manager responsible
for the company's truckload division with annual sales of $80 million.
W. ANTHONY HUFF has served as Executive Vice President and Chairman of
the Board of the Company since September 8, 1998. He has provided various
administrative services to U.S. Trucking-Nevada since February 1997 and has
served as Executive Vice President and a Director since May 1998. He has also
provided various services to Gulf Northern since March 1995 and he has served
as a Director since February 1996 and as Vice President since June 1998. Mr.
Huff has also served as Vice President and Assistant Secretary of Mencor since
June 1998. Mr. Huff manages the Company's offshore captive insurance programs
and investments. From approximately November 1995 until January 1997, he
served as President and a director of United Acquisition Corp. II, a company
formed to acquire companies in the trucking business. From February 1992
until December 1996, Mr. Huff served as President of the North American
Trucking Association, an association of independent truckers engaged in the
business of providing administrative and financial services to its members.
26
Mr. Huff spends approximately 60% of his time on the Company's business and
the remainder of his time consulting with various other companies.
Due to a large judgment awarded against Mr. Huff in 1994 resulting from
Mr. Huff's guaranty of a defaulted bank loan for a company of which he was a
shareholder, Mr. Huff filed for personal bankruptcy under Chapter 7 of the
U.S. Bankruptcy Code in 1994 (discharge granted in 1995). Mr. Huff was a
minority shareholder and provided services to the company (KHW Foods, Inc.)
relating to store location and development, but was not otherwise involved in
management of the company. In the bankruptcy proceeding Mr. Huff reaffirmed
all of his other personal debts.
JOHN RAGLAND has served as Chief Financial Officer of the Company since
September 8, 1998. He has served as the Controller of Gulf Northern since
June 1996, and as Secretary-Treasurer since June 1998. He has also served as
the Chief Financial Officer and Treasurer of U.S. Trucking-Nevada since May
1998. From May 1996 until October 1996, he served as Chief Financial Officer
of United Acquisition Corp. II, a company formed to acquire companies in the
trucking business. From August 1994 until June 1996 he was the Chief
Financial Officer of the North American Trucking Association, a trade group,
and he was also the Chief Financial Officer of All-Risk Services, an insurance
agency, during the same period. From 1991 to July 1994, he was a staff
accountant with Watkins, Buckles & Travis, Certified Public Accountants.
The Company's executive officers hold office until the next annual
meeting of the Directors of the Company. The Company has agreements with
Messrs. Pixler and Huff whereby the Company is required to use its best
efforts to elect and retain them as members of the Board of Directors as long
as they are guarantors as to any Company or affiliated debt. There are no
other arrangements or understandings between any director or executive officer
and any other person pursuant to which any of the above-named executive
officers or directors or nominees was selected as an officer or director or
nominee for director of the Company.
EXECUTIVE COMPENSATION
The following tables set forth information regarding executive
compensation for the Company's President and Chief Executive Officer and each
other executive officer who received total annual salary and bonus in excess
of $100,000 for any of the years ended December 31, 1998, 1997 or 1996.
Summary Compensation Table
Long-term Compensation
Awards Payouts
------------------------
Securi-
Annual Compensation ties
--------------------- Re- Underly- All
Other strict- ing Other
Name and Annual ed Options/ LTIP Com-
Principal Compen- Stock SARs Pay- pensa-
Position Year Salary Bonus sation Award(s) (Number) outs tion
- ---------- ---- -------- ----- ------- -------- -------- ----- ------
Danny L. 1998 $105,000 -- $6,000(1) -- 100,000 -- --
Pixler, 1997 $105,000 -- $6,000(1) -- -- -- --
President 1996 $ 47,500 -- $ -- -- -- -- --
______________
27
(1) Represents $500 per month car allowance.
Aggregated Option Exercises in Year Ended
December 31, 1998 and December 31, 1998 Option Values
Securities Under- Value of Unexer-
Shares lying Unexercised cised in-the
Acquired Options Money Options/
On at 12/31/98 at 12/31/98
Exercise Value Exercisable/ Exercisable/
Name (Number) Realized Unexercisable Unexercisable
---- -------- -------- ---------------- ----------------
Danny L. Pixler -0- $ -0- 100,000 / 0 $495,000 / 0
Options / Grants in Last Fiscal Year
Individual Grants
Number of % of Total
Securities Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted(#) Fiscal Year ($/sh) Date
---- ------------ ------------ ----------- ----------
Danny L. Pixler 100,000 50% $.30 5/22/08
EMPLOYMENT AGREEMENTS
The Company has entered into a five year employment agreement with Danny
L. Pixler commencing September 9, 1998, which provides for an annual salary of
$105,000 (with annual increases of not less than 3%). The agreement also
provides that Mr. Pixler will receive a new car every three years and all
vehicle expenses incurred on Company business or an auto allowance not to
exceed $550 per month.
The Company has entered into a five year employment agreement with W.
Anthony Huff commencing September 9, 1998, which provides for an annual salary
of $52,000 (with annual increases of not less than 3%).
The Company has entered into a three year employment agreement with John
Ragland commencing September 9, 1998, which provides for an annual salary of
$75,000 (with annual increases of not less than 3%). The agreement also
provides that Mr. Ragland will be provided a company car and reimbursement of
his vehicle expenses incurred on Company business.
These employment agreements are terminable by the Company for certain
specified reasons, including disability, fraud, conviction of a felony and
substance abuse. They also contain covenants not to compete during the term
of the agreements.
STOCK OPTION PLAN
During September 1998, the Board of Directors adopted the Stock Option
Plan of U.S. Trucking-Nevada as the Company's Stock Option Plan (the "Plan"),
and the Company assumed the obligations represented by 200,000 options which
were already outstanding. These options had an exercise price of $.30. The
Plan authorizes the issuance of options to purchase up to 2,000,000 shares of
the Company's Common Stock.
28
The Plan allows the Board to grant stock options from time to time to
employees, officers, directors and consultants of the Company. The Board has
the power to determine at the time that the option is granted whether the
option will be an Incentive Stock Option (an option which qualifies under
Section 422 of the Internal Revenue Code of 1986) or an option which is not an
Incentive Stock Option. Vesting provisions are determined by the Board at the
time options are granted. The option price for any incentive stock option
will be no less than the fair market value of the Common Stock on the date the
option is granted, while other options may be granted at any exercise price.
Options granted under the Plan with an exercise price less than the fair
market value on the date of grant, will require the Company to record an
expense upon the grant of options equal to the difference between the market
value of the option shares and the exercise price of the options. Generally,
there will be no federal income tax consequences to the Company in connection
with Incentive Stock Options granted under the Plan. With regard to options
that are not Incentive Stock Options, the Company will ordinarily be entitled
to deductions for income tax purposes of the amount that option holders report
as ordinary income upon the exercise of such options, in the year such income
is reported.
29
SECURITY OWNERSHIP OF MANAGEMENT,
PRINCIPAL SHAREHOLDERS AND SELLING SHAREHOLDERS
The following table sets forth, as of the date of this Prospectus, and as
adjusted for the sale of the shares offered by the Selling Shareholders, the
stock ownership of each person known by the Company to be the beneficial owner
of five percent or more of the Company's Common Stock, all Directors
individually and all Directors and Executive Officers of the Company as a
group, and the Selling Shareholders. Except as noted, each person has sole
voting and investment power with respect to the shares shown.
Per- Per-
centage Number centage
Amount of of Class of of Class
Name and Address of Beneficial Prior Shares After
Beneficial owner Ownership to Sales Offered Sales
- ------------------- ---------- -------- --------- --------
Logistics Management,
L.L.C. (1) 4,000,000 (2) 54.5% 0 54.5%
10602 Timberwood Circle #9
Louisville, KY 40223
Danny L. Pixler 2,100,000 (3) 28.2% 0 28.2%
Suite 216
3125 Ashley Phosphate Road
North Charleston, SC 29418
W. Anthony Huff 2,100,000 (4) 28.2% 0 28.2%
10602 Timberwood Circle #9
Louisville, KY 40223
Mark Weber 40,000 * 40,000 0
3206 162nd Place, SE
Bellevue, WA 98008
Ronald Setzkorn 233,333 3.2% 233,333 0
1211 Willow Bend
Clarksville, TN 37043
Market Edge Inc. 46,668 * 46,668 0
No. 2B
1304 E. Algonavin Road
Schaumburge, IL 60173
Jay W. Bosselman 93,333 1.3% 93,333 0
No. 2B
1304 E. Algonavin Road
Schaumburge, IL 60173
Ralph Brown 33,333 * 33,333 0
P.O. Box 97
Gainesville, MD 65655
B. A. Bates 65,000 * 65,000 0
19 2nd Street East
Kalispell, MT 59901
30
Sebrite Financial 33,333 * 33,333 0
Suite 1215
600 South Highway 169
St. Louis Park, MN 55426
Stanley Chasen 33,333 * 33,333 0
6711 North Ocean Boulevard
Ocean Ridge, FL 33435
Jud Wagonseller 26,668 * 26,668 0
500 Meidinger Tower
Louisville, KY 40202
Transportation Services Co. 394,999 5.4% 394,999 0
10602 Timberwood Circle #9
Louisville, KY 40223
Michelle A. Vetrano 26,667 * 26,667 0
10415 North Pecan Place
Tucson, AZ 85737
Paolo Dorigo 33,333 * 33,333 0
3865 Jasmine Avenue
Culver City, CA 90232
George R. Vetrano, Jr. 13,333 * 13,333 0
9255 Doheny Road, No. 2804
Los Angeles, CA 90069
George R. Vetrano, Sr. and
Carol A. Vetrano 26,667 * 26,667 0
10818 North Sand Canyon Road
Oro Valley, AZ 85737
Kevin P. Judge 33,333 * 33,333 0
3417 Clinton Street
West Seneca, NY 14224
Sidney Anderson 33,334 * 33,334 0
1503 Evergreen Road
Louisville, KY 40223
All Directors and Executive 4,200,000 (3) 55.7% 0 55.7%
Officers as a Group (4)
(3 Persons)
________________
* Less than 1%.
(1) Logistics Management, L.L.C. is 50% owned by Roxann Pixler, the wife of
Danny L. Pixler, and 50% owned by Association Services, Inc., which is
100% owned by The W. Anthony Huff Irrevocable Trust.
(2) Does not include 900,000 shares of the Company's Series A Preferred
Stock held by Logistics Management, L.L.C., which represents 9,000,000
votes and which is exchangeable for up to 9,000 shares of the Company's
Common Stock when certain revenue targets are achieved. (See
"DESCRIPTION OF SECURITIES.")
31
(3) Represents a 50% beneficial interest in the shares held by Logistics
Management, L.L.C. and options to purchase 100,000 shares of Common
Stock.
(4) Represents a 50% beneficial interest in the shares held by Logistics
Management, L.L.C. and options to purchase 100,000 shares of Common
Stock. Mr. Huff is the primary beneficiary of the W. Anthony Huff
Irrevocable Trust.
There are no known agreements, the operation of which may at a subsequent
date result in a change in control of the Company.
32
TRANSACTIONS WITH MANAGEMENT AND OTHERS
ACQUISITION OF U.S. TRUCKING-NEVADA
On September 8, 1998, the Company completed the acquisition of 100% of
the outstanding common stock of U.S. Trucking, Inc., a Nevada corporation
("U.S. Trucking-Nevada") in exchange for 15,877,300 shares of the Company's
Common Stock. The shares were exchanged on the basis of one share of the
Company's common stock for one share of U.S. Trucking-Nevada common stock.
The stock issuances were made pursuant to an Agreement ("Agreement")
between the Company and U.S. Trucking-Nevada. The terms of the Agreement were
the result of negotiations between the managements of the Company and U.S.
Trucking-Nevada. However, the Board of Directors did not obtain any
independent "fairness" opinion or other evaluation regarding the terms of the
Agreement, due to the cost of obtaining such opinions or evaluations.
TRANSACTIONS INVOLVING THE COMPANY BEFORE ACQUISITION OF U.S. TRUCKING-NEVADA
During the fiscal year ended March 31, 1996 the Company loaned a total of
$85,000 to Dunn International, Inc. ("Dunn") in anticipation of a possible
merger with or acquisition of Dunn. Dunn was engaged in two lines of
business: (1) the sale of software packages for petrochemical plants and
refineries, and (2) providing maintenance and turnaround services for
petrochemical plants and refineries.
During August 1996 the Company agreed to convert the $85,000 of loans and
$5,883 of accrued interest into 57,941 shares of Dunn's common stock which
represented approximately 18% of Dunn's outstanding common stock as of March
31, 1997. During the year ended March 31, 1997, the Company loaned an
additional $40,725 to Dunn and during the year ended March 31, 1998, the
Company loaned an additional $37,500 to Dunn.
These additional loans were made in an attempt to protect the Company's
investment in Dunn. The Company never completed a merger or acquisition with
Dunn because after completing its due diligence, management was of the opinion
that a merger or acquisition would not be in the best interests of the Company
at the time.
Dunn was approximately 50% owned by a principal stockholder of the
Company and her husband who is the Chairman of the Board and CEO of Dunn.
TRANSACTIONS INVOLVING U.S. TRUCKING-NEVADA AND ITS SUBSIDIARIES
On the formation of U.S. Trucking-Nevada in March 1997, the corporation
issued 1875 shares of its common stock to U.S. Transportation Systems, Inc.
("USTS") in exchange for the assets and liabilities described below:
1. Certain assets (primarily tractors and trailers) and liabilities
(related to Jay and Jay Transportation, Inc.) were contributed to the
corporation by USTS. The net value of this contribution for accounting
purposes was $2,394,860.
2. Certain assets and liabilities(related to Translynx Express, Inc.)
were contributed to the corporation by USTS. The net value of these assets
and liabilities for accounting purposes was $100,546.
33
The corporation also purchased 100% of the common stock of Gulf Northern
from Logistic Management LLC for $225,000 in cash and 625 shares of the common
stock of U.S. Trucking-Nevada and assumed all of the outstanding debt.
The corporation also purchased 100% of the common stock of Mencor from
its stockholders (Roxanne Pixler, Mike Menor and Dan Pixler) for $70,000 in
cash and 37,500 shares of USTS common stock.
On December 23, 1996, Gulf-Northern sold its Wisconsin Rapids facility,
which included land, a building and improvements, to its majority stockholders
for $346,141. The stockholders leased the property back to the Company for
five years commencing January 1, 1997 for $7,350 per month. The majority
stockholders were Danny L. Pixler and The W. Anthony Huff Irrevocable Trust.
In March 1998, the Company leased three 1995 Volvo tractors from Danny L.
Pixler under a one year lease agreement that specifies monthly payments of
$4,047 and provides for annual renewals. Under the lease agreement, the
Company is required to pay for all expenses associated with the tractors
including maintenance, insurance, permits, licenses and other operating
expenses.
In September 1998, the Company leased six 1994 Kenworth tractors from a
company owned by Danny Pixler and Anthony Huff pursuant to a one year lease
agreement which provides for monthly payments of $7,380 and annual renewals.
Under the lease agreement, the Company is required to pay for all expenses
associated with the tractors including maintenance, insurance, permits,
licenses and other operating expenses.
In December 1998, Danny Pixler purchased the office and repair shop in
Savannah, New York, which the Company had previously been leasing. He
purchased the property for approximately $158,000, and he is leasing it to the
Company for approximately $2,024 per month which is equivalent to the amount
of his mortgage payment, taxes and insurance on the property.
During January 1999, three of the Company's shareholders entered into
a Stock Exchange Agreement with the Company whereby they agreed to exchange a
total of 9,990,000 shares of the Company's common stock for 999,000 shares of
the Company's Series A Preferred Stock. Each share of Series A Preferred
Stock will have ten votes and the shares will be voted together with the
common stock as a single class. (See "Description of Securities") Pursuant to
the Stock Exchange Agreement, each share of Series A Preferred Stock will be
exchangeable back into ten shares of common stock as follows: one-fifth of
the shares upon the Company reporting revenues of $31 million or more for any
fiscal year or shorter period in a report on Form 10-KSB, 10-K, 10-QSB, or 10-
Q as filed with the Securities and Exchange Commission; an additional one-
fifth if revenues are at or above $41 million; an additional one-fifth if
revenues are at or above $51 million; an additional one-fifth if revenues are
at or above $61 million; and the balance if revenues are at or above $71
million. The shareholders who exchanged shares are Logistics Management, LLC
- - 9,000,000 shares; Joff Pollon - 250,000 shares; and Waterways Group -
740,000 shares. The Board of Directors of the Company believes that the above
transactions involving U.S. Trucking-Nevada and its subsidiaries have been on
terms no less favorable to the Company than those that could have been
obtained from unaffiliated parties.
34
DESCRIPTION OF SECURITIES
COMMON STOCK
The authorized capital stock of the Company includes 75,000,000 shares of
Common Stock, no par value. All shares have equal voting rights and are not
assessable. Voting rights are not cumulative, and so the holders of more than
50% of the Common Stock of the Company could, if they chose to do so, elect
all the Directors.
Upon liquidation, dissolution or winding up of the Company, the assets of
the Company, after the payment of liabilities and any liquidation preferences
on outstanding preferred stock, will be distributed pro rata to the holders of
the Common Stock. The holders of the Common Stock do not have preemptive
rights to subscribe for any securities of the Company and have no right to
require the Company to redeem or purchase their shares. The shares of Common
Stock presently outstanding are fully paid and nonassessable.
Holders of Common Stock are entitled to share equally in dividends when,
as and if declared by the Board of Directors of the Company, out of funds
legally available therefor. The Company has not paid any cash dividends on
its Common Stock, and it is unlikely that any such dividends will be declared
in the foreseeable future.
TRANSFER AGENT
Corporate Stock Transfer, Inc., 370 - 17th Street, Suite 2350, Denver,
Colorado 80202, serves as the transfer agent for the Company.
REPORTS TO STOCKHOLDERS
The Company plans to furnish its stockholders for each fiscal year with
an annual report containing financial statements audited by its independent
certified public accountants. Additionally, the Company may, in its sole
discretion, issue unaudited quarterly or other interim reports to its
stockholders when it deems appropriate.
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of Preferred Stock,
no par value. The Preferred Stock may be issued in series from time to time
with such designation, rights, preferences and limitations as the Board of
Directors of the Company may determine by resolution. The rights, preferences
and limitations of separate series of Preferred Stock may differ with respect
to such matters as may be determined by the Board of Directors, including,
without limitation, the rate of dividends, method and nature of payment of
dividends, terms of redemption, amounts payable on liquidation, sinking fund
provisions (if any), conversion rights (if any), and voting rights. The
potential exists, therefore, that preferred stock might be issued which would
grant dividend preferences and liquidation preferences to preferred
shareholders over common shareholders. Unless the nature of a particular
transaction and applicable statutes require such approval, the Board of
Directors has the authority to issue these shares without shareholder
approval. The issuance of Preferred Stock may have the affect of delaying or
preventing a change in control of the Company without any further action by
shareholders. The Company has designated 999,000 shares of its Preferred
Stock as Series A Preferred Stock, of which 999,000 shares are currently
outstanding. Following is a summary of the rights and preferences of the
outstanding Series A Preferred Stock.
35
SERIES A PREFERRED STOCK. Each share of Series A Preferred Stock is
entitled to ten votes and will vote together with the holders of the Common
Stock. In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Company, the holders of the shares of
Series A Preferred Stock will be entitled to be paid an amount equal to ten
times the amount payable on each share of Common Stock.
The shares of Series A Preferred Stock were issued to the holders of
9,990,000 shares of the Company's Common Stock pursuant to a Stock Exchange
Agreement. Pursuant to this agreement, each share of Series A Preferred Stock
will be exchanged for ten shares of common stock as follows: one-fifth of the
shares upon the Company reporting revenues of $31 million or more for any
fiscal year or shorter period in a report filed on Form 10-KSB, 10-K, 10-QSB,
or 10-Q as filed with the Securities and Exchange Commission; an additional
one-fifth if revenues are at or above $41 million; an additional one-fifth if
revenues are at or above $51 million; an additional one-fifth if revenues are
at or above $61 million; and the balance if revenues are at or above $71
million.
36
PLAN OF DISTRIBUTION
The 1,166,667 Shares offered hereby may be offered and sold from time to
time by the Selling Shareholders, or by pledgees, donees, transferees or other
successors in interest. Such offers and sales may be made from time to time
in the over-the-counter market, or otherwise, at prices and on terms then
prevailing or at prices related to the then-current market price, or in
negotiated transactions. The Shares may be sold by one or more of the
following: (a) a block trade in which the broker or dealer so engaged will
attempt to sell the Shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account; (c) an exchange distribution in accordance with the rules of such
exchanges; (d) ordinary brokerage transactions and transactions in which the
broker solicits purchasers; (e) privately negotiated transactions; and (f) a
combination of any such methods of sale. In effecting sales, brokers or
dealers engaged by the Selling Shareholders may arrange for other brokers or
dealers to participate. Brokers or dealers may receive commissions or
discounts from Selling Shareholders or from the purchasers in amounts to be
negotiated immediately prior to the sale. The Selling Shareholders may also
sell such shares in accordance with Rule 144 under the 1933 Act.
The Selling Shareholders and any brokers participating in such sales may
be deemed to be underwriters within the meaning of the 1933 Act. There can be
no assurance that the Selling Shareholders will sell any or all of the shares
of Common Stock offered hereunder.
All proceeds from such sales will be the property of the Selling
Shareholders who will bear the expense of underwriting discounts and selling
commissions, if any, and their own legal fees. The Selling Shareholders are
not sharing the costs of the registration of the Shares.
37
LEGAL MATTERS
The legality of the securities of the Company offered will be passed on
for the Company by Krys Boyle Freedman & Sawyer, P.C., 600 17th Street, Suite
2700 South Tower, Denver, Colorado 80202. Jon D. Sawyer, a director of Krys
Boyle Freedman & Sawyer, P.C., owns 25,000 shares of the Company's Common
Stock.
EXPERTS
The financial statements of the Company included in this Prospectus, to
the extent and for the periods indicated in their report, have been audited by
Bianculli, Pascale & Co. P.C., Certified Public Accountants, and are included
herein in reliance on the authority of such firm as experts in accounting and
auditing in giving such reports.
ADDITIONAL INFORMATION
A Registration Statement on Form SB-2, including amendments thereto,
relating to the securities offered hereby has been filed by the Company with
the Securities and Exchange Commission, Washington, D.C. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. For further information with respect to
the Company and the securities offered hereby, reference is made to such
Registration Statement, exhibits and schedules. Statements contained in this
Prospectus as to the contents of any contract or other document referred to
are not necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. A copy of the Registration Statement may be inspected without
charge at the Commission's principal offices in Washington, D.C., and copies
of all or any part thereof may be obtained from the Commission upon the
payment of certain fees prescribed by the Commission. The Registration
Statement has been filed electronically through the Commission's Electronic
Data Gathering, Analysis and Retrieval System and may be obtained through the
Commission's Web site (http://www.sec.gov).
No person is authorized to give any information or to make any
representation other than those contained in this Prospectus, and if given or
made such information or representation must not be relied upon as having
been authorized. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the securities
offered by this Prospectus or an offer to sell or a solicitation of an offer
to buy the securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction.
38
INDEX TO FINANCIAL STATEMENTS
PAGE
1) UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF
U.S. TRUCKING, INC. AND SUBSIDIARIES AS OF
SEPTEMBER 30, 1998 .............................................. F-3
Consolidated Balance Sheet as of September 30,
1998 (Unaudited) .............................................. F-4
Consolidated Statements of Operations for the
Nine Months Ended September 30, 1998 and
1997 (Unaudited) .............................................. F-5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1998 and 1997
(Unaudited) ................................................... F-6
Notes to Consolidated Financial Statements .................... F-9
2) AUDITED FINANCIAL STATEMENTS OF U.S. TRUCKING, INC.
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997)
TO DECEMBER 31, 1997 ............................................ F-10
Report of Independent Certified Public Accountants ............ F-11
Consolidated Balance Sheet as of December 31, 1997 ............ F-12
Consolidated Statement of Operations and Accumulated
Deficit for the period from inception (January 30, 1997)
to December 31, 1997 ......................................... F-14
Consolidated Statement of Stockholders' Equity for the
period from inception (January 30, 1997) to December 31,
1997 ......................................................... F-15
Consolidated Statement of Cash Flows for the period from
inception (January 30, 1997) to December 31, 1997 ............ F-16
Notes to the Consolidated Financial Statements ................ F-18
3) AUDITED FINANCIAL STATEMENTS OF GULF NORTHERN TRANSPORT, INC.
FOR THE THIRTY DAYS ENDED JANUARY 30, 1997 ...................... F-29
Report of Independent Certified Public Accountants ............ F-30
Balance Sheet as of January 30, 1997 .......................... F-31
Statement of Operations and Accumulated Deficit
for the period from January 1, 1997 to January 30, 1997 ...... F-33
Statement of Cash Flows for the period from January 1, 1997
to January 30, 1997 .......................................... F-34
Notes to Financial Statements ................................. F-36
F-1
4) AUDITED FINANCIAL STATEMENTS OF MENCOR, INC. FOR THE THIRTY
DAYS ENDED JANUARY 30, 1997 ..................................... F-45
Report of Independent Certified Public Accountants ............ F-46
Balance Sheet as of January 30, 1997 .......................... F-47
Statement of Earnings and Retained Earnings for the
period ending January 30, 1997 ............................... F-49
Statement of Cash Flows for the period ending January 30,
1997 ......................................................... F-50
Notes to Financial Statements ................................. F-51
5) AUDITED FINANCIAL STATEMENTS OF MID AMERICA TRANSPORTERS GROUP,
INC. AND SUBSIDIARY FOR THE YEARS ENDED DECEMBER 31,
1996 AND 1995 ................................................... F-57
Report on Independent Certified Public Accountants ............ F-58
Consolidated Balance Sheets as of December 31, 1996 and 1995... F-59
Consolidated Statements of Operations and Retained Earnings
for the years ending December 31, 1996 and 1995 .............. F-61
Consolidated Statements of Cash Flows for the years ending
December 31, 1996 and 1995 ................................... F-62
Notes to the Consolidated Financial Statements ................ F-64
6) AUDITED FINANCIAL STATEMENTS OF MENCOR, INC. FOR THE
YEARS ENDED DECEMBER 31, 1996 AND 1995 .......................... F-74
Report on Independent Certified Public Accountants ............ F-75
Balance Sheet as of December 31, 1996 and 1995 ................ F-76
Statements of Earnings and Retained Earnings for the
periods ending December 31, 1996 and 1995 .................... F-78
Statements of Cash Flows for the periods ending December 31,
1996 and 1995 ................................................ F-79
Notes to Financial Statements ................................. F-81
F-2
1) UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF
U.S. TRUCKING, INC. AND SUBSIDIARIES AS OF
SEPTEMBER 30, 1998
F-3
U.S. TRUCKING, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
September 30,
1998
------------
ASSETS
Current Assets:
Cash in Banks $ 130,154
Restricted Cash - Reserves on Deposit
with Factor 240,824
Restricted Cash - Insurance Premiums 150,000
Accounts Receivable - Trade - net of
allowance for doubtful accounts of
$88,000 2,610,900
Accounts Receivable - Other 97,267
Parts and supply inventory 167,951
Prepaid Expenses 141,620
-----------
Total Current Assets 3,538,714
Transportation & Other Equipment
At cost less accumulated depreciation
and amortization of $2,389,205 6,013,068
Other Assets:
Restricted Cash - Owner Operators 6,494
Restricted Cash - held as collateral
against Letters of Credit 10,000
Security Deposits and other 14,962
Loss Reserve on Captive Insurance 104,118
Intangible Assets - Net of accumulated
amortization of $252,788 766,119
-----------
Total Other Assets 901,693
Total Assets $10,453,475
===========
F-4
U.S. TRUCKING, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
September 30,
1998
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable - Trade $ 514,088
Due to Factor 1,737,167
Accruals & Other Current Liabilities 697,062
Current Portion - Sellers' Notes 104,000
Current Portion - Note Payable 42,600
Current Portion - Acquisition Loan Payable 391,046
Current Portion - Equipment Notes Payable 706,415
Current Portion - Obligations under
Capital Leases 323,822
-----------
Total Current Liabilities 4,516,200
Other Liabilities:
Owner Operator Escrow 35,050
Seller's Notes -
Note Payable - net of current portion 25,400
Acquisition Loan - net of current portion 1,236,797
Equipment Notes - net of current portion 925,893
Obligations under Capital Leases - net
current portion 140,469
-----------
Total Other Liabilities 2,363,609
Total Liabilities 6,879,809
Stockholders' Equity:
Common Stock - No Par Value - 75,000,000
shares authorized 15,381,256 shares
issued and outstanding 756,000
Preferred Stock - No Par Value - 10,000,000
shares authorized but unissued -
Additional Paid in Capital 4,138,907
Accumulated Deficit (1,321,241)
-----------
Total Stockholders' Equity 3,573,666
Total Liabilities & Stockholders' Equity $10,453,475
===========
F-5
U.S. TRUCKING, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
-------------------- --------------------
Revenue:
Company Vehicles $ 9,492,325 60.0% $10,355,384 73.1%
Owner-Operator Vehicles 6,334,854 40.0% 3,807,359 26.9%
----------- ----- ----------- -----
Total Revenue 15,827,179 100.0% 14,162,743 100.0%
Operating Expenses:
Purchased Transportation
& Rentals 5,551,324 35.1% 4,643,988 32.8%
Salaries, Wages & Benefits 4,004,267 25.3% 4,055,546 28.6%
Fuel 1,562,002 9.9% 1,934,962 13.7%
Depreciation & Amortization 1,194,541 7.5% 1,176,869 8.3%
Operating Supplies &
Maintenance 859,398 5.4% 996,968 7.0%
Insurance & Claims 417,072 2.6% 687,099 4.9%
Miscellaneous Operating
Expenses 417,651 2.6% 420,334 3.0%
Taxes & Licenses 328,037 2.1% 344,740 2.4%
General & Administrative
Expenses 622,071 3.9% 471,212 3.3%
Occupancy Costs 201,657 1.3% 185,988 1.3%
----------- ----- ----------- -----
Total Operating Expenses 15,158,019 95.8% 14,917,706 105.3%
Income from Operations 669,160 4.2% (754,963) -5.3%
Other Income (Expense):
Other Income 52,511 0.3% 202,834 1.4%
Interest Income 1,748 0.0% 1,029 0.0%
Interest Expense (513,459) -3.2% (557,079) -3.9%
----------- ----- ----------- -----
Total Other Income & Expense (459,200) -2.9% (353,216) -2.5%
Net Income (Loss) before
Taxes 209,960 1.3% (1,108,179) -7.8%
Taxes - -
----------- ----- ----------- -----
Net Income (Loss) 209,960 1.3% (1,108,179) -7.8%
Earnings per common and
common equivalent share $0.01
Weighted average number of
shares 15,381,256 2,500
Earnings per common share
assuming full dilution $0.01
Weighted average number of
shares - full dilution 16,881,256 2,500
F-6
U.S. TRUCKING, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
September 30, September 30,
1998 1997
------------ ------------
Cash Flows from Operating Activities:
Net Income (Loss) 209,960 (1,108,179)
Adjustments to Reconcile Net Loss to Net
Cash Provided by (Used in) Operating
Activities:
Depreciation & Amortization 1,186,542 1,176,869
Expenses related to stock-based
compensation plan 15,000 -
Provision for doubtful amounts receivable - 36,166
Loss on disposal of property and equipment - 12,543
(Increase) Decrease in Assets:
Restricted Cash (314,332) (95,666)
Accounts Receivable (326,986) (698,523)
Parts and supply inventory (15,689) (12,790)
Prepaid expenses and other current assets (84,523) (47,484)
Increase (decrease) in Liabilities:
Accounts payable 129,257 256,628
Accrued expenses and other current
liabilities 49,420 (96,091)
----------- -----------
Net Cash Provided by (Used in) Operating
Activities 848,649 (576,527)
----------- -----------
Cash Flows from Investing Activities:
Issuance of Common Stock 575,000 -
Purchase of transportation and other
equipment (248,287) (4,128,353)
Security deposits (2,309) (4,194)
Payment for purchase of subsidiaries in
excess of fair market value - -
Acquisition costs (161,228) -
Payment for refinancing of acquisition debt (55,274) (138,016)
Proceeds from additional paid in capital - 3,943,368
----------- -----------
Net Cash Provided by (Used in) Investing
Activities 107,902 (327,195)
----------- -----------
Cash Flows from Financing Activities:
Proceeds from long-term debt financing - 1,545,244
Acquisition indebtedness - -
Note payable - 54,656
Discount on note payable 13,344 -
Principal payments on long-term debt (656,755) (555,393)
Principal payments on short-term note - (12,500)
Principal payments on capital lease
obligations (243,086) (224,265)
----------- -----------
Net Cash Provided by (Used in) Financing
Activities (886,497) 807,742
----------- -----------
F-7
U.S. TRUCKING, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
(CONTINUED)
September 30, September 30,
1998 1997
------------ ------------
Net (Decrease) Increase in Cash 70,054 (95,980)
Cash at Beginning of Year 60,099 138,143
Cash at End of Year 130,153 42,163
=========== ===========
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Year:
Interest expense 503,507 557,080
Income taxes - -
F-8
U.S. TRUCKING, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine month period
ended September 30, 1998 are not necessarily indicative of the results that
may be expected for the year ending December 31,1998.
2. SHARE EXCHANGE AGREEMENT
On September 4, 1998, the stockholders of Northern Dancer Corporation, a
publicly traded shell (EBB : NODC) entered into an agreement with U S
Trucking, Inc. whereby U S Trucking, Inc. acquired Northern Dancer in a
reverse acquisition. In terms of the transaction, all of the shareholders of
U S Trucking agreed to exchange all of their stock on the basis of one share
of stock in U S Trucking for one share in Northern Dancer. Northern Dancer
subsequently changed its name to U S Trucking, Inc. As a result, the
shareholders of the former U S Trucking received 96.1% of the outstanding
shares of Northern Dancer. In addition, Northern Dancer assumed the
obligations represented by 1,500,000 options granted under U S Trucking's
stock option plan and the optionees agreed to accept options of a similar
tenor.
F-9
2) AUDITED FINANCIAL STATEMENTS OF
U.S. TRUCKING, INC. FOR THE PERIOD FROM INCEPTION
(JANUARY 30, 1997) TO DECEMBER 31, 1997
F-10
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders
U.S. Trucking, Inc.
and Subsidiaries
We have audited the accompanying consolidated balance sheet of U.S. Trucking,
Inc. and Subsidiaries as of December 31, 1997 and the related consolidated
statement of operations and accumulated deficit and cash flows for the period
from inception (January 30, 1997) to December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated balance sheet referred to above, presents
fairly, in all material respects, the consolidated financial position of U.S.
Trucking, Inc. and Subsidiaries as of December 31, 1997 and the results of its
operations and its cash flows for the period from inception (January 30, 1997)
to December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ BIANCULLI, PASCALE & CO. P.C.
BIANCULLI, PASCALE & CO. P.C.
Garden City, New York
June 10, 1998
F-11
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
CURRENT ASSETS
Cash in banks (Note 14) $ 60,099
Restricted cash-reserves on deposit
with factor (Note 15) 184,210
Accounts receivable-net of allowance
for doubtful accounts of $88,000
as of December 31, 1997
(Notes 1H, 15 and 16) 2,321,180
Accounts receivable - other 60,000
Parts and supply inventory (Note 1D) 152,262
Prepaid expenses and other current assets 57,097
-----------
Total Current Assets 2,834,848
-----------
TRANSPORTATION AND OTHER EQUIPMENT - at
cost, less accumulated depreciation and
amortization of $1,334,899 as of December
31, 1997 (Notes 1E, 2, 4, 5 and 7) 6,818,517
-----------
OTHER ASSETS
Restricted cash-owner operators (Note 12) 2,894
Restricted cash-cash held as collateral
against letters of credit 10,000
Security deposits and other 12,653
Intangible assets - Net of accumulated
amortization of $120,552 as of December
31, 1997 (Notes 1I, 2 and 17) 681,853
-----------
Total other assets 707,400
-----------
TOTAL ASSETS $10,360,765
===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-12
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable-trade $ 756,675
Due to factor (Note 15) 1,355,291
Accrued expenses and other 665,592
Current portion - seller's notes 118,273
Current portion - note payable 13,962
Current portion - acquisition loan payable 366,086
Current portion of equipment notes payable 689,432
Current portion of obligations under capital
leases 479,093
-----------
Total Current Liabilities 4,444,404
-----------
OTHER LIABILITIES
Owner-operator escrow (Note 12) 17,100
Seller's notes (Notes 4 and 5) 17,333
Note payable - (Notes 4 and 13) 40,694
Acquisition loan payable Notes 4 and 5) 1,518,818
Equipment Notes Payable-net of
current portion (Note 4) 1,310,964
Obligations under capital leases
net of current portion (Note 6) 228,284
-----------
Total Other Liabilities 3,133,193
-----------
TOTAL LIABILITIES 7,577,597
-----------
COMMITMENTS AND CONTINGENCIES (Notes 6,
9 10 and 18)
STOCKHOLDERS' EQUITY
Common Stock (no par value- 2,500 shares auth-
orized, issued and outstanding (Note 2) 1,000
Additional paid in capital 4,313,368
Accumulated deficit (1,531,200)
-----------
Total Stockholders' Equity 2,783,168
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,360,765
===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-13
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
Net Revenues $17,469,281
Operating expenses 16,434,514
-----------
Income from operations 1,034,767
Administrative expenses 1,999,692
-----------
Other income and (expenses)
Interest income 1,332
Interest expense (656,826)
Other income 101,762
Net (loss) on disposition of assets (12,543)
-----------
Total other income and (expenses) (566,275)
-----------
Net (loss) before taxes (1,531,200)
Income tax (benefit)provision (Notes 1H and 3) -0-
-----------
Net (loss) (1,531,200)
Retained Earnings - January 30, 1997 -0-
-----------
Accumulated deficit - December 31, 1997 $(1,531,200)
===========
Net loss per share $ (612.48)
===========
Weighted Average Number of Shares (Note 1B) 2,500
===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-14
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
Common Stock Paid in Accumulated
No Par Value Capital Deficit Total
------------ ---------- ------------ ------------
Sale of 2,500 Shares of Common
Stock - No Par Value $1,000 $ 1,000
Acquisition of 100% Common Stock
of Gulf Northern Transport, Inc. $ 225,000 225,000
Acquisition of 100% Common Stock
of Mencor, Inc. 145,000 145,000
Acquisition of assets of Jay and
Jay Transportation, Inc. 2,394,860 2,394,860
Acquisition of assets of Translynx,
Inc. 100,546 100,546
Payment of expenses by shareholder 46,895 46,895
Advances from U.S. Transportation
Systems, Inc. 1,401,067 1,401,067
Net Loss for the period (1,531,200) (1,531,200)
------ ---------- ----------- ----------
Total $1,000 $4,313,368 $(1,531,200) $2,783,168
====== ========== =========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-15
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $(1,531,200)
ADJUSTMENTS TO RECONCILE NET (LOSS)
TO NET CASH USED IN OPERATING ACTIVITIES
Depreciation & Amortization 1,455,451
Provision for doubtful accounts receivable 36,166
Loss on disposal of property and equipment 12,543
(Increase) Decrease-Assets
Restricted Cash (197,104)
Accounts Receivable (2,361,180)
Parts and supply inventory (152,262)
Prepaid expenses and other current assets (57,097)
Increase (Decrease)-Liabilities
Accounts payable 756,675
Accrued expenses and other current liabilities 2,020,883
-----------
Total Adjustments 1,514,075
Net cash used by operating activities (17,125)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of transportation and other equipment (8,153,416)
Security deposits (12,653)
Payment for purchase of subsidiaries in
excess of fair market value (664,389)
Payment for refinancing of acquisition debt (138,016)
Proceeds from additional paid in capital 4,313,368
-----------
Net cash used in investing activities (4,655,106)
-----------
Sub Total (4,672,231)
-----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-16
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
Balance Forward $(4,672,231)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt financing 3,561,025
Acquisition indebtedness 2,284,376
Note payable 54,656
Principal payments on long-term debt (877,926)
Principal payment of short-term note (12,500)
Principal payments on capital lease obligations (277,301)
-----------
Net Cash provided by financing activities 4,732,330
-----------
NET INCREASE IN CASH 60,099
CASH AT BEGINNING OF YEAR -0-
CASH AT END OF YEAR $ 60,099
===========
Supplemental Disclosure of Cash flow information:
Cash Paid during the year Interest expense $ 571,924
===========
Income taxes $ -0-
===========
On January 30, 1997, the Company acquired transportation and other equipment
totaling $8,153,416 as part of the acquisition of Gulf Northern Transport,
Inc. and Mencor, Inc. and the assets of Jay and Jay Transportation, Inc. The
Company in the acquisition of this equipment incurred long-term debt totaling
$3,561,025.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-17
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
NOTE 1 - General and Summary of Significant Accounting Policies
(A) - Nature of Business
U.S. Trucking, Inc. (USTI or "the Company") was incorporated in the State of
Nevada on March 3, 1997 although USTI's consolidated group was effectively
formed on January 30, 1997. From that date through December 31, 1997 the
Company operated through two wholly owned subsidiaries:
Gulf Northern Transport, Inc., (Gulf Northern) a
Wisconsin corporation, operates as an interstate
and intrastate motor carrier.
Mencor, Inc. operates as a broker for interstate
motor carriers. A broker serves the trucking
industry by providing return hauls for truckers
who have completed their initial delivery. By
providing this service, trucking companies and
independent contractors are able to cover the cost
of returning to their home location. As a broker,
Mencor is required to acquire a license which
provides the authority to engage in interstate
commerce. This license was acquired in April, 1994.
USTI was formed by U.S. Transportation Systems, Inc. (USTS) as a wholly owned
subsidiary. As part of the transaction to acquire Gulf Northern, 25% of
USTI's common stock was transferred to Gulf Northern's parent (Logistics
Management, LLC). The remaining 75% was conveyed to Logistics Management
during 1998.
The Company's corporate headquarters are located in Charleston, South Carolina
with terminals and drop stations located in various states.
Services are provided to customers located primarily in the central United
States but include locations in virtually all 48 contiguous states.
(B) - Net (Loss) per Share
Net earnings (loss) per share is computed on the basis of the weighted average
number of common shares outstanding during each period. Only the weighted
average number of shares of common stock outstanding is used to compute loss
per share in 1997, as there were no stock options, warrants, or other common
stock equivalents in this year.
(C) - Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of 90 days or less to be cash equivalents for financial statement
purposes.
F-18
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
(D) - Parts and Supply Inventory
Inventory consists principally of parts and supplies used in maintaining its
motor carrier fleet, skids used in transporting goods, and small tools and are
stated at the lower-of-cost or market, determined on a first-in, first-out
basis.
(E) - Transportation and Other Equipment
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives.
Accelerated methods of depreciation are followed for tax purposes and the
straight-line method is used for financial reporting purposes.
Transportation equipment, furniture and fixtures, and other equipment are
generally depreciated over periods ranging from two to seven years.
(F) - Covenants Not to Compete
Covenants not to compete are amortized on a straight-line basis over the terms
of the agreements. The covenants cover the period from January 1994 to
December 1997 and were fully amortized by December 31, 1997.
(G) - Income Taxes
Taxes are provided on all revenue and expense items included in the
Consolidated Statements of Operations, regardless of the period in which such
items are recognized for income tax purposes, except for items representing a
permanent difference between pretax accounting income and taxable income.
(H) - Revenue Recognition
The Company recognizes revenues at the time freight is delivered to
recipients.
(I) - Organization Costs
Subsidiary companies, Gulf Northern and Mencor incurred organization costs
that are being amortized on a straight-line basis over five years.
(J) - Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-19
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
(K) - Basis of Presentation
The accompanying consolidated balance sheets and related statements of
operations and accumulated deficit and cash flows includes the accounts of
U.S. Trucking, Inc. and its wholly owned subsidiaries, Gulf Northern
Transport, Inc. and Mencor, Inc. as of December 31, 1997 and for the period
from inception (January 30, 1997) to December 31, 1997 gives effect to the
acquisition of Gulf Northern and Mencor effective January 30, 1997.
Intercompany transactions or balances as of and for the period ended December
31, 1997 have been eliminated.
NOTE 2 - Acquisition of Subsidiaries and other Assets
On January 30, 1997, the Company completed the following acquisitions:
Gulf Northern Transport, Inc. USTI purchased 100% of the common stock of
Gulf Northern Transport, Inc. from its stockholder (Logistics Management, LLC)
for cash of $225,000 and 25% of the Company's common stock (625 shares). The
acquisition was funded by an advance by USTI's parent, U.S. Transportation
Systems, Inc. and was subsequently capitalized and is included in paid in
capital. The transaction was valued at $790,999 and goodwill in the amount of
$565,999 was recognized in the transaction. The goodwill is being amortized
over six years.
Mencor, Inc. USTI purchased 100% of the common stock of Mencor, Inc. from
its stockholders for cash of $70,000 and 37,500 shares of the common stock of
U.S. Transportation Systems, Inc. which was valued at $2.00 per share. The
acquisition was funded by a cash and stock contribution to the Company by
USTS. The transaction was valued at $145,000. Goodwill in the amount of
$96,953 was recognized in the transaction and is being amortized over six
years.
Jay and Jay Transportation, Inc. USTI acquired certain assets (primarily
tractors and trailers) and liabilities from USTS which were valued at
$2,394,860. The transaction was accomplished by way of a permanent capital
contribution by USTS and the net value contributed was included in Paid in
capital. Jay and Jay's dispatch office and yard is located in Savannah, New
York. Office operations including accounting and management were moved to
Charleston, South Carolina. The transaction was recorded as an asset purchase
and no goodwill was recognized.
Translynx Express, Inc. The Company acquired certain assets and liabilities
from USTS that were valued at $100,546. The transaction was accomplished by
way of a permanent capital contribution by USTS and the net value contributed
is included in Paid in capital. Translynx's operating office is located in
Orlando, Florida. Office operations including accounting and
management were moved to Charleston, South Carolina. The transaction was
recorded as an asset purchase and no goodwill was recognized.
F-20
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
NOTE 3 - Income Taxes
The Company accounts for income taxes on the liability method, as provided by
Statement of Financial Accounting Standards 109, Accounting for Income Taxes
(SFAS 109). No federal income taxes were provided for the period ended
December 31, 1997.
Differing methods of reporting income for tax purposes as compared to
financial reporting purposes resulted in net deferred income taxes of
approximately -0- as of December 31, 1997. Deferred tax assets and liabilities
consist of the following:
Deferred tax assets-
Allowance for doubtful accounts $ 88,000
Amortization of Goodwill 63,000
----------
Net operating loss carryovers 2,327,000
2,478,000
Valuation allowance 1,723,000
----------
$ 755,000
==========
Deferred tax liabilities-
Depreciation of transportation
and other and equipment $ (755,000)
----------
$ (755,000)
==========
The valuation allowance provided in each of the years is based on management's
valuation of the likelihood of realization.
As required by SFAS 109, deferred taxes are provided based upon the tax rate
at which the items of income and expense are expected to be settled in the
Company's tax return.
The Company has acquired the net operating losses through January 30, 1997 of
$940,000 related to the operations of Gulf Northern Transport, Inc. These
losses will be available to offset future income for financial reporting
purposes expiring in 2012.
F-21
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
NOTE 4 - Long-term Notes Payable
Long-term notes payable as of December 31,
1997 consists of the following:
Equipment loans secured by tractors and trailers
payable at $59,848 per month including interest
at rates ranging from 9-1/2% to 101/2% per annum
with the final installment due April, 2001 $1,998,438
Term loan in settlement with United
Acquisition II Corp.- $100,000 non
interest bearing, discounted at 8%
payable over 36 months beginning
April 1, 1998 54,613
Acquisition loan described in Note 5 1,884,904
Seller notes described in Note 5 135,606
----------
Total 4,073,561
Less: current maturities 1,185,795
----------
Long-term portion $2,279,215
==========
Aggregate annual scheduled maturities of long-term debt at December 31, 1997
are as follows:
1998 $1,185,795
1999 1,157,730
2000 964,918
2001 765,118
2002 -
----------
Total $4,073,561
==========
NOTE 5 - Acquisition Loan and Seller's Notes
On March 28, 1995, Gulf Northern was acquired by Mid America Transporters
Group, Inc. The purchase was financed by a loan in the amount of $3,000,000
from ITT Credit Corp. The proceeds of this loan (described as "the
acquisition loan") were used to refinance stockholder loans and certain other
bank and lease obligations. The loan which was subsequently sold to General
Electric Credit Corp., originally was payable in 60 monthly installments of
$66,360 at the rate of 11.75% interest per annum with its final maturity on
F-22
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
March 31, 2000. On May 25, 1997, the Company renegotiated the loan whereby
the monthly payments were reduced to $45,000 with a balloon payment of
$396,836 due on September 1, 2001. The interest rate remained at 11.75%.
Additional fees of $138,016 were incurred to restructure the loan which were
capitalized and are being amortized over the remaining life of the loan.
In addition to the acquisition loan, the agreement called for payments to the
three former stockholders (described as sellers notes) which included
promissory notes totaling $260,000 due in 36 monthly installments totaling
$8,017 at 7% due on March 1, 1998 secured by letters of credit and non
interest bearing obligations (discounted at 7% per annum) totaling $104,000
payable over a one year period commencing April 1, 1998.
NOTE 6 - Lease Commitments
The Company leases tractors and trailers under various capital leases with
interest rates ranging from 8.1% to 9.1%. Transportation and other equipment
includes the following amounts for the tractor and trailer leases which are
capitalized as of December 31, 1997:
Tractors and trailers $1,760,669
Less: accumulated depreciation
and amortization 841,381
----------
Total $ 919,288
==========
Lease amortization is included in depreciation expense. Future minimum
payments, by year and in the aggregate, under the capital leases are as
follows:
Years ended December 31, Amount
------------------------ ------
1998 $ 529,647
1999 241,568
2000 -
----------
Total minimum lease payments 772,211
Less: Amount representing interest 64,834
----------
Present value of minimum
lease payments 707,377
Less-Current maturities 479,093
----------
Long-term obligations under
capital leases $ 228,284
==========
F-23
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
NOTE 7 - Transportation and Other Equipment
Transportation and other equipment consists of the following as of December
31, 1997:
Office equipment $ 79,300
Tractors, trailers and
garage equipment 8,072,847
Transportation equipment 1,269
-----------
8,153,416
Less: Accumulated
Depreciation 1,334,899
-----------
Total $ 6,818,517
===========
Depreciation expense amounted to $1,334,899 for the period ended December 31,
1997. $1,315,796 of depreciation was included in operating expenses and
$19,103 of depreciation was included in administrative expenses. The fair
market value of fixed assets approximates book value.
NOTE 8 - Related Party Transaction
On December 23, 1996, the Company sold its Wisconsin Rapids facility, which
included land, a building and improvements to its majority stockholders. The
stockholders leased the property back to the Company for five years commencing
January 1, 1997. See Note 10.
Management believes the sale was an arms length transaction based on estimated
values of the property on the date of sale.
NOTE 9 - Retirement Plan
The Company maintains a pension plan for eligible employees, which was
established under section 401(k) of the Internal Revenue Code. Under the terms
of the plan, the Company at the discretion of its Board of Directors may match
employee contributions up to 3% of employee compensation. Employee
contributions to the plan amounted to $50,153 for the period ended December
31, 1997. The Company's matching contributions amounted to $8,414 of which
$5,745 is included in operating expenses and $2,669 is included in
administrative expenses.
NOTE 10 - Commitments and Contingencies
Commencing on January 1, 1997, the Company agreed to rent its Wisconsin Rapids
facility from certain stockholders for $7,350 per month for a period of five
years under an operating lease.
F-24
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
Commencing October 15, 1997, the Company leased its South Carolina corporate
offices for $1,728 per month. The lease was subsequently re-negotiated
whereby the Company took additional office space in the same building at a
cost of $2,800 per month until June 30, 2002.
Minimum rental payments under such leases follows for the years ending
December 31:
1998 $140,600
1999 121,800
2000 121,800
2001 121,800
2002 33,600
--------
Total minimum payments required $539,600
========
Rent expense for the period ended December 31, 1997 amounted to $142,013 and
is included in general administrative expenses.
NOTE 11 - Noncompetition Agreements
As of January 3, 1994, one of the Company's subsidiaries entered into a
covenant not to compete agreement with its chief executive officer that
extends over four years. The agreement called for a prepayment of $115,000 in
December 1993, with an additional $46,000, including interest, payable in (18)
monthly installments of $2,556 commencing with the date of the agreement.
Expenses under this agreement amounted to $39,999 for the period ended
December 31, 1997.
NOTE 12 - Restricted Cash
The Company maintains cash accounts for owner-operators who perform services
for the Company. These funds are accumulated, with the owner-operators
consent, by withholding part of the payments due to them for services
performed. The funds are used to pay for repairs of equipment, which they own
directly.
Further, the Company has deposited funds with a financing company to cover
over the road fuel and other operating expenses for drivers in support of a
letter of credit.
As of December 31, 1997, the company had letters of credit outstanding
totaling $10,000, which guarantee various operating and insurance activities.
F-25
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
NOTE 13 - Stock Acquisition Agreement-United Acquisition II Corp.
During 1996, the shareholders of Gulf Northern's parent company, Mid America
Transporters Group, Inc. entered into an agreement with United Acquisition II
Corp. (the acquirer) whereby they would transfer 100% of their common stock in
Mid America in exchange for common and preferred stock of the acquirer. In
addition, the acquirer agreed to contribute cash and notes totaling $500,000
into Mid America at closing.
In January 1997 however, the acquirer conceded that it was not able to
complete the transaction as agreed and withdrew from the contract. During the
period from the consummation of the contract, the acquirer deposited funds to
the Company in the amount of $145,000. The Company agreed to return a total
of $100,000 payable in 36 installments beginning April 1, 1998 on a
non-interest bearing basis.
NOTE 14 - Concentration of Credit Risk - Cash
The Company maintains its cash balances in two financial institutions, one
located in Wisconsin Rapids, Wisconsin and the other in Charleston, South
Carolina. At times, the balances may exceed federally insured limits of
$100,000. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk on cash on deposit.
The fair market value of these financial instruments approximates cost.
NOTE 15 - Use of Factor
In April 1995, the Company entered into an agreement with a factor whereby the
factor would accept the Company's receivables with full recourse. Under the
agreement, the factor will advance up to 90% of those receivables submitted by
the Company. Interest on funds advanced is charged at an average annual
effective rate of 14.9% payable monthly.
In addition, the Company must maintain funds on deposit with its factor as a
reserve against uncollectible receivables. The amount of such funds on
deposit as of December 31, 1997 amounted to $184,210.
The uncollected balance of such receivables held by the factor amounted to
$1,689,400 as of December 31, 1997.
The fair market value of these balances approximate book value.
F-26
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
NOTE 16 - Economic Dependency
The Company's customers consist primarily of high volume shippers that have
significant time sensitive and high service level traffic needs. The Company
provided services to a customer, which accounted for net revenues in excess of
10% of the Company's total revenues for the period ended December 31, 1997.
Consolidated Paper, Inc. accounted for 16.0% of the Company's net revenues for
this period. Accounts receivable from this customer amounted to $176,449 as
of December 31, 1997.
Revenues from the Company's five and ten largest customers accounted for
approximately 38.9% and 46.8% respectively of total net revenues for the
period ended December 31, 1997.
The Company considers its relationship with those major customers to be
satisfactory and is committed to expanding its relationship with its other
customers.
The Company provides services to a number of customers in the meat packing and
distribution industry. Revenues from those customers accounted for
approximately 10.7% of total revenues for the period ended December 31, 1997.
Accounts receivable from those customers amounted to $211,361 as of December
31, 1997.
NOTE 17 - Intangible Assets
Intangible assets consist of the following items as of December 31, 1997:
Original Accumulated Net Book
Cost Amortization Value
--------- ------------ ---------
Goodwill $ 662,952 $ 103,766 $ 559,186
Goodwill $ 662,952 $ 103,766 $ 559,186
Goodwill $ 662,952 $ 103,766 $ 559,186
Goodwill $ 662,952 $ 103,766 $ 559,186
Goodwill $ 662,952 $ 103,766 $ 559,186
Goodwill $ 662,952 $ 103,766 $ 559,186
Goodwill $ 662,952 $ 103,766 $ 559,186
$ 662,952 $ 103,766 $ 559,186
Debt refinancing
Costs 138,016 16,237 121,779
Other intangibles 1,437 549 888
--------- ---------- ---------
Total $ 802,405 $ 120,552 $ 681,853
========= ========== =========
Amortization expense amounted to $120,552 for the period ended December 31,
1997.
F-27
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1997) TO
DECEMBER 31, 1997
NOTE 18 - Subsequent Event
Effective June 24, 1998, the company underwent a change in its capital
structure whereby it is authorized to issue 50,000,000 shares of common stock
and 1,000,000 shares of preferred stock.
On May 26, 1998, the Company entered into an investment consulting agreement
with Joff Pollon & Associates for a period, with extensions, of up to two
years. The compensation payable to the consultants under this agreement
includes fees, reimbursable expenses and options to purchase up to 1,000,000
shares of the Company's common stock at $.01 per share and further fees and
bonuses as determined by the Board of Directors, and is contingent upon a
successful merger with a public company. The Company is presently involved
with a private placement offering which, if successful, would result in the
issuance of 1,000,000 shares of common stock and would raise approximately
$720,000 of net-equity capital for the Company.
F-28
3) AUDITED FINANCIAL STATEMENTS OF
GULF NORTHERN TRANSPORT, INC.
FOR THE THIRTY DAYS ENDED JANUARY 30, 1997
F-29
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholder
Gulf Northern Transport, Inc.
We have audited the accompanying balance sheet of Gulf Northern Transport,
Inc. as of January 30, 1997 and the related statement of operations and
accumulated deficit and cash flows for the period from January 1, 1997 to
January 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the balance sheet referred to above, presents fairly, in all
material respects, the financial position of Gulf Northern Transport, Inc. as
of January 30, 1997 and the results of its operations and its cash flows for
the period then ended in conformity with generally accepted accounting
principles.
/s/ BIANCULLI, PASCALE & CO. P.C.
BIANCULLI, PASCALE & CO. P.C.
Garden City, New York
June 10, 1998
F-30
GULF NORTHERN TRANSPORT, INC.
BALANCE SHEET
JANUARY 30, 1997
ASSETS
CURRENT ASSETS
Cash in banks (Note 14) $ 41,270
Restricted cash-reserves on deposit
with factor (Note 15) 97,179
Accounts receivable-net of allowance for
for doubtful accounts of $40,000
(Notes 1H, 15 and 16) 1,047,761
Accounts receivable - affiliate (Note 18) 19,930
Accounts receivable - other 3,009
Parts and supply inventory (Note 1D) 139,472
Prepaid insurance 54,745
Prepaid expenses and other 40,929
----------
Total Current Assets 1,444,295
----------
PROPERTY, PLANT AND EQUIPMENT-at cost, less
accumulated depreciation and amortization of
$4,206,596 (Notes 1E, 2, 4, 5 and 7) 4,099,535
----------
OTHER ASSETS
Restricted cash-owner operators (Note 12) 1,760
Restricted cash-cash held as collateral
against letters of credit 10,000
Covenants not to compete-net of accumulated
amortization of $76,922 (Notes 1F and 11) 36,666
Security deposits and other 7,534
----------
Total other assets 55,960
----------
TOTAL ASSETS $5,599,790
==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-31
GULF NORTHERN TRANSPORT, INC.
BALANCE SHEET
JANUARY 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable-trade $ 266,118
Due to factor (Note 15) 804,601
Accrued expenses and other 698,825
Advances from affiliate (Note 19) 23,994
Note Payable - (Note 4) 70,000
Current portion - seller's notes 112,823
Current portion - acquisition loan payable 517,476
Current portion of equipment notes payable 152,439
Current portion of obligations under
capital leases 275,526
----------
Total Current Liabilities 2,921,802
----------
OTHER LIABILITIES
Owner operator escrow (Note 12) 29,672
Seller's notes (Notes 2 and 4) 127,772
Note payable - (Notes 4 and 17) 49,904
Acquisition loan payable (Notes 2 and 4) 1,617,561
Equipment Notes Payable-net of
current portion (Note 4) 483,978
Obligations under capital leases
net of current portion (Note 6) 710,093
----------
Total Other Liabilities 3,018,987
----------
TOTAL LIABILITIES 5,940,789
----------
COMMITMENTS AND CONTINGENCIES
(Notes 2, 6, 9 10 and 17)
STOCKHOLDERS' EQUITY
Common Stock (no par value-10,000 shares auth-
orized, 1,000 issued and outstanding) (Note 2) 100,000
Additional paid in capital 25,000
Accumulated deficit ( 465,999)
----------
Total Stockholders' Equity ( 340,999)
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,599,790
==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-32
GULF NORTHERN TRANSPORT, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
PERIOD FROM JANUARY 1, 1997 TO JANUARY 30, 1997
Net Revenues $ 854,016
Operating expenses 695,904
Income from operations 158,112
Administrative expenses 198,564
-----------
( 40,452)
Other expenses
Interest expense ( 49,540)
-----------
Total other expenses ( 49,540)
-----------
Net loss before taxes ( 89,992)
Income tax provision (Notes 1H and 3) -0-
-----------
Net loss ( 89,992)
Accumulated Deficit - January 1 ( 376,007)
-----------
Accumulated deficit - January 30 $( 465,999)
===========
Net loss per share $( 89.99)
============
Weighted Average Number of Shares (Note 1B) 1,000
============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-33
GULF NORTHERN TRANSPORT, INC.
STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 1, 1997 TO JANUARY 30, 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ ( 89,992)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH USED IN OPERATING ACTIVITIES
Depreciation & Amortization 79,719
(Increase) Decrease-Assets
Restricted Cash 912
Accounts Receivable 261,769
Prepaid expenses and other current assets 6,170
Increase (Decrease)-Liabilities
Accounts payable 82,170
Accrued expenses and other liabilities ( 330,196)
----------
Total Adjustments 100,544
Net Cash Provided by Operations 10,552
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Security deposit ( 200)
----------
Net Cash Used in investing activities ( 200)
----------
Sub Total 10,352
----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-34
GULF NORTHERN TRANSPORT, INC.
STATEMENT OF CASH FLOWS
(continued)
PERIOD FROM JANUARY 1, 1997 TO JANUARY 30, 1997
Balance Forward $ 10,352
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt ( 62,682)
Proceeds from short-term note 57,500
Principal payments on capital lease obligations ( 24,059)
-----------
Net Cash (used in) financing activities ( 29,241)
-----------
NET (DECREASE) IN CASH ( 18,889)
CASH AT BEGINNING OF YEAR 60,159
-----------
CASH AT END OF YEAR $ 41,270
===========
Supplemental Disclosure of
Cash flow information:
Cash Paid during the year
Interest expense $ 49,840
===========
Income taxes $ -0-
===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-35
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
NOTE 1 - General and Summary of Significant Accounting Policies
(A) - Nature of Business
Gulf Northern Transport, Inc. (Gulf Northern) a Wisconsin corporation,
operates as an interstate and intrastate motor carrier. (See Note 2). The
Company's corporate headquarters are located in Charleston, South Carolina
with terminals and drop stations located in various states.
Services are provided to customers located primarily in the central United
States but include locations in virtually all 48 contiguous states.
(B) - Net Loss per Share
Net loss per share is computed on the basis of the weighted average number of
common shares outstanding during each period. Only the weighted average
number of shares of common stock outstanding is used to compute earnings or
loss per share for the period ended January 30, 1997 as there were no stock
options, warrants, or other common stock equivalents during this period.
(C) - Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of 90 days or less to be cash equivalents for financial statement
purposes.
(D) - Inventory
Inventory consists principally of parts and supplies used in maintaining its
motor carrier fleet, skids used in transporting goods, and small tools. The
items are stated at the lower of cost or market, determined on a first-in,
first-out basis.
(E) - Property, Plant and Equipment
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives.
Accelerated methods of depreciation are followed for tax purposes and the
straight line method is used for financial reporting purposes.
Transportation equipment, furniture and fixtures, and other equipment are
generally depreciated over periods ranging from two to seven years.
(F) - Covenants Not to Compete
Covenants not to compete are amortized on a straight line basis over the terms
of the agreements. The covenants cover the period from January, 1994 to
December, 1997.
F-36
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
(G) - Income Taxes
Taxes are provided on all revenue and expense items included in the
Consolidated Statements of Operations, regardless of the period in which such
items are recognized for income tax purposes, except for items representing a
permanent difference between pretax accounting income and taxable income.
(H) - Revenue Recognition
The Company recognizes revenues at the time freight is delivered to
recipients.
(I) - Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(J) - Basis of Presentation
The accompanying balance sheet and related statements of operations and
retained earnings and cash flows includes only the accounts of Gulf Northern
as of January 30, 1997. Prior to January 1, 1997, the company was a wholly
owned subsidiary of Mid America Transporters Group, Inc. and was included in
that consolidated group. Gulf Northern was sold to Logistics Management, LLC
effective January 1, 1997. On January 30, 1997, Gulf Northern was sold to
U.S. Trucking Company, Inc. and was included in that consolidated group. See
Note 2.
NOTE 2 - Acquisition by Mid America Transporter's Group
Effective January 1, 1995, Gulf Northern was acquired by Mid America
Transporters Group for a total purchase price of $2,683,500. This exceeded
the net asset value of Gulf Northern by approximately $1,182,000.
Accordingly, the basis of certain assets included in property, plant and
equipment were increased by that amount as required by purchase accounting and
is being amortized over five years.
The agreement includes payments to the former stockholders in the form of cash
of $2,232,000 which includes the payoff of shareholder loans described in Note
5A; promissory notes totaling $260,000 due in 36 monthly installments totaling
$8,017 at 7% due on March 1, 1998 secured by letters of credit in the amount
of $150,000; and non interest bearing obligations (discounted at 7% per annum)
totaling $104,000 payable over a one year period commencing April 1, 1998.
The purchase was financed by a loan in the amount of $3,000,000 from ITT
Credit Corp. which is payable in 60 monthly installments of $66,360 and is due
on March 31, 2000. The loan was subsequently sold to General Electric Credit
Corp and is secured by certain items of equipment. See Note 13 for
description of the loan modification agreement.
F-37
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
NOTE 3 - Income Taxes
The Company accounts for income taxes on the liability method, as provided by
Statement of Financial Accounting Standards 109, Accounting for Income Taxes
(SFAS 109).
Differing methods of reporting income for tax purposes as compared to
financial reporting purposes resulted in deferred income taxes of
approximately -0- as of January 30, 1997. Deferred tax assets and liabilities
consist of the following:
Deferred tax assets-
Allowance for doubtful accounts $ 13,600
Net operating loss carryover 158,000
---------
171,600
Valuation allowance 62,600
---------
$ 109,000
=========
Deferred tax liabilities-
Depreciation of property, plant
and equipment $(109,000)
---------
$(109,000)
=========
The valuation allowance provided in each of the years is based on management's
valuation of the likelihood of realization.
As required by SFAS 109, deferred taxes are provided based upon the tax rate
at which the items of income and expense are expected to be settled in the
Company's tax return.
The Company incurred a net operating loss of $910,000 available to offset
future income for financial reporting purposes expiring in 2012.
NOTE 4 - Long-term Notes Payable
Long-term notes payable consist of the following:
Equipment loans secured by ten tractors payable
at $15,824 per month including interest at 10% per
annum with the final installment due November, 2000 $ 636,417
Non interest bearing demand notes 70,000
Term loan in settlement with United Acquisition
II Corp.- $100,000 non interest bearing, discounted
at 8% payable over 36 months beginning April 1, 1998 49,904
Acquisition loan described in Note 5 2,135,037
F-38
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
Seller notes described in Note 2 240,595
----------
Total 3,131,953
Less: current maturities 852,738
----------
Long-term portion $2,279,215
==========
Aggregate annual scheduled maturities of long-term debt at January 30, 1997
are as follows:
January 30,
-----------
1998 $ 852,738
1999 920,804
2000 917,159
2001 441,252
----------
Total $3,131,953
==========
NOTE 5 - Debt Restructure
In addition to being used to finance the acquisition described in Note 2,
proceeds from the $3,000,000 acquisition loan were also used to refinance
stockholder loans and certain other bank and lease obligations. As the
classification of the acquisition loan is long term, those obligations
restructured were also classified as long term. The loan is payable in 60
monthly installments of $66,360 at the rate of 11.75% interest per annum with
its final maturity on March 31, 2000.
NOTE 6 - Lease Commitments
The Company leases tractors and trailers under various capital leases with
interest rates ranging from 8.1% to 9.1%. Property, plant and equipment
includes the following amounts for the tractor and trailer leases which are
capitalized:
Tractors and trailers $1,760,669
Less: accumulated amortization 611,433
----------
Total $1,149,236
==========
Lease amortization is included in depreciation expense.
F-39
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
NOTE 6 - Lease Commitments (continued)
Future minimum payments, by year and in the aggregate, under the capital
leases are as follows:
Years ended January 30, Amount
----------------------- ----------
1998 $ 405,446
1999 489,233
2000 221,437
----------
Total minimum lease payments 1,116,116
Less: Amount representing interest 130,497
----------
Present value of minimum lease payments 985,619
Less-Current maturities 275,526
----------
Long-term obligations under capital leases $ 710,093
==========
NOTE 7 - Property, Plant and Equipment
Property, plant and equipment consists of the following as of January 30,
1997:
Office equipment $ 63,273
Tractors, trailers and garage equipment 8,238,378
Transportation equipment 4,480
----------
8,306,131
Less: Accumulated Depreciation 4,206,596
----------
Total property, plant and equipment $4,099,535
==========
Depreciation expense amounted to $76,386 for the period ended January 30,
1997. $75,582 of depreciation was included in operating expenses and $804 of
depreciation was included in administrative expenses. The fair market value
of fixed assets approximates book value.
NOTE 8 - Related Party Transaction
On December 23, 1996, the Company sold its Wisconsin Rapids facility which
included land, a building and improvements with a book value of $394,517 to
its majority stockholders for $346,141 resulting in a net loss of $48,376.
The transaction resulted in a gain of $231,000 for income tax purposes.
The stockholders leased the property back to the Company for five years
commencing January 1, 1997. See Note 10.
Management believes the sale was an arms length transaction based on estimated
values of the property on the date of sale.
F-40
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
NOTE 9 - Retirement Plan
The Company matches employee contributions up to 3% of employee compensation.
Contributions to the plan amounted to $5,918 for the period ended January 30,
1997. 401K matching contributions of $1,283 are included in operating expense
and $365 and of the aforementioned contributions are included in
administrative expenses.
NOTE 10 - Commitments and Contingencies
Commencing on January 1, 1997, the Company agreed to rent its Wisconsin Rapids
facility from certain stockholders for $7,350 per month for a period of five
years under an operating lease.
Commencing October 15, 1997, the Company leased its South Carolina corporate
offices for $1,728 per month. The lease extends for a period of two years.
Minimum rental payments under such operating leases follows:
Year ending January 30,
1998 $ 94,248
1999 108,936
2000 102,888
2001 88,200
2002 80,850
--------
Total minimum payments required $475,122
========
NOTE 11 - Noncompetition Agreements
As of January 3, 1994, the Company entered into a covenant not to compete
agreement with its chief executive officer which extends over four years. The
agreement called for a prepayment of $115,000 in December, 1993, with an
additional $46,000, including interest, payable in (18) monthly installments
of $2,556 commencing with the date of the agreement. Expenses under this
agreement amounted to $3,333. See also Note 2 for a description of the
covenant not to compete related to the stock purchase agreement.
NOTE 12 - Restricted Cash
The Company maintains cash accounts for owner-operators who perform services
for the Company. These funds are accumulated, with the owner-operators
consent, by withholding part of the payments due to them for services
performed. The funds are used to pay for repairs of equipment that they own
directly.
Further, the Company has deposited funds with a financing company to cover
over the road fuel and other operating expenses for drivers in support of a
letter of credit.
As of January 30, 1997, the Company had letters of credit outstanding totaling
$10,000 which guarantee various operating and insurance activities.
F-41
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
NOTE 13 - Loan Modification Agreement
In connection with the stock purchase agreement described in Note 2, the
purchase was financed by a loan in the amount of $3,000,000 payable in monthly
installments over five years. The original loan agreement required that the
Company hold the common stock of a "small capitalization" company with a
market value of at least $1,000,000. As of January 30, 1997, such stock was
not held by the Company.
On May 25, 1997, the Company agreed to a modification of the original loan
whereby current monthly payments were reduced from $66,360 per month to
$45,000 per month with a balloon payment of $396,836 due at August 31, 2001.
NOTE 14 - Concentration of Credit Risk - Cash
The Company maintains its cash balances in two financial institutions, one
located in Wisconsin Rapids, Wisconsin and the other in Charleston, South
Carolina. At times, the balances may exceed federally insured limits of
$100,000. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk on cash on deposit.
The fair market value of these financial instruments approximates cost.
NOTE 15 - Use of Factor
In April, 1995, the Company entered into an agreement with a factor whereby
the factor would accept the Company's receivables with full recourse. Under
the agreement, the factor will advance up to 80% of those receivables
submitted by the Company. Interest on funds advanced is charged at an average
annual effective rate of 14.5% payable monthly.
In addition, the Company must maintain funds on deposit with its factor as a
reserve against uncollectible receivables. The amount of such funds on
deposit as of January 30, 1997 amounted to $97,179.
The uncollected balance of such receivables held by the factor amounted to
$804,601 as of January 30, 1997.
The fair market value of these balances approximate book value.
NOTE 16 - Economic Dependency
The Company's customers consist primarily of high volume shippers that have
significant time sensitive and high service level traffic needs. The Company
provided services to two customers which accounted for net revenues in excess
of 10% of the Company's total revenues for the period ended January 30, 1997.
Consolidated Paper, Inc. and Excel Corporation accounted for 26.4% and 10.7%
of the Company's net revenues for the period ended January 30, 1997. Accounts
receivable from those customers amounted to $335,513 as of January 30, 1997.
Revenues from the Company's five and ten largest customers accounted for
approximately 57% and 69% respectively of total net revenues for the period
ended January 30, 1997.
F-42
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
NOTE 16 - Economic Dependency (continued)
The Company considers its relationship with those major customers to be
satisfactory and is committed to expanding its relationship with its other
customers.
The Company provides services to a significant number of customers in the meat
packing and distribution industry. Revenues from those customers accounted
for approximately 14.6% of total revenues for the period ended January 30,
1997. Accounts receivable from those customers amounted to $178,700 as of
January 30, 1997.
NOTE 17 - Stock Acquisition Agreement - United Acquisition II
Corp.
On June 3, 1996, the shareholders of Mid America entered into an agreement
with United Acquisition II Corp. (the acquirer) whereby they would transfer
100% of their common stock in Mid America in exchange for 31,366 shares of
convertible preferred stock and 316,666 shares of common stock of the
acquirer. In addition, the acquirer agreed to contribute cash and notes
totaling $500,000 into Mid America at closing.
In January, 1997, the acquirer conceded that it was not able to complete the
transaction as agreed and withdrew from the contract. During the period from
the consummation of the contract, the acquirer deposited funds to the Company
in the amount of $145,000. The Company agreed to return a total of $100,000
payable in 36 installments beginning April 1, 1998 on a non interest bearing
basis.
NOTE 18 - Accounts Receivable - Affiliate
The Company provided freight services on behalf of its affiliate, Mencor, Inc.
amounting to $10,785 for the period ended January 30, 1997. The balance
receivable from this affiliate as of January 30, 1997 amounted to $19,930.
The fair market value of this receivable approximate book value.
NOTE 19 - Advances from Affiliate
The Company received advances from its affiliate, Mencor, Inc. during the
period ended January 30, 1997. Those advances amounted to $23,994 and
remained unpaid as of that date, are non interest bearing and are due on
demand. The fair market value of these advances approximates book value.
NOTE 20 - Subsequent Event - Acquisition Agreement with U.S.
Trucking, Inc.
On January 30, 1997, the Company entered into an agreement with U.S. Trucking,
Inc. (the acquirer) whereby U.S. Trucking would acquire 100% of the common
stock of the Company in exchange for 25% of it's common stock.
F-43
GULF NORTHERN TRANSPORT, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 30, 1997
NOTE 20 - Subsequent Event - Acquisition Agreement with U.S.
Trucking, Inc. (continued)
As part of this agreement, the Company contracted with Dan Pixler (a former
stockholder of the Company) for him to provide services as president and
general manager for the five years commencing from January 30, 1997 to January
30, 2002 at an annual salary of $105,000 per year. Mr. Pixler will receive
annual options to purchase 12,500 shares of the common stock of the acquirer's
parent company, U.S. Transportation Systems, Inc. which will be exercisable
until December 31, 2002. Further, during the period of employment and for a
period of two years after his termination, Mr. Pixler agreed that he will not
participate in an entity which is directly competitive with the Company's
present operations.
F-44
4) AUDITED FINANCIAL STATEMENTS OF
MENCOR, INC.
FOR THE THIRTY DAYS ENDED JANUARY 30, 1997
F-45
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders
Mencor, Inc.
We have audited the accompanying balance sheet of Mencor, Inc. as of January
30, 1997 and the related statements of earnings and retained earnings and cash
flows for the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of Mencor, Inc. as of January
30, 1997 and the results of its operations and its cash flows for the period
then ended in conformity with generally accepted accounting principles.
/s/ BIANCULLI, PASCALE & CO. P.C.
BIANCULLI, PASCALE & CO. P.C.
Garden City, New York
June 8, 1998
F-46
MENCOR, INC.
BALANCE SHEET
January 30, 1997
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 1C and 2) $ 40,497
Accounts receivable-net of allowance
for doubtful accounts of $11,834 (Notes 1F & 12) 189,605
Advances to affiliate (Note 7) 23,994
Refundable income taxes (Note 6) 860
Prepaid expenses 1,002
--------
Total Current Assets 255,958
--------
PROPERTY, PLANT AND EQUIPMENT - at cost, less
accumulated depreciation of $3,950 as of
January 30, 1997 (Notes 1D and 3) 7,300
--------
OTHER ASSETS
Intangible asset - Net of accumulated
amortization of $1,067 as of January
30, 1997 (Note 1H) 933
Security deposits 1,125
Deferred tax asset (Notes 1E and 6) 1,920
Organization costs - net of
accumulated amortization of $445 at January
30, 1997 (Note 1G) 444
--------
Total other assets 4,422
--------
TOTAL ASSETS $267,680
========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-47
MENCOR, INC.
BALANCE SHEET
January 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES
Accounts payable-trade $160,618
Accounts payable-affiliate (Note 8) 19,930
Advances from related party (Note 9) 33,970
Payroll taxes withheld and payable 518
Accrued expenses 2,039
Other taxes payable 1,462
Income taxes payable (Notes 1E and 6) 25
Current Portion of Equipment Notes Payable
(Notes 3 and 4) 1,164
--------
Total Current Liabilities 219,726
--------
COMMITMENTS AND CONTINGENCIES (Note 5)
OTHER LIABILITIES
Equipment Notes Payable-net of current maturities
(Notes 3 and 4) 527
--------
TOTAL LIABILITIES 220,253
--------
STOCKHOLDERS' EQUITY
Common Stock (no par value-1,000 shares authorized,
300 issued and outstanding (Note 1B) 6,604
Retained Earnings 40,823
--------
Total Stockholders' Equity 47,427
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $267,680
========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-48
MENCOR, INC.
STATEMENT OF EARNINGS AND RETAINED EARNINGS
Period Ending January 30, 1997
Net Revenues $115,564
Freight settlements 102,649
--------
Income from operations 12,915
General and administrative expenses 13,983
--------
Net (loss) from operations (1,068)
Other income and expense -0-
--------
Loss before income taxes (1,068)
Income taxes (Notes 1E and 6) -0-
--------
Net (loss) (1,068)
Retained Earnings-Beginning of Period 41,891
--------
Retained Earnings-End of Period $ 40,823
========
Net (loss) per Share $ (3.56)
========
Weighted Average Number of Shares (Note 1B) 300
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-49
MENCOR, INC.
STATEMENT OF CASH FLOWS
Period Ending January 30, 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) for the period $ (1,068)
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH USED IN OPERATING ACTIVITIES
(Increase) Decrease-Assets
Accounts Receivable-trade 38,502
Advances to affiliate 3,359
Increase (Decrease)-Liabilities
Accounts payable-trade (20,391)
Accounts payable-affiliate (5,951)
Payroll taxes withheld and payable (3,400)
Other taxes payable 1,462
--------
Total Adjustments 13,581
Net Cash provided by Operations 12,513
--------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments to related party (50,000)
--------
Net Cash (used in) financing activities (50,000)
--------
NET (DECREASE) IN CASH (37,487)
--------
CASH AT BEGINNING OF PERIOD 77,984
--------
CASH AT END OF PERIOD $ 40,497
========
Supplemental Disclosure of Cash flow information:
Cash paid during the year
Interest expense $ -0-
Income taxes $ -0-
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-50
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
January 30, 1997
NOTE 1 - General and Summary of Significant Accounting Policies
(A) - Nature of Operations
Mencor, Inc. was incorporated in the State of Arkansas on July 6, 1994. The
Company operates as a broker for interstate motor carriers. An interstate
motor carrier broker serves the trucking industry by providing return hauls
for truckers who have completed their initial delivery. By providing this
service, trucking companies and independent operators are able to cover the
cost of returning to their home location. The Company's corporate
headquarters are located in Charleston, South Carolina. As a broker, the
Company is required to acquire a license which provides the authority to
engage in interstate commerce. This license was acquired in April, 1994.
Services are provided to customers located primarily in the central United
States but include locations in virtually all 48 contiguous states.
(B) - Net Loss per Share
Net loss per share is computed on the basis of the weighted average number of
common and common equivalent shares outstanding during each period. Only the
weighted average number of shares of common stock outstanding is used to
compute income per share for the period ended January 30, 1997 as there are no
stock options, warrants, or other common stock equivalents in this period.
(C) - Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of 90 days or less to be cash equivalents for financial statement
purposes.
(D) - Property, Plant and Equipment
Depreciation and amortization are provided for in amounts sufficient to relate
the cost of depreciable assets to operations over their estimated service
lives principally on an accelerated basis. Accelerated methods of
depreciation are followed for substantially all assets for both financial
reporting and tax purposes.
Transportation equipment, furniture and fixtures, and other equipment are
generally depreciated over periods ranging from two to seven years.
(E) - Income Taxes
Income taxes are provided on all revenue and expense items included in the
statement of earnings, regardless of the period in which such items are
recognized for income tax purposes, except for items representing a permanent
difference between pretax accounting income and taxable income.
Non current deferred income taxes result from the use of accelerated methods
of depreciation for income tax purposes and from the establishment of an
allowance for doubtful accounts for financial reporting purposes.
F-51
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
January 30, 1997
NOTE 1 - General and Summary of Significant Accounting Policies (continued)
(F) - Revenue Recognition
The Company recognizes revenues at the time the shipment is delivered to
recipients.
(G) - Organization expense
As part of its initial incorporation, the company incurred organization costs
amounting to $889 which is being amortized on a straight-line basis over five
years.
(H) - Intangible Asset
As discussed in Note 1A, the Company acquired a license from the Interstate
Commerce Commission which is required to allow the Company to do business as
an interstate carrier broker. This license, which cost $2,000 is being
amortized on a straight-line basis over five years.
(I) - Concentration of Credit Risk
Virtually all of the Company's customers are in the long haul trucking
industry. Further, accounts receivable are uncollateralized and consist of
amounts due from that industry.
(J) - Offering Costs
During 1996, the Company incurred certain expenses related to an equity
offering in connection with its affiliate, Mid America Transporters Group,
Inc. and Subsidiary. The offering was unsuccessful and, accordingly, the
expense was amortized in full during 1996.
(K) - Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
NOTE 2 - Cash and Cash Equivalents
The Company maintains its cash balances in one financial institution located
in Charleston, South Carolina that at times, may exceed federally insured
limits. The Company has not experienced any losses in such account and
believed it is not exposed to any significant credit risk on cash and cash
equivalents.
F-52
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
January 30, 1997
NOTE 3 - Property, Plant and Equipment
Property, plant and equipment consists of the following as of January 30,
1997:
Office equipment $ 12,656
Furniture and fixtures 1,406
--------
11,250
Less: Accumulated Depreciation 3,950
--------
Total property, plant and equipment $ 7,300
========
No depreciation expense was recorded for the period ended January 30, 1997.
NOTE 4 - Notes Payable
During 1995, the Company acquired office equipment in the amount of $2,946
which was financed payable in 36 installments of $110 per month including
interest at 14% per annum due June, 1998.
Total principal $ 1,691
Less: current maturities 1,164
--------
Long-term portion $ 527
========
Aggregate annual maturities of long-term debt for the five years following
January 30, 1997 are as follows:
January 30, 1998 $ 1,164
January 30, 1999 527
--------
Total $ 1,691
========
NOTE 5 - Commitments and Contingencies
The Company leases office space for its operating facility in Charleston,
South Carolina. The current lease term commenced on May 1, 1995 and concludes
on April 30, 1997. Commitments under this lease agreement amounted to $2,757
for the period ended January 30, 1998.
Rent expense amounted to $919 for the period ended January 30, 1997 and is
included in general and administrative expenses.
F-53
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
January 30, 1997
NOTE 6 - Income Taxes
The Company accounts for income taxes on the liability method, as provided by
Statement of Financial Accounting Standards 109, Accounting for Income Taxes
(SFAS 109). The provision for income taxes was comprised of the following
components as of January 30, 1997:
Federal-current $( 160)
Federal-deferred ( -0-)
State-current ( 50)
State-deferred ( -0-)
-------
Total $( 210)
=======
The income tax provision reconciled to the tax computed at the statutory
Federal rate was:
Tax at Statutory Rate $( 417) ( 39)%
State income taxes 74 7
Effect of graduated brackets 133 12
Other ------- ---
$( 210) ( 20)%
Deferred tax assets and liabilities at January 30, 1997 consists of the
following:
Deferred tax assets
Allowance for doubtful accounts $11,834
Valuation Allowance (6,679)
-------
$ 5,155
=======
Deferred tax liabilities
Depreciation of property &
equipment $(5,155)
=======
The valuation allowance provided is based on management's valuation of the
likelihood of realization.
Net operating loss carryovers amounting to $1,068 for federal income tax
purposes are available through December 31, 2012.
NOTE 7 - Advances to Affiliate
The Company advanced funds and provided services to its affiliate, Gulf
Northern Transport, Inc. during the years prior to the period ended January
30, 1997. Gulf Northern is related to the Company through common ownership
and management. No revenues were generated by services provided during the
F-54
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
January 30, 1997
NOTE 7 - Advances to Affiliate (Continued)
period ended January 30, 1997. The amount of such advances which remained
unpaid as of January 30, 1997 amounted to $23,994. These advances represent
allocations of rent and other administrative costs and freight settlements,
are non interest bearing and are due on demand. The fair market value of
these advances approximate book value.
NOTE 8 - Accounts Payable-Affiliate
The Company incurred expenses for freight settlements from its affiliate, Gulf
Northern Transport, Inc. which amounted to $10,785 for the period ended
January 30, 1997. The remaining balance payable to the affiliate for such
expenses as of January 30, 1997 amounted to $19,930.
NOTE 9 - Advances from Related Party
During 1996, a shareholder advanced funds totaling $123,397 to the Company.
Repayments through January 30, 1997 amounted to $89,427 with the remaining
balance remitted during February, 1997. The advances were payable on demand
with no stated interest.
NOTE 10 - Economic Dependency
The Company's customers consist primarily of high volume shippers that have
significant time sensitive and high service level traffic needs. The Company
provided services to three customers which accounted for net revenues in
excess of 10% of the Company's total revenues for the period ended January 30,
1997. Tamco Distributors, Vista Corrugated and Continental Sprayers accounted
for 33.5%, 24.1% and 10.6% of the Company's net revenues for the period ended
January 30, 1997.
Accounts receivable from those customers amounted to $104,311 as of January
30, 1997.
Revenues from the Company's five and ten largest customers accounted for
approximately 83% and 91% respectively of total net revenues for the period
ended January 30, 1997.
NOTE 11 - Definitive stock sale to U.S. Trucking, Inc.
On January 30, 1997, the stockholders sold their interests in Mencor, Inc. to
U.S. Trucking, Inc. (the buyer) for $75,000. The transaction was in
conjunction with the sale of Gulf Northern Transport, Inc. Also in connection
with the sale, the Company agreed to continue the employment of Michael Menor
(a former shareholder of Mencor, Inc.) as the president of the Company for the
period from the date of enactment to January 30, 2000 at an annual salary of
$60,000 per year. Further, during the period of employment and a period of
two (2) years after his termination, Mr. Menor agreed that he will not
participate in an entity which directly performs truck brokerage services for
those customers currently serviced by the Company.
F-55
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
January 30, 1997
NOTE 11 - Definitive stock sale to U.S. Trucking, Inc. (Continued)
Also on the date of enactment, the buyer contracted with Roxanne Pixler, (a
former shareholder of Mencor, Inc.) for her to provide consulting services to
the Company. Pixler will receive 18,750 shares of U.S. Transportation
Systems, Inc. as compensation for her services. The contracted obligation
will commence from the date of enactment to December 31, 1998.
F-56
5) AUDITED FINANCIAL STATEMENTS OF
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
F-57
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders
Mid America Transporters Group, Inc.
and Subsidiary
We have audited the accompanying consolidated balance sheets of Mid America
Transporters Group, Inc. and Subsidiary as of December 31, 1996 and 1995 and
the related consolidated statements of operations and retained earnings and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated balance sheets referred to above, present
fairly, in all material respects, the consolidated financial position of Mid
America Transporters Group, Inc. and Subsidiary as of December 31, 1996 and
1995 and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ BIANCULLI, PASCALE & CO. P.C.
BIANCULLI, PASCALE & CO. P.C.
Garden City, New York
November 7, 1997
F-58
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
1996 1995
---------- ----------
ASSETS
CURRENT ASSETS
Cash in banks (Note 14) $ 60,159 $ 311,842
Restricted cash-reserves on deposit
with factor (Note 15) 97,179 179,615
Accounts receivable-net of allowance
for doubtful accounts of $40,000
and $12,000 as of December 31, 1996
and 1995 respectively (Notes 1H, 15
and 16) 1,309,529 1,295,451
Accounts receivable - affiliate
(Note 18) 25,881 14,150
Accounts receivable - other 3,068 34,613
Parts and supply inventory (Note 1D) 139,472 112,464
Prepaid insurance 54,745 53,412
Prepaid expenses and other 41,089 49,106
---------- ----------
Total Current Assets 1,731,122 2,050,653
---------- ----------
PROPERTY, PLANT AND EQUIPMENT - at
cost, less accumulated depreciation
and amortization of $4,130,210 and
$3,313,632 as of December 31, 1996
and 1995, respectively
(Notes 1E, 2, 4, 5 and 7) 4,175,921 4,697,569
---------- ----------
OTHER ASSETS
Restricted cash-owner operators
(Note 12) 2,672 46,332
Restricted cash-cash held as
collateral against letters of credit 10,000 88,000
Covenants not to compete-net of accum-
ulated amortization of $73,589 and
$33,590 as of December 31, 1996 and
1995, respectively (Notes 1F and 11) 39,999 79,998
Security deposits and other 7,334 6,260
Organization costs - net of accumul-
ated amortization of $5,000 and
$4,000 as of December 31, 1996
and 1995, respectively (Note 1I) - 1,000
---------- ----------
Total other assets 60,005 221,590
---------- ----------
TOTAL ASSETS $5,967,048 $6,969,812
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-59
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
---------- ----------
CURRENT LIABILITIES
Accounts payable-trade $ 207,941 $ 424,283
Due to factor (Note 15) 1,133,731 950,390
Accrued expenses and other 672,545 445,216
Advances from affiliate (Note 19) 27,353 17,910
Note Payable - (Note 4) 12,500 -
Current portion - seller's notes 112,823 84,393
Acquisition loan payable (Note 2) 569,329 551,445
Current portion of equipment notes
payable (Notes 2 and 4) 163,268 37,973
Current portion of obligations under
capital leases (Note 6) 299,585 263,907
---------- ----------
Total Current Liabilities 3,199,075 2,775,517
---------- ----------
OTHER LIABILITIES
Deferred taxes (Notes 2 and 3) - 388,000
Owner operator escrow (Note 12) 29,672 82,936
Seller's notes (Notes 2 and 4) 127,772 226,117
Note payable - (Notes 4 and 17) 49,904 -
Acquisition loan payable
(Notes 2 and 4) 1,617,561 2,141,947
Equipment Notes Payable-net of
current portion (Note 4) 483,978 319,564
Obligations under capital leases
net of current portion (Note 6) 710,093 998,816
---------- ----------
Total Other Liabilities 3,018,980 4,157,380
---------- ----------
TOTAL LIABILITIES 6,218,055 6,932,897
---------- ----------
COMMITMENTS AND CONTINGENCIES
(Notes 2, 6, 9 10 and 17)
STOCKHOLDERS' EQUITY
Common Stock (no par value-10,000
shares authorized, 1,000 issued
and outstanding) (Note 2) 100,000 100,000
Additional paid in capital 25,000 -
Accumulated deficit ( 376,007) ( 63,085)
---------- ----------
Total Stockholders' Equity ( 251,007) 36,915
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $5,967,048 $6,969,812
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-60
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
YEARS ENDING DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
Net Revenues $12,620,435 $12,374,563
Operating expenses 10,966,125 10,505,303
----------- -----------
Income from operations 1,654,310 1,869,260
Administrative expenses 1,807,186 1,290,716
----------- -----------
Other income and expenses
Interest income 7,046 10,507
Interest expense ( 648,993) ( 665,515)
Other income 141,498 4,673
Net gain (loss) on disposition of
assets ( 47,597) 9,104
----------- -----------
Total other income
and (expenses) ( 548,046) ( 641,231)
----------- -----------
Net loss before taxes ( 700,922) ( 62,687)
Income tax (benefit)
provision (Notes 1H and 3) ( 388,000) 398
----------- -----------
Net loss ( 312,922) ( 63,085)
Accumulated Deficit - January 1 ( 63,085) -
----------- -----------
Accumulated deficit - December 31 $( 376,007) $( 63,085)
=========== ===========
Net loss per share $( 312.92) $( 63.09)
=========== ===========
Weighted Average Number of Shares
(Note 1B) 1,000 1,000
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-61
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDING DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net Earnings (Loss) $ (312,922) $ ( 63,085)
ADJUSTMENTS TO RECONCILE NET
EARNINGS (LOSS) TO NET CASH
USED IN OPERATING ACTIVITIES
Depreciation & Amortization 956,717 794,756
Deferred income taxes (388,000) -
Loss(Gain) on disposal of property
and equipment 47,597 ( 9,104)
(Increase) Decrease-Assets
Restricted Cash 204,096 -
Accounts Receivable ( 22,264) (295,267)
Parts and supply inventory ( 27,008) ( 43,955)
Prepaid expenses and
other current assets 6,610 (255,111)
Increase (Decrease)-Liabilities
Accounts payable ( 33,001) 27,984
Accrued expenses and
other current liabilities 183,508 129,375
----------- -----------
Total Adjustments 928,255 348,678
Net Cash Provided by Operations 615,333 285,593
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (787,407) (567,372)
Proceeds from disposal of equipment 372,740 81,500
Proceeds from additional paid in
capital 25,000 -
----------- -----------
Net Cash Used in investing activities (389,667) (485,872)
----------- -----------
Sub Total 225,666 (200,279)
----------- -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-62
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS (continued)
YEARS ENDING DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
Balance Forward $ 225,666 $( 200,279)
CASH FLOWS FROM
FINANCING ACTIVITIES
Principal payments on long-term debt (1,007,286) (4,707,108)
Proceeds from short-term note 12,500 -
Proceeds from long-term debt financing 770,482 5,527,017
Principal payments on capital lease
obligations (253,045) ( 307,788)
----------- -----------
Net Cash provided by (used in)
financing activities (477,349) 512,121
----------- -----------
NET INCREASE (DECREASE) IN CASH (251,683) 311,842
CASH AT BEGINNING OF YEAR 311,842 -
----------- -----------
CASH AT END OF YEAR $ 60,159 $ 311,842
=========== ===========
Supplemental Disclosure of
Cash flow information:
Cash Paid during the year
Interest expense $ 650,158 $ 690,813
=========== ===========
Income taxes $ -0- $ 1,845
=========== ===========
Capital lease obligations totaling $508,800 for the year ended December 31,
1995 were incurred when the Company entered into leases for new tractors and
trailers.
Long-term debt totaling $720,578 was incurred by the Company during 1996 when
the Company acquired 10 tractors with a total cost of $745,578.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-63
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - General and Summary of Significant Accounting Policies
(A) - Nature of Business
Mid America Transporters Group, Inc. (Mid America or, "the Company") was
incorporated in the State of Arkansas on February 14, 1994. The Company,
through its wholly-owned subsidiary, Gulf Northern Transport, Inc., (Gulf
Northern) a Wisconsin corporation, operates as an interstate and intrastate
motor carrier. (See Note 2). The Company's corporate headquarters are
located in Charleston, South Carolina with terminals and drop stations located
in various states.
Services are provided to customers located primarily in the central United
States but include locations in virtually all 48 contiguous states.
(B) - Net Earnings (Loss) per Share
Net earnings (loss) per share is computed on the basis of the weighted average
number of common shares outstanding during each period. Only the weighted
average number of shares of common stock outstanding is used to compute
earnings or loss per share in 1996 and 1995, as there were no stock options,
warrants, or other common stock equivalents in those years.
(C) - Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of 90 days or less to be cash equivalents for financial statement
purposes.
(D) - Inventory
Inventory consists principally of parts and supplies used in maintaining its
motor carrier fleet, skids used in transporting goods, and small tools and are
stated at the lower-of-cost or market, determined on a first-in, first-out
basis.
(E) - Property, Plant and Equipment
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives.
Accelerated methods of depreciation are followed for tax purposes and the
straight line method is used for financial reporting purposes.
Transportation equipment, furniture and fixtures, and other equipment are
generally depreciated over periods ranging from two to seven years. The
building is depreciated over a thirty year period. A provision has been made
for deferred income taxes relating to depreciation temporary differences. See
Note 2.
(F) - Covenants Not to Compete
Covenants not to compete are amortized on a straight line basis over the terms
of the agreements. The covenants cover the period from January, 1994 to
December, 1997.
F-64
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(G) - Income Taxes
Taxes are provided on all revenue and expense items included in the
Consolidated Statements of Operations, regardless of the period in which such
items are recognized for income tax purposes, except for items representing a
permanent difference between pretax accounting income and taxable income.
(H) - Revenue Recognition
The Company recognizes revenues at the time freight is delivered to
recipients.
(I) - Organization Costs
Gulf Northern incurred organization costs of $5,000 in 1992 which is being
amortized on a straight line basis over five years.
(J) - Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(K) - Basis of Presentation
The accompanying consolidated balance sheets and related statements of
operations and retained earnings and cash flows includes the accounts of Mid
America Transporters Group, Inc. and its wholly owned subsidiary, Gulf
Northern Transport, Inc. as of December 31, 1996 and 1995 and gives effect to
the acquisition of Gulf Northern by Mid America effective January 1, 1995
pursuant to an agreement dated March 28, 1995, and reflects the acquisition as
a purchase as more fully described in Note 2. There were no intercompany
transactions or balances as of and for the years ended December 31, 1996 and
1995.
NOTE 2 - Definitive Stock Purchase Agreement
Effective January 1, 1995 to an agreement dated March 28, 1995, Mid America
signed a definitive stock purchase agreement with Gulf Northern and its
individual shareholders. Under the terms of the agreement, Mid America
purchased all shares of Gulf Northern's common stock for a total purchase
price, as finally determined, of $2,683,500 which exceeded the net asset value
of Gulf Northern by approximately $1,182,000. The transaction has been
accounted for as a purchase effective on December 31, 1994. Note (1K).
As discussed in Note 1G and 3, prior to the implementation of this agreement,
the Company elected to be an S Corporation for tax purposes. Due to
differences in the computation of depreciation for book purposes as compared
to tax purposes, taxes were deferred in the amount of $388,000. On the date
of this agreement, the Company no longer qualified to file its tax returns as
an S Corporation, therefore, deferred taxes were established as an increase to
the acquisition cost.
F-65
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 2 - Definitive Stock Purchase Agreement (continued)
As noted above, the acquisition has been accounted for as a purchase.
Purchase accounting requires that the cost of the acquisition be allocated to
the net assets acquired up to their fair market value. Accordingly, property,
plant and equipment was increased by $1,162,184 to $5,390,503 which is less
than its appraised value. No goodwill was recorded by this transaction. In
addition, the stockholder's equity section as reported prior to the purchase
is eliminated.
The agreement includes payments to the former stockholders in the form of cash
of $2,232,000 which includes the payoff of shareholder loans described in Note
5A; promissory notes totaling $260,000 due in 36 monthly installments totaling
$8,017 at 7% due on March 1, 1998 secured by letters of credit in the amount
of $150,000; and non interest bearing obligations (discounted at 7% per annum)
totaling $104,000 payable over a one year period commencing April 1, 1998.
The purchase was financed by a loan in the amount of $3,000,000 from ITT
Credit Corp. which is payable in 60 monthly installments of $66,360 and is due
on March 31, 2000. The loan was subsequently sold to General Electric Credit
Corp and is secured by certain items of equipment. See Note 13 for
description of the loan modification agreement.
NOTE 3 - Income Taxes
The Company accounts for income taxes on the liability method, as provided by
Statement of Financial Accounting Standards 109, Accounting for Income Taxes
(SFAS 109). At December 31, 1996 a recovery of prior years deferred taxes of
$388,000 was provided. No federal income taxes were provided for the year
ended December 31, 1995.
Differing methods of reporting income for tax purposes as compared to
financial reporting purposes resulted in deferred income taxes of
approximately -0- and $388,000 as of December 31, 1996 and 1995, respectively.
Deferred tax assets and liabilities consist of the following:
1996 1995
--------- ---------
Deferred tax assets-
Allowance for doubtful accounts $ 15,600 $ 4,680
Net operating loss carryover 196,000 -
--------- ---------
211,600 4,680
Valuation allowance 16,600 -
--------- ---------
$ 195,000 $ 4,680
========= =========
Deferred tax liabilities-
Depreciation of property, plant
and equipment $(195,000) $(392,680)
--------- ---------
$(195,000) $(392,680)
========= =========
F-66
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 3 - Income Taxes (continued)
The valuation allowance provided in each of the years is based on management's
valuation of the likelihood of realization.
As required by SFAS 109, deferred taxes are provided based upon the tax rate
at which the items of income and expense are expected to be settled in the
Company's tax return.
The Company incurred a net operating loss of $503,000 available to offset
future income for financial reporting purposes expiring in 2011.
NOTE 4 - Long-term Notes Payable 1996 1995
---------- ----------
Long-term notes payable as of December 31,
1996 and 1995 consists of the following:
Equipment loans secured by ten tractors
payable at $15,824 per month including
interest at 10% per annum with the final
installment due November, 2000 $ 647,246 -
Mortgage note, Prime + .5%; (9.0% at
December 31, 1995 secured by real estate,
payable at $5,000 per month including
interest, due March 7, 1995. The bank
has committed to renew this note beyond
December 31, 1995. - 357,537
Demand note - Sebrite Agency, Inc. -
non interest bearing 12,500 -
Term loan in settlement with United
Acquisition II Corp.- $100,000 non
interest bearing, discounted at 8%
payable over 36 months beginning
April 1, 1998 49,904 -
Acquisition loan described in Note 5 2,186,890 2,693,392
Seller notes described in Note 2 240,595 310,510
---------- ----------
Total 3,137,135 3,361,439
Less: current maturities 857,920 673,811
---------- ----------
Long-term portion $2,279,215 $2,687,628
========== ==========
F-67
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 4 - Long-term Notes Payable (continued)
Aggregate annual scheduled maturities of long-term debt at December 31, 1996
are as follows:
1997 $ 857,920
1998 910,804
1999 917,159
2000 441,791
2001 9,461
----------
Total $3,137,135
==========
NOTE 5 - Debt Restructure
In addition to being used to finance the acquisition described in Note 2,
proceeds from the $3,000,000 acquisition loan were also used to refinance
stockholder loans and certain other bank and lease obligations. As the
classification of the acquisition loan is long term, those obligations
restructured were also classified as long term. The loan is payable in 60
monthly installments of $66,360 at the rate of 11.75% interest per annum with
its final maturity on March 31, 2000.
NOTE 6 - Lease Commitments
The Company leases tractors and trailers under various capital leases with
interest rates ranging from 8.1% to 9.1%. Property, plant and equipment
includes the following amounts for the tractor and trailer leases which are
capitalized as of December 31, 1996 and 1995:
Tractors and trailers $1,760,669 $1,760,669
Less: accumulated amortization 589,913 331,673
---------- ----------
Total $1,170,756 $1,428,996
========== ==========
F-68
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 6 - Lease Commitments (continued)
Lease amortization is included in depreciation expense. Future minimum
payments, by year and in the aggregate, under the capital leases are as
follows:
Years ended December 31, Amount
------------------------ ------
1997 $ 394,791
1998 522,657
1999 241,568
2000 -
----------
Total minimum lease payments 1,159,016
Less: Amount representing interest 149,338
----------
Present value of minimum
lease payments 1,009,678
Less-Current maturities 299,585
----------
Long-term obligations under
capital leases $ 710,093
==========
NOTE 7 - Property, Plant and Equipment
Property, plant and equipment consists of the following as of December 31:
1996 1995
---------- ----------
Land $ - $ 127,719
Building - 303,350
Office equipment 63,273 58,576
Tractors, trailers and
garage equipment 8,238,378 7,517,076
Transportation equipment 4,480 4,480
---------- ----------
8,306,131 8,011,201
Less: Accumulated
Depreciation 4,130,210 3,313,632
---------- ----------
Total property, plant
and equipment $4,175,921 $4,697,569
========== ==========
Depreciation expense amounted to $882,797 and $754,130 for the years ended
December 31, 1996 and 1995, respectively. $873,148 and $732,921 of
depreciation was included in operating expenses for 1996 and 1995,
respectively and $9,649 and $21,209 of depreciation was included in
administrative expenses for 1996 and 1995, respectively. The fair market
value of fixed assets approximates book value.
F-69
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 8 - Related Party Transaction
On December 23, 1996, the Company sold its Wisconsin Rapids facility which
included land, a building and improvements with a book value of $394,517 to
its majority stockholders for $346,141 resulting in a net loss of $48,376.
The loss is included in other income and expenses. The transaction resulted
in a gain of $231,000 for income tax purposes.
The stockholders leased the property back to the Company for five years
commencing January 1, 1997. See Note 10.
Management believes the sale was an arms length transaction based on estimated
values of the property on the date of sale.
Interest expense at December 31, 1995 includes $6,857 attributable to
stockholder loans. The loans were repaid during 1995.
NOTE 9 - Retirement Plan
The Company matches employee contributions up to 3% of employee compensation.
Contributions to the plan amounted to $65,123 and $41,264 for the years ended
December 31, 1996 and 1995, respectively. 401K matching contributions of
$23,100 and $29,710 are included in operating expenses for 1996 and 1995,
respectively and $8,589 and $21,209 of the aforementioned contributions are
included in administrative expenses for 1996 and 1995, respectively.
NOTE 10 - Commitments and Contingencies
Commencing on January 1, 1997, the Company agreed to rent its Wisconsin Rapids
facility from certain stockholders for $7,350 per month for a period of five
years under an operating lease.
Commencing October 15, 1997, the Company leased its South Carolina corporate
offices for $1,728 per month. The lease extends for a period of two years.
Minimum rental payments under such operating leases follows:
Year ending December 31,
1997 $ 92,520
1998 108,936
1999 104,616
2000 88,200
2001 88,200
--------
Total minimum payments required $482,472
========
F-70
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 11 - Noncompetition Agreements
As of January 3, 1994, the Company entered into a covenant not to compete
agreement with its chief executive officer which extends over four years. The
agreement called for a prepayment of $115,000 in December, 1993, with an
additional $46,000, including interest, payable in (18) monthly installments
of $2,556 commencing with the date of the agreement. Expenses under this
agreement amounted to $39,999 and $39,698 for 1996 and 1995, respectively.
See also Note 2 for a description of the covenant not to compete related to
the stock purchase agreement.
NOTE 12 - Restricted Cash
The Company maintains cash accounts for owner-operators who perform services
for the Company. These funds are accumulated, with the owner-operators
consent, by withholding part of the payments due to them for services
performed. The funds are used to pay for repairs of equipment that they own
directly.
Further, the Company has deposited funds with a financing company to cover
over the road fuel and other operating expenses for drivers in support of a
letter of credit.
As of December 31, 1996 and 1995, the Company had letters of credit
outstanding totaling $10,000 and $88,000 respectively which guarantee various
operating and insurance activities.
NOTE 13 - Loan Modification Agreement
In connection with the stock purchase agreement described in Note 2, the
purchase was financed by a loan in the amount of $3,000,000 payable in monthly
installments over five years. The original loan agreement required that the
Company hold the common stock of a "small capitalization" company with a
market value of at least $1,000,000. As of December 31, 1996 and 1995, such
stock was not held by the Company.
On May 25, 1997, the Company agreed to a modification of the original loan
whereby current monthly payments were reduced from $66,360 per month to
$45,000 per month with a balloon payment of $396,836 due at August 31, 2001.
NOTE 14 - Concentration of Credit Risk - Cash
The Company maintains its cash balances in two financial institutions, one
located in Wisconsin Rapids, Wisconsin and the other in Charleston, South
Carolina. At times, the balances may exceed federally insured limits of
$100,000. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk on cash on deposit.
The fair market value of these financial instruments approximates cost.
F-71
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 15 - Use of Factor
In April, 1995, the Company entered into an agreement with a factor whereby
the factor would accept the Company's receivables with full recourse. Under
the agreement, the factor will advance up to 80% of those receivables
submitted by the Company. Interest on funds advanced is charged at an average
annual effective rate of 14.5% payable monthly.
In addition, the Company must maintain funds on deposit with its factor as a
reserve against uncollectible receivables. The amount of such funds on
deposit as of December 31, 1996 and 1995 amounted to $97,179 and $179,615
respectively.
The uncollected balance of such receivables held by the factor amounted to
$1,133,731 and $950,390 as of December 31, 1996 and 1995 respectively. The
fair market value of these balances approximate book value.
NOTE 16 - Economic Dependency
The Company's customers consist primarily of high volume shippers that have
significant time sensitive and high service level traffic needs. The Company
provided services to three and four customers, respectively which accounted
for net revenues in excess of 10% of the Company's total revenues for the
years ended December 31, 1996 and 1995. Consolidated Paper, Inc.,
Land-0-Lakes, Inc., Excel Corporation and Trane Company accounted for 24.6%,
13.8%, and 10.7% of the Company's net revenues for the year ended December 31,
1996. Consolidated Paper, Inc., Land-O-Lakes, Inc., Excel Corporation and
Trane Company accounted for 17.8%, 13.5%, 10.7% and 10.2% of the Company's net
revenues for the year ended December 31, 1995. Accounts receivable from those
customers amounted to $486,873 and $358,319 as of December 31, 1996 and 1995
respectively.
Revenues from the Company's five and ten largest customers accounted for
approximately 57% and 69% respectively of total net revenues for the year
ended December 31, 1996. Revenues from the Company's five and ten largest
customers accounted for approximately 57% and 73% respectively of total net
revenues for the year ended December 31, 1995.
The Company considers its relationship with those major customers to be
satisfactory and is committed to expanding its relationship with its other
customers.
The Company provides services to a significant number of customers in the meat
packing and distribution industry. Revenues from those customers accounted
for approximately 16.3% of total revenues for the year ended December 31, 1996
and 30% of total revenues for the year ended December 31, 1995. Accounts
receivable from those customers amounted to $117,600 and $375,000 as of
December 31, 1996 and 1995 respectively.
F-72
MID AMERICA TRANSPORTERS GROUP, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 17 - Stock Acquisition Agreement - United Acquisition II Corp.
On June 3, 1996, the shareholders of Mid America entered into an agreement
with United Acquisition II Corp. (the acquirer) whereby they would transfer
100% of their common stock in Mid America in exchange for 31,366 shares of
convertible preferred stock and 316,666 shares of common stock of the
acquirer. In addition, the acquirer agreed to contribute cash and notes
totaling $500,000 into Mid America at closing.
In January, 1997, the acquirer conceded that it was not able to complete the
transaction as agreed and withdrew from the contract. During the period from
the consummation of the contract, the acquirer deposited funds to the Company
in the amount of $145,000. The Company agreed to return a total of $100,000
payable in 36 installments beginning April 1, 1998 on a non interest bearing
basis.
The settlement resulted in a gain to the company of $105,096 which is included
in other income.
NOTE 18 - Accounts Receivable - Affiliate
The Company provided freight services on behalf of its affiliate, Mencor, Inc.
amounting to $340,822 and $119,045 for the years ended December 31, 1996 and
1995 respectively. The balance receivable from this affiliate as of December
31, 1996 and 1995 amounted to $25,881 and $14,150. The fair market value of
this receivable approximate book value.
NOTE 19 - Advances from Affiliate
The Company received advances from its affiliate, Mencor, Inc. during 1996 and
1995. Those advances which amounted to $27,353 and $17,910 remained unpaid as
of December 31, 1996 and 1995, are non interest bearing and are due on demand.
The fair market value of these advances approximates book value.
NOTE 20 - Subsequent Event - Acquisition Agreement with U.S. Trucking, Inc.
On January 30, 1997, the Company entered into an agreement with U.S. Trucking,
Inc. (the acquirer) whereby U.S. Trucking would acquire 100% of the common
stock of the Company in exchange for 25% of it's common stock.
As part of this agreement, the Company contracted with Dan Pixler (a former
stockholder of the Company) for him to provide services as president and
general manager for the five years commencing from January 30, 1997 to January
30, 2002 at an annual salary of $105,000 per year. Mr. Pixler will receive
annual options to purchase 12,500 shares of the common stock of the acquirer's
parent company, U.S. Transportation Systems, Inc. which will be exercisable
until December 31, 2002. Further, during the period of employment and for a
period of two years after his termination, Mr. Pixler agreed that he will not
participate in an entity which is directly competitive with the Company's
present operations.
F-73
6) AUDITED FINANCIAL STATEMENTS OF
MENCOR, INC.
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
F-74
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders
Mencor, Inc.
We have audited the accompanying balance sheets of Mencor, Inc. as of December
31, 1996 and 1995 and the related statements of earnings and retained earnings
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of Mencor, Inc. as of December
31, 1996 and 1995 and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ BIANCULLI, PASCALE & CO. P.C.
BIANCULLI, PASCALE & CO. P.C.
Farmingdale, New York
November 3, 1997
F-75
MENCOR, INC.
BALANCE SHEETS
December 31,
1996 1995
---------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents
(Notes 1C and 2) $ 77,984 $ 34,726
Accounts receivable-net of allowance
for doubtful accounts of $11,834 as
of December 31, 1996 and 1995
(Notes 1F & 12) 228,107 218,219
Advances to affiliate (Note 7) 27,353 17,910
Refundable income taxes (Note 6) 860
Prepaid expenses 1,002 1,078
---------- ----------
Total Current Assets 335,306 271,933
---------- ----------
PROPERTY, PLANT AND EQUIPMENT - at
cost, less accumulated depreciation
of $3,950 and $2,025 as of December
31, 1996 and 1995, respectively
(Notes 1D and 3) 7,300 6,552
---------- ----------
OTHER ASSETS
Intangible asset - Net of accumulated
amortization of $1,067 and $667 as of
December 31, 1996 and 1995,
respectively. (Note 1H) 933 1,333
Security deposits 1,125 1,125
Deferred tax asset (Notes 1E and 6) 1,920 1,000
Organization costs - net of
accumulated amortization of $445 and
$267 at December 31, 1996 and 1995,
respectively (Note 1G) 444 622
---------- ----------
Total other assets 4,422 4,080
---------- ----------
TOTAL ASSETS $ 347,028 $ 282,565
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-76
MENCOR, INC.
BALANCE SHEETS
December 31,
1996 1995
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES
Accounts payable-trade $ 181,009 $ 197,015
Accounts payable-affiliate (Note 8) 25,881 14,150
Advances from related party (Note 9) 83,970
Payroll taxes withheld and payable 3,918
Accrued expenses 2,039
Income taxes payable (Notes 1E and 6) 25 14,840
Current Portion of Equipment
Notes Payable (Notes 3 and 4) 1,071 878
---------- ----------
Total Current Liabilities 297,913 226,883
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 5)
OTHER LIABILITIES
Equipment Notes Payable-net of
current maturities (Notes 3 and 4) 620 1,691
---------- ----------
TOTAL LIABILITIES 298,533 228,574
---------- ----------
STOCKHOLDERS' EQUITY
Common Stock (no par value-1,000
shares authorized, 300 issued and
outstanding (Note 1B) 6,604 6,604
Retained Earnings 41,891 47,387
---------- ----------
Total Stockholders' Equity 48,495 53,991
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 347,028 $ 282,565
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-77
MENCOR, INC.
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
Periods Ending December 31,
1996 1995
----------- ----------
Net Revenues $ 2,226,900 $1,486,293
Freight settlements 2,007,651 1,294,550
----------- ----------
Income from operations 219,249 191,743
General and administrative expenses 225,685 167,598
----------- ----------
Net income (loss) from operations ( 6,436) 24,145
Other expense
Interest expense ( 1,815) ( 279)
----------- ----------
Earnings (loss) before income taxes ( 8,251) 23,866
Income taxes (Notes 1E and 6) 2,755 ( 6,035)
----------- ----------
Net earnings (loss) ( 5,496) 17,831
Retained Earnings-Beginning of Year 47,387 29,556
----------- ----------
Retained Earnings-End of Year $ 41,891 $ 47,387
=========== ==========
Net income (loss) per Share $( 18.32) $ 57.94
=========== ==========
Weighted Average
Number of Shares 300 300
(Note 1B)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-78
MENCOR, INC.
STATEMENTS OF CASH FLOWS
Periods Ending December 31,
1996 1995
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $( 5,496) $ 17,831
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH USED IN OPERATING ACTIVITIES
Depreciation & amortization 5,850 1,911
Allowance for doubtful accounts 7,610
Deferred tax benefit ( 920) ( 1,000)
(Increase) Decrease-Assets
Accounts Receivable-trade ( 9,888) (109,343)
Advances to affiliate ( 9,443) ( 17,910)
Refundable income taxes ( 860)
Prepaid expenses 76 22
Increase (Decrease)-Liabilities
Accounts payable-trade ( 16,006) 11,569
Accounts payable-affiliate 11,731 14,150
Payroll taxes withheld and payable 3,918
Accrued expenses 2,039
Income taxes payable ( 14,815) 7,035
----------- ----------
Total Adjustments ( 28,318) ( 85,956)
Net Cash Provided (used) by Operations ( 33,814) ( 68,125)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Offering costs ( 3,346)
Purchases of equipment ( 2,674) ( 620)
Security deposits ( 1,125)
----------- ----------
Net Cash Used in Investing Activities ( 6,020) ( 1,745)
----------- ----------
Subtotal $ ( 39,834) $ ( 69,870)
----------- ----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-79
MENCOR, INC.
STATEMENTS OF CASH FLOWS
(CONTINUED)
Periods Ending December 31,
1996 1995
----------- ----------
Balance brought forward $ ( 39,834) $ ( 69,870)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from related party 123,397
Repayments to related party ( 39,427)
Principal payments on equipment loan ( 878) ( 377)
----------- ----------
Net Cash provides by (used in)
financing activities 83,092 ( 377)
----------- ----------
NET INCREASE (DECREASE) IN CASH 43,258 ( 70,247)
----------- ----------
CASH AT BEGINNING OF PERIOD 34,726 104,973
----------- ----------
CASH AT END OF PERIOD $ 77,984 $ 34,726
=========== ==========
Supplemental Disclosure of
Cash flow information:
Cash Paid during the year
Interest expense $ 1,815 $ 279
Income taxes $ 14,840 $ -0-
The Company purchased office equipment during the year ended December 31,
1995. The purchase price of the equipment amounted to $2,946 and was financed
through the vendor. See Note 4.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-80
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 1 - General and Summary of Significant Accounting Policies
(A) - Nature of Operations
Mencor, Inc. was incorporated in the State of Arkansas on July 6, 1994. The
Company operates as a broker for interstate motor carriers. An interstate
motor carrier broker serves the trucking industry by providing return hauls
for truckers who have completed their initial delivery. By providing this
service, trucking companies and independent operators are able to cover the
cost of returning to their home location. The Company's corporate
headquarters are located in Charleston, South Carolina. As a broker, the
Company is required to acquire a license which provides the authority to
engage in interstate commerce. This license was acquired in April, 1994.
Services are provided to customers located primarily in the central United
States but include locations in virtually all 48 contiguous states.
(B) - Net Earnings (Loss) per Share
Net earnings per share is computed on the basis of the weighted average number
of common and common equivalent shares outstanding during each period. Only
the weighted average number of shares of common stock outstanding is used to
compute income per share in 1996 and 1995 as there are no stock options,
warrants, or other common stock equivalents in these years.
(C) - Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of 90 days or less to be cash equivalents for financial statement
purposes.
(D) - Property, Plant and Equipment
Depreciation and amortization are provided for in amounts sufficient to relate
the cost of depreciable assets to operations over their estimated service
lives principally on an accelerated basis. Accelerated methods of
depreciation are followed for substantially all assets for both financial
reporting and tax purposes.
Transportation equipment, furniture and fixtures, and other equipment are
generally depreciated over periods ranging from two to seven years.
(E) - Income Taxes
Income taxes are provided on all revenue and expense items included in the
statement of earnings, regardless of the period in which such items are
recognized for income tax purposes, except for items representing a permanent
difference between pretax accounting income and taxable income.
Non current deferred income taxes result from the use of accelerated methods
of depreciation for income tax purposes and from the establishment of an
allowance for doubtful accounts for financial reporting purposes.
F-81
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 1 - General and Summary of Significant Accounting Policies (continued)
(F) - Revenue Recognition
The Company recognizes revenues at the time the shipment is delivered to
recipients.
(G) - Organization expense
As part of its initial incorporation, the company incurred organization costs
amounting to $889 which is being amortized on a straight-line basis over five
years.
(H) - Intangible Asset
As discussed in Note 1A, the Company acquired a license from the Interstate
Commerce Commission which is required to allow the Company to do business as
an interstate carrier broker. This license, which cost $2,000 is being
amortized on a straight-line basis over five years.
(I) - Concentration of Credit Risk
Virtually all of the Company's customers are in the long haul trucking
industry. Further, accounts receivable are uncollateralized and consist of
amounts due from that industry.
(J) - Offering Costs
During 1996, the Company incurred certain expenses related to an equity
offering in connection with its affiliate, Mid America Transporters Group,
Inc. and Subsidiary. The offering was unsuccessful and, accordingly, the
expense was amortized in full during 1996.
(K) - Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
NOTE 2 - Cash and Cash Equivalents
The Company maintains its cash balances in one financial institution located
in Charleston, South Carolina which at times, may exceed federally insured
limits. The Company has not experienced any losses in such account and
believed it is not exposed to any significant credit risk on cash and cash
equivalents.
F-82
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 3 - Property, Plant and Equipment
Property, plant and equipment consists of the following as of December 31,:
1996 1995
-------- --------
Office equipment $ 12,656 $ 7,171
Furniture and fixtures 1,406 1,406
-------- --------
11,250 8,577
Less: Accumulated Depreciation 3,950 2,025
-------- --------
Total property, plant and equipment $ 7,300 $ 6,552
======== ========
Depreciation expense amounted to $1,925 and $1,333 for the years ended
December 31, 1996 and 1995, respectively and is included in general and
administrative expenses.
NOTE 4 - Notes Payable
During 1995, the Company acquired office equipment in the amount of $2,946
which was financed payable in 36 installments of $110 per month including
interest at 14% per annum due June, 1998.
Total principal $ 1,691
Less: current maturities 1,071
--------
Long-term portion $ 620
========
Aggregate annual maturities of long-term debt for the five years following
December 31, 1996 are as follows:
1997 $ 1,071
1998 620
--------
Total $ 1,691
========
NOTE 5 - Commitments and Contingencies
The Company leases office space for its operating facility in Charleston,
South Carolina. The current lease term commenced on May 1, 1995 and concludes
on April 30, 1997. Commitments under this lease agreement amounted to $3,675
in 1997.
Rent expense amounted to $6,000 and $9,440 for the periods ended December 31,
1996 and 1995, respectively and is included in general and administrative
expenses.
F-83
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 6 - Income Taxes
The Company accounts for income taxes on the liability method, as provided by
Statement of Financial Accounting Standards 109, Accounting for Income Taxes
(SFAS 109). The provision for income taxes was comprised of the following
components as of December 31. 1996 and 1995:
1996 1995
-------- --------
Federal-current $( 860) $ 5,276
Federal-deferred ( 1,586) (1,000)
State-current 25 1,759
State-deferred ( 334) -0-
-------- --------
Total $( 2,755) $ 6,035
======== ========
The income tax provision reconciled to the tax computed at the statutory
Federal rate was:
1996 1995
---------------- ----------------
Tax at Statutory Rate $( 3,218) (39)% $ 9,308 39 %
State income taxes 1,759 7
Benefit of graduated brackets 463 6 ( 5,728) (24)
Other 696 3
-------- -- -------- --
$( 2,755) (33)% $ 6,035 25 %
======== == ======== ==
Deferred tax assets and liabilities at December 31, 1996 and 1995 consist of
the following:
1996 1995
-------- --------
Deferred tax assets
Allowance for doubtful accounts $ 11,834 $ 11,834
Deferred tax liabilities
Depreciation of property & equipment ( 5,155) ( 6,545)
-------- --------
Net Total $ 6,679 $ 5,289
======== ========
Net operating loss carryovers amounting to $5,733 for state income tax
purposes are available through December 31, 2011.
F-84
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 7 - Advances to Affiliate
The Company advanced funds and provided services to its affiliate, Gulf
Northern Transport, Inc. during 1996 and 1995. Gulf Northern is related to
the Company through common ownership and management. Total revenues generated
by services provided during 1996 and 1995, respectively amounted to $6,465 and
$2,601. The amount of such advances which remained unpaid as of December 31,
1996 and 1995 amounted to $27,353 and $17,910, respectively. These advances
represent allocations of rent and other administrative costs and freight
settlements, are non interest bearing and are due on demand. The fair market
value of these advances approximate book value.
NOTE 8 - Accounts Payable-Affiliate
The Company incurred expenses for freight settlements from its affiliate, Gulf
Northern Transport, Inc. which amounted to $340,822 and $119,045 for the years
ended December 31, 1996 and 1995. The remaining balance payable to the
affiliate for such expenses as of December 31, 1996 and 1995 amounted to
$25,881 and $14,150, respectively.
NOTE 9 - Advances from Related Party
During August and September 1996, a shareholder advanced funds totaling
$123,397 to the Company. Repayments during the year amounted to $39,427 with
the remaining balance remitted by February, 1997. The advances were payable
on demand with no stated interest.
NOTE 10 - Economic Dependency
The Company's customers consist primarily of high volume shippers that have
significant time sensitive and high service level traffic needs. The Company
provided services to three and two customers respectively which accounted for
net revenues in excess of 10% of the Company's total revenues for the years
ended December 31, 1996 and 1995 respectively. Tamco Distributors, OK Grocery
and McCrory Stores accounted for 24.8%, 17.1% and 13.8% of the Company's net
revenues for the year ended December 31, 1996. Tamco Distributors and OK
Grocery accounted for 30.1% and 22.8% of the Company's net revenues for the
year ended December 31, 1995.
Accounts receivable from those customers amounted to $82,926 and $94,594 as of
December 31, 1996 and 1995 respectively.
Revenues from the Company's five and ten largest customers accounted for
approximately 66% and 81% respectively of total net revenues for the year
ended December 31, 1996. Revenues from the Company's five and ten largest
customers accounted for approximately 71% and 87% respectively of total net
revenues for the year ended December 31, 1995.
F-85
MENCOR, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 11 - Subsequent Event
On January 30, 1997, the stockholders sold their interests in Mencor, Inc. to
U.S. Trucking, Inc. (the buyer) for $75,000. The transaction was in
conjunction with the sale of Gulf Northern Transport, Inc. Also in connection
with the sale, the Company agreed to continue the employment of Michael Menor
(a former shareholder of Mencor, Inc.) as the president of the Company for the
period from the date of enactment to January 30, 2000 at an annual salary of
$60,000 per year. Further, during the period of employment and a period of
two (2) years after his termination, Mr. Menor agreed that he will not
participate in an entity which directly performs truck brokerage services for
those customers currently serviced by the Company.
Also on the date of enactment, the buyer contracted with Roxanne Pixler, (a
former shareholder of Mencor, Inc.) for her to provide consulting services to
the Company. Pixler will receive 18,750 shares of U.S. Transportation
Systems, Inc. as compensation for her services. The contracted obligation
will commence from the date of enactment to December 31, 1998.
F-86
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The only statute, charter provision, bylaw, contract, or other
arrangement under which any controlling person, Director or Officer of the
Company is insured or indemnified in any manner against any liability which he
may incur in his capacity as such, is as follows:
(a) The Company has the power under the Colorado Business Corporation
Act to indemnify any person who was or is a party or is threatened to be made
a party to any action, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a Director,
Officer, employee, fiduciary, or agent of the Company or was serving at its
request in a similar capacity for another entity, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection therewith if he acted in good faith
and in a manner he reasonably believed to be in the best interest of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. In case of an action
brought by or in the right of the Company such persons are similarly entitled
to indemnification if they acted in good faith and in a manner reasonably
believed to be in the best interests of the Company but no indemnification
shall be made if such person was adjudged to be liable to the Company for
negligence or misconduct in the performance of his duty to the Company unless
and to the extent the court in which such action or suit was brought
determines upon application that despite the adjudication of liability, in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnification. In such event, indemnification is limited to
reasonable expenses. Such indemnification is not deemed exclusive of any
other rights to which those indemnified may be entitled under the Articles of
Incorporation, Bylaws, agreement, vote of shareholders or disinterested
directors, or otherwise.
(b) The Articles of Incorporation and Bylaws of the Company generally
require indemnification of Officers and Directors to the fullest extent
allowed by law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the offering, all of which are to be borne by
the Selling Shareholders, are as follows:
SEC Filing Fee ................................ $ 1,824.38
Printing Expenses ............................. 1,000.00
Accounting Fees and Expenses .................. 2,500.00
Legal Fees and Expenses ....................... 25,000.00
Blue Sky Fees and Expenses .................... 500.00
Miscellaneous ................................. 4,175.62
----------
Total .................................... $35,000.00
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During its past three years, the Registrant issued securities which were
not registered under the Securities Act of 1933, as amended (the "Act"), as
follows.
II-1
Effective September 8, 1998, the Company effected a 1 for 160 reverse
split of the outstanding Common Stock. All numbers of shares stated below
give retroactive effect to this stock split.
On September 8, 1998, the Company completed the acquisition of 100% of
the outstanding common stock of U.S. Trucking-Nevada in exchange for
15,877,300 shares of the Company's Common Stock. The shares were exchanged on
the basis of one share of the Company's Common Stock for one share of U.S.
Trucking-Nevada common stock. The stock issuances were made to the 29
shareholders of U.S. Trucking-Nevada pursuant to an Agreement ("Agreement")
between the Company and U.S. Trucking-Nevada.
During October 1998, the Company issued an additional 133,333 shares of
common stock to five accredited investors who had invested $100,000 in U.S.
Trucking-Nevada and who exchanged their shares in U.S. Trucking-Nevada for
shares of the Company's common stock on a one-for-one basis.
During November 1998, the Company issued 33,334 shares to an accredited
investor who invested $25,000 in a private placement.
The sales described above were made in reliance on the exemption from
registration offered by Section 4(2) of the Securities Act of 1933. The
Company had reasonable grounds to believe that these persons (1) were
acquiring the shares for investment and not with a view to distribution, and
(2) had such knowledge and experience in financial and business matters that
they were capable of evaluating the merits and risks of their investment and
were able to bear those risks. Such persons had access to pertinent
information enabling them to ask informed questions. An appropriate
restrictive legend is noted on the certificates representing such shares, and
stop-transfer instructions have been noted in the Company's transfer records.
ITEM 27. EXHIBITS.
The following Exhibits are filed as part of this Registration Statement
pursuant to Item 601 of Regulation S-B:
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------- ----------- --------
3.1 Articles of Incorporation Incorporated by reference to Exhibit
No. 3 to the Company's Registration
Statement on Form S-18 (SEC File
No. 33-9640-LA)
3.2 Bylaws Incorporated by reference to Exhibit
No. 3 to the Company's Registration
Statement on Form S-18 (SEC File
No. 33-9640-LA)
3.3 Articles of Amendment to Filed herewith electronically
Articles of Incorporation
effective September 8, 1998
II-2
3.4 Articles of Amendment to Filed herewith electronically
Articles of Incorporation
dated January 20, 1999
5 Opinion of Krys Boyle Filed herewith electronically
Freedman & Sawyer, P.C.
regarding the legality
of the securities being
registered
10.1 1998 Stock Option Plan Incorporated herein by reference to
Exhibit No. 4.3 to the Company's
Registration Statement on Form S-8
(SEC File No. 333-70353)
10.2 Share Exchange Agreement Incorporated herein by reference to
with U.S. Trucking, Inc. Exhibit No. 10 to the Company's
Form 8-K dated September 8, 1998
10.3 Employment Agreement with Filed herewith electronically
Danny L. Pixler
10.4 Employment Agreement with Filed herewith electronically
Anthony Huff
10.5 Employment Agreement with Filed herewith electronically
John Ragland
10.6 Lease Agreement dated Filed herewith electronically
January 1, 1997, between
Gulf Northern Transport,
Inc., Dan L. Pixler, and
Sebrite Insurance Services,
Inc.
10.7 Lease Agreement dated Filed herewith electronically
March 5, 1998, between
Gulf Northern Transport,
Inc. and Dan Pixler for
three tractors
10.8 Lease Agreement dated Filed herewith electronically
September 23, 1998,
between Gulf Northern
Transport, Inc. and
Thomas Financial Services
10.9 Stock Exchange Agreements Filed herewith electronically
between U.S. Trucking and
three shareholders dated
January 29, 1999.
10.10 Loan and Security Agreement Filed herewith electronically
dated as of December 22,
1998 between General Electric
Capital Corporation and
U.S. Trucking, Inc., et al.
II-3
10.11 Management Services Agree- Filed herewith electronically
ment dated December 30,
1998, between Mid-Cal
Express, Inc. and Gulf
Northern Transport, Inc.
21 Subsidiaries of the Filed herewith electronically
Registrant
23.1 Consent of Krys Boyle Contained in Exhibit 5
Freedman & Sawyer, P.C.
23.2 Consent of Bianculli, Filed herewith electronically
Pascale & Co. P.C.
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned small business issuer will:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2, and authorized this
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, in the City of Louisville, State of Kentucky, on the 5th day
of February 1999.
U.S. TRUCKING, INC.
By:/s/ Danny L. Pixler
Danny L. Pixler, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Danny L. Pixler President (Chief Executive February 5, 1999
Danny L. Pixler Officer) and Director
/s/ W. Anthony Huff Executive Vice President February 5, 1999
W. Anthony Huff and Director
/s/ John Ragland Chief Financial and February 5, 1999
John Ragland Accounting Officer
U.S. TRUCKING, INC.
FORM SB-2 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION LOCATION
3.3 Articles of Amendment to Filed herewith electronically
Articles of Incorporation
effective September 8, 1998
3.4 Articles of Amendment to Filed herewith electronically
Articles of Incorporation
dated January 20, 1999
5 Opinion of Krys Boyle Filed herewith electronically
Freedman & Sawyer, P.C.
regarding the legality
of the securities being
registered
10.3 Employment Agreement with Filed herewith electronically
Danny L. Pixler
10.4 Employment Agreement with Filed herewith electronically
Anthony Huff
10.5 Employment Agreement with Filed herewith electronically
John Ragland
10.6 Lease Agreement dated Filed herewith electronically
January 1, 1997, between
Gulf Northern Transport,
Inc., Dan L. Pixler, and
Sebrite Insurance Services,
Inc.
10.7 Lease Agreement dated Filed herewith electronically
March 5, 1998, between
Gulf Northern Transport,
Inc. and Dan Pixler for
three tractors
10.8 Lease Agreement dated Filed herewith electronically
September 23, 1998,
between Gulf Northern
Transport, Inc. and
Thomas Financial Services
10.9 Stock Exchange Agreements Filed herewith electronically
between U.S. Trucking and
three shareholders dated
January 29, 1999.
10.10 Loan and Security Agreement Filed herewith electronically
dated as of December 22,
1998 between General Electric
Capital Corporation and
U.S. Trucking, Inc., et al.
10.11 Management Services Agree- Filed herewith electronically
ment dated December 30,
1998, between Mid-Cal
Express, Inc. and Gulf
Northern Transport, Inc.
21 Subsidiaries of the Filed herewith electronically
Registrant
23.1 Consent of Krys Boyle Contained in Exhibit 5
Freedman & Sawyer, P.C.
23.2 Consent of Bianculli, Filed herewith electronically
Pascale & Co. P.C.