UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Three Months Ended March 31, 1999
Commission File Number: 33-9640-LA
U. S. TRUCKING, INC.
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(Exact Name of Issuer as Specified in its Charter)
COLORADO 68-0133692
- ------------------------------- ---------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
3125 Ashley Phosphate Road, Suite 128, North Charleston, S.C. 29418
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(Address of Principal Executive Offices)
(843) 767-9197
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(Registrant's Telephone Number, Including Area Code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES [ X ] NO [ ]
There were 6,484,591 shares of the Registrant's common stock outstanding as of
March 31, 1999.
Item 1: FINANCIAL STATEMENTS
U. S. TRUCKING, INC.
FORM 10-QSB
INDEX
Page Number
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets (Unaudited) -
March 31, 1999 and December 31, 1998 3
Consolidated Statement of Income (Unaudited) -
Three Months Ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or
Plan of Operation 8
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1999 December 31, 1998
(UNAUDITED) (UNAUDITED)
Assets
Current Assets
Cash in Bank $ 433,235 $ 22,976
Trade Accounts Receivable - net 4,613,718 3,447,570
Accounts Receivable - Other 164,430 141,673
Parts and Supply Inventory 252,698 257,030
Prepaid Expenses and Other 529,986 162,036
----------- -----------
Total Current Assets 5,994,067 4,031,285
----------- -----------
Transportation & Other Equipment - 8,417,971 9,718,805
at cost - Less accumulated
depreciation and amortization
Other Assets
Restricted Cash - Owner Operators 2,320 2,320
Restricted Cash - Letters of Credit 40,000 10,000
Restricted Cash - Captive Insurance 196,000 -
Due from Related Party 100,000 100,000
Due from Captive Insurer 389,301 355,321
Security Deposits 12,575 12,575
Intangible Assets - net of accumulated
amortization 1,995,062 2,082,055
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Total Other Assets 2,735,258 2,562,271
----------- -----------
Total Assets $17,147,296 $16,312,361
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable - Trade $ 1,378,561 $ 1,443,415
Revolving Credit Line 2,662,027 1,795,888
Accruals & Other Current Liabilities 1,154,462 669,957
Current Portion - Long Term Debt 1,998,102 2,034,756
----------- -----------
Total Current Liabilities 7,193,151 5,944,016
----------- -----------
Other Liabilities
Owner Operator Escrow 87,787 55,874
Long-Term Notes Payable - net of
current portion 4,184,365 5,224,092
----------- -----------
Total Other Liabilities 4,272,152 5,279,966
----------- -----------
Total Liabilities 11,465,304 11,223,982
----------- -----------
Stockholders' Equity
Preferred Stock (no par value -
20,000,000 shares authorized,
990,000 issued and outstanding) 762
Common Stock -(no par value -
75,000,000 shares authorized,
6,484,591 issued and outstanding
on March 31, 1999, and 16,074,591
on December 31, 1998) 2,867,238 2,796,000
Additional Paid in Capital 4,223,480 3,821,812
Accumulated Deficit (1,289,488) (1,409,433)
Subscription Receivable (120,000) (120,000)
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Total Stockholders' Equity 5,681,992 5,088,379
----------- -----------
Total Liabilities &
Stockholders' Equity $17,147,296 $16,312,361
=========== ===========
3
U.S.TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
March 31, 1999 March 31, 1998
(UNAUDITED) (UNAUDITED)
Net Revenues 7,661,372 100.0% 5,067,331 100.0%
Operating Expenses
Purchased Transportation &
Rentals 2,670,015 34.9% 1,556,955 30.7%
Salaries, Wages & Benefits 2,055,129 26.8% 1,281,918 25.3%
Fuel 715,099 9.3% 562,427 11.1%
Operating Supplies &
Maintenance 322,187 4.2% 302,350 6.0%
Insurance & Claims 223,428 2.9% 170,963 3.4%
Misc. Operating Expenses 201,787 2.6% 141,121 2.8%
Taxes & Licenses 115,493 1.5% 101,441 2.0%
Insurance Captive Expense 271,136 3.5% - 0.0%
Occupancy Costs 85,030 1.1% 69,903 1.4%
Depreciation and Amortization 550,635 7.2% 434,655 8.6%
----------- ----- ----------- -----
Total Operating Expenses 7,209,939 94.1% 4,621,732 91.2%
General Administrative Expenses 372,746 4.9% 176,546 3.5%
Operating Income 78,687 1.0% 269,053 5.3%
Interest Expense (108,796) -1.4% (141,074) -2.8%
Gain on Sale of Equipment 124,114 1.6% - 0.0%
Interest Income 42 0.0% 185 0.0%
Other Income 25,899 0.3% 9,436 0.2%
----------- ----- ----------- -----
Net Income before Taxes 119,946 1.6% 137,600 2.7%
Provision for Income Taxes 46,800 0.6% 53,700 1.1%
Tax Benefit of Net Operating
Loss Carryforward (46,800) -0.6% (53,700) -1.1%
----------- ----- ----------- -----
Net Income $ 119,946 1.6% $ 137,600 2.7%
=========== ===== =========== =====
Accumulated Deficit-beginning (1,409,434) (1,531,200)
----------- -----------
Accumulated Deficit-ending $(1,289,488) $(1,393,600)
=========== ===========
Earnings per Common Share $ 0.01 $ 0.01
Fully Diluted Earnings per Share $ 0.01 $ 0.01
Average Number of Shares
Outstanding 10,863,310 13,000,000
4
U.S. TRUCKING, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS
Consolidated Consolidated
3/31/99 3/31/98
(Unaudited) (Unaudited)
Cash Flows From Operating Activities
Net Income 119,946 137,599
Adjustments to Reconcile Net Income
to Net Cash Used in Operating Activities
Depreciation & Amortization 550,635 428,656
Gain on Sale of Equipment (124,114) -
(Increase ) Decrease - Assets
Restricted Cash (226,000) (167,664)
Accounts Receivable (1,222,885) 238,267
Parts & Supply Inventory - (5,688)
Prepaid Expenses & Other Current Assets (363,619) (123,646)
Increase (Decrease) - Liabilities
Accounts Payable and Revolving Credit Line 801,285 (210,934)
Accrued Expenses and Other liabilities 516,419 52,746
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Total Adjustments (68,279) 211,737
Net Cash Provided by Operating Activities 51,667 349,336
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Cash Flows From Investing Activities
Purchase of Equipment (142,808) (16,287)
Sale of Transportation and Other Equipment 1,104,114 -
Payment for Re-financing of Acquisition Debt - (55,274)
Proceeds from Sale of Common Stock and
Additional Paid in Capital 473,668 -
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Net Cash Provided(Used) by Investing
Activities 1,434,974 (71,561)
Cash Flows from Financing Activities
Principal Payments on Long-Term Debt (1,076,382) (166,476)
Principal Payments on Capital Lease
Obligations - (79,274)
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Net Cash Used by Financing Activities (1,076,382) (245,750)
Net Increase in Cash 410,259 32,025
Cash at Beginning of Year 22,976 60,099
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Cash at End of Period 433,235 92,124
Supplementary Disclosure of Cash Flow
Information
Cash Paid during the period
Interest Expense 108,796 143,952
Income Taxes - -
5
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
annual consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although management believes these disclosures are
adequate to make the information presented not misleading. In the opinion of
management, all adjustments necessary for fair presentation for the periods
presented has been reflected and are of a normal recurring nature. These
condensed consolidated financials statements and the notes thereto for the
three years ended December 31, 1998, 1997, and 1996, as filed with the
Securities and Exchange Commission as part of the Company's Annual Report on
Form 10-KSB. Results of operations for the interim periods are not
necessarily indicative of the results to be expected for the year.
NOTE 2 - Earnings per Share
Earnings per common share amounts are based on the weighted average number of
common shares outstanding and diluted earnings per share amounts are based on
the weighted average number of common shares outstanding plus the incremental
shares that would have been outstanding upon the assumed exercise of all
dilutive preferred shares.
NOTE 3 - Segment Information
Description of the types of services from which each reportable segment
derives its revenues. The Company has three major business segments: long-
haul trucking of refrigerated and non refrigerated products, interstate
freight brokerage and a captive insurance program for liability insurance for
the trucking industry. During the fourth quarter of 1998, the company adopted
Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information (SFAS 131).
The adoption of SFAS 131 requires the presentation of descriptive information
about reportable segments which is consistent with that made available to the
management of U.S. Trucking to assess performance. As a result of this
change, the company now reports information on its truck brokerage operation.
In addition, during 1998, the company added the captive liability insurance
program (business) and reports that segment's performance similarly. In
determining the net income of each segment of the company, 100% of the
interest expense is allocated to long-haul trucking and effective tax rates
are determined for each business segment.
The Company evaluates performance and allocates resources based on net profit
and loss from operations
The Company's reportable segments are business units that offer different
transportation services. The reportable segments are each managed separately
because of their distinct differences in the operations.
6
THREE MONTH PERIOD ENDED MARCH 31, 1999
Long Haul Truck Liability Intersegment Total
Trucking Brokerage Insurance
Sales 7,066,758 345,119 473,861 (224,366) 7,661,372
Net Income 95,283 (19,366) 33,980 10,048 119,945
Assets 15,618,943 219,460 1,308,893 - 17,147,296
Depreciation & Amortization 550,035 600 550,635
THREE MONTH PERIOD ENDED MARCH 31, 1998
Long Haul Truck Liability Intersegment Total
Trucking Brokerage Insurance
Sales 4,545,773 600,554 - (78,996) 5,067,331
Net Income 120,959 16,641 - - 137,600
Assets 9,719,940 374,486 - - 10,094,426
Depreciation & Amortization 400,820 600 - - 401,420
7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and results of
operations for the three months ended March 31, 1999 and 1998 should be read
in conjunction with the Company's Consolidated Financial Statements and Notes
thereto contained elsewhere in this report.
GENERAL
The Company was established in January 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 Company consolidated operations and
implemented manpower reductions and blending of 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
Transport, Inc. as well as the implementation of a Captive Insurance Program
for Auto-Liability for trucking. The Company reported a profit in the year
ended December 31, 1998, by significantly decreasing the operating losses in
its trucking division and by initially showing a profit in its Auto-Liability
Captive Insurance Program.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31,
1998
Revenues for the three months ended March 31, 1999, increased by 51.2% to $7.7
million as compared to $5.1 million for the three months ended March 31, 1998.
The increase in revenues was primarily due to revenues generated by Mid-Cal
Express, Inc., which was acquired by U.S. Trucking on December 30, 1998.
Company driver generated revenue increased by 24% to $4.2 million for the
three months ended March 31, 1999 from $3.2 million for the same period in
1998. Independent contractor generated revenues increased by 85% to $2.4
million in 1999 from $1.3 million in 1998. Third-party brokerage decreased
58% to $345 thousand in 1999 from $600 thousand in 1998. Another factor which
caused revenue to increase was the addition during the second quarter of 1998
of a captive insurance program for auto-liability insurance provided to third
party trucking companies. Captive insurance revenues increased to $305
thousand in 1999 from zero in 1998.
Operating expenses for the three months ended March 31, 1999 were $7.2
million, or 94% of revenues, as compared to $4.6 million, or 91% of revenues,
for the same period in 1998. The increase as a percentage of revenues is
primarily costs related to the acquisition of the assets of Mid-Cal Express,
Inc. Fuel expenses increased $153 thousand to $715 thousand (17% of revenues
generated by company drivers) in 1999 from $562 thousand (18% of revenues
generated by company drivers) in 1998. Company driver payroll increased $442
thousand to $1.2 million (28.6% of revenues generated by company drivers) in
1999 from $758 thousand (24% of revenues generated by company drivers) in
1998. Repairs and maintenance costs increased $20 thousand to $322 thousand
(4.6% of revenues generated by the trucking segment) in 1999 from $302
thousand (6.8% of revenues generated by the trucking segment) in 1998. Lower
repair and maintenance costs as a percentage of revenues from the trucking
segment were due both from the replacement of older equipment in the fleet and
the product of better management in decreasing the outsourcing of major
repairs and increased dedication to preventive maintenance.
8
Expenses related to the captive insurance program such as paid losses,
reserved losses, reinsurance and administrative fees increased to $271
thousand in 1999 from zero in 1998.
All expenses related to insurance in the truckload division increased $52
thousand to $223 thousand (2.9% of all revenues) in 1999 from $171 thousand
(3.4% of all revenues) in 1998. This represents a decrease as a percentage of
revenues and is a direct result of lower premiums paid in the internal captive
insurance program.
General and other administrative expenses for the three months ended March 31,
1999, were $372 thousand or 4.8% of revenues, compared to $176 thousand or
3.5% of revenues, for the same period in 1998. The increase was due to the
completed acquisition of the assets of Mid-Cal Express, Inc. Administrative
payroll increased $114 thousand to $341 thousand (4.5% of all revenues) in
1999 from $227 thousand (4.5% of all revenues) in 1998. This increase is
directly related to the increase in revenues.
Depreciation and amortization expenses for the three months ended March 31,
1999 were $551 thousand, or 7.2% of revenue, as compared to $435 thousand or
8.6% of revenue for the same period in 1998. This increase in the dollar
amount is primarily due to amortization of goodwill on the acquisition of Mid-
Cal Express, Inc. Normal recurring depreciation and amortization did not
significantly change.
Interest expense was $109 thousand or 1.4% of revenue for the quarter ended
March 31, 1999 as compared to $141 thousand or 2.8% of revenue, for the same
period in 1998. The decrease in interest as a percent of revenue is the
result of (1) the restructure of the original acquisition loan, (2) lower
receivable financing costs due to the transfer of the factoring relationship
to a revolving line of credit facility and (3) the restructuring of some
equipment debt to operating leases.
Freight settlements paid to outside carriers decreased $221 thousand to $308
thousand (89% of brokerage generated revenues) for the quarter ended March 31,
1999 as compared to $529 thousand or 88% of revenues for the same period in
1998. This decrease resulted from fewer loads being brokered in 1999 because
of increased competition in the industry.
Income taxes have been provided at the statutory federal and state rates,
adjusted for certain permanent differences between financial statement and
income tax reporting. The Company has net operating losses available to
offset future income for financial reporting expiring in the year 2012.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had a working capital deficit of approximately
$1,199,084 as compared to a deficit of approximately $1,912,731 at March 31,
1998. The Company's working capital deficit improved primarily as a result of
the $1,104,114 received from the sale of transportation equipment during the
three months ended March 31, 1999. Net cash provided by operating activities
was approximately $52,000 for the first three months of 1999 compared to
$349,000 for the corresponding period in 1998. The Company has historically
funded its working capital requirements through a combination of funds
provided from operations, the Company's working capital facility with GE
Capital and invested capital. In order to continue with its growth plans, the
Company intends to raise additional funds through private placements of equity
and/or debt securities.
9
Since March 31, 1999, the Company has raised approximately $500,000 in gross
proceeds from the sale of Series B Convertible Preferred Stock and
approximately $600,000 in gross proceeds from the sale of a convertible
debenture to a foreign investor.
INFLATION
Many of the Company's operating expenses, including fuel costs and fuel taxes,
are sensitive to the effects of inflation, which could result in higher
operating costs. The effects of inflation on the Company's business during
the three months ended March 31, 1999, were negligible.
SEASONALITY
The results of operations are often impacted by seasonality in the
transportation industry. Seasonal variations may result from adverse weather
or from a customer's reduced shipments after busy holidays or as a result of
geographic location. The Company has operated in the mid-west, southeast and
eastern regions of the United States until recently adding a west coast
operation facility with the asset purchase of Mid-Cal Express, Inc. which is
predominately a fresh produce long-haul division, which by its nature is
subject to weather conditions that could expose the Company to greater
operating variances in the future.
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
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, and the complete system is now
operating Company-wide. 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
10
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.
11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. None.
ITEM 2. CHANGES IN SECURITIES. None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None
ITEM 5. OTHER INFORMATION. None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
Exhibit
Number Description Location
3.5 Articles of Amendment dated April 29, Filed herewith
1999, regarding Series B Convertible electronically
Preferred Stock
10.12 10% Convertible Debenture due May 31, Filed herewith
2002 for $600,000 electronically
27 Financial Data Schedule Filed herewith
electronically
(b) REPORTS ON FORM 8-K. None.
12
SIGNATURES
In accordance with the requirements of the Exchange Act, the Issuer caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
U. S. TRUCKING, INC.
By:/s/ Dan L. Pixler
Dan L. Pixler, President
Dated: June 2, 1999
13
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
- ------- ----------------
3.5 Articles of Amendment dated April 29, Filed herewith
1999, regarding Series B Convertible electronically
Preferred Stock
10.12 10% Convertible Debenture due May 31, Filed herewith
2002 for $600,000 electronically
27 Financial Data Schedule Filed herewith
electronically