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 Nine Months Ended September 30, 1999
Commission File Number: 33-16417-LA
U. S. TRUCKING, INC.
--------------------------------------------------
(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
-------------------------------------------------------------------
(Address of Principal Executive Offices)
(843) 767-9197
----------------------------------------------------
(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 8,058,883 shares of the Registrant's common stock outstanding as of
September 30, 1999.
U. S. TRUCKING, INC.
FORM 10-QSB
INDEX
Page Number
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets (Unaudited) -
September 30, 1999 and December 31, 1998 3-4
Consolidated Statement of Income (Unaudited) -
Nine Months Ended September 30, 1999 and 1998 5
Consolidated Statement of Income (Unaudited) -
Three Months Ended September 30, 1999 and 1998 6
Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended September 30, 1999 and 1998 7-8
Notes to Condensed Consolidated Financial Statements 9-13
Item 2. Management's Discussion and Analysis or
Plan of Operation 14-21
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security
Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 23
2
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 1999 December 31, 1998
(Unaudited) (Audited)
Assets
Current Assets
Cash In Bank $ 1,556,338 $ 22,976
Trade Accounts Receivable - net 8,975,002 3,447,570
Accounts Receivable - Other 1,299,019 141,673
Parts and Supply Inventory 296,900 257,030
Prepaid Expenses and Other 610,931 162,036
----------- -----------
Total Current Assets 12,738,190 4,031,285
Transportation & Other Equipment 7,945,768 9,718,805
at cost - Less accumulated
depreciation and amortization
Other Assets
Restricted Cash - Factor - -
Restricted Cash - Owner Operators 2,442 2,320
Restricted Cash - Letters of Credit 241,790 10,000
Restricted Cash - Captive Insurance 253,196 -
Due from Related Party 100,000 100,000
Due from Captive Insurer 540,299 355,321
Notes Receivable 664,404 -
Security Deposits 152,192 12,575
Intangible Assets - net of accumulated
amortization 5,007,237 2,082,055
----------- -----------
Total Other Assets 6,961,560 2,562,271
Total Assets $27,645,518 $16,312,361
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable - Trade $ 1,332,958 $ 1,443,415
Revolving Credit Line 4,830,053 1,795,888
Factor Payable 1,848,127 -
Accruals & Other Current Liabilities 1,314,682 669,957
Current Portion - Long Term Debt 2,346,897 2,034,756
----------- -----------
Total Current Liabilities 11,672,717 5,944,016
----------- -----------
Other Liabilities
Owner Operator Escrow 138,256 55,874
Convertible Debentures 1,150,000 -
Discount on Convertible Debentures (110,000) -
Long-Term Notes Payable - net of
current portion 3,933,072 5,224,092
----------- -----------
Total Other Liabilities 5,111,328 5,279,966
----------- -----------
Total Liabilities 16,784,045 11,223,982
----------- -----------
3
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Continued)
September 30, 1999 December 31, 1998
(Unaudited) (Audited)
Stockholders' Equity
Preferred Stock (no par value - 2,950,762 -
20,000,000 shares authorized,
990,000 Series A issued and outstand-
ing; 2,000 Series B issued and out-
standing; 50,000 Series C issued and
outstanding; and 950 Series D issued
and outstanding
Common Stock (no par value - 4,818,238 2,796,000
75,000,000 shares authorized, 8,058,883
issued and outstanding on September 30,
1999, and 16,074,591 on December 31,
1998)
Additional paid-in Capital 3,938,180 3,821,812
Accumulated Deficit (725,707) (1,409,433)
Subscription Receivable (120,000) (120,000)
----------- -----------
Total Stockholders' Equity 10,861,473 5,088,379
----------- -----------
Total Liabilities & Stockholders'
Equity $27,645,518 $16,312,361
=========== ===========
4
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
For the Nine Months Ended For the Nine Months Ended
September 30, 1999 September 30, 1998
(Unaudited) (Unaudited)
Net Revenues $29,828,018 $15,827,179
Operating Expenses
Purchased Transportation & Rentals 12,589,165 42.2% 5,551,323 35.1%
Salaries, Wages & Benefits 6,400,761 21.5% 4,004,267 25.3%
Fuel 2,405,503 8.1% 1,562,002 9.9%
Operating Supplies & Maintenance 1,102,553 3.7% 859,398 5.4%
Insurance & Claims 881,603 3.0% 417,072 2.6%
Misc. Operating Expenses 577,969 1.9% 417,651 2.6%
Taxes & Licenses 416,033 1.4% 328,037 2.1%
Insurance Captive Expense 815,158 2.7% - 0.0%
Occupancy Costs 262,117 0.9% 201,657 1.3%
Depreciation and Amortization 1,731,921 5.8% 1,194,541 7.5%
General Administrative Expenses 1,810,006 6.1% 622,071 3.9%
----------- ------ ----------- ------
Total Operating Expenses 28,992,788 97.2% 15,158,019 95.8%
Operating Income 835,230 2.8% 669,160 4.2%
Interest Expense (596,048) -2.0% (513,460) -3.2%
Gain on Sale of Equipment 404,954 1.4% - 0.0%
Interest Income 13,691 0.0% 1,748 0.0%
Other Income 25,899 0.1% 52,511 0.3%
----------- ------ ----------- ------
Net Income Before Taxes 683,726 2.3% 209,959 1.3%
Provision for Income Taxes 266,653 0.9% 77,685 0.5%
Tax Benefit of Net Operating
Loss Carryforward (266,653) -0.9% (77,685) -0.5%
----------- ------ ----------- ------
Net Income 683,726 2.3% 209,960 1.3%
Accumulated Deficit - beginning (1,409,434) (1,531,200)
----------- -----------
Accumulated Deficit - ending (725,708) (1,321,240)
=========== ===========
Basic Earnings per Share 0.09 0.01
Diluted Earnings per Share 0.04 0.01
Average Number of Shares 7,876,381 15,381,256
Outstanding
5
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
For the Three Months Ended For the Three Months Ended
September 30, 1999 September 30, 1998
(Unaudited) (Unaudited)
Net Revenues $12,003,849 $ 5,108,214
Operating Expenses
Purchased Transportation & Rentals 5,501,283 45.8% 1,883,657 36.9%
Salaries, Wages & Benefits 2,262,888 18.9% 1,337,344 26.2%
Fuel 948,179 7.9% 449,388 8.8%
Operating Supplies & Maintenance 477,045 4.0% 237,969 4.7%
Insurance & Claims 412,466 3.4% 76,138 1.5%
Misc. Operating Expenses 277,138 2.3% 123,964 2.4%
Taxes & Licenses 181,020 1.5% 124,475 2.4%
Insurance Captive Expense 232,355 1.9% - 0.0%
Occupancy Costs 90,085 0.8% 76,349 1.5%
Depreciation and Amortization 585,204 4.9% 380,721 7.5%
General Administrative Expenses 740,835 6.2% 210,506 4.1%
----------- ------ ----------- ------
Total Operating Expenses 11,708,497 97.5% 4,900,511 95.9%
Operating Income 295,352 2.5% 207,703 4.1%
Interest Expense (217,576) -1.8% (198,384) -3.9%
Gain on Sale of Equipment 280,840 2.3% - 0.0%
Interest Income 11,266 0.1% 549 0.0%
Other Income - 0.0% 7,270 0.1%
----------- ------ ----------- ------
Net Income Before Taxes 369,882 3.1% 17,138 0.3%
Provision for Income Taxes 144,254 1.2% 5,826 0.1%
Tax Benefit of Net Operating
Loss Carryforward (144,254) -1.2% (5,826) -0.1%
----------- ------ ----------- ------
Net Income 369,882 3.1% 17,138 0.3%
Accumulated Deficit - beginning (1,095,590) (1,304,103)
----------- -----------
Accumulated Deficit - ending (725,708) (1,321,241)
=========== ===========
Basic Earnings per Share 0.05 -
Diluted Earnings per Share 0.02 -
Average Number of Shares 7,149,404 16,082,154
Outstanding
6
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine For the Nine
Months Ended Months Ended
September 30, 1999 September 30, 1998
(Unaudited) (Unaudited)
Cash Flows from Operating Activities
Net Income $ 683,726 $ 209,960
Adjustments to Reconcile Net Income
to Net Cash Provided by (Used in)
Operating Activities
Depreciation & Amortization 1,731,921 1,186,542
Expense related to stock-based - 15,000
compensation plan
Gain on Sale of Equipment (404,954) -
(Increase) Decrease - Assets
Restricted Cash (485,108) (314,332)
Accounts Receivable (4,483,078) (326,986)
Notes Receivable (664,404) -
Parts & Supply Inventory (39,870) (15,689)
Prepaid Expenses & Other Current
Assets (448,895) (84,523)
Increase (Decrease) - Liabilities
Accounts Payable and Due to Factor (110,457) 129,257
Accrued Expenses and Other Liabilities 727,107 49,420
----------- -----------
Total Adjustments (4,177,738) 638,689
Net Cash Provided by (Used in)
Operating Activities (3,494,012) 848,649
Cash Flows from Investing Activities
Reduction (Increase) in security
deposit (139,617) (2,309)
Purchase of Equipment (1,251,766) (248,287)
Net Accounts Receivable acquired
from acquisition (352,974) -
Sale of Transportation and Other
Equipment 1,255,160 -
Cash paid for acquisitions (898,484) (161,228)
Payment for Refinancing of
Acquisition Debt - (55,274)
----------- -----------
Net Cash Used in Investing Activities (1,387,681) (467,098)
Subtotal (4,175,745) 381,551
7
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
For the Nine For the Nine
Months Ending Months Ending
September 30, 1999 September 30, 1998
(Unaudited) (Unaudited)
Cash Flows from Financing Activities
Proceeds from Revolving Credit Loan 20,602,120 -
Payments on Revolving Credit Loan (17,567,955) -
Proceeds from Long Term Debt Financing 1,071,229 -
Discount on Note Payable 13,344 -
Issuance of Preferred Stock 2,665,462 -
Sale of Common Stock 300,000 575,000
Sale of Convertible Debenture 1,040,000 -
Conversion of stock options 71,238 -
Paid in capital 401,688 -
Principal Payments on Long-Term Debt (2,168,727) (656,755)
Principal Payments on Capital Lease - (243,086)
Obligations
----------- -----------
Net Cash Provided by (Used in)
Financing Activities 6,415,055 (311,497)
Net Increase (Decrease) in Cash 1,533,362 70,054
Cash at Beginning of Year 22,976 60,099
----------- -----------
Cash at End of Period $ 1,556,338 $ 130,153
=========== ===========
Supplementary Disclosure of Cash
Flow Information
Cash Paid during the period
Interest Expense $ 596,048 $ 503,507
=========== ===========
Income Taxes $ -
===========
8
U S TRUCKING, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
NOTE 1 - Basis of Presentation
The accompanying consolidated financial statements include the parent company,
US Trucking, Inc. and its wholly owned subsidiaries, Gulf Northern Transport,
Inc., ProStar, Inc., Mencor, Inc. and the US Trucking Captive Insurance
Program (hereinafter collectively called the "Company"). All material
inter-company items and transactions have been eliminated in consolidation.
The consolidated financial statements included herein have been prepared in
accordance with generally accepted accounting principles ("GAAP"), pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures have been omitted or condensed pursuant
to such rules and regulations. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Results of operations in interim periods are
not necessarily indicative of results for a full year. These consolidated
financial statements and notes thereto should be read in conjunction with the
Company's consolidated financial statements and notes. The preparation of
financial statements in accordance with GAAP requires management to make
estimates and assumptions. Such estimates and assumptions affect the reported
amounts of assets and liabilities as well as disclosure of contingent assets
and liabilities, at the date of the accompanying consolidated financial
statements, and the reported amounts of the revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
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
diluted preferred shares.
NOTE 3 - Segment Information
Description of the types of services from which each reportable segment
derives its revenues. The Company has four major business segments: long-haul
trucking of refrigerated and nonrefrigerated products, interstate freight
brokerage, trucking and brokerage agents program 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 the agents program and
effective tax rates are determined for each business segment.
The Company evaluates performance and allocated resources based on net profit
and loss from operations.
9
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.
NINE MONTHS ENDING SEPTEMBER 30, 1999
Long Haul Agents Truck Liability
Trucking Program Brokerage Insurance Intersegment Total
---------- --------- --------- --------- ------------ ----------
Sales 23,195,461 1,459,227 4,521,499 1,485,780 (833,949) 29,828,018
Operating Income 420,589 65,450 266,151 184,978 (101,938) 835,230
Net Interest 562,252 5,250 4,382 - 24,164 596,048
Pretax Net Income (Loss) 231,415 60,200 261,768 184,978 (54,635) 683,726
Net Income (Loss) 231,415 60,200 261,768 184,978 (54,635) 683,726
Assets 22,368,773 1,328,057 1,778,527 2,170,161 0 27,645,518
Depreciation & Amorti-
zation 1,687,537 9,593 34,791 0 1,731,921
Additions to long-lived
Assets 768,766 483,000 - 0 1,251,766
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1999
Long Haul Agents Truck Liability
Trucking Program Brokerage Insurance Intersegment Total
---------- --------- --------- --------- ------------ ----------
Sales 8,482,941 1,459,227 2,008,086 548,566 (494,971) 12,003,849
Operating Income 72,622 65,450 175,661 83,557 (101,938) 295,352
Net Interest 185,006 5,250 3,156 - 24,164 217,576
Pretax Net Income (Loss) 109,482 60,200 171,278 83,557 (54,635) 369,882
Net Income (Loss) 109,482 60,200 171,278 83,557 (54,635) 369,882
Assets 22,368,773 1,328,057 1,778,527 2,170,161 0 27,645,518
Depreciation and Amorti-
zation 553,729 9,593 21,882 585,204
Additions to long-lived
assets 524,093 483,000 - - 1,007,093
10
NINE MONTHS ENDING SEPTEMBER 30, 1998
Long Haul Agents Truck Liability
Trucking Program Brokerage Insurance Intersegment Total
---------- --------- --------- --------- ------------ ----------
Sales 14,312,368 1,514,814 15,827,182
Operating Income 661,467 7,693 669,160
Net Interest 500,798 2,709 503,507
Pretax Net Income (Loss) 204,976 - 4,984 209,960
Net Income (Loss) 204,976 4,984 209,960
Assets 10,129,009 324,466 10,453,475
Depreciation & Amorti-
zation 1,184,481 2,061 1,186,542
Additions to long-lived
Assets 248,287 248,287
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1998
Long Haul Agents Truck Liability
Trucking Program Brokerage Insurance Intersegment Total
---------- --------- --------- --------- ------------ ----------
Sales 4,798,660 479,136 5,277,796
Operating Income 208,554 (4,934) 203,620
Net Interest 196,857 976 197,833
Pretax Net Income (Loss) 23,048 (5,910) 17,138
Net Income (Loss) 23,048 (5,910) 17,138
Assets 10,129,009 324,466 10,453,475
Depreciation and Amorti-
zation 380,562 687 381,249
Additions to long-lived
assets 140,000 140,000
NOTE 4 - Acquisition of Subsidiaries and other Assets and Liabilities
(A) The Company acquired the stock of Prostar, Inc., a South Carolina
brokerage company effective April 22, 1999. The purchase price was $840,000
based on $340,000 cash and the issuance of 200,000 shares of the company's
common stock valued at $2.50 per share. The purchase was allocated to the
11
assets and liabilities acquired at their fair market values and $1,054,313 of
goodwill was recognized. The goodwill is being amortized over fifteen years on
a straight-line basis. $29,314 has been expensed during 1999. Adjustments if
any, to the purchase price allocations are not expected to have a material
impact on the accompanying consolidated financial statements.
(B) The Company completed the acquisition of a container freight hauling
business located in South Carolina effective late June 1999. The purchase
price was $950,000 based on $300,000 cash and 200,000 shares of the company's
common stock valued at $3.25 per share. As of September 30, 1999, $146,057 of
cash portion was still payable. This purchase of a business was recorded at
its estimated fair value, at the acquisition date, in accordance with AFB
Opinion 16 and $950,000 of goodwill was recognized. The goodwill is being
amortized over fifteen years on a straight-line basis.
(C) Effective September 1999, U.S. Trucking, Inc. acquired certain assets and
liabilities of Fulmer Transport, Inc., a Florida based transportation company.
The purchase price was $1,500,000 based on $457,000 cash and 125,000 shares of
the company's stock valued at $4.00 per share and payment of certain expenses
to affect the acquisition. The purchase price was allocated to the assets and
liabilities acquired at their fair market values and $865,057 of goodwill was
recognized. The goodwill is amortized over fifteen years on a straight-line
basis. $3,844 was expensed during the third quarter of 1999.
An allocation of the purchase price for each of the following transactions
follow:
Fulmer
Prostar, Inc. Rick Kelly Transport, Inc.
------------- ---------- ---------------
Assets:
Cash 103,353
Restricted Cash 150,906 -
Accounts Receivable 109,624 - 2,051,701
Notes Receivable 361,800
Inventory -
Transportation Equipment 15,795 - 463,000
Other Assets 52,804 -
Goodwill 1,054,313 950,000 838,314
--------- ------- ---------
Total 1,486,795 950,000 3,714,815
Liabilities assumed,
Equity and Cash Paid:
Liabilities assumed 645,795 - 2,214,815
Paid in Capital 1,000
Stock issued 500,000 650,000 500,000
Cash Paid 340,000 300,000 457,000
Other expenses - - 543,000
--------- ------- ---------
Total 1,486,795 950,000 3,714,815
12
Historical Historical
U.S. Trucking, Historical Historical Fulmar Pro Forma Pro Forma
Inc. Prostar Rick Kelly Transport Adjustments Combined
-------------- ---------- ---------- ---------- ----------- ---------
Operating Revenues 22,984,116 5,784,179 3,456,200 14,007,581 (308,658) 45,923,418
Operating Expenses 22,748,055 5,623,895 3,093,344 14,023,538 (645,874) 44,842,958
Income (Loss) from
Operations 236,061 160,284 362,856 (15,957) 337,216 1,080,460
Other Income and Expenses
Interest income 126 5,104 - - - 5,230
Interest Expense (426,388) (74,419) (60,950) (245,097) 129,584 (677,270)
Other Income 450,039 1,089 - 31,213 - 482,341
Net Loss on Disposition
of Assets - - -
Total Other income and
expenses 23,777 (68,226) (60,950) (213,884) 129,584 (189,699)
Net income (loss) before
taxes 259,838 92,058 301,906 (229,841) 466,800 890,761
Provision for income taxes (122,345) (31,300) (68,648) - - 302,859
Benefit of net operating
loss carryforward 122,345 31,300 - - - (302,859)
Net income 259,838 92,058 233,258 (229,841) 466,800 890,761
Net income per common
share $0.02 $0.11
Weighted average number
of common shares 7,876,381 8,076,381
13
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 nine months ended September 30, 1999, and 1998 should be
read in conjunction with the Company's Consolidated Financial Statements and
Notes thereto contained elsewhere in this report.
This Quarterly Report on Form 10-Q contains forward-looking statements. The
words "believe," "expect," "anticipate", and similar expressions identify
forward-looking statements, speak only as of the date the statement was made.
Such forward-looking statements are within the meaning of that term in Section
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended.
Such statements may include, but are not limited to, projections of revenues,
income, or loss, capital expenditures, plans for future operations, financing
needs or plans, the impact of inflation and plans relating to the foregoing.
Statements in the Company' Form 10-K, including Notes to the Consolidated
Financial Results of Operations, describe factors, among others, that could
contribute to or cause such differences.
GENERAL
The Company was established in January of 1997 by combining under U.S.
Trucking-Nevada the operations of Gulf Northern Transport, a mid-to-long-haul
truckload carrier and Mencor, Inc. a third party logistics (brokerage)
company.
The Company's operating results include the results of the truckload, agent
and container business of its operating subsidiary, Gulf Northern Transport,
Inc., it's brokerage operations, Mencor, Inc. and ProStar Inc., and the
Company's Captive Auto-Liability Insurance Program. The Company reported
profits in the nine month and three month periods ended September 30, 1999, by
increasing brokerage, agent and container owner-operator revenues and by
adding new profit flow from its Captive Auto-Liability Insurance Program.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1998
Revenues increased 88.5% to $29.8 million for the nine months ended September
30, 1999 from $15.8 million for the same period ended in 1998. The reason for
this increase is attributed to five major factors: the Mid-Cal acquisition
which occurred on December 30, 1998, the ProStar acquisition which occurred on
April 22, 1999, the opening of an owner operator based container division in
June 1999 ,the acquisition of Fulmer Transport, Inc. in September 1999 and the
addition of a Captive Insurance Program in 1998. For the nine month period
ended September 30, 1999 acquisitions increased company revenues over the same
period in 1998 as follows: the Mid-Cal acquisition increased revenues
by $6.6 million, the ProStar acquisition increased revenues by $3.1 million,
the Fulmer Transport acquisition increased revenues by $1.5 million, the
container division increased revenues by $1.2 million and revenues from the
Captive Insurance Program increased $1.5 million.
Operating expenses increased by $13.8 million or 91.3% to $28.9 million for
the nine months ended September 30, 1999 from $15.2 million for the same
period in 1998. Operating expenses increased as a percentage of revenue to
97.2% for the nine months ended September 30, 1999 from 95.8% for the same
period in 1998. The primary factor causing this increase was the increase
14
in general and administrative expenses which increased as a percentage of
revenue to 6.1% for the nine months ended September 30, 1999 from 3.9% for the
same period in 1998. Management believes as revenues continue to increase,
general and administrative expenses will start to decrease as a percentage of
revenue because the costs of centralizing the general office and being a
public company should level out going forward.
Purchased transportation increased by $7.0 million or 127% to $12.6 million or
42.2% of revenue for the nine months ended September 30, 1999 from $5.6
million or 35.1% of revenue for the same period ended in 1998. The reason for
this increase is higher settlements incurred from increased revenues generated
from brokerage, agents and container operations which historically have higher
purchased transportation costs associated with them. Brokerage settlements
increased by $2.8 million, agent settlements increased by $1.3 million and
settlements paid to owner operators increased $1.2 million for the nine months
ended September 30, 1999 compared to the same period in 1998.
Salaries, wages and benefits increased by $2.4 million to $6.4 million for the
nine months ended September 30, 1999 from $4.0 million for the same period
ended 1998 but decreased as percentage of revenue to 21.5% in 1999 compared to
25.3% in 1998. The reason for this decrease as percentage of revenue is
increased revenues generated from brokerage, owner operators and agents which
have much lower payroll costs associated with them.
Fuel expense increased by $843 thousand or 54% to $2.4 million for the nine
months ended September 30, 1999 from $1.56 million for the same period ended
in 1998 but decreased as a percentage of revenue to 8.1% for the nine months
ended September 30, 1999 from 9.9% for the same period ended in 1998. Fuel
expense decreased as percentage of revenue because of increased revenues
generated by brokerage, agents and owner operators which have no fuel costs
associated with them.
Operating supplies and maintenance increased by $243 thousand or 28.3% to $1.1
million for the nine months ended September 30, 1999 from $860 thousand for
the same period ended in 1998 but decreased as a percentage of revenue to 3.7%
for the nine months ended September 30, 1999 from 5.4% for the same period
ended in 1998. The reason for the decrease as a percentage of revenue is due
to increased revenues generated by brokerage, agents and owner operators which
have minor maintenance costs associated with them.
Insurance captive expense increased by $815 thousand to 2.7% of revenues for
the nine months ended September 30, 1999. The reason for the increase is a
change in accounting treatment for captive insurance that wasn't put into
effect until the 1998 year end. For the nine months ended September 30, 1998
all revenues and direct costs were reported at net as a decrease in insurance
expense. Beginning year end 1998 all premiums written from third party
truckers were classified as revenues and all costs associated with that
revenue were classified as captive insurance expense.
Depreciation and amortization increased by $540 thousand or 45.2% to $1.73
million for the nine months ended September 30, 1999 from $1.19 million for
the same period ended in 1998 but decreased as a percentage of revenue to 5.8%
for the nine months ended September 30, 1999 from 7.5% for the same period in
1998. The reason for this decrease as percentage of revenue is due to
increased revenues generated by brokerage, agents and owner operators which
have minimal depreciation costs associated with them. It should be noted
however that amortization expense increased $150 thousand to $306 thousand for
the nine months ended September 30, 1999 from $156 thousand for the same
period ended in 1998.
15
Interest expense increased $83 thousand or 16.1% to $596 thousand for the nine
months ended September 30, 1999 from $513 thousand for the same period ended
in 1998 but decreased as percentage of revenue to 2.0% for the nine months
ended September 30, 1999 from 3.2% for the same period ended in 1998. The
reason for this decrease as a percentage of revenue is due to increased
revenues generated from brokerage, agents and owner operators which have
minimal interest expense associated with revenue equipment debt.
General and administrative expenses increased $530 thousand or 252% to $740
thousand or 6.2% of revenues for the nine months ended September 30, 1999,
from $211 thousand or 3.9% of revenues for the same period ended in 1998. The
primary reason for this increase as a percentage in revenue is that legal,
accounting and consulting expenses increased by $350 thousand to $381 thousand
for the nine months ended September 30, 1999, from $31 thousand for the same
period ended in 1998.
Gain on sale of equipment increased by $405 thousand for the nine months ended
September 30, 1999 in comparison to no gain in the same period in 1998. The
company was able to sell its unutilized and older equipment that had low book
values for amounts substantial enough to recognize gains.
Net income increased $474 thousand or 225% to $684 thousand for the nine
months ended September 30, 1999 from $210 thousand for the same period ended
in 1998. The primary reason for this increase is attributed to the gain on
sales mentioned previously.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
Revenues increased 135% to $12.0 million for the three months ended September
30, 1999 from $5.5 million for the same period ended in 1998. The reason for
this increase is attributed to five major factors: the Mid-Cal acquisition
which occurred on December 30, 1998, the ProStar acquisition which occurred on
April 22, 1999, the opening of an owner operator based container division in
June 1999, the acquisition of Fulmer Transport, Inc. in September 1999 and the
addition of an Captive Insurance Program in 1998. The Mid-Cal acquisition
increased revenues by $2.15 million, the ProStar acquisition increased
revenues by $1.53 million, the Fulmer Transport acquisition increased revenues
by $1.5 million, the opening of a container division increased revenues by
$1.0 million and revenues from the Captive Insurance Program increased by $549
thousand.
Operating expenses increased $6.8 million or 138.9% to $11.7 million for the
three months ended September 30, 1999 from $4.9 million for the same period
ended in 1998. Operating expenses increased as percentage of revenue to 97.5%
for the three months ended September 30, 1999 from 95.9% for the same period
in 1998. The one primary factor causing this increase was the increase in
general and administrative expenses which increased as a percentage of revenue
to 6.2% for the three months ended September 30, 1999 from 4.1% for the same
period in 1998. Management feels as revenues continue to increase, general and
administrative expenses will start to decrease as percentage of revenue
because the costs of centralizing the general office and being a public
company should level out going forward.
Purchased transportation increased by $3.62 million or 192% to $5.5 million or
45.8% of revenue for the three months ended September 30, 1999 from $1.89
million or 36.9% of revenue for the same period ended in 1998. The reason for
this increase is higher settlements incurred from increased revenues generated
from brokerage, agents and container operations which historically have higher
purchased transportation costs associated with them. Brokerage settlements
16
increased by $1.34 million, agent settlements increased by $1.3 million and
settlements paid to owner operators increased $720 thousand for the three
months ended September 30, 1999 compared to the same period in 1998.
Salaries, wages and benefits increased by $926 thousand to $2.26 million for
the three months ended September 30, 1999 from $1.34 million for the same
period ended 1998 but decreased as percentage of revenue to 18.9% in 1999
compared to 26.2% in 1998. The reason for this decrease as percentage of
revenue is increased revenues generated from brokerage, owner operators and
agents which have much lower payroll costs associated with them.
Fuel expense increased by $499 thousand or 110% to $948 thousand for the three
months ended September 30, 1999 from $449 thousand for the same period ended
in 1998 but decreased as a percentage of revenue to 7.9% for the three months
ended September 30, 1999 from 8.8% for the same period ended in 1998. Fuel
expense decreased as percentage of revenue because of increased revenues
generated by brokerage, agents and owner operators which have no fuel costs
associated with them.
Operating supplies and maintenance increased by $239 thousand or 100.5% to
$477 thousand for the three months ended September 30, 1999 from $238 thousand
for the same period ended in 1998 but decreased as percentage of revenue to
4.0% for the three months ended September 30, 1999 from 4.7% for the same
period ended in 1998. The reason for the decrease as a percentage of revenue
is due to increased revenues generated by brokerage, agents and owner
operators which have minor maintenance costs associated with them.
Insurance captive expense increased by $232 thousand to 1.9% of revenues for
the three months ended September 30, 1999. The reason for the increase is a
change in accounting treatment for captive insurance that wasn't put into
effect until the 1998-year end. For the three months ended September 30, 1998
all revenues and direct costs were reported at net as a decrease in insurance
expense. Beginning year end 1998 all premiums written from third party
truckers were classified as revenues and all costs associated with that
revenue were classified as captive insurance expense.
Depreciation and amortization increased by $205 thousand or 54.7% to $585
thousand for the three months ended September 30, 1999 from $381 thousand for
the same period ended in 1998 but decreased as a percentage of revenue to 4.9%
for the three months ended September 30, 1999 from 7.5% for the same period in
1998. The reason for this decrease as percentage of revenue is due to
increased revenues generated by brokerage, agents and owner operators which
have minimal depreciation costs associated with them. It should be noted
however that amortization expense increased $124 thousand to $178 thousand for
the three months ended September 30, 1999 from $54 thousand for the same
period ended in 1998.
General and administrative expenses increased $1.19 million or 191% to $1.8
million or 6.1% of revenues for the nine months ended September 30, 1999, from
$622 thousand or 3.9% of revenues for the same period ended in 1998. The
primary reason for this increase as a percentage in revenue is that legal,
accounting and consulting expenses increased by $784 thousand and $906
thousand for the nine months ended September 30, 1999, from $122 thousand for
the same period ended in 1998.
Interest expense increased by $20 thousand or 9.7% to $218 thousand for the
three months ended September 30, 1999 from $198 thousand for the same period
ended in 1998 but decreased as percentage of revenue to 1.8% for the three
months ended September 30, 1999 from 3.9% for the same period ended in 1998.
17
The reason for this decrease as a percentage of revenue is due to increased
revenues generated from brokerage, agents and owner operators which have
minimal interest expense associated with revenue equipment debt.
Gain on sale of equipment increased by $281 thousand for the three months
ended September 30, 1999 in comparison to no gains for the same period in
1998. The company was able to sell its unutilized and older equipment that had
low book values for amounts substantial enough to recognize gains
Net income increased $352 thousand to $370 thousand for the three months ended
September 30, 1999 from $17 thousand for the same period ended in 1998. The
primary reason for this increase is attributed to the gain on sales mentioned
in the paragraph above.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999 the Company had a working capital surplus of $1,065,473
as compared to a deficit of $1,912,731 at December 31, 1998. The Company's
working capital improved primarily due to $1,104,114 received from the sale of
transportation equipment in February 1999, $1,864,700 received from the sale
of Series B Preferred Stock, $800,000 received from the sale of Series D
Preferred Stock, $300,000 from the sale of common stock and $1,040,000 from
the sale of convertible debentures. Historically, the Company has had a
working capital deficit but has been able to meet its obligations as they come
due by utilizing its revolving credit facility with General Electric Capital
Corporation (after December 22, 1998) and its receivable factoring arrangement
with Transport Clearings (prior to December 22, 1998). In addition, the
Company has relied on equity investments from outside investors to facilitate
our cash flows. In order to continue with its growth plans, the Company
intends to continually raise additional funds through the private placement of
equity and/or debt securities, which will depend upon prevailing market
conditions, the market price of common stock and other factors over which the
Company has no control. Since September 30, 1999, the Company has raised
$2,300,000 in gross proceeds from the sale of Series E Preferred Convertible
Stock, $550,000 in gross proceeds from the sale of convertible debentures and
$2,000,000 in proceeds from the sale of common stock. In addition, since
September 30, 1999, $600,000 of convertible debentures have been converted to
263,360 shares of common stock.
During the nine month period ended September 30, 1999, cash flows from
operating activities decreased $4.34 million, from $847 thousand provided by
operating activities, to $3.49 million net cash used by operations from the
same period in 1998. Accounts receivable increased by $4.5 million for the
nine months ending September 30, 1999 compared to a $320 thousand increase for
the corresponding period in the prior year. The primary reason for the
increase was added revenues from the Mid-Cal, ProStar and Fulmer Transport
acquisitions. Accruals for independent contractor settlements, brokerage
freight settlements, and company driver payroll resulted in cash inflows of
$645 thousand, as compared to $49 thousand in accruals for these items in the
prior period. The reason for this increase is from the acquisitions
previously mentioned. Increase in notes receivable decreased cash flows
$664,404 for the nine months ended September 30, 1999, in comparison to zero
for the prior year. These notes are the result of equipment sales and notes
receivable inherited from the Fulmer Transport acquisition. Also, the Company
sold refrigerated trailers obtained in the Mid-Cal to Freedom Leasing for $1.1
million. The Company recorded a $124 thousand gain on sale for this
transaction and decreased our annual debt service by $78 thousand. In
addition, the Company sold unutilized and older equipment. Because of the low
book values, the Company recognized gains in the amount of $281 thousand
during September 1999.
18
Cash flows in investing activities increased by $920 thousand from net cash
used of $467 thousand for the nine months ended September 30, 1998 to a net
cash used of $1.387 million for the same period ending in 1999. One reason for
this change was the net increase in fixed assets acquired of $1 million for
the nine months ended September 30, 1999 compared to the same period in
1998.This increase is reflected by the purchase of a new computer system along
with fixed assets acquired in the Fulmer Transport acquisition. The sale of
equipment to Freedom Leasing mentioned in the preceding paragraph created $1.1
million of cash inflows and $899 thousand in cash has been used to fund the
acquisitions of ProStar, the container division and Fulmer Transport .
Cash flows provided by financing activities increased $6.7 million during the
period from a net cash outflow of $312 thousand for the nine months ended
September 30, 1998 to a net cash inflow of $6.4 million for the same period in
1999. In addition to the sales of preferred stock and convertible debentures
discussed above, the Company received a $372 thousand capital contribution
during the first quarter of 1999. Principal payments on long term debt
increased by $1.51 million, from $657 thousand for the nine months ended
September 30, 1998 to $2.17 million for the same period in 1999. The reason
for this increase is twofold. One is more debt was inherited from the Mid-Cal
acquisition, thus more principal payments had to be made, and secondly $848
thousand of debt was paid down on the sale of 35 refrigerated trailers to
Freedom Leasing in February 1999. One other item which significantly changed
cash flow from a financing perspective was the increase in debt relating to
the revolving credit facility with General Electric Capital Corporation. This
created a $3.1 million increase in cash flow for the nine months ended
September 30, 1999 and can be directly linked to the increase in accounts
receivable created by the Mid-Cal, ProStar, container division and Fulmer
Transport acquisitions.
The Company completed a working capital financing agreement with General
Electric Capital Corporation on December 21, 1998. The transaction involved a
revolving credit facility in an amount up to $5,000,000 which replaced the
previous accounts receivable factoring facility. The term of the agreement is
for three years, with interest charges on amounts borrowed at the lender's
index rate (commercial paper rate) plus 4.5%. As of June 30, 1999, $1.8
million was outstanding on the line. While General Electric Capital
Corporation increased our credit facility to $7,000,000 in September, the
Company believes that this will not be sufficient to handle internal and
acquisition growth for the remainder of 1999. While the Company believes
General Electric Capital Corporation may increase our line further, there is
no assurance this will happen. In the event this does not happen, the Company
will have to rely on capital infusions from other sources.
The Company also completed two sale leaseback agreements and a total long-term
debt restructuring agreement with General Electric Capital Corporation on
December 22, 1998. The first lease agreement involved the trade-in of
seventeen older road tractors for twenty newer tractors. The amount received
on trade-in totaled $288,000, with the new lease after sale-leaseback
requiring $1,150,000 in rental payments. The term of the lease is for 48
months with monthly payments of $22,500. The second lease agreement involved
the trade-in of 87 older refrigerated and dry van trailers for 43 new
refrigerated and 20 new dry van trailers. The amount received on trade-in
totaled $349,000, with the new lease after sale-leaseback requiring $2,500,000
in rental payments. The term of this lease is 72 months with monthly payments
of $38,500. General Electric Capital Corporation also refinanced all other
long-term debt. The total debt refinanced amounted to $3.2 million, payable
over 36 months with monthly payments of $105,000.
19
The foregoing transactions have yielded savings in repairs and maintenance but
the Company is not satisfied with the condition of the fleet. Accordingly, the
Company has ordered 100 year 2000 Volvo tractors, which when delivered with
the trade-in of all units year 1996 or older will make our tractor fleet much
more efficient and productive. General Electric Capital Corporation will be
lessor of record for the new fair market value lease with an aggregate cost of
$8.4 million, a lease term of 48 months and monthly payments of $138 thousand.
This arrangement requires a 10% advance to General Electric Capital
Corporation to be held as security for the our performance under each lease.
At the end of the lease term, the Company will have an option to 1) purchase
the equipment at the fair market value, 2) return the equipment to General
Electric Capital Corporation or 3) renew the lease at the then fair market
value rental rate. The Company believes this transaction will result in
higher equipment utilization and lower repair and maintenance costs and will
increase cash flow by $600 thousand annually. The 10% advance held as
security by General Electric Capital Corporation will be funded through an
engine rebate from Volvo Trucks North America, Inc. and the sale of a
convertible debenture. The Company believes that the amounts received for
trade-in's will be sufficient to pay off debt associated with them, currently
$2.3 million. The equipment debt left after trade-in's can be met through
operating cash flows. If the Company can't meet debt obligations or other
capital commitments through operating cash flows, capital infusions or debt
refinancings will need to be effected. The Company cannot give any assurance
this will happen. In addition, approximately $4.9 million of the above
described debt comes due within the next three years. While the Company
anticipates General Electric Capital Corporation or another lender will be
willing to refinance the debt remaining at such time, there can be no
assurances that this will happen.
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 nine months ended September 30, 1999, were negligible.
SEASONALITY
In the transportation industry, results of operations frequently show a
seasonal pattern. Seasonal variations may result from weather or from
customer's reduced shipments after the busy winter holiday season. To date,
the Company's revenues have not shown any significant seasonal pattern. The
current expansion of the Company's operations into the West Coast could expose
the Company to greater operating variances due to seasonal weather.
YEAR 2000 ISSUE
YEAR 2000
The Year 2000 issue concerns the inability of computer systems to recognize
and process date-sensitive information after 1999 due to the use of only the
last two numbers to refer to a year. This problem could affect both software
and hardware systems, resulting in equipment shutdowns, miscalculations,
inability to process data and/or disruption of operations (e.g. billing,
dispatch, settlement functions) as the Year 2000 approaches.
While we do not have a formal remediation plan related to Y2K readiness, we
recently upgraded our hardware systems and associated software with Y2K
compliant systems and software. All material company information technology
functions are handled by this new system, including initiation of loads,
dispatch, vehicle maintenance, electronic data interchange, fueling, billing,
20
accounts payable and receivable, general ledger functions and preparation of
financial statements. The system has been certified as Y2K compliant by the
provider. We have also reviewed the risks associated with microprocessors
embedded in tractor engines and other components, terminal facilities and
telecommunications and other office equipment and determined that such systems
are either relatively new and were designed to be Year 2000 compliant or are
otherwise at low risk of a service-interrupting failure. We do not have a
written contingency plan in the event one of our systems fails.
We have surveyed all third parties (shippers and suppliers) with whom we have
a material relationship which could be impacted by their failure to be Y2K
compliant. While we do not have written assurances from such parties, we have
had extensive communications with certain of them to confirm Y2K readiness,
including our primary lender, our primary fuel and driver advance provider
and our twelve most important customers. They have all indicated that they
are Y2K compliant and we do not anticipate any interruption of service. The
primary risk associated with a Y2K failure with any of these third parties
would be the inability to communicate through electronic data interchange,
which is how we effect draws on our line of credit which finances daily
operations, how we effect driver fuel payments and advances, and how we
process customer freight pickup and delivery information. In the event of
failure of EDI functions we will perform tasks through telephonic and telecopy
communications, assuming power and telephone services are functioning. This
may result in an immaterial amount of additional personnel costs and could
result in short term disruptions in the pickup and delivery of customer
shipments due to s short-term inability to effectively communicate with
customers, in receiving funds required to finance our business and in
delivering to drivers funds required to complete freight pickups and
deliveries.
The worst case scenario relating to Year 2000 compliance is the possibility of
service disruption from third-party suppliers of telecommunications,
utilities, fueling and financial services. This scenario could result in the
short term inability to deliver freight for shippers. This would result in
lost or delayed freight revenues, the amount of which would be dependent upon
the length and nature of the disruption, which cannot be predicted or
estimated due to the nature and number of variables and uncertainties. There
can be no assurances that management or our third party suppliers have
identified and corrected all material internal or third party Y2K issues and
there cannot be any assurances that a Y2K problem will not have an adverse
effect on the our business.
The final cost of the new systems will be approximately $400,000 (financed
over three years), which costs will be capitalized.
21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
During the three months ended September 30, 1999, the Company issued
securities in three transactions pursuant to the exemption offered by Section
4(2) of the Securities Act of 1933, and three transactions pursuant to Rule
506 under Regulation D.
The securities sold pursuant to Section 4(2) included 50,000 shares of common
stock sold to one accredited investor for $50,000 in cash, 100,000 shares
issued to an accredited investor upon conversion of a $300,000 promissory
note, and a $550,000 Convertible Debenture issued to an accredited investor.
In each of these transactions the investor was provided with information on
the Company and each person executed a document in which they represented that
they were purchasing the securities for investment only and not for the
purpose of resale or distribution. The appropriate restrictive legend was
placed on the certificates for the securities and stop transfer orders were
issued to the transfer agent for the common stock transactions.
The securities sold pursuant to Rule 506 included 100,000 shares of common
stock issued to one accredited investor for $300,000 in cash, 1,100 shares of
Series B convertible Preferred Stock sold to two accredited investors for
$1,100,000 in cash, and 950 shares of Series D Convertible Preferred Stock
sold to two accredited investors for $950,000 in cash. The investors who
purchased the 1,100 shares of Series B also received 146,667 warrants to
purchase the Company's common stock at a price of $2.59 per share and the
investors who purchase the 950 shares of Series D also received 126,668
warrants to purchase the Company's common stock at a price of $2.59 per share.
In each of these transactions the investor was provided with information on
the Company and each person executed an agreement in which they represented
that they were purchasing the securities for investment only and not for the
purpose of resale or distribution. A Form D was filed with the Securities
and Exchange Commission for each of these transactions and the appropriate
restrictive legend was placed on the certificates for the securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION LOCATION
3.7 Articles of Amendment dated Filed herewith
September 10, 1999, regarding electronically
Series D Preferred Stock
3.8 Articles of Amendment dated Filed herewith
November 8, 1999, regarding electronically
Series E Preferred Stock
27 Financial Data Schedule Filed herewith
electronically
(b) Reports on Form 8-K. None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Issuer caused
this Report to be signed on it's behalf by the undersigned, thereunto duly
authorized.
U.S. TRUCKING, INC.
By:/s/ Dan L. Pixler
Dan L. Pixler, Chief Executive Officer
By:/s/ John Ragland
John Ragland, Chief Financial Officer
Dated: November 17, 1999
23