1
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, 2000
Commission File Number: 33-9640-LA
U S TRUCKING, INC.
(Exact Name of Issuer as Specified in its Charter)
COLORADO 68-0133692
(State or Other Jurisdiction (I.R.S. Employer Identification Number)
Incorporation or Organization)
550 Long Point Road MT. Pleasant, S.C. 29462
------------------------------------------------------------------------------
(Address of Principal Executive (Offices)
(843) 972-2055
(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 [ ] No [X]
There were 9,282,761 shares of the Registrant's common stock outstanding as of
April 27, 2000
2
U.S. TRUCKING, INC.
FORM 10-QSB
INDEX
PART I: FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (UNAUDITED) MARCH 31, 2000 AND DECEMBER
31, 1999
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(UNAUDITED) THREE MONTHS ENDED MARCH 31, 2000 AND 1999
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED
MARCH 31, 2000 AND 1999
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
3
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
PART I -- FINANCIAL INFORMATION
A S S E T S 2000 1999
- ----------- --------- ---------
CURRENT ASSETS
Cash and cash equivalents $ 441,062 $ 1,057,719
Accounts receivable-net of allowance
for doubtful accounts of $310,451
in 2000 and $303,451 in 1999 16,130,555 8,140,132
Current portion of notes receivable-related parties 4,732,413 4,541,634
Parts and supply inventory 239,400 258,405
Current portion of deferred tax asset 377,700 400,000
Investment in marketable securities
at fair market value 171,000 188,136
Prepaid expenses and other assets 1,231,149 575,565
----------- -----------
Total Current Assets 23,323,279 15,161,591
----------- -----------
TRANSPORTATION AND OTHER EQUIPMENT -
at cost, less accumulated depreciation and
amortization of $621,890 in 2000 and
$420,541 in 1999 1,019,334 887,690
----------- -----------
OTHER ASSETS
Restricted cash 996,500 981,704
Notes receivable-related parties 5,848,661 5,407,346
Deferred tax asset - net of current portion 741,963 741,963
Due from related party 89,680 186,023
Due from captive insurer 960,501 705,321
Other assets 16,343 375,700
Intangible assets - net of accumulated amortization
of $1,249,742 in 2000 and $879,565 in 1999 8,539,031 5,501,756
----------- -----------
Total Other Assets 17,192,679 13,899,813
----------- -----------
TOTAL ASSETS $41,535,292 $29,949,094
=========== ===========
1
4
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
- ------------------------------------ ----------- ------------
CURRENT LIABILITIES
Accounts payable-trade $ 5,254,819 $ 2,027,819
Revolving loan payable 12,818,952 6,736,536
Due to affiliates 493,920 --
Accrued expenses and other 1,980,894 1,818,902
Current portion - long term debt 1,949,669 3,210,916
------------ ------------
Total Current Liabilities 22,498,254 13,794,173
------------ ------------
OTHER LIABILITIES
Owner operator escrow accounts 110,297 122,865
Long term debt - net of current portion 2,273,218 1,486,954
Convertible debentures 2,335,000 1,450,000
------------ ------------
Total Other Liabilities 4,718,515 3,059,819
------------ ------------
TOTAL LIABILITIES 27,216,769 16,853,992
------------ ------------
STOCKHOLDERS' EQUITY
Preferred Stock (no par value
- 10,000,000 shares authorized)
Series A (999,000 shares outstanding) 762 762
Series B (2,000 shares outstanding 2,000,000 2,000,000
Series C (50,000 shares outstanding) 15,000 15,000
Series D (950 shares outstanding) 950,000 950,000
Series E (2,300 shares outstanding) 2,300,000 2,300,000
Common Stock (no par value-75,000,000 shares authorized,
9,229,461 shares issued and outstanding in
2000; 50,000,000 shares authorized 8,844,461
shares issued and outstanding in 1999) 7,648,324 6,445,199
Additional paid-in capital 3,605,580 3,605,580
Accumulated (deficit) (1,265,243) (1,302,675)
Accumulated other comprehensive (loss) (29,112) (11,976)
Subscriptions receivable (906,788) (906,788)
------------ ------------
Total Stockholders' Equity 14,318,523 13,095,102
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 41,535,292 $ 29,949,094
============ ============
2
5
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
2000 1999
----------- ----------
Net Revenues $ 18,062,940 $ 7,661,372
Operating expenses
Transportation and rentals 14,337,819 2,697,196
Operating supplies and maintenance 21,898 316,013
Other operating costs 152,619 138,825
Fuel 1,678 715,100
Insurance and claims 1,497,453 490,491
Depreciation and amortization 204,156 550,635
Taxes and licenses 94,506 107,117
Salaries, wages and benefits 955,337 2,053,083
Occupancy costs 93,462 82,300
Administrative expenses 689,129 431,883
------------ ------------
Total operating expenses 18,048,057 7,582,643
------------ ------------
Operating income (loss) 14,883 78,729
------------ ------------
Other income and expenses
Interest income 21,303 --
Interest expense (363,159) (108,796)
Gain on sale of marketable securities -- --
Other income 22,305 25,899
Gain on disposition of assets 364,400 124,114
------------ ------------
Total other income and (expenses) 44,849 41,217
------------ ------------
Net income (loss) before income taxes 59,732 119,946
Provision for income taxes 22,300 --
------------ ------------
Net income 37,432 119,946
------------ ------------
Basic earnings per common share $ NIL $ .01
============ ============
Weighted average number of common shares 9,074,576 12,273,890
============ ============
3
6
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000
Common Stock Additional
No Par Value Preferred Stock Paid in
Shares Amount Shares Amount Capital
------ ------ ------ ------ -------
Opening balance - January 1, 2000 8,844,461 $6,445,199 1,054,250 $5,265,762 $3,605,580
Issuance of Common Stock-
Checkmate Acquisition 385,000 1,203,125 -- -- --
Proceeds from sale of Common Stock -- -- -- -- --
Other Comprehensive Income:
Net Income for the three months
ended March 31, 1999 37,432
Change in unrealized loss on
available-for-sale investments -- -- -- -- --
--------- ---------- ---------- ---------- ----------
Closing balance - December 31, 1999 9,229,461 $7,648,324 1,054,250 $5,265,762 $3,605,580
========= ========== ========= ========== ==========
Accumulated
Other
Accumulated Comprehensive Subscriptions
Deficit (Loss) Receivable Total
------- ------ ---------- -----
Opening balance - January 1, 2000 $(1,302,675) $(11,976) $(906,788) $13,095,102
Issuance of Common Stock-
Checkmate Acquisition -- -- -- 1,203,125
Proceeds from sale of Common Stock -- --
Other Comprehensive Income:
Net Income for the three months
ended March 31, 1999 -- -- 37,432
Change in unrealized loss on
available-for-sale investments -- (17,136) -- (17,136)
----------- -------- --------- -----------
Closing balance - December 31, 1999 $(1,265,243) $(29,112) $(906,788) $14,318,523
=========== ======== ========= ===========
4
7
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999
Common Stock Additional
No Par Value Preferred Stock Paid in
Shares Amount Shares Amount Capital
------ ------ ------ ------ -------
Opening balance - January 1, 1999 16,074,591 $2,796,000 -- $ -- $3,821,812
Issuance of Common Stock upon
Exercise of options 1,759,870 449,961 -- -- --
Capital contributed -- -- -- -- 401,668
Issuance of Common Stock-
Excalibur Acquisition - Note 3 200,000 650,000 -- -- --
Issuance of Common Stock-Prostar
Acquisition - Note 3 200,000 500,000 -- -- --
Common Stock exchanged for Series
A Preferred Stock - Note 8 (9,990,000) (762) 999,000 762 --
Issuance of Series B Preferred
Stock Note 8 -- -- 2,000 2,000,000 (185,000)
Issuance of Series C Preferred
Stock Note 8 -- -- 50,000 15,000 --
Issuance of Series D Preferred
Stock Note 8 -- -- 950 950,000 (150,000)
Issuance of Series E Preferred
Stock Note 8 -- -- 2,300 2,300,000 (282,900)
Proceeds from sale of Common Stock 600,000 2,050,000 -- -- --
Other Comprehensive Income:
Net Income for the year ended
December 31, 1999
Change in unrealized loss on
available-for-sale investments -- -- -- -- --
December 31, 1999 -- -- -- -- --
----------- ---------- ---------- ---------- ----------
Closing balance - December 31, 1999 8,844,461 $6,445,199 1,054,250 $5,265,762 $3,605,580
=========== ========== ========== ========== ==========
Accumulated
Other
Accumulated Comprehensive Subscriptions
Deficit (Loss) Receivable Total
------- ------ ---------- -----
Opening balance - January 1, 1999 $(1,409,433) -- $(120,000) $ 5,088,379
Issuance of Common Stock upon
Exercise of options -- -- (436,788) 13,173
Capital contributed -- -- -- 401,668
Issuance of Common Stock-
Excalibur Acquisition - Note 3 -- -- -- 650,000
Issuance of Common Stock-Prostar
Acquisition - Note 3 -- -- -- 500,000
Common Stock exchanged for Series
A Preferred Stock - Note 8 -- -- -- --
Issuance of Series B Preferred
Stock Note 8 -- -- -- 1,815,000
Issuance of Series C Preferred
Stock Note 8 -- -- -- 15,000
Issuance of Series D Preferred
Stock Note 8 -- -- -- 800,000
Issuance of Series E Preferred
Stock Note 8 -- -- -- 2,017,100
Proceeds from sale of Common Stock -- -- (350,000) 1,700,000
Other Comprehensive Income:
Net Income for the year ended
December 31, 1999 106,758 -- -- 106,758
Change in unrealized loss on
available-for-sale investments -- (11,976) -- (11,976)
December 31, 1999 -- -- -- 106,758
----------- -------- --------- -----------
Closing balance - December 31, 1999 $(1,302,675) $(11,976) $(906,788) $13,095,102
=========== ======== ========= ===========
5
8
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 37,432 $ 119,945
ADJUSTMENTS TO RECONCILE NET
INCOME TO NET CASH PROVIDED
(USED) IN OPERATING ACTIVITIES
Depreciation & amortization 204,156 550,635
Provision for doubtful accounts 7,000 --
Deferred taxes 22,300 --
Gain on disposal of equipment (364,400) (124,114)
(Increase) Decrease-Assets
Restricted cash (14,796) (226,000)
Accounts receivable (4,601,060) (1,222,885)
Prepaid expenses and other assets (253,672) (363,617)
Intangible assets (576,666) --
Due from captive insurer (255,180) --
Increase (Decrease)-Liabilities
Accounts payable - trade 1,341,339 801,285
Revolving loan 4,212,040 --
Accrued expenses and
other current liabilities 497,062 516,419
----------- -----------
Total Adjustments 218,123 (68,277)
----------- -----------
Net cash provided (used) by operating activities 255,555 51,668
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses (534,698) --
Purchase of equipment and software development (128,695) (142,808)
Proceeds from disposition of assets 364,400 1,104,114
----------- -----------
Net cash (used) by investing activities (298,993) 961,306
----------- -----------
Subtotal $ (43,438) $ 1,012,974
----------- -----------
6
9
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
2000 1999
----------- -----------
Balance Forward $ (43,438) $ 1,012,974
CASH FLOWS FROM
FINANCING ACTIVITIES
Notes receivable (582,249) --
Repayments of notes receivable 96,343 --
Proceeds from sale of common stock
and additional paid in capital -- 473,668
Issuance of convertible debentures 885,000 --
Proceeds from long-term debt financing 301,502 --
Principal payments on long-term debt (1,273,815) (1,076,382)
----------- -----------
Net cash (used) provided by financing activities (573,219) (602,714)
----------- -----------
NET INCREASE (DECREASE) IN CASH (616,657) 410,260
CASH AT BEGINNING OF YEAR 1,057,719 22,976
----------- -----------
CASH AT END OF YEAR $ 441,062 $ 433,236
=========== ===========
Supplemental Disclosure of
Cash flow information:
Cash Paid during the year
Interest expense $ 293,002 $ 108,796
=========== ===========
Income taxes $ -0- $ -0-
=========== ===========
7
10
U.S. TRUCKING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Non Cash Investing and Financing Activities
During the first quarter of year 2000, U.S. Trucking acquired the business
operations of Checkmate Truck Brokerage, Inc. and Maverick Truck Brokerage, Inc.
Fair Value of assets acquired $ 3,531,347
Fair Value of liabilities assumed 4,399,649
Goodwill recognized 2,606,125
Cash paid 534,698
Value of Common Stock issued 1,203,125
8
11
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NOTE 1 - General and Summary of Significant Accounting Policies
(A) - Nature of Business
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. They have been prepared in accordance with paragraph
228.310 of Regulation S-B and accordingly, do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. All adjustments considered necessary for a fair
presentation have been included.
U.S. Trucking is in the mid to long-haul trucking, brokerage-logistics services,
agent and auto liability insurance businesses. Corporate headquarters are
located in Mt. Pleasant, South Carolina with regional terminals located in
various states. Services are provided to customers throughout the 48 contiguous
states.
(B) - Basis of Presentation
The accompanying consolidated balance sheets and related statements of
operations, stockholders' equity and cash flows includes the accounts of U.S.
Trucking, Inc. and its wholly owned subsidiaries, Gulf Northern Transport, Inc.,
Mencor, Inc. and Prostar, Inc. as of March 31, 2000 and Gulf Northern Transport,
Inc. and Mencor, Inc. as of March 31, 1999. Significant intercompany
transactions or balances as of and for the periods ended March 31, 2000 and 1999
have been eliminated.
(C) - Net Income per Common Share
Basic net income per share is computed on the basis of the weighted average
number of common shares outstanding during each period. Diluted net income per
share is calculated by combining weighted average number of common shares
outstanding and potentially dilutive common share equivalents
(D) - Cash and Cash Equivalents
We consider all highly liquid debt instruments purchased with maturities of six
months or less to be cash equivalents for financial statement purposes.
9
12
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(E) - 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.
(F) - 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.
(G) - Intangible Assets
Intangible assets include goodwill which is amortized on a straight-line basis
over periods ranging from six to twenty years and deferred financing, debt
issuance costs and trade-in costs which are amortized on a straight-line basis
over periods ranging from three to five years.
(H)- Management
In January 2000, U.S. Trucking's subsidiary, Gulf Northern Transport, Inc.,
signed a master agent agreement with Carolina Global, Inc. to manage Gulf
Northern's container operations. Carolina Global is owned 90% by Logistics
Management, LLC and 10% by an officer of U.S. Trucking. Under the terms of the
agreement, Gulf Northern will pay 90% of revenues generated by its container
operations to Carolina Global in exchange for the operational services provided.
In January 2000, Gulf Northern signed a master agent agreement with One-Way
Logistics, Inc. to manage Gulf Northern's over the road operations. One-Way is
owned 90% by Logistics Management, LLC and 10% by an officer of U.S. Trucking.
Under the terms of the agreement, Gulf Northern will pay 95% of revenues
generated by its over the road operations to One-Way in exchange for the
operational services provided.
10
13
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(I) - Income Taxes
U.S. Trucking accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting or Income Taxes"
which requires the use of the "liability method" of accounting for income taxes.
Accordingly, deferred tax liabilities and assts are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. Current income taxes are based on the
respective periods' taxable income for federal, state and local income tax
reporting purposes.
(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) - Revenue Recognition
During 1999, U.S. Trucking changed its revenue recognition policy to record
revenue at he time freight is picked up at the customer's site. Prior to 1999,
we recognized revenues at the time freight was delivered to recipients. This
change in accounting policy resulted in an insignificant difference in net
income for the periods reported. Accordingly, these financial statements were
not restated to reflect this change. Liability insurance revenue is recognized
on a written premium basis. All other revenue is recognized at the time services
are provided.
(L) - 1999 Reclassifications
Certain reclassifications have been made to the 1999 figures to conform them to
the current year's presentation.
11
14
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NOTE 2 - Earnings (Loss) Per Common Share
Basic earnings (loss) per common share was calculated using the weighted average
number of shares outstanding for the periods presented, after giving effect to
the 5,199 to 1 stock dividend declared in June, 1998 and the conversion of
9,990,000 shares of common stock into series A preferred stock in February,
1999. The resulting weighted average number of common shares outstanding was
8,130,780 in 1999 and 13,818,272 in 1998. Diluted earnings per common share were
calculated assuming the issuance of potentially dilutive securities such as the
convertible preferred stock and convertible debentures and options and warrants.
The overall effect on basic earnings per share assuming the issuance of
potentially dilutive securities was insignificant.
NOTE 3 - Acquisition of Subsidiaries and Other Assets and Liabilities
2000 Transactions
On February 7, 2000, U.S. Trucking entered into a merger agreement to acquire
Checkmate Truck Brokerage, Inc. and Maverick Truck Brokerage, Inc., for an
estimated purchase price of $2,606,125. Under the terms of the agreement, the
purchase price consists of 385,000 shares of common stock that were valued at
$1,203,125 and $500,000 payable to the principals. In addition, $500,000 has
been placed in escrow pending the outcome of an acquisition review of the assets
and liabilities. Further, the contract includes a stock adjustment agreement
whereby the issuance of the common stock included in the agreement will be
adjusted pending the outcome of certain performance parameters.
12
15
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NOTE 3 - Acquisition of Subsidiaries and Other Assets and Liabilities
(Conrtinued)
An allocation of the purchase price for the year 2000 transactions follows:
Checkmate/
Maverick
----------
Assets
Accounts receivable $ 3,396,363
Transportation and
other equipment 661,589
Goodwill 2,606,125
Other assets 77,339
-----------
Total $ 6,137,472
===========
Liabilities Assumed and Equity
Liabilities assumed $ 3,962,688
Liability to sellers 971,659
Common stock 1,203,125
-----------
Total $ 6,137,472
===========
13
16
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NOTE 4 - Income Taxes
The 2000 tax benefit includes net operating loss carryovers from prior years
amounting to $835,263. The deferred tax asset as of March 31, 2000 includes a
current portion of $400,000 and a long-term portion of $741,963.
Differing methods of reporting income for tax purposes as compared to financial
reporting purposes resulted in net deferred income tax provisions of
approximately $136,400 and $149,000 for the years ended March 31, 2000 and 1999,
respectively.
The valuation allowance provided in each of the years is based on management's
valuation of the likelihood of realization. Management believes it is more
likely than not that U.S. Trucking will realize the benefit of the deferred tax
assets after the indicated valuation allowance.
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 expected tax rate used is 37.3% for each of the years.
U.S. Trucking has net operating losses through March 31, 2000 of $3,087,900.
These losses will be available to offset future taxable income and begin to
expire in 2010.
There is no tax effect related to the component of the other comprehensive loss
since no capital gain can be anticipated.
14
17
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NOTE 5 - Convertible Debentures
During 1999, U.S. Trucking issued $2,250,000 of 10% convertible debentures due
May 31, 2002. We received proceeds of $2,042,000, net of $208,000 of debt
issuance costs. The debt issuance costs are being amortized over the life of the
debentures and $8,057 was amortized during 1999.
The holders of the debentures are entitled, at their option, to convert at any
time, all or any part of the principal amount of the debentures plus accrued
interest.
The price per share of Common Stock into which the debentures are convertible is
the higher of $1.50 or the lower of 80% of the average closing bid price of the
Common Stock quoted on the OTC Bulletin Board for three trading days preceding
the conversion date or $2.37 per share. In no event will the conversion price be
less than $1.50 per share. No debentures were converted as of December 31, 1999.
We retired $800,000 of debentures in September 1999 including approximately
$31,000 of accrued interest. Related debt issuance costs of $78,180 was expensed
and is included in administrative expenses in the accompanying financial
statements
During the quarter ended March 31, 2000 U.S. Trucking issued convertible
debentures in the amount of $885,000. The debentures include a stated interest
rate of 10% per annum and mature during the quarter ended March 31, 2003.
NOTE 6 - Captive Insurance Program
We recorded in the accompanying financial statements $960,501 of amounts due
from captive insurer of which $255,180 and $350,000 is reflected in revenues in
the quarter ended March 31, 2000 and year ended December 31, 1999, respectively.
This amount represents the estimated "program-to date profit" at March 31, 2000
and 1999.
15
18
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NOTE 7 - Industry Segment Information
U.S. Trucking has three major business segments: long-haul trucking, interstate
truck brokerage and liability insurance for the long haul trucking industry.
During the fourth quarter of 1998, we 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,
we now report segment performance on an after-tax basis and separately report
information on its truck brokerage operation. In addition, during 1998, we added
the liability insurance 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.
Long-haul Truck Liability
Trucking Brokerage Insurance Intersegment Total
---------------------------------------------------------------------------------
MARCH 31, 2000
Sales $ 10,661,091 $ 6,019,969 $1,624,540 $(242,660) $18,062,940
Operating income (loss) (113,249) 72,466 55,666 -- 14,883
Net interest (302,290) (39,566) -- -- 341,856
Pretax income (loss) (20,263) 24,329 55,666 -- 59,732
Net income (loss) (12,705) 15,255 34,902 -- 37,432
Assets 31,215,547 8,242,069 2,077,676 -- 41,535,292
Depreciation &
Amortization 143,644 44,717 15,795 -- 204,156
Additions to long-
lived assets 128,695 204,298 -- -- 332,993
16
19
U.S. TRUCKING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NOTE 7 - Industry Segment Information (continued)
Long-haul Truck Liability
Trucking Brokerage Insurance Intersegment Total
----------------------------------------------------------------------------------
MARCH 31, 1999
Sales $ 19,210,994 $ 1,857,168 1,7498263 $ (1,001,581) $ 21,815,844
Operating Income (loss) (90,284) 239,087 355,321 (100,000) 404,124
Net interest (729,980) -- -- -- (729,980)
Pretax income (loss) (3,712) (38,696) 355,321 (191,146) 121,767
Net income (loss) (3,712) (38,696) 355,321 (191,146) 121,767
Assets 15,064,076 224,823 1,023,462 -- 16,312,361
Depreciation &
Amortization 1,614,108 2,744 -- -- 1,616,852
Additions to long-
lived assets 5,220,001 -- -- -- 5,220,,001
NOTE 8 - Commitments and Contingencies
During 1999, U.S. Trucking issued a total of 6,497,297 shares of common stock to
several companies and individuals as collateral in connection with contingent
transactions. Of these shares, 5,100,000 were issued with the understanding that
they could be recalled at any time, at our discretion, prior to any transaction
taking place. The remaining 1,397,297 shares are used as collateral for the
other contingent transactions. Accordingly, these shares were not included in
the total shares issued and outstanding as of December 31, 1999, and therefore,
were not considered in the calculation of earnings per share.
17
20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the Consolidated
Financial Statements, including the footnotes, and understand that this
discussion is qualified in its entirety by the foregoing and other more
detailed financial information appearing elsewhere herein. Historical results
of operations and the percentage relationships among any amounts included in
the Consolidated Statement of Operations, and any trends which may appear to be
inferable therefrom, should not be taken as being necessarily indicative of
trends of operations or results of operations for any future periods.
These and other statements, which are not historical facts, are based largely
on current expectations and assumptions of management and are subject to a
number of risks and uncertainties that could cause actual results to differ
materially from those contemplated by such forward-looking statements.
Assumptions and risks related to forward-looking statements, include that we
are pursuing a growth strategy that relies in part on the completion of
acquisitions of companies in the trucking, logistics and intermodal segments of
the transportation industry.
Assumptions relating to forward-looking statements involve judgements with
respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many which are beyond our control. When
used in this Quarterly Report, the words "estimates", "projects", and "expect"
and similar expressions are intended to identify forward-looking statements.
Although we believe that assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could prove inaccurate and, therefore,
there can be no assurance that the results contemplated in the forward-looking
information will be realized.
Management decisions are subjective in many respects and susceptible to
interpretations and periodic revisions based on actual experience and business
developments, the impacts of which may cause us to alter our business strategy,
which may in turn, affect our results of operations. In light of the
significant uncertainties inherent in the forward-looking information included
herein, the inclusion of such information should not be regarded as our
representation that statements contained in this Quarterly Report speak only as
of the date of this Quarterly Report, and we do not have any obligation to
publicly update or revise any of these forward-looking statements.
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's Form 10-QSB, including Notes to the Consolidated
Financial Results of Operations, describe factors, among others, that could
contribute to or cause such differences.
Tax Benefit. During 1999, because of acquisitions made by the company, it
became more likely than not that the net operating loss carryovers generated
from 1995 to 1999
21
would be fully used by the time the loss utilization periods expired.
Accordingly, the income tax benefit was included in income during 1999.
Prior to 1999, U.S. Trucking incurred net operating losses for tax purposes.
Because it did not appear likely that the benefit of such losses would be used
before their expiration dates, we had limited the income tax benefit recognized
in the financial statements for those net operating losses by establishing a
valuation allowance for deferred tax assets.
The Emerging Issues Task Force addressed the accounting for decreases in
deferred tax asset valuation allowances established in a purchase business
combination as a result of a change in tax regulations and reached a consensus
that the change in the valuation amount should be recognized through the
statement of operations.
GENERAL
U.S. Trucking, Inc. 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 brokerage company. During 1999,
we acquired Prostar, Inc. a brokerage company.
U.S. Trucking, Inc. operating results are driven by the results of the truckload
business of its operating subsidiary, Gulf Northern Transport, Inc., our captive
auto liability insurance program, our brokerage operations, implementation of an
agent program, and the purchase of a intermodal line of business. We reported a
profit in each of the periods ending March 31, 2000 and 1999.
On December 31, 1999, we effected the over the road truckload operations were
transferred to One-Way Logistics, Inc. a company owned 90% by Logistics
Management, LLC which owns a significant portion of stock in our company and is
controlled by our Chairman of the Board and the President-CEO. The
container/intermodal operations were transferred to Carolina Global, Inc. also a
company owned 90% by Logistics Management, LLC. Both agency programs work
similarly in that U.S. Trucking, Inc. will pay out 90% agent settlements to
One-Way Logistics, Inc. and Carolina Global, Inc. and they will be responsible
for paying all costs related to the operations of their respective operations.
For U.S. Trucking, Inc., the 10% margin created from these operations will be
used to provide Auto-Liability & Cargo insurance coverage, paying for receivable
financing interest and any overhead expense involved with managing the billing
and collecting of accounts receivable and the processing of the agents
settlements. After implementation
22
of these procedures, our comparatives from one period to another occurring in
1999 and 2000 change dramatically, in that our purchased transportation costs
will increase significantly while other operating expenses and administrative
costs will be reduced materially.
RESULTS OF OPERATIONS
The following table sets forth items in the Consolidated Statement of
Operations for the three months ending March 31, 2000 and 1999 as a percentage
of operating revenues.
3 mos. Ending 3 mos. Ending
31-Mar-98 31-Mar-99
---------------------------------
OPERATING REVENUES 100.0% 100.0%
PURCHASED TRANSPORTATION & RENTALS 79.4% 36.2%
OPERATING SUPPLIES AND MAINTENANCE 0.1% 4.1%
FUEL 0.0% 9.3%
MISCELLANEOUS OPERATING EXPENSES 0.8% 7.8%
INSURANCE AND CLAIMS 8.3% 6.4%
DEPRECIATION AND AMORTIZATION 7.7% 7.2%
TAXES AND LICENSES 0.5% 1.4%
OCCUPANCY COSTS 0.5% 1.1%
SALARIES, WAGES AND BENEFITS 5.3% 26.6%
ADMINISTRATIVE EXPENSES 3.9% 5.7%
TOTAL EXPENSES 99.8% 99.0%
OPERATING INCOME 0.1% 1.0%
INTEREST EXPENSE -1.8% -1.4%
OTHER INCOME 2.1% 2.0%
INCOME (LOSS) BEFORE INCOME TAXES 0.3% 1.6%
INCOME TAXES (BENEFIT) -0.1% 0.0%
NET INCOME 0.2% 1.6%
23
Three months ended March 31, 2000 compared to March 31, 1999
Operating revenues. Total operating revenue increased from $7.66 million for
the three months ended March 31, 1999 to $18.06 million, or 135.8% for the
three months ended March 31, 2000. The reasons for this increase are the
acquisitions of Prostar, Inc., a line of intermodal business from Excalibur
Express, Inc. and Fulmer Transport, Inc. in the second and third quarters of
1999, and the acquisition of Checkmate/Maverick truck brokerage completed in
February 2000 as well as the opening of a new container division in March 2000.
Operating revenues as a result of the Prostar acquisition increased $1.40
million. Operating revenues as a result from the Excalibur acquisition
increased $1.59 million. Operating revenues as a result from the Fulmer
acquisition increased $4.04 million. Operating revenues as result from the
Checkmate/Maverick acquisition increased $4.54 million. Operating revenues as a
result of opening a new container division increased $965 thousand. In
addition, revenues from the Captive Insurance Program increased from $305
thousand for the three months ended March 31, 1999 to $1.62 million for the
three months ended March 31, 2000.
Purchased transportation and rentals. Purchased transportation and rentals
increased from $2.70 million for the three months ended March 31, 1999 to
$14.34 million or 431.6% for the three months ended March 31, 2000. As a
percentage of operating revenue, purchased transportation and rentals increased
from 35.2% for the three months ended March 31, 1999 to 79.4% for the three
months ended March 31, 2000. Changes from converting the truckload and
intermodal operations to agency programs and the acquisition of Prostar, Inc.
(a brokerage company) and Checkmate/Maverick Truck Brokerage resulted in the
increase in purchase transportation as a percentage of sales. Freight
settlements from brokerage operations increased from $336 thousand for the
three months ended March 31, 1999 to $5.12 million for the three months ended
March 31, 2000. Agent settlements from truckload and container operations
increased from $52 thousand for the three months ended March 31, 1999 to $9.01
million for the three months ended March 31, 2000.
Salaries, wages and benefits. Salaries, wages and benefits decreased from $2.05
million for the three months ended March 31, 1999 to $955 thousand or 53.4% for
the three months ended March 31, 2000. Salaries, wages and benefits as a
percentage of total operating revenue decreased from 26.8% for the three months
ended March 31, 1999 to 5.3% for the three months ended March 31, 2000. The
decrease as a percentage of operating revenue is attributed to the change in
revenue mix discussed in the preceding paragraph which caused company driver
payroll to decrease from $1.16 million for the three months ended March 31,
1999 to zero for the three months ended March 31, 2000.
Fuel. Fuel expense decreased from $715 thousand for the three months ended
March 31, 1999 to $1.7 thousand for the three months ended March 31, 2000. The
decrease is attributed to the conversion of truckload operations to an agency
program in which most operating costs other than agents settlements are
eliminated. Fuel expense from company owned tractors decreased from $698
thousand for the three months ended March 31, 1999 to zero for the three months
ended March 31, 2000.
24
Operating supplies and maintenance. Operating supplies and maintenance
decreased from $316 thousand for the three months ended March 31, 1999 to $22
thousand for the three months ended March 31, 2000. The decrease is attributed
to the change in mix of revenues mentioned in previous paragraphs. By
converting the truckload operations to a agency program maintenance on all
our equipment was eliminated.
Insurance and claims. Insurance and claims increased from $490 thousand for the
three months ended March 31, 1999 to $1.50 million or 205.3% for the three
months ended March 31, 2000. Insurance and claims as a percentage of total
operating revenue increased from 6.4% for the three months ended March 31, 1999
to 8.3% for the three months ended March 31, 2000. The increase as a percentage
of operating revenue can be attributed to increased revenues from our
Auto-Liability Captive Insurance Program, which have higher costs as percentage
of revenue associated with them.
Miscellaneous operating expenses. Miscellaneous operating expenses increased
from $139 thousand for the three months ended March 31, 1999 to $153 thousand
or 9.9% for the three months ended March 31, 2000. Miscellaneous operating
expenses as a percentage of revenue decreased from 1.8% for three months ended
March 31, 1999 to .8% for the three months ended March 31, 2000. The decrease
as a percentage of revenue is attributed to the conversion of truckload and
intermodal operations to agency programs discussed in preceding paragraphs.
Taxes and licenses. Taxes and licenses decreased from $107 thousand for the
three months ended March 31, 1999 to $95 thousand or 11.2% for the three months
ended March 31, 2000. Taxes and licenses as a percentage of total operating
revenue decreased from 1.4% for the three months ended March 31, 1999 to .5% for
the three months ended March 31, 2000. The decrease as a percentage of total
operating revenue is attributed to the conversion of truckload and intermodal
operations to a agency program.
Depreciation and amortization. Depreciation and amortization decreased from $551
thousand for the three months ended March 31, 1999 to $204 thousand or 62.9% for
the three months ended March 31, 2000. Depreciation and amortization as a
percentage of total operating revenue decreased from 7.2% for the three months
ended March 31, 1999 to 1.1% for the three months ended March 31, 2000. The
decrease as a percentage of total operating revenue is attributed to the change
of truckload and intermodal operations to a agency program and the fact that
Gulf Northern Transport, Inc. sold all depreciable assets that was revenue
equipment to One-Way Logistics, Inc. in December 1999. Depreciation expense
decreased from $481 thousand for the three months ended March 31, 1999 to $59
thousand for the three months ended March 31, 2000. Amortization expense
increased from $69 thousand for the three months ended March 31, 1999 to $146
thousand for the three months ended March 31, 2000. The reason for the increase
is from the goodwill created from the Mid-Cal, Prostar, Excalibur Express,
Fulmer Transport and Checkmate/Maverick acquisitions.
25
General and administrative. General and administrative expenses increased from
$432 thousand for the three months ended March 31, 1999 to $689 thousand or
59.5% for the three months ended March 31, 2000. General and administrative as
a percentage of total operating revenue decreased from 5.6% for the three
months ended March 31, 1999 to 3.8% for the three months ended March 31, 2000.
The decrease as a percentage of operating revenue can be attributed to the
economics of scale as revenues have increased through acquisitions some fixed
costs have remained constant therefore have decreased as a percentage of
operating revenue.
Operating income (loss). Operating income (loss) decreased from $79 thousand or
1.0% of total operating revenues for the three months ended March 31, 1999 to
$15 thousand or .1% of total operating revenue for the three months ended March
31, 2000. This decrease as a percentage of total operating revenue can be
attributed to the various factors discussed above.
Interest. Interest expense increased from $109 thousand for the three months
ended March 31, 1999 to $342 thousand or 213.8% for the three months ended
March 31, 2000. Interest expense as a percentage of total operating revenue
increased from 1.4% for the three months ended March 31, 1999 to 1.9% for the
three months ended March 31, 2000. There are two reasons for the increase as a
percentage of total operating revenue, one is due to interest expense on
convertible debentures used to fund acquisitions and working capital. The other
is interest paid in relation to our revolving credit line facility which has
increased from a loan balance of $2.66 million on March 31, 1999 to $12.82
million on March 31, 2000.
Interest and other income. Interest income increased from zero for the three
months ended March 31, 1999 to $21 thousand for the three months ended March
31, 2000. Other income increased from $150 thousand for the three months ended
March 31, 1999 to $364 thousand for the three months ended March 31, 2000. The
reason for the increase is attributed to gains on sale of equipment which have
increased from $124 thousand for the three months ended March 31, 1999 to $364
thousand for the three months ended March 31, 2000.
Net income decreased from $120 thousand for the three months ended March 31,
1999 to $37 thousand for the three months March 31, 2000. The primary factor
that produced our profit for the three months ended March 31, 2000, was the
gain on sale of equipment mentioned the preceding paragraph
26
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000 we had a working capital surplus of $825,025 as compared to a
working capital surplus of $1,367,418 at December 31, 1999. Our working capital
declined on a net basis primarily because we made a payment of approximately
$534,000 to acquire Checkmate Truck Brokerage, Inc. and Maverick Truck
Brokerage, Inc. during February, 2000; we increased our accounts payable and
current portion of long term debt by approximately $1,965,000 which was offset
by an increase in accounts receivable over the related resolving loan of
approximately $1,908,000.
As we mentioned above, during the first quarter ended March 31, 2000 we
continued our acquisition program by acquiring Checkmate Truck Brokerage Inc.
and Maverick Truck Brokerage, Inc. through a merger effective February 7, 2000.
The merger acquisition required a payment to the sellers of $500,000. In
addition, we incurred approximately $34,000 in costs. The acquisition was
funded internally. To accommodate our working capital needs, we increased our
working capital line of credit with our major lender from $8,000,000 to
$13,000,000.
Net cash provided by operating activities amounted to $255,500 for the quarter
ended March 31, 2000 compared to net cash of $51,700 provided by operating
activities for the quarter ended March 31, 1999. The increase in cash provided
by operations is primarily attributable to an increase in accounts receivable
and notes receivable-related parties of approximately $5,686,600 offset by an
increase in accounts payable, revolving loan and accrued expenses of
approximately $5,553,000 together with a decrease in prepaid expenses and other
assets.
Net cash flows (used) in investing activities amounted to ($299,000) for the
three months ended March 31, 2000 as compared to net cash provided of $961,300
for the three months ended March 31, 1999. The net use of cash for investing
activities was mainly attributable to our acquisition during the first quarter
of 2000 amounting to $534,700 offset by a reduction in the amount of proceeds
derived from the sale of transportation equipment of approximately $740,000.
Net cash flows (used) in financing activities amounted to ($573,200) for the
three months ended March 31, 2000 compared to net cash (used) by financing
activities of ($602,700) for the three months ended March 31, 1999. The net
increase in cash flows from financing activities was mainly attributable to the
fact that we issued $885,000 of convertible debentures offset by a increase in
notes receivable.
27
We expect to continue to acquire transportation companies that meet our revenue
and profitability criteria. We expect to fund any potential acquisitions by the
sale of common stock, preferred stock or the issuance of additional convertible
debentures. There is no assurance that we will find additional suitable
acquisition candidates or that we can raise the required funds to complete such
acquisitions.
Management believes that it will be able to finance its needs for working
capital, facilities improvements, and software development with cash flows from
operations, borrowings under the line of credit, and the sale of debt or equity
securities. Over the long term, we expect it will be required to make capital
improvements that may require us to seek additional debt financing or equity
capital. The availability of debt financing or equity capital will depend upon
our financial condition and results of operations as well as the prevailing
market conditions, the market price of our common stock and other factors over
which we have little or no control.
28
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
In February 2000, we issued 200,000 shares of common stock to six persons
in connection with the acquisition of the container division in June 1999.
In February 2000, we issued 385,000 shares of common stock to four persons
in connection with the Checkmate and Maverick mergers.
The sales described above were made in reliance on the exemption from
registration offered by Section 4(2) of the Securities Act of 1933. We 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 our transfer records.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits have been filed with this report:
Exhibit 27 - Financial Data Schedule
(b) The Company filed a Current Report on Form 8-K dated February 22,
2000, which reported on Items 5 and 7.
16