UNITED STATES SECURITIES AND EXCHANGE COMMISION
WASHINGTON, D.C. 20549
FOR 10-QSB
ANNUAL REPORT PURSUANT TO SECTION13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Three Months Ended March 31, 2001
Commission File Number: 33-9640-LA
Logistics Management Resources, Inc.
(Exact Name of Issuer as Specified in it Charter)
COLORADO 68-0133692
(State or Other Jurisdiction (IRS Employer Identification Number)
incorporation or organization)
10602 Timberwood Circle, Suite #9, Louisville, Kentucky 40223
(Address of Principal Executive (Offices)
502-339-4000
(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) or 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.
There were 3,969,876 shares of the Registrant's common stock outstanding as of
May 9, 2001.
U.S. TRUCKING, INC.
FORM 10-QSB
INDEX
PART I: FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (UNAUDITED) MARCH 31, 2001 AND
DECEMBER 31, 2000
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) FOR THE THREE MONTHS
ENDED MARCH 31, 2001 AND 2000
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS
ENDED MARCH 31, 2001 AND 2000
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
2
LOGISTICS MANAGEMENT RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31 2001 AND DECEMBER 31 2000
March 31, December 31,
2001 2000
------------------------------------
Assets
Current Assets
Cash 25,132
Accounts receivable net of allowance of $11,900 in 2001 and $1,900 in 2000 794,638
Employee advances 41,404
Inventory 162,000 162,000
------------------------------------
Total Current Assets 1,023,174 162,000
Property and Equipment, at cost less accumulated depreciation of $351 3,964 975
in 2001 and $244 in 2000
Other Assets
Restricted cash 261
Prepaid expenses 1,097,657
Goodwill - net of accumulated amortization of $6421 250,523
Debt issuance costs - net of accumulated amortization of $57,674 in 2001
and $43,522 in 2000 66,042 80,195
------------------------------------
Total Other Assets 1,414,483 80,195
Total Assets 2,441,621 243,170
====================================
Liabilities and Stockholders' Equity
Current Liabilities
Cash overdraft 29,688
Accrued expenses 562,458 260,477
Accrued interest 2,347,656 1,728,731
Due to factor 481,202
Notes payable - short-term 485,938
Due to related party 400,975 317,820
Guaranteed obligations 13,184,753 13,422,749
Convertible debentures 4,405,000 4,405,000
------------------------------------
Total Current Liabilities 21,867,982 20,164,465
Long-debt debt, net of current portion 2,453,746 2,459,599
------------------------------------
Total Liabilities 24,321,728 22,624,064
====================================
Stockholders' Equity
Preferred Stock
Series A ( 99,000 shares outstanding ) 132 132
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
1,403,000 shares issued and outstanding - -
Treasury stock (118,401)
Subscription receivable (906,788) (906,788)
Additional paid in capital 13,836,392 12,197,922
Accumulated (deficit) (39,956,441) (38,937,160)
------------------------------------
Total Stockholders' Equity ( Impairment ) (21,880,106) (22,380,894)
------------------------------------
Total Liabilities and Stockholders' Equity 2,441,621 243,170
====================================
3
LOGISTICS MANAGEMENT RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDING MARCH 31, 2001 AND 2000
2001 2000
As Restated
-------------------------------
Continuing Operations:
Net Revenues 1,705,689 -
Operating expenses
Purchased transportation and rentals 1,458,446 -
Operating supplies and maintenance - -
Other operating costs 505 -
Fuel - -
Insurance and claims 734 -
Depreciation and amortization 20,680 73,734
Taxes and licenses - 1,508
Salaries, wages and benefits 23,025 49,990
Occupancy costs 17,510 10,572
Administrative expenses 590,568 276,866
-------------------------------
Total operating expenses 2,111,468 412,670
-------------------------------
Net Operating Loss before Discontinued Operations (405,779) (412,670)
Discontinued Operations:
Income (loss) on disposal of discontinued operations 14,089 499,953
Net income (loss) before other income and expenses (391,690) 87,283
Other income and expenses
Interest income - 21,303
Interest expense (627,591) (48,854)
Other income - -
Total other income and expenses (627,591) (27,551)
-------------------------------
Net income (loss) before Taxes (1,019,281) 59,732
Provision for income taxes - 22,300
-------------------------------
Net income (loss) (1,019,281) 37,432
===============================
Basic earnings (loss) per share (0.06) 0.004
Weighted average number of common shares 16,347,306 9,074,576
4
LOGISTICS MANAGEMENT RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
2001 2000
---------------------------
Cash flows from operating activities
Continuing operations:
Loss before discontinued operations (1,033,370) (462,521)
Adjustments to reconcile net income to net cash
provided (used) in operating activities:
Depreciation and amortization 20,680 204,156
Provision for doubtful accounts 10,000 7,000
Issuance of common stock for services rendered 387,586
Issuance of common stock to acquire a business 180,000
Deferred taxes 22,300
Gain on disposal of equipment (364,400)
(Increase) decrease - Assets
Restricted cash (261) (14,796)
Accounts receivable (804,638) (4,601,060)
Employee advances (41,404)
Prepaid expenses (26,773) (253,672)
Intangible assets - (576,666)
Due from captive insurer (255,180)
Increase (Decrease) - Liabilities
Accounts payable 1,341,339
Revolving loan 4,212,040
Due to factor 481,202
Accrued expenses and other current liabilities 920,906 497,062
Total adjustments 1,127,298 218,123
Net cash provided (used) by continuing operations 93,928 (244,398)
Discontinued operations
Income (loss) from discontinued operations 14,089 499,953
Net cash provided (used) by operating activities 108,017 255,555
Cash flows from investing activities
Acquisition of businesses (256,944) (534,698)
Purchase of equipment and software development (3,096) (128,695)
Proceeds from disposition of assets - 364,400
Purchase of treasury stock (118,401)
Net cash provided (used) by investing activities (378,441) (298,993)
Cash flows from financing activities
Notes receivable (582,249)
Repayment of notes receivable 96,343
Issuances of convertible debentures 885,000
Proceeds from short-term debt financing 538,762 301,502
Proceeds from related party 177,680
Payments to related party (94,525)
Principal payments on short-term financing (52,824) (1,273,815)
Principal payments on long-term debt (5,853)
Payments to guaranteed obligations (237,996)
Net cash provided (used) by financing activities 325,244 (573,219)
Net increase (decrease) in cash 54,820 (616,657)
Cash at beginning of year (29,688) 1,057,719
Cash at March 31, 2001 and 2000 25,132 441,062
Supplemental disclosure of cash flow information:
Cash paid during the year
Interest expense 8,666 293,002
Income taxes - -
Non cash investing and financing activities:
During the first quarter of year 2001, Logistics Management Resources, Inc.
acquired the business operations of Trans-Logistics, Inc.
Fair value of assets acquired 271,667
Fair value of liabilities assumed 258,475
Goodwill recognized 256,944
Cash due to sellers 90,137
Value of common stock issued 180,000
During the first quarter of year 2001, Logistics Management Resources, Inc.
issued 858,000 shares of Common Stock for services rendered valued at $1,550,344
of which $387,586 was expensed during the first quarter of 2001.
5
Logistics Management Resources, Inc.
Notes to the Consolidated Financial Statements
Note 1 - General and Summary of Significant Accounting Policies
(A) Nature of Business
On September 8, 1998, U. S. Trucking, Inc., a Nevada corporation (U.
S. Trucking - Nevada), was acquired by Northern Dancer Corporation
(Northern Dancer), a non-operating public shell, through the exchange
of 100% of the issued and outstanding shares of Northern Dancer's
common stock for approximately 96% of the outstanding shares of U. S.
Trucking - Nevada's common stock. Northern Dancer's legal name was
changed to U. S. Trucking, Inc. (U. S. Trucking). The acquisition is
considered to be a capital transaction, in substance equivalent to the
issuance of stock by U. S. Trucking - Nevada for the net monetary
assets of Northern Dancer, accompanied by a recapitalization of U. S.
Trucking - Nevada.
U. S. Trucking - Nevada was formed by U. S. Transportation Systems,
Inc. (USTS) as a wholly owned subsidiary. As part of the transaction
to acquire Gulf Northern, Inc., 25% of the U. S. Trucking - Nevada's
common stock was transferred to Gulf Northern's parent (Logistics
Management, LLC). The remaining 75% was conveyed to Logistics
Management, LLC during 1998.
The Company's corporate headquarters are located in Louisville,
Kentucky.
On November 30, 2000, UST Logistics, Inc., Mencor, Inc., Prostar, Inc.
and Gulf Northern Transport, Inc., LMRI's four operating subsidiaries,
filed voluntary petitions for reorganization under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court, Middle District
of Florida, Jacksonville Division.
Prior to December 31, 2000 the Company terminated its auto liability
insurance business.
LMRI's prospective principal business is to provide for the
transportation needs of clients through "Total Logistics Management,"
which includes managing clients' domestic and international trucking,
load matching, consolidation and warehousing requirements.
On January 29, 2001, the Company held a Special Stockholders' Meeting to vote on
a corporate name change and reverse split of the Company's common stock. The
Company's Board of Directors approved the change of the Company's name to
Logistics Resources Management, Inc. At the Special Stockholders' Meeting,
stockholders approved the name change and reverse split of the shares of the
Company's common stock on a 1 for 100 basis. The record date for the reverse
split was February 12, 2001. The Company also changed its symbol on the Over The
Counter Bulletin Board to "LMRI" to reflect its new name.
Effective January 1, 2001, the Company purchased all of the issued and
outstanding common stock of Trans-Logistics, Inc., a Florida corporation. The
Company purchased one hundred percent of Trans-Logistics' issued and outstanding
common stock at the price of $80,000, plus, four times Trans-Logistics' gross
brokerage commissions for the period of October 1, 2001 to December 31, 2001,
plus, any accounts receivable (after adjusting for accounts payable) less any
payments by the Company of the assumption of liabilities with Atech Commercial
Corp. in excess of $120,000. The consideration shall be paid by the transfer of
$40,000 in cash, 18,000 shares of the Company's common stock (which must be
registered for sale on or before June 30, 2001), the transfer of stock of the
Company's common stock no later than April 15, July 15 and October 15, 2001
equal to the gross brokerage commission for those respective quarters and the
balance of the purchase price shall be paid after an audit of Trans-Logistics
for the 2001 fiscal year and paid in shares of the Company's common stock.
6
(B) Basis of Presentation
The accompanying balance sheets and related statement of operations
and cash flows for the three months ended march 31, 2001, include the
activities of L.M.R.I. and its wholly owned subsidiary
Trans-Logistics, Inc.
(C) Revenue Recognition
During 2001, the Company changed its revenue recognition policy to
record revenue at the time freight is picked up at the customer's
site.
(D) Earnings Per Share
Basic earnings per share are computed by dividing net income available
to common shareholders by the weighted average number of common shares
outstanding during the year. Diluted earnings per share are calculated
by combining weighted average number of common shares outstanding and
potentially dilutive common share equivalents unless the effect of
doing so is anti-dilutive. Common equivalent shares have been excluded
from the 2000 computation of diluted EPS since their effect is
anti-dilutive
The weighted average number of shares for the period ending March 31,
2001 and 2000 was 16,347,306 and 9,074,576, respectively.
(E) Fair Value of Financial Instruments
The fair values of cash, accounts receivable, accounts payable and
other short-term obligations approximate their carrying values because
of the short maturity of these financial instruments. The carrying
values of the Company's long-term obligations at December 31, 2000
consisting of anticipated liabilities relating to it's discontinued
auto insurance business are payable over approximately 30 months
without interest. Accordingly, the obligation has been subjected to a
present value discount applying an interest rate factor of 10% which
represents the rate available to the Company at December 31, 2000. In
accordance with Statement of Financial Accounting Standards No. 107,
"Disclosure About Fair Value of Financial Instruments," rates
available at balance sheet dates to the Company are used to estimate
the fair value of existing debt.
(F) Cash and Equivalents
Cash and equivalents represent cash and short-term highly liquid
investments with original maturities of six months or less. The
Company places its cash and equivalents with high credit quality
financial institutions which may exceed federally insured amounts at
times.
(G) Debt Issuance Costs
Debt issuance costs are recorded at cost and are being amortized over
the term of the related obligations or their conversion, if sooner,
using the effective interest method. Accumulated amortization was
$57,674 at March 31, 2001 and zero at March 31, 2000.
7
(H) Income Taxes
The Company utilizes Statement of Financial Accounting Standards No.
109 ("SFAS 109"), "Accounting for Income Taxes," which requires an
asset and liability approach to financial accounting and reporting for
income taxes. The difference between the financial statement and tax
basis of assets and liabilities is determined annually. Deferred
income tax assets and liabilities are computed for those temporary
differences that have future tax consequences using the current
enacted tax laws and rates that apply to the periods in which they are
expected to affect taxable income. In some situations, SFAS 109
permits the recognition of expected benefits of utilizing net
operating loss and tax credit carry forward. Valuation allowances are
established based upon management's estimate, if necessary. Income tax
expense is the current tax payable or refundable for the period plus
or minus the net exchange in the deferred tax assets and liabilities.
(I) Use of Estimates
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(J) Reclassifications
Certain reclassifications were made to prior period financial
statement presentations to conform with current period presentations.
(K) Inventory
Inventory consists of transportation equipment held for resale.
(L) Property 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.
(M) Intangible Assets
Intangible assets include goodwill, which is amortized on a
straight-line basis over ten years. Also included are deferred
financing and debt issuance costs which are amortized on a
straight-line basis over periods ranging from three to five years.
Note 2 - Equipment
Equipment at cost, less accumulated depreciation, consists of the following at
March 31, 2001 and December 31, 2000: 2001 2000
Office
Equipment $ 4,315
Less accumulated depreciation 351
--------
Total $ 3,964
========
8
Depreciation expense charged to operations for the three months ended March 31,
2001 and 2000 was $351 and $14,519 respectively.
Note 3 - Convertible Debentures
During 2000 and 1999, the Company issued $4,650,000 and $2,250,000,
respectively of 10% convertible debentures due May 31, 2002. The Company
received proceeds of $4,502,000 and $2,042,000, net of $148,000 and
$208,000 of debt issuance costs, respectively. The debt issuance costs are
being amortized over the life of the debentures and $14,152 was amortized
during the three months ended March 31, 2001.
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.
Note 4 - Acquisitions
Effective January 1, 2001, the Company purchased all of the issued and
outstanding common stock of Trans-Logistics, Inc., a Florida corporation.
The Company purchased one hundred percent of Trans-Logistics' issued and
outstanding common stock at the price of $80,000, plus, four times
Trans-Logistics' gross brokerage commissions for the period of October 1,
2001 to December 31, 2001, plus, any accounts receivable (after adjusting
for accounts payable) less any payments by the Company of the assumption of
liabilities with Atech Commercial Corp. in excess of $120,000. The
consideration shall be paid by the transfer of $40,000 in cash, 180,000
shares of the Company's common stock (which must be registered for sale on
or before June 30, 2001), the transfer of stock of the Company's common
stock no later than April 15, July 15 and October 15, 2001 equal to the
gross brokerage commission for those respective quarters and the balance of
the purchase price shall be paid after an audit of Trans-Logistics for the
2001 fiscal year and paid in shares of the Company's common stock.
Allocation of the purchase price is preliminary and will be finalized upon
resolution of the aforementioned contingencies. No comparative period
pro-forma financial activity for three months ended March 31, 2000 is
required since Trans-Logistics, Inc. commenced operations effective April
28, 2000.
An allocation of the purchase price is as follows:
Trans-
Assets Logistics
-----------------
Cash and other Current Assets $ 3,055
Accounts Receivable $ 26,8612
Goodwill 256,945
-----------------
Total $ 528,611
=================
Liabilities Assumed and Equity
Liabilities assumed $ 258,475
Liability to sellers 90,137
Common stock 180,000
-----------------
Total $ 528,612
=================
9
Note 5 - Discontinued Operations
On November 29, 2000, the Company's four operating subsidiaries filed
voluntary petitions for reorganization under Chapter 11 of the Bankruptcy
Code. The Company is liable as a guarantor on certain indebtedness of its
former subsidiaries. The Company is liable for obligations as to which it
is a primary or secondary guarantor relating to its former subsidiaries,
which have filed voluntary petitions for reorganization, and terminated its
auto liability insurance business. Resultant estimated guarantee
obligations are comprised of the following:
General Electric Capital Corporation
On November 27, 2000, Gulf Northern Transport, Inc., Prostar, Inc.,
U.S.T. Logistics, Inc., as borrowers, and LMRI, as a guarantor,
entered into a Restructure Agreement with respect to certain financing
arrangements pursuant to a loan and security agreement dated December
22, 1998 between the borrowers and General Electric Capital
Corporation. Pursuant thereto, the Company estimates its liability to
be $10,440,408. As of May 15, 2001, the Company was in default as to
its obligations under the Restructure Agreement.
Captive Insurance Program
Prior to December 31, 2000, the Company terminated its auto insurance
business and has been advised by counsel that its maximum exposure may
be $1,414,492. The Company contemplates satisfying this liability at
the rate of $50,000 per month commencing in July 2001. The present
value of this obligation, applying a 10% effective interest rate,
amounts to $1,203,657.
Equipment Financing Arrangements
The Company is a guarantor as to certain equipment and leases of its
former subsidiaries. The Company estimates its gross liability to be
$3,316,915 pursuant to these financing arrangements and the realizable
value of the related collateral to be $2,484,000 resulting in an
estimated guarantee obligation of $832,915.
Other guaranteed obligations ranging from payroll taxes, delinquent
rents and delinquent vendor payables total $707,773.
Note 6 - Preferred Stock
During 2000, the Company exchanged 900,000 shares of its Preferred Series A
shares for 9,000,000 shares of Common Stock. On February 1, 1999, the
Company entered into three stock exchange agreements whereby a total of
9,990,000 shares of Common Stock were exchanged for 999,000 of Series A
Preferred Stock. The value of the shares was determined to be $762 and such
amount was deducted from additional paid-in capital. Each share of Series A
Preferred Stock is entitled to ten votes and will vote together with the
holders of the Common Stock. Pursuant to this agreement, each share of
Series A Preferred Stock may be exchanged for ten shares of Common Stock as
follows: one fifth of the shares upon the Company's reporting revenues of
$31 million or more for any fiscal year or shorter period in a report filed
on Form 10-KSB or any appropriate Securities and Exchange Commission
filing; an additional one-fifth if revenues are at or above $41 million; an
additional one fifth if revenues are at or above $51 million; an additional
one-fifth if revenues are at or above $61 million; and the balance if
revenues are at or above $71 million.
10
Based upon the revenues reported in the accompanying consolidated financial
statements, 40% of the Series A Preferred Stock are eligible to be
exchanged for Common Stock.
Note 7 -Related Party Transactions
Amounts due to related party amount to $400,975 as of March 31, 2001 and
consist of amounts borrowed by the Company from an entity with similar
ownership interests. Amounts outstanding bear no interest and repayment is
expected in the short term, if cash flows are available.
Note 8 - Going Concern
The Company's financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
As shown in the accompanying financial statements, the Company incurred a
net loss of ($1,019,281) for the three months ended March 31, 2001 and, as
of that date, had a working capital deficiency of ($20,844,808) and a net
worth of ($21,880,106). Also, as discussed at Note 1, on November 30, 2000,
the Company's four operating subsidiaries filed voluntary petitions for
reorganization under Chapter 11 of the Bankruptcy Code and, as described at
Note 6, the Company is liable as a guarantor on certain indebtedness of
it's former subsidiaries.
The Company's ability to generate sufficient proceeds from prospective
operations, debt or equity placements is uncertain. The financial
statements do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
Management's plans for prospective operations are described at Note 1 and
it is continuing it's efforts to arrange for the placement of sufficient
debt or equity to alleviate the above described conditions.
Note 9 - Commitments and Contingencies
Stock Activity:
During 2000 and 1999, U. S. Trucking issued a total of 7,800,000 and
6,497,297 shares of common stock respectively, to several companies
and individuals as collateral in connection with contingent
transactions. For 2000, the 7,800,000 shares were issued to a majority
stockholder for its guaranty on the Company's Restructure Agreement
with General Electric as discussed in Note 6.
During 2000, 1,500,000 shares of common stock were issued as
collateral to a preferred stockholder, but are not considered issued
and outstanding.
In 1999, 5,100,000 common shares were issued with the understanding
that they could be recalled at any time at the discretion of the
Company, 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.
11
Operating Leases:
In February 2000, the Company leased 4,000 square feet of space in Mt.
Pleasant, South Carolina to house its corporate office and brokerage
operations. The lease calls for monthly payments of $6,380 and is for
a term of 12 months. Upon the Chapter 11 filing of its former
subsidiaries, the corporate offices were moved to Louisville,
Kentucky. The South Carolina lease expires in February, 2001.
Employment Agreements:
Commencing September 9, 1998, the Company entered into an employment
agreement with its President and Chief Executive Officer, for a term
of five years. The agreement provides for an annual salary of $105,000
with annual increases of not less than 3%, as well as an automobile
allowance for business travel.
Commencing September 9, 1998, the Company entered into an employment
agreement with its Executive Vice President, for a term of five years.
The agreement provides for an annual salary of $52,000 with annual
increases of not less than 3%.
The above employment agreements are terminable by the Company for
certain specified reasons including disability, fraud, felony
conviction or substance abuse. There are also certain noncompete
covenants to be maintained during the contract period. Breach of such
covenant could lead to dismissal.
Indemnity Agreements:
The Company's President, Vice President and another guarantor of the
Company's obligations have provided guarantees of certain obligations
of the Company and its former subsidiaries. As a result, on January
30, 1997, and as renewed on May 3, 1999, the Company entered into an
Indemnity Agreement with these parties, to hold them harmless against
any loss or liability related to or arising from the Company and its
former subsidiaries.
Payroll Obligation:
The Company is contingently liable for $171,787 relating to its former
subsidiaries in bankruptcy. The outstanding obligations arise from
insufficient funds that were not provided to a payroll service for the
subsidiaries' employee payroll and expenses paid. The Company is
responsible as a guarantor of these obligations if subsidiary assets
are not sufficient to pay creditors.
Health Claims:
The Company is contingently liable for $247,327 of former
subsidiaries' employee health insurance claims no longer financed by
the subsidiaries. It is uncertain if the former employee will pursue
the claims for payment, and as a result, the potential claims have not
been accrued within the accompanying financial statements.
Legal Proceedings:
Stock Registration Rights Dispute - In September 2000, an entity filed
legal action against the Company alleging a breach of obligation under
a stock registration rights agreement. The Company has responded
stating it has performed its best efforts to uphold the agreement and
has committed no wrongdoing. The stockholder is seeking damages of
$300,000. The Company has provided a $135,000 reserve in its estimated
liabilities although final outcome of this litigation is uncertain and
undeterminable at this time.
12
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the Company's financial condition as of March
31, 2001 and the Company's results of operation for the three month periods
ended March 31, 2001 and 2000 should be read in conjunction with the
Consolidated Financial Statements, including the footnotes, and it should be
understood 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 non-asset based logistics segment of the transportation
industry, as well as the completion of acquisitions of companies in the employee
leasing 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.
14
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.
DESCRIPTION OF BUSINESS
General:
Logistics Management Resources, Inc. is a holding company engaged in
the business of acquiring and managing transportation logistics and employee
leasing companies. Our principal business is providing for the transportation
needs of clients through total logistics management, which includes managing
clients' domestic and international transportation, load matching, consolidation
and warehousing. We also intend to engage in a series of acquisitions in the
field of employee leasing services. These services include supplying temporary
workers possessing a wide variety of skills to both large and small businesses,
while assuming many of the costs and functions of an employer for a fee.
Employee lease services are widely used in the transportation industry and we
feel the dual industry approach will provide increased flexibility in the
overall services we intend to provide as well as enhancing our revenue stream.
We intend to expand our business through internal growth and
acquisitions. The transportation and employee leasing industries are highly
fragmented, which provides unique acquisition opportunities. We are primarily
interested in profitable, well managed, non-asset based companies that can bring
positive growth with profits to the bottom line.
Overview:
Logistics Management Resources, Inc., formerly U.S. Trucking, Inc., was
established in January of 1997 by combining under US Trucking-Nevada the
operations of Gulf Northern Transport, Inc., a mid-to-long-haul truckload
carrier and Mencor, Inc. a third party logistics (brokerage) company.
On November 30, 2000, the Registrants' operating subsidiaries, Gulf
Northern Transport, Inc., Prostar, Inc., UST Logistics, Inc. and Mencor, Inc.,
filed a Voluntary Petition under Chapter 11 of the Bankruptcy Code with the
United States Bankruptcy Court, Middle District of Florida, Jacksonville
Division. As of this date, no plan of reorganization has been filed by the
registrant's subsidiaries. However, a trustee has been appointed. On December 1,
2000 we issued a press release in which it was announced: (i) the filing of the
Petition, and (ii) the signing of an agreement with its primary lender for
repayment of any deficiencies, which may be left after liquidation of the
collateral. The agreement provides for payment of the deficiency over three
years, including payments based upon a fixed percentage of our ongoing revenue.
The accompanying financial statements contain adjustments resulting from the
bankruptcies based upon management's best estimates as to the recoverability of
assets and obligations for liabilities incurred.
15
Effective as of January 1, 2001, we purchased all of the issued and
outstanding shares of common stock of Trans-Logistics, Inc., a Florida
corporation. We purchased one hundred percent of Trans-Logistics issued and
outstanding common stock at the price of $80,000, plus, four times
Trans-logistics' gross brokerage commissions for the period of October 1, 2001
to December 31, 2001, plus, any accounts receivable (after adjusting for
accounts payable) less any payments by us for the assumption of liabilities with
Atech Commercial Corp. in excess of $120,000. The consideration shall be paid by
the transfer of $40,000 in cash, 18,000 shares of our common stock (which must
be registered for sale on or before June 30, 2001), the transfer of stock no
later than April 15, July 15 and October 15, 2001 equal to the gross brokerage
commission for those respective quarters and the balance of the purchase price
shall be paid after an audit of Trans-Logistics for the 2001 fiscal year and
paid in shares of our common stock. Trans-logistics is a wholly owned subsidiary
of Logistics Management Resources Inc. with annual revenues expected to exceed
$10 million.
The Company signed a letter of intent on April, 2001 to acquire
America's PEO, Inc., a premier employee leasing company, headquartered in
Cherry Hill, New Jersey. The intended acquisition is expected to close during
the second quarter of 2001. The purchase will include America's affiliates Omni
Financial Services, Inc. National Labor Force, Inc., Western America Labor
Force, Inc., National Labor Force I, Inc., American Labor Force, Inc. and
American Labor Services, Inc. Projected annual sales of the combined entities is
expected to exceed $155 million.
We incurred an operating loss in the last fiscal year and the loss was
material. The parent company incurred losses in the most recent quarter, due
mostly to interest and accrued penalties associated with debt and the cost of
issuing stock to cover certain consulting expenses related to our restructuring
efforts. Our wholly-owned subsidiary, Trans-logistics reported first quarter
revenues of just over $1.7 million with a net profit of 5.8% or $99,000.
Our losses are expected to continue at the parent level until such time
as we are able to negotiate improved terms with debt instrument holders regards
the interest and accrued penalties on outstanding notes. In addition to raising
capital, the restructuring of existing debt will make it possible to cover the
expenses associated in restructuring a company.
We continue to be subject to the risks normally associated with any
business activity, including unforeseeable expenses, delays, and complications.
Accordingly, there is no guarantee that we can or will report operating profits
in the future.
We are in negotiations with several prospective acquisition candidates
at this time.
16
Operating Strategy
Our business strategy is to establish our company as a leader and a
preferred provider of high-quality, cost-effective transportation, logistics and
employee leasing services on a national basis while building brand name
recognition.
Agent Program
We have operated an agency program since our inception. We expect to
see renewed profitable growth in the segment through our wholly owned
subsidiary, Trans-logistics, Inc. The agency program is essentially a
co-operative for smaller truckload carriers whereby Trans-logistics permits
these carriers to operate under its authority as an exclusive agent. The agent
provides its customers and business. Trans-logistics bills the agent carriers
customers and collects the revenues for these shipments. Trans-logistics acts as
an application service provider for its agents by affording access to
Trans-logistics' information technologies and services. In addition, agents
receive economies of scale by participating in the purchase of certain overhead
and other items, such as lower cost of fuel and insurance. Trans-logistics also
provides agents with liability insurance coverage and certain administrative
services such as human resource administration, safety and risk management, DOT
compliance, billing and collecting receivables.. Trans-logistics has signed on
several agents over the past several months. We anticipate exciting and
profitable growth in the segment.
RESULTS OF OPERATIONS
The following table sets forth items in the Consolidated Statement of Operations
for the three months ending March 31, 2001 and 2000:
17
2001 2000
As Restated
--------------------------------------
Continuing Operations:
Net Revenues 1,705,689 -
Operating expenses
Purchased transportation and rentals 1,458,446 -
Operating supplies and maintenance - -
Other operating costs 505 -
Fuel - -
Insurance and claims 734 -
Depreciation and amortization 20,680 73,734
Taxes and licenses - 1,508
23,025 49,990
Salaries, wages and benefits
Occupancy costs 17,510 10,572
Administrative expenses 590,568 276,866
--------------------------------------
Total operating expenses 2,111,468 412,670
--------------------------------------
Net Operating Loss before Discontinued Operations (405,779) (412,670)
Discontinued Operations:
Income (loss) on disposal of discontinued 14,089 499,953
operations
Net income (loss) before other income and expenses (391,690) 87,283
Other income and expenses
Interest income - 21,303
Interest expense (627,591) (48,854)
Other income - -
Total other income and expenses (627,591) (27,551)
--------------------------------------
Net income (loss) before Taxes (1,019,281) 59,732
Provision for income taxes - 22,300
--------------------------------------
Net income (loss) (1,019,281) 37,432
======================================
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Three months ended March 31, 2000 compared to March 31, 2001
Continuing Operations:
Operating Revenues
Total operating revenues increased from zero for the three months ended
March 31, 2000 to $1.71 million for the three months ended March 31, 2001.The
reasons for this increase was the disposal of discontinued operations and the
filing for protection under Chapter 11 of the U.S. Bankruptcy code for U.S.
Trucking, Inc's operating subsidiaries Gulf Northern Transport, Inc., Prostar,
Inc. and U.S.T. Logistics, Inc. on November 30, 2000 and the termination of the
Company's captive insurance program. The current period revenue was generated
from the operations of Trans-Logistics, Inc.
Purchased Transportation and Rentals
Purchased transportation and rentals increased from zero for the three
months ended March 31, 2000 to $1.46 million for the three months ended March
31, 2001. The reason for the increase was the disposal of discontinued
operations and the filing for bankruptcy of the three operating subsidiaries
mentioned in the previous paragraph. In addition, all purchased transportation
costs generated during the period came from Trans-logistics, Inc.
Salaries, Wages and Benefits
Salaries, wages and benefits decreased from $50,000 for the three
months ended March 31, 2000 to $23,000 for the three months ended March 31,
2001. The reason for the decrease was the elimination of payroll at the parent
company level.
Depreciation and Amortization
Depreciation and amortization decreased from $74,000 for the three
months ended March 31, 2000 to $21,000 for the three months ended March 31,
2001. The reason for this decrease was the write off of over-valued goodwill and
fixed assets. The current period expense is primarily derived from the
amortization of goodwill created from the January 1, 2001 acquisition of
Trans-Logistics, Inc.
General and Administrative
General and administrative expenses increased from $277,000 for the
three months ended March 31, 2000 to $591,000 for the three months ended March
31, 2001. The reason for this was the increase in consulting costs related to
restructuring a company.
Discontinued Operations
Income from discontinued operations decreased from $499,000 for the
three months ended March 31, 2000 to $14,000 for the three months ended March
31, 2001. All operating subsidiaries filed bankruptcy on November 30, 2000 and
the disposal of discontinued operations was recorded accordingly. All financial
statements for the year 1999 and 2000 have been restated. Thus the reason for
the decrease in income from discontinued operations is the fact that all
operations that were active during the first quarter of 2000 are included in the
discontinued operations caption.
19
Interest
Interest expense increased from $49,000 for the three months ended
March 31, 2000 to $628,000 for the three months ended March 31, 2001. The
primary reason for the increase was accrued late registration filing penalties
related to convertible debentures and preferred stock. Penalties for the three
months ended March 31, 2001 totaled $416,000.
Net income decreased from a net income of $37,000 for the three months
ended March 31, 2000 to a net loss of $1,020,000for the three months ended March
31, 2001. The primary reasons for the loss was increased consulting costs and
registration penalties mentioned previously.
Liquidity and Capital Resources
Our working capital position has decreased from a deficit of
($20,002,465) to a deficit of ($20,844,808). The reason for the negative
position was primarily caused by the discontinued operations of all four
operating subsidiaries during the fourth quarter of 2000. In addition, the
discontinuance of the captive insurance program during November 2000 also
contributed. In regards to the first three months of 2001, additional accruals
for accrued interest and registration penalties contributed to the decrease from
December 31, 2000 to March 31, 2001.
In addition, there is a liability in the amount of $11,273,323 shown on
the balance sheet which represents the company's estimated liability to the
primary lender of the four bankrupt operating subsidiaries. The shortfall could
be more or less than the $11,273,323 estimate depending on the success of the
bankruptcy trustee handling the collection of subsidiary assets.
Our net worth has decreased from a negative ($22,380,894) as of
December 31, 2000 to a negative ($21,880,106) as of March 31, 2001. The reason
was losses generated primarily from excessive administrative and interest costs.
The lack of liquidity suggests that we will have to raise capital in
order to remain a going concern. There can be no assurance that the company will
be able to obtain the capital necessary to continue operations.
20
PART II
Other Information
LEGAL PROCEEDINGS
CIT Group/Equipment Financing, Inc. filed suit against us and certain
other parties in the Superior Court of NJ, Law Division Union County, docket No.
UNN-L-3556-00 on July 7, 2000 for the return of six tractors formerly used in
the business of American Intermodal Services, Inc., some of which Gulf Northern
Transport took over in the spring of 2000. We denied ever receiving the
tractors. A default judgment was granted in November of 2001 against all
defendants in the amount of $384,599.89. We believe that certain of these
tractors have since been recovered. We believe the court in the action had no
jurisdiction over LMRI and that the judgment is therefore invalid.
Emergent Capital, L.P. filed suit against us in U.S. District Court,
Southern District of New York on September 20, 2000. The suit claimed that
Emergent Capital was owed $300,000 in penalties for the failure to register
certain shares for resale, which Emergent purchased in September of 1999. We
dispute that the agreement reached between the parties provides for registration
penalties. The suit is still in the discovery stage.
GE Capital Corporation, the Company, its subsidiaries and certain
affiliates entered into a Restructure Agreement on November 28, 2000. The
agreement between our company and G.E. Capital Corporation relates to the
balance of our obligations to GECC in connection with its accounts receivable
line of credit and with GE Capital Commercial Equipment Funding in connection
with an equipment loan. The respective loan balances have been consolidated into
a single Term Note with an estimated principal balance of $11,273,324 as of
March 31, 2001. This estimated balance is expected to be reduced by the
collection of accounts receivable, the possible sale of subsidiary accounts
receivable and the sale of equipment held as collateral on the equipment loan
portion. The loan is to be repaid over a three-year term with a five-year
amortization schedule and a balloon payment of the balance on December 1, 2003.
The note bears interest at the 30-day dealer placed commercial paper rate (as
published in the Wall Street Journal), plus 4.5%. Interest for the first year
will be accrued and applied to the principal balance.
Under the agreement, we are required to pay GECC 1.5% of the gross
revenues from our trucking business segment and 5% of the gross revenues from
its non-trucking segment to be applied toward payment of the note, which amounts
will be applied to the amortization payments. Additionally, 35% of the net
income before taxes from our businesses must be paid on a quarterly basis in
repayment of the note, along with certain payment in the event of a profitable
sale of a Company owned business. The Note is secured by our assets, various
affiliate assets and certain personal guarantees.
21
Defaults Upon Senior Securities
As of March 31, 2001 we were in default with two senior debt holders in the
amount of $2,002,915 which has been accrued on our balance sheets. The reason
for the defaults is that we have been unable to satisfy the payment of
delinquent interest and late penalty fees with regard to these matters. We
intend to renegotiate the terms of these agreements to more favorable terms for
the senior debt holders, the company and our shareholders.
Submission of Matters to a Vote of Security Holders
A special meeting of shareholders was held on February 12, 2001. At the
meeting 16,908,150 shares, representing 53% of the shares entitled to vote, were
present at the meeting in person or by proxy. Votes were taken on three matters.
They included changing the name of the company to Logistics Management
Resources, Inc., effecting a 1 for 100 reverse stock split and amending the
terms of the blank check preferred stock to allow amendments to the terms of
outstanding shares of preferred stock without the approval of the holders of
common stock, provided the amendment effected a change which the Board would
have had authority to include in the original terms of the preferred so amended.
All three matters were unanimously approved by the shareholders.
Insurance
We are committed to securing appropriate insurance coverage at cost
effective rates. Since discontinuing our captive auto liability insurance
program we have through our wholly owned subsidiary, Trans-logistics, Inc.,
retained insurance coverage that we believe is adequate to cover our liabilities
and risks. The coverage includes auto liability coverage up to $1 million for
each claim, $200 thousand for each claim for cargo damage or loss and general
liability up to $1 million for each occurrence. Insurers affording the
coverage's are, General Security Insurance Co., Lexington Insurance Co., and St.
Paul Surplus Lines Co.
Other Information
NONE
Exhibits and Reports
A NONE
B Current Report on Form 8-K reporting on Item III(a)
Special Meeting of Shareholders approving the
Company's name change and reverse split of common stock.
22
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
LOGISTICS MANAGEMENT RESOURCES, INC.
---------------------------------------------
Registrant
May 18, 2001 By /s/ Danny L. Pixler
------------------------------------------
Danny L. Pixler
Chief Executive Officer
By /s/ John Ragland
------------------------------------------
John Ragland
Chief Financial Officer
23