10QSB 1 e10qsb.txt U.S. TRUCKING, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Six Months Ended June 30, 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 19,727,783 shares of the Registrant's common stock outstanding as of August 25, 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 JUNE 30, 2000 AND DECEMBER 31, 1999
A S S E T S 2000 1999 ----------- ------------ ------------ CURRENT ASSETS Cash and cash equivalents $ 1,171,224 1,057,719 Accounts receivable-net of allowance for doubtful accounts of $1,978,665 in 2000 and $303,451 in 1999 17,450,668 8,140,132 Current portion of notes receivable-related parties 3,857,334 4,541,634 Parts and supply inventory 258,405 258,405 Current portion of deferred tax asset -- 400,000 Investment in marketable securities at fair market value 133,572 188,136 Prepaid expenses and other assets 776,279 575,565 ------------ ------------ Total Current Assets 23,647,482 15,161,591 ------------ ------------ TRANSPORTATION AND OTHER EQUIPMENT at cost, less accumulated depreciation and amortization of $668,326 in 2000 and $420,541 in 1999 953,798 887,690 ------------ ------------ OTHER ASSETS Restricted cash 4,070,207 981,704 Notes receivable-related parties 3,169,069 5,407,346 Deferred tax asset - net of current portion 1,141,963 741,963 Due from related party -- 186,023 Due from captive insurer 1,040,943 705,321 Other assets 64,397 375,700 Intangible assets - net of accumulated amortization of $1,178,235 in 2000 and $879,565 in 1999 7,706,067 5,501,756 ------------ ------------ Total Other Assets 17,192,646 13,899,813 ------------ ------------ TOTAL ASSETS $ 41,793,926 $ 29,949,094 ============ ============
1 4 U.S. TRUCKING, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 2000 AND DECEMBER 31, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999 ------------------------------------ ------------ ------------ CURRENT LIABILITIES Accounts payable-trade $ 1,613,060 $ 2,027,819 Revolving loan payable 15,941,953 6,736,536 Accrued expenses and other 5,341,528 1,818,902 Current portion - long term debt 1,583,187 3,210,916 ------------ ------------ Total Current Liabilities 24,479,728 13,794,173 ------------ ------------ OTHER LIABILITIES Owner operator escrow accounts 91,270 122,865 Long term debt - net of current portion 818,195 1,486,954 Convertible debentures 8,010,296 1,450,000 ------------ ------------ Total Other Liabilities 8,919,761 3,059,819 ------------ ------------ TOTAL LIABILITIES 33,399,489 16,853,992 ------------ ------------ STOCKHOLDERS' EQUITY Preferred Stock (no par value - 10,000,000 shares authorized) Series A (99,000 shares outstanding) 76 762 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, 18,229,461 shares issued and outstanding in 2000; 50,000,000 shares authorized, 8,844,461 shares issued and outstanding in 1999) 7,649,010 6,445,199 Additional paid-in capital 3,605,580 3,605,580 Accumulated (deficit) (7,151,901) (1,302,675) Accumulated other comprehensive (loss) (66,540) (11,976) Subscriptions receivable (906,788) (906,788) ------------ ------------ Total Stockholders' Equity 8,394,437 13,095,102 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 41,793,926 $ 29,949,094 ============ ============
2 5 U.S. TRUCKING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
2000 1999 ------------ ------------ Net Revenues $ 40,366,390 $ 17,824,169 Operating expenses Transportation and rentals 33,798,574 7,087,882 Operating supplies and maintenance 32,367 625,508 Other operating costs 415,527 300,831 Fuel -- 1,457,324 Insurance and claims 2,271,910 1,051,940 Depreciation and amortization 546,455 1,146,717 Taxes and licenses 94,506 235,013 Salaries, wages and benefits 1,939,611 4,137,873 Occupancy costs 175,884 172,032 Administrative expenses 1,674,351 1,069,171 ------------ ------------ Total operating expenses 40,949,184 17,284,291 ------------ ------------ Operating income (loss) (582,794) 539,878 ------------ ------------ Other income and expenses Interest income 22,247 2,425 Interest expense (829,300) (378,472) Other income 391,818 25,899 Gain on disposition of assets -- 124,114 ------------ ------------ Total other income and (expenses) (415,235) (226,034) ------------ ------------ Net income (loss) before income taxes (998,029) 313,834 Provision for income taxes -- -- ------------ ------------ Net income from continuing operations (998,029) 313,834 ------------ ------------ Loss from discontinued operations (4,851,197) -- ------------ ------------ Net Income (loss) $ (5,849,226) $ 313,834 ============ ============ Basic earnings (loss) per common share $ (.58) $ .03 ============ ============ Weighted average number of common shares 10,101,544 8,925,676 ============ ============
3 6 U.S. TRUCKING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
2000 1999 ------------ ------------ Net Revenues $ 22,303,450 $ 10,162,797 Operating expenses Transportation and rentals 19,460,755 4,417,867 Operating supplies and maintenance 10,469 303,321 Other operating costs 261,230 99,044 Fuel -- 742,225 Insurance and claims 774,457 557,376 Depreciation and amortization 342,299 596,082 Taxes and licenses -- 119,520 Salaries, wages and benefits 984,274 2,082,744 Occupancy costs 82,422 87,002 Administrative expenses 985,223 696,425 ------------ ------------ Total operating expenses 22,901,127 9,701,606 ------------ ------------ Operating income (loss) (597,677) 461,191 ------------ ------------ Other income and expenses Interest income 944 2,383 Interest expense (466,141) (269,676) Other income 5,113 -- ------------ ------------ Total other income and (expenses) (460,084) (267,293) ------------ ------------ Net income (loss) before income taxes (1,057,761) 193,898 Provision for income taxes -- -- ------------ ------------ Net income from continuing operations (1,057,761) 193,898 ------------ ------------ Loss from discontinued operations (4,851,197) -- ------------ ------------ Net Income (loss) $ (5,908,957) $ 193,898 ============ ============ Basic earnings (loss) per common share $ (.58) $ .02 ============ ============ Weighted average number of common shares 10,101,544 6,988,351 ============ ============
4 7 U.S. TRUCKING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2000
Common Stock Preferred Stock No Par Value Shares Amount Shares Amount ---------- ---------- --------- ----------- Opening balance - January 1, 2000 8,844,461 $6,445,199 1,054,250 $ 5,265,762 Issuance of Common Stock- Checkmate Acquisition 385,000 1,203,125 -- -- Series A Preferred stock exchanged for common stock 9,000,000 686 (900,000) (686) Other Comprehensive Loss: Net Loss for the six months ended June 30, 2000 -- -- -- -- Change in unrealized loss on available-for-sale investments -- -- -- -- ---------- ---------- --------- ----------- Closing balance - June 30, 2000 18,229,461 $7,649,010 154,250 $ 5,265,076 ========== ========== ========= ===========
Accumulated Additional Other Paid in Accumulated Comprehensive Subscriptions Capital Deficit (Loss) Receivable Total ---------- ----------- -------- ---------- ------------ Opening balance - January 1, 2000 $3,605,580 $(1,302,675) $(11,976) $(906,788) $ 13,095,102 Issuance of Common Stock- Checkmate Acquisition -- -- -- -- 1,203,125 Series A Preferred stock exchanged for common stock -- -- -- -- -- Other Comprehensive Loss: Net Loss for the six months ended June 30, 2000 -- (5,849,226) -- -- (5,849,226) Change in unrealized loss on available-for-sale investments -- -- (54,564) -- (54,564) ---------- ----------- -------- --------- ------------ Closing balance - June 30, 2000 $3,605,580 $(7,151,901) $(66,540) $(906,788) $ 8,078,564 ========== =========== ======== ========= ============
5 8 U.S. TRUCKING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1999
Common Stock Preferred Stock No Par Value Shares Amount Shares Amount ---------- ---------- --------- ----------- Opening balance - January 1, 1999 16,074,591 $2,796,000 -- $ -- Issuance of Common Stock upon Exercise of options 1,759,870 449,961 -- -- Capital contributed -- -- -- -- 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 Issuance of Series C Preferred Stock Note 8 -- -- 50,000 15,000 Issuance of Series D Preferred Stock Note 8 -- -- 950 950,000 Issuance of Series E Preferred Stock Note 8 -- -- 2,300 2,300,000 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 ========== ========== ========= ===========
Accumulated Additional Other Paid in Accumulated Comprehensive Subscriptions Capital Deficit (Loss) Receivable Total ---------- ----------- -------- ---------- ------------ Opening balance - January 1, 1999 $3,821,812 $(1,409,433) -- $(120,000) $ 5,088,379 Issuance of Common Stock upon Exercise of options -- -- -- (436,788) 13,173 Capital contributed 401,668 -- -- -- 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 (185,000) -- -- -- 1,815,000 Issuance of Series C Preferred Stock Note 8 -- -- -- -- 15,000 Issuance of Series D Preferred Stock Note 8 (150,000) -- -- -- 800,000 Issuance of Series E Preferred Stock Note 8 (282,900) -- -- -- 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 $3,605,580 $(1,302,675) $(11,976) $(906,788) $ 13,095,102 ========== =========== ======== ========= ============
6 9 U.S. TRUCKING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
2000 1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss) from continuing operations $ (998,029) $ 313,844 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES Depreciation & amortization 546,455 1,146,717 Provision for doubtful accounts 1,675,414 -- Deferred taxes -- -- Gain on disposal of equipment -- (124,114) (Increase) Decrease-Assets Restricted cash (3,088,503) (445,436) Accounts receivable (7,674,807) (2,571,741) Parts and Supplies inventory -- (30,111) Prepaid expenses and other assets 110,589 (378,376) Intangible assets 103,144 -- Due from captive insurer (335,622) -- Increase (Decrease)-Liabilities Accounts payable - trade (414,759) -- Revolving loan 9,205,417 1,751,612 Accrued expenses and other current liabilities (908,618) 540,034 ----------- ----------- Total Adjustments (781,290) (111,415) ----------- ----------- Net cash provided (used) by continuing operations (1,779,019) 202,429 ----------- ----------- Discontinued operations (4,851,197) -- ----------- ----------- Subtotal (6,630,516) 202,429 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES (Increase) in security deposit -- (1,433) Purchase of equipment and software development (93,689) (244,673) Cash paid for businesses acquired (534,698) (340,000) Proceeds from disposition of assets -- 1,104,114 ----------- ----------- Net cash (used) by investing activities (628,387) 518,008 ----------- ----------- Subtotal $(7,258,903) $ 720,437 ----------- -----------
7 10 U.S. TRUCKING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
2000 1999 ----------- ----------- Balance Forward $(7,258,903) $ 720,437 CASH FLOWS FROM FINANCING ACTIVITIES Due from related parties 186,023 Notes receivable 3,554,671 -- Repayments of notes receivable (632,094) -- Proceeds from sale of common stock and additional paid in capital -- 1,883,732 Issuance of convertible debentures 6,560,296 -- Principal payments on long-term debt (2,296,488) (1,838,093) ----------- ----------- Net cash (used) provided by financing activities 7,372,408 45,639 ----------- ----------- NET INCREASE (DECREASE) IN CASH 113,505 766,076 CASH AT BEGINNING OF PERIOD 1,057,719 22,976 ----------- ----------- CASH AT END OF PERIOD $ 1,171,224 $ 789,052 =========== =========== Supplemental Disclosure of Cash flow information: Cash Paid during the year Interest expense $ 749,101 $ 305,123 =========== =========== Income taxes $ -- $ -- =========== ===========
8 11 U.S. TRUCKING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE SIX MONTHS ENDED JUNE 30, 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
Effective June 1999, U.S. Trucking acquired the intermodal business of Excalibur Express, Inc. Fair Value of assets acquired $ -- Fair Value of liabilities assumed 76,410 Goodwill recognized 1,026,410 Cash paid 300,000 Value of Common Stock issued 650,000
In April 1999 U.S. Trucking acquired the freight brokerage business of Prostar, Inc. Fair Value of assets acquired $ -- Fair Value of liabilities assumed 229,312 Goodwill recognized 1,444,312 Cash paid 715,000 Value of Common Stock issued 500,000
9 12 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 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., Prostar, Inc. and UST Logistics, Inc. as of June 30, 2000 and Gulf Northern Transport, Inc. and Mencor, Inc. as of June 30, 1999. Significant intercompany transactions or balances as of and for the periods ended June 30, 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 The Company considers all highly liquid debt instruments purchased with maturities of six months or less to be cash equivalents for financial statement purposes. 10 13 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 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 subsidiary Gulf Northern Transport, Inc. entered into 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. Also in January 2000, Gulf Northern entered into 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 90% of revenues generated by its over the road operations to One-Way in exchange for the operational services provided. 11 14 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 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 the time freight is picked up at the customer's site. Prior to 1999, the Company 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. 12 15 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 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 conversion of 9,990,000 shares of common stock into series A preferred stock in February 1999 and the conversion of 900,000 shares Series A preferred stock back to 9,000,000 shares of common stock as of June 30, 2000. The resulting weighted average number of common shares outstanding was 10,010,544 in 2000 and 8,925,676 in 1999. With respect to 1999, 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. NOTE 3 - Acquisition of Subsidiaries and Other Assets and Liabilities On February 7, 2000, U.S. Trucking consummated a merger agreement to acquire Checkmate Truck Brokerage, Inc. and Maverick Truck Brokerage, Inc., for a 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 $886,961 payable to the principals of which 500,000 has been paid as of June 30, 2000. 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. An allocation of the purchase price follows:
Checkmate/ Maverick ---------- Assets Accounts receivable $3,311,143 Transportation and other equipment 220,204 Goodwill 2,606,125 ---------- 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 SIX MONTHS ENDED JUNE 30, 2000 AND 1999 NOTE 3 - Acquisition of Subsidiaries and Other Assets and Liabilities (Continued) In April 1999, U.S. Trucking acquired the common stock of Pro Star, Inc. a truck brokerage company based in Charleston, SC for $1,444,312 consisting of 200,000 shares of common stock, cash of $715,000 and the assumption of liabilities of $229,312. In June 1999, the Company acquired the intermodal business of Excalibur Express, Inc., also a Charleston, SC based company for $1,026,410 consisting of 200,000 shares of common stock and $300,000 in cash. An allocation of the purchase prices follow:
Excalibur Prostar, Inc. Express Total ------------- ---------- ---------- Assets ------ Goodwill $1,444,312 $1,026,410 $2,470,722 ---------- ---------- ---------- Total $1,444,312 $1,026,410 $2,470,722 ========== ========== ========== Liabilities Assumed and Equity ------------------------------ Liabilities assumed and debt to sellers $ 944,312 $ 376,410 $1,320,722 Common stock 500,000 650,000 1,150,000 ---------- ---------- ---------- Total $1,444,312 $1,026,410 $2,470,722 ========== ========== ==========
14 17 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 NOTE 4 - Income Taxes The deferred tax asset of $1,141,963 represents the tax benefit from net operating losses generated in prior years reduced by a valuation allowance amounting to $2,159,000 as of June 30, 2000. The valuation allowance provided is based on management's valuation of the likelihood of realization of the benefit of the net operating loss carryovers. Management believes it is more likely than not that U.S. Trucking will realize the benefit of the recorded deferred tax assets. 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 June 30, 2000 of $8,850,000. 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 future capital gain can be anticipated. 15 18 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 NOTE 5 - Convertible Debentures During the six months ended June 30, 2000, U.S. Trucking issued convertible debentures in the amount of $7,100,000. Debt issuance costs amounted to $84,000 which are being amortized over the life of the debentures. The debentures include a stated interest rate of 10% per annum and mature during 2003. The Company also retired $539,704 of debentures during the six months ended June 30, 2000. Related debt issuance costs of $44,000 was expensed and is included in amortization expenses in the accompanying financial statements. During the six months ended June 30, 1999 the Company issued $2,250,000 of 10% convertible debentures due May 31, 2002 with related debt issuance costs amounting to $208,000. The Company subsequently retired $800,000 of those debentures. Related debt issuance costs of $78,180 was expensed and is included in amortization expenses in the accompanying financial statements. 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 into U.S. Trucking's common stock plus accrued interest. The price per share of common stock into which the debentures are convertible is the lower of $1.50 or 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. NOTE 6 - Captive Insurance Program The company recorded in the accompanying financial statements $1,040,943 of amounts due from the captive insurer of which $ 2,252,990 and $ 937,214 is reflected in revenues in the six months ended June 30, 2000 and 1999, respectively. These amounts represent the estimated "program-to date profit" at June 30, 2000 and 1999. 16 19 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 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, the company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131). The adoption of SFAS 131 requires the presentation of descriptive information about reportable segments which is consistent with that made available to the management of U.S. Trucking to assess performance. As a result of this change, the company now reports segment performance on an after-tax basis and separately reports information on its truck brokerage operation. In addition, during 1998, the company 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. SIX MONTHS ENDED JUNE 30, 2000
Long-haul Truck Liability Trucking Brokerage Insurance Intersegment Total ------------ ------------ ---------- ------------ ------------ Sales $ 21,400,939 $ 17,270,618 $2,285,729 $(590,896) $ 40,366,390 Operating income (loss) (1,084,098) 192,395 308,909 -- (582,794) Net interest (764,279) (42,774) -- -- (807,053) Pretax income (loss) (1,456,579) 149,641 308,909 -- (998,029) Loss from discontinued operations (4,851,197) -- -- -- (4,851,197) Net income (loss) (6,307,776) 149,641 308,909 -- (5,849,226) Assets 31,474,181 8,242,069 2,077,676 -- 41,793,926 Depreciation & Amortization 351,240 171,033 24,182 -- 546,455 Additions to long- lived assets 226,799 383,232 -- -- 610,031
17 20 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 NOTE 7 - Industry Segment Information (continued) THREE MONTHS ENDED JUNE 30, 2000
Long-haul Truck Liability Trucking Brokerage Insurance Intersegment Total ------------ ------------ ---------- ------------ ------------ Sales $ 10,739,848 $11,250,649 $ 661,189 $(242,660) $22,303,450 Operating income (loss) (970,849) 119,929 253,243 -- (597,677) Net interest (461,989) (3,208) -- -- (465,197) Pretax income (loss) (1,436,316) 125,312 253,243 -- (1,057,761) Loss from discontinued Operations (4,851,197) (4,851,197) Net income (loss) (6,295,071) 134,386 274,007 -- (5,886,678) Assets 31,474,181 8,242,069 2,077,676 -- 41,793,926 Depreciation & Amortization 207,596 126,316 8,387 -- 342,299 Additions to long- lived assets 98,104 178,934 -- -- 277,038
SIX MONTHS ENDED JUNE 30, 1999
Long-haul Truck Liability Trucking Brokerage Insurance Intersegment Total ------------ ------------ ---------- ------------ ------------ Sales $ 14,712,520 $ 2,513,413 $ 937,214 $(338,978) $ 17,824,169 Operating income 484,353 27,375 28,150 -- 539,878 Net interest (371,222) (7,250) -- -- (378,472) Pretax income (loss) 121,933 90,490 101,421 -- 313,844 Net income 121,933 90,490 101,421 -- 313,844 Assets 17,412,698 949,767 1,489,159 -- 19,851,624 Depreciation & Amortization 1,133,808 12,909 -- -- 1,146,717 Additions to long- lived assets 244,673 -- -- -- 244,673
18 21 U.S. TRUCKING, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 NOTE 7 - Industry Segment Information (continued) THREE MONTHS ENDED JUNE 30, 1999
Long-haul Truck Liability Trucking Brokerage Insurance Intersegment Total ------------ ------------ ---------- ------------ ------------ Sales $ 7,691,441 $ 2,168,294 $ 458,215 $(155,153) $ 10,162,797 Operating Income (loss) 286,649 107,101 67,441 461,191 Net interest (262,382) (7,294) -- -- (269,676) Pretax income (loss) 26,712 99,807 67,441 193,898 Net income (loss) 26,712 99,807 67,441 193,898 Assets 17,412,698 949,767 1,489,159 -- 19,851,624 Depreciation & Amortization 583,473 12,609 -- -- 596,082 Additions to long- lived assets 244,673 -- -- -- 244,673
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 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. 19 22 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 20 23 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, US 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 logististics (brokerage) company. During 1999, we acquired Prostar, Inc. (a brokerage company) and merged Mencor, Inc. into Prostar, Inc. U.S. Trucking, Inc. operating results are driven by the results of Gulf Northern Transport, Inc. the companies trucking operation including over the road and intermodal, our Captive auto liability insurance program, it's brokerage operations (ProStar Inc. and VST logistics Inc.). The Company reported a loss for the period ending June 30, 2000 and a profit for period ending June 30, 1999. On December 31, 1999, we effected a plan to transfer the over the road truckload operations 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 similar 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 transactions 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 receivables and the processing of the agents settlements. After implementation of these procedures, our comparatives from one period to another occurring in 1999 and 2000 will change dramatically, in that our purchased transportation 21 24 costs will increase significantly while other operating expenses and administrative costs will be reduced materially. During second quarter of 2000, we effected a plan to discontinue the agency portion of our truckload segment excluding inter-modal. The decision resulted in us having to record certain adjustments to the related assets and liabilities of that business segment as well as provision to cover the estimated operating losses expected during the period we estimate it will take to totally discontinue the operation. In addition, we accrued our expected losses on the disposal of assets. Such adjustments total $4,851,197 for the six months ended June 30, 2000. The loss from discontinued operations has been reflected in accordance with Accounting Principles Board No. 30 "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual, and Infrequently Occurring Events and Transactions" as a disposal of a segment. The June 30, 2000 consolidated balance sheet and the consolidated statements of operations and cash flows for the six months then ended have been restated to separately reflect the financial position, results of operations, and cash flows of the discontinued operations. RESULTS OF OPERATIONS The following tables sets forth items in the Consolidated Statement of Operations for the six and three months ending June 30, 2000 and 1999 as a percentage of operating revenues.
6 MOS. ENDING 6 MOS. ENDING 30-JUN-00 30-JUN-99 ------------------------------ OPERATING REVENUES 100.0% 100.0% PURCHASED TRANSPORTATION & RENTALS 83.7% 39.8% OPERATING SUPPLIES AND MAINTENANCE 0.1% 3.5% FUEL 0.0% 8.2% MISCELLANEOUS OPERATING EXPENSES 1.0% 1.7% INSURANCE AND CLAIMS 5.6% 5.9% DEPRECIATION AND AMORTIZATION 1.4% 6.4% TAXES AND LICENSES 0.2% 1.3% OCCUPANCY COSTS 0.4% 1.0% SALARIES, WAGES AND BENEFITS 4.8% 23.2% ADMINISTRATIVE EXPENSES 4.2% 6.0% TOTAL EXPENSES 101.4% 97.0% OPERATING INCOME (1.4)% 3.0% INTEREST EXPENSE (2.1)% (2.1)% GAIN ON SALE OF EQUIPMENT 0.9% 0.7% INTEREST INCOME 0.1% 0.0% OTHER INCOME 0.1% 0.1% INCOME (LOSS) BEFORE INCOME TAXES (2.4)% 1.7% PROVISION FOR INCOME TAXES (0.1)% 0.0% NET INCOME FROM CONTINUING OPERATIONS (2.5)% 1.7% LOSS FROM DISCONTINUED OPERATIONS (12.0)% 0.0% NET INCOME (LOSS) (14.5)% 1.7%
22 25
3 MOS. ENDING 3 MOS. ENDING 30-JUN-00 30-JUN-99 ------------------------------ OPERATING REVENUES 100.0% 100.0% PURCHASED TRANSPORTATION & RENTALS 87.3% 43.5% OPERATING SUPPLIES AND MAINTENANCE 0.0% 3.0% FUEL 0.0% 7.3% MISCELLANEOUS OPERATING EXPENSES 1.2% 1.0% INSURANCE AND CLAIMS 3.5% 5.5% DEPRECIATION AND AMORTIZATION 1.5% 5.9% TAXES AND LICENSES (0.1)% 1.2% OCCUPANCY COSTS 0.4% 0.9% SALARIES, WAGES AND BENEFITS 4.4% 20.5% ADMINISTRATIVE EXPENSES 4.5% 6.9% TOTAL EXPENSES 102.7% 95.7% OPERATING INCOME (2.7)% 4.3% INTEREST EXPENSE (2.1)% (2.7)% GAIN ON SALE OF EQUIPMENT 0.0% 0.0% INTEREST INCOME 0.0% 0.0% OTHER INCOME 0.0% 0.0% INCOME (LOSS) BEFORE INCOME TAXES (4.8)% 1.6% PROVISION FOR INCOME TAXES 0.0% 0.0% NET INCOME FROM CONTINUING OPERATIONS (4.8)% 1.6% LOSS FROM DISCONTINUED OPERATIONS (21.8)% 0.0% NET INCOME (LOSS) (26.6)% 1.6%
Three months ended June 30, 2000 compared to June 30, 1999 Operating revenues. Total operating revenue increased from $10.2 million for the three months ended June 30, 1999 to $22.3 million, or 118.6% for the three months ended June 30, 2000. The reasons for this increase are the acquisitions of 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 from the Excalibur acquisition and the opening of a new container division increased 23 26 $3.96 million. Operating revenues as a result from the Fulmer acquisition increased $2.83 million. Operating revenues as a result from the Checkmate/Maverick acquisition increased $8.70 million. In addition, revenues from the Captive Insurance Program increased from $460 thousand for the three months ended June 30, 1999 to $628 thousand for the three months ended June 30, 2000. Purchased transportation and rentals. Purchased transportation and rentals increased from $4.42 million for the three months ended June 30, 1999 to $19.46 million or 340.5% for the three months ended June 30, 2000. As a percentage of operating revenue, purchased transportation and rentals increased from 43.5% for the three months ended June 30, 1999 to 87.3% for the three months ended June 30, 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 $3.27 million for the three months ended June 30, 1999 to $10.48 million for the three months ended June 30, 2000. Agent settlements from truckload and container operations increased from $73 thousand for the three months ended June 30, 1999 to $9.67 million for the three months ended June 30, 2000. Salaries, wages and benefits. Salaries, wages and benefits decreased from $2.08 million for the three months ended June 30, 1999 to $984 thousand or 52.7% for the three months ended June 30, 2000. Salaries, wages and benefits as a percentage of total operating revenue decreased from 20.5% for the three months ended June 30, 1999 to 4.4% for the three months ended June 30, 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 $1.24 million for the three months ended June 30, 1999 to zero for the three months ended June 30, 2000. Fuel. Fuel expense decreased from $742 thousand for the three months ended June 30, 1999 to zero for the three months ended June 30, 2000. The decrease is attributed to the conversion of truckload operations to a agency program in which most operating costs other than agents settlements are eliminated. Fuel expense from company owned tractors decreased from $729 thousand for the three months ended June 30, 1999 to zero for the three months ended June 30, 2000. Operating supplies and maintenance. Operating supplies and maintenance decreased from $303 thousand for the three months ended June 30, 1999 to $10 thousand for the three months ended June 30, 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 company equipment was eliminated. Insurance and claims. Insurance and claims increased from $557 thousand for the three months ended June 30, 1999 to $774 thousand or 38.9% for the three months ended June 30, 2000. Insurance and claims as a percentage of total operating revenue decreased from 5.48% for the three months ended June 30, 1999 to 3.47% for the three months ended June 30, 2000. The decrease as a percentage of operating revenue can be attributed to 24 27 increased revenues from our brokerage divisions, which have much lower insurance costs as percentage of revenue associated with them. Taxes and licenses. Taxes and licenses decreased from $119 thousand for the three months ended June 30, 1999 to zero for the three months ended June 30, 2000. The decrease is attributed to the conversion of truckload and intermodal operations to a agency program. Depreciation and amortization. Depreciation and amortization decreased from $596 thousand for the three months ended June 30, 1999 to $343 thousand or 42.5% for the three months ended June 30, 2000. Depreciation and amortization as a percentage of total operating revenue decreased from 5.87% for the three months ended June 30, 1999 to 1.53% for the three months ended June 30, 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 $490 thousand for the three months ended June 30, 1999 to $58 thousand for the three months ended June 30, 2000. Amortization expense increased from $106 thousand for the three months ended June 30, 1999 to $284 thousand for the three months ended June 30, 2000. The reason for the increase is from the goodwill created from the Mid-Cal, Prostar, Excalibur Express, Fulmer Transport and Checkmate/Maverick acquisitions. General and administrative. General and administrative expenses increased from $696 thousand for the three months ended June 30, 1999 to $1.01 million or 45.1% for the three months ended June 30, 2000. General and administrative as a percentage of total operating revenue decreased from 6.85% for the three months ended June 30, 1999 to 4.53% for the three months ended June 30, 2000. The decrease as a percentage of operating revenue can be attributed to the economies 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 decreased from $461 thousand or 4.54% of total operating revenues for the three months ended June 30, 1999 to a operating loss of $598 thousand or (2.68)% of total operating revenue for the three months ended June 30, 2000. This decrease as a percentage of total operating revenue can be attributed to the various factors discussed above. Management anticipates as revenues increase, the margin created from purchased transportation will justify enough margin to create profitability going forward but there can no assurance that this will happen. Interest. Interest expense increased from $269 thousand for the three months ended June 30, 1999 to $466 thousand or 72.8% for the three months ended June 30, 2000. Interest expense as a percentage of total operating revenue decreased from 2.65% for the three 25 28 months ended June 30, 1999 to 2.09% for the three months ended June 30, 2000. The primary reason for the increase in total is interest paid in relation to our revolving credit line facility, which has increased from a loan balance of $3.19 million on June 30, 1999 to $15.94 million on June 30, 2000. Discontinued Operations. We recognized losses from discontinuing our agency truckload segment: The loss is discussed earlier and totaled 4,851,197. Net income decreased from $194 thousand for the three months ended June 30, 1999 to a net loss of $5.91 million for the three months June 30, 2000. The primary factors that caused the loss is the discontinued operations and reduction in operating income discussed previously. Six months ended June 30, 2000 compared to June 30, 1999 Operating revenues. Total operating revenue increased from $17.82 million for the six months ended June 30, 1999 to $40.37 million, or 126.5% for the six months ended June 30, 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 $409 thousand. Operating revenues as a result from the Excalibur acquisition and the opening of a new container division increased $6.3 million. Operating revenues as result from the Fulmer acquisition increased $6.89 million. Operating revenues as result from the Checkmate/Maverick acquisition increased $13.24 million. In addition, revenues from the Captive Insurance Program increased from $934 thousand for the six months ended June 30, 1999 to $2.25 million for the six months ended June 30, 2000. Purchased transportation and rentals. Purchased transportation and rentals increased from $7.09 million for the six months ended June 30, 1999 to $33.80 million or 376.9% for the six months ended June 30, 2000. As a percentage of operating revenue, purchased transportation and rentals increased from 39.8% for the six months ended June 30, 1999 to 83.7% for the six months ended June 30, 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 $3.58 million for the six months ended June 30, 1999 to $15.30 million for the six months ended June 30, 2000. Agent settlements from truckload and container operations increased from $125 thousand for the six months ended June 30, 1999 to $18.81 million for the six months ended June 30, 2000. Salaries, wages and benefits. Salaries, wages and benefits decreased from $4.14 million for the six months ended June 30, 1999 to $1.94 million or 53.1% for the six months 26 29 ended June 30, 2000. Salaries, wages and benefits as a percentage of total operating revenue decreased from 23.2% for the six months ended June 30, 1999 to 4.8% for the six months ended June 30, 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 $2.40 million for the six months ended June 30, 1999 to zero for the six months ended June 30, 2000. Fuel. Fuel expense decreased from $1.46 million for the six months ended June 30, 1999 to zero for the six months ended June 30, 2000. The decrease is attributed to the conversion of truckload operations to a agency program in which most operating costs other than agents settlements are eliminated. Fuel expense from company owned tractors decreased from $1.43 million for the six months ended June 30, 1999 to zero for the six months ended June 30, 2000. Operating supplies and maintenance. Operating supplies and maintenance decreased from $626 thousand for the six months ended June 30, 1999 to $32 thousand for the six months ended June 30, 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 company equipment was eliminated. Insurance and claims. Insurance and claims increased from $1.05 million for the six months ended June 30, 1999 to $2.27 million or 116.0% for the six months ended June 30, 2000. Insurance and claims as a percentage of total operating revenue decreased from 5.9% for the six months ended June 30, 1999 to 5.6% for the six months ended June 30, 2000. The decrease as a percentage of operating revenue can be attributed to increased revenues from our brokerage divisions, which have much lower insurance costs as percentage of revenue associated with them. Miscellaneous operating expenses. Miscellaneous operating expenses increased from $301 thousand for the six months ended June 30, 1999 to $416 thousand or 38.1% for the six months ended June 30, 2000. Miscellaneous operating expenses as a percentage of revenue decreased from 1.7% for six months ended June 30, 1999 to 1.0% for the six months ended June 30, 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 $235 thousand for the six months ended June 30, 1999 to $94 thousand or 59.8% for the six months ended June 30, 2000. Taxes and licenses as a percentage of total operating revenue decreased from 1.32% for the six months ended June 30, 1999 to 0.2% for the six months ended June 30, 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 $1.15 million for the six months ended June 30, 1999 to $546 thousand or 52.3% for the six months ended June 30, 2000. Depreciation and amortization as a percentage of total 27 30 operating revenue decreased from 6.4% for the six months ended June 30, 1999 to 1.4% for the six months ended June 30, 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 $971 thousand for the six months ended June 30, 1999 to $116 thousand for the six months ended June 30, 2000. Amortization expense increased from $170 thousand for the six months ended June 30, 1999 to $430 thousand for the six months ended June 30, 2000. The reason for the increase is from the goodwill created from the Mid-Cal, Prostar, Excalibur Express, Fulmer Transport and Checkmate/Maverick acquisitions. General and administrative. General and administrative expenses increased from $1.07 million for the six months ended June 30, 1999 to $1.70 million or 74.9% for the six months ended June 30, 2000. General and administrative as a percentage of total operating revenue decreased from 6.0% for the six months ended June 30, 1999 to 4.2% for the six months ended June 30, 2000. The decrease as a percentage of operating revenue can be attributed to the economies 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 $540 thousand or 3.0% of total operating revenues for the six months ended June 30, 1999 to $(583) thousand or (1.4)% of total operating revenue for the six months ended June 30, 2000. This decrease as a percentage of total operating revenue can be attributed to the various factors discussed above. Again, management anticipates as revenues increase, the margin created from purchased transportation will justify enough to create profitability going forward. There can be no assurance that will happen. Interest. Interest expense increased from $378 thousand for the six months ended June 30, 1999 to $829 thousand or 119.1% for the six months ended June 30, 2000. Interest expense as a percentage of total operating revenue decreased from 2.1% for the six months ended June 30, 1999 to 2.0% for the six months ended June 30, 2000. The primary reason for the increase in total is the interest paid in relation to our revolving credit line facility which has increased from a loan balance of $3.19 million on June 30, 1999 to $15.94 million on June 30, 2000. Discontinued Operations -- We recognized losses from discontinuing our agency truckload segment. The loss is discussed earlier and totaled 4,851,197. Net income decreased from $314 thousand for the six months ended June 30, 1999 to a net loss of $5.85 million for the six months June 30, 2000. The primary factors that produced our profit for the six months ended June 30, 2000, was the loss from discontinued operations and the reduction in operating income mentioned the preceding paragraphs. 28 31 LIQUIDITY AND CAPITAL RESOURCES At June 30, 2000, we had a working capital deficit of $832,246 as compared to a working capital surplus of $1,367,418 at December 31, 1999 or a net change of $2,200,000. Working capital declined due to a number of factors as follows: Working capital declined because our accounts payable, accrued expenses and current portion of long term debt increased approximately $1,500,000 on a net basis and notes receivable-related parties and current deferred taxes declined approximately $1,100,000. These working capital declinations were offset by an increase of $105,000 in accounts receivable over and above our revolving loan payable, and an increase of $314,000 in cash and prepaid expenses and other current assets. In order to provide for working capital and to support our continuing acquisition program, we increased our revolving working capital line of credit with our major lender from $8,000,000 to $16,000,000. Continuing with our acquisition program, we acquired Checkmate Truck Brokerage, Inc. and Maverick Truck Brokerage, Inc. through a merger effective February 7, 2000. The acquisition required a cash payment of $500,000 to the sellers. During the second quarter of fiscal 2000, we raised an additional $6,000,000 through the issuance of 11.5% three-year convertible debentures. A portion of the net raised was used to fund our increase in restricted cash at ended June 30, 2000 and the balance was used to bolster our working capital. Net cash used by continuing operations amounted to $1,779,019 for the six months ended June 30, 2000 as compared to net cash of $202,429 provided by continuing operating activities for the six months ended June 30, 1999. The loss for the six months (5,849,226) was mostly attributed to our decision to discontinue the agency truck-load segment of our transportation business excluding intermodal. This decision resulted in us having to record certain adjustments to the related assets and liabilities of that business segment and we recorded a provision to cover the estimated operating losses expected during the period we estimate it will take to totally discontinue the operation. Further, to the extent we could estimate, we accrued our expected losses on the disposal of assets. Such adjustments amounted to $4,851,197 for the six months ended June 30, 2000. Net cash used by investing activities amounted to $628,387 for the six months ended June 30, 2000 as compared to net cash provided of $518,008 for the six months ended June 30, 1999. The net use of cash from investing activities was mainly attributable to our acquisition during the first quarter of 2000 amounting to approximately $534,000. Net cash flows provided by financing activities amounted to $7,372,408 for the six months ended June 30, 2000 as compared to net cash provided of $45,639 for the six months ended June 30, 1999. The net increase in cash flows from financing activities was mainly attributable to the fact that we issued $6,560,296 in convertible debentures, received $3,554,671 from notes receivable and was offset by payments made on long-term debt of $2,296,488. We expect to continue to acquire transportation companies that meet our cash flow and profitability criteria. We expect to fund any potential acquisitions by sale of common stock, preferred stock or the issuance of additional convertible debentures. There is no assurance that we will find additional suitable acquisitions 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 the 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 control. 29 32 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 2. CHANGES IN SECURITIES. In June, 2000, we issued 9,000,000 shares of common stock to Logistics Management, LLC in connection with the exchange of 900,000 shares of Series A Preferred Stock. The exchange described above was 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) The following exhibits have been filed with this report: 10.1 Securities Purchase Agreement with Augusta/L.O.F., LLC 10.2 $6.0 million Subordinated Convertible Debenture 10.3 Warrant to purchase 580,000 shares 10.4 Agreement relating to conversion of Series A shares 10.5 $1.7 million Promissory Note 21 Subsidiaries of the Registrant Exhibit 27 - Financial Data Schedule (b) None. 33 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. U.S. TRUCKING --------------------------------------------- Registrant August 28, 2000 By \s\ Danny L. Pixler ------------------------------------------ Danny L. Pixler Chief Executive Officer By \s\ John Ragland ------------------------------------------ John Ragland Chief Financial Officer