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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001.
[ ] TRANSACTION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from..............to..............
Commission file number: 1-15597
LANDSTAR, INC.
(Exact name of registrant as specified in its charter)
Nevada 86-0914051
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
15825 N. 71st Street, Suite 205
Scottsdale, Arizona 85254
(480) 596-8400
(Address and telephone number of registrant's principal executive offices and
principal place of business)
Check whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports, and (2) has been subject to such filing requirements for the past 90
days.
Yes [ x ] No [ ]
State the number of shares outstanding of each of the Issuer's classes
of common equity, as of the latest practicable date. 47,355,824 shares of common
stock, $.001 par value as of July 31, 2001.
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LANDSTAR, INC.
FORM 10-QSB QUARTERLY REPORT
TABLE OF CONTENTS
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at 3
June 30, 2001 and December 31, 2000
Condensed Consolidated Statements of 4
Operations for the Three and Six Months Ended
June 30, 2001 and 2000
Condensed Consolidated Statements of 5
Cash Flows for the Six Months Ended
June 30, 2001 and 2000
Notes to Condensed Consolidated Financial 6
Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 16
Item 2. Changes in Securities. 16
Item 3. Defaults Upon Senior Securities. 16
Item 4. Submission of Matters to a Vote of Security Holders. 16
Item 5. Other Information. 16
Item 6(a). Exhibits. 16
Item 6(b). Reports on Form 8-K. 16
Signatures. 17
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LANDSTAR, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE, 2001 DECEMBER 31, 2000
------------- -----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 110,113 $ 29,542
Accounts receivable, net of allowances of $111,979 at June 30, 2001 2,057,259 10,371
Inventory 2,244,709 --
Prepaid and other assets 619,949 5,942
------------ -----------
Total current assets 5,032,030 45,855
Property and equipment, net of accumulated depreciation 19,469,982 730,539
Other Assets:
Technology rights, net of accumulated amortization of $272,172
and $169,660 at June 30, 2001 and December 31, 2000, respectively 612,832 649,624
Excess of cost over fair market value of assets acquired, net
of accumulated amortization of $556,393 7,070,123 --
------------ -----------
Total other assets 7,682,955 649,624
------------ -----------
Total assets $ 32,184,967 $ 1,426,018
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 6,280,185 $ 842,416
Current maturities of long-term debt 3,634,071 --
Due to shareholder 3,448,333 --
Advances from related parties -- 250,950
Deferred revenue 2,000,000 --
------------ -----------
Total current liabilities 15,362,589 1,093,366
Long-term debt, less current maturities 9,755,555 --
------------ -----------
Total liabilities 25,118,114 1,093,366
Commitments and contingencies
Shareholders' Equity:
Common stock, $.001 par value; authorized 100,000,000
shares; issued and outstanding 58,015,824 and 44,547,524
at June 30, 2001 and December 31, 2000, respectively 58,015 44,547
Preferred stock; to be authorized and issued (15,000,000 shares) 30,000 --
Additional paid-in capital (including $8,470,000 and $0, respectively
relating to the preferred shares to be issued) 17,850,957 6,029,499
Common stock subscriptions -- 117,000
Accumulated deficit (10,872,149) (5,858,394)
------------ -----------
Total shareholders' equity 7,066,823 332,852
------------ -----------
Total liabilities and shareholders' equity $ 32,184,967 $1,426,018
============ ===========
See notes to condensed consolidated financial statements.
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LANDSTAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended June 30, Six months ended June 30,
2001 2000 2001 2000
----------- ----------- ----------- -----------
Net sales $ 3,490,399 $ -- $ 7,136,652 $ --
Cost of goods sold 4,088,081 -- 7,754,065 --
----------- ----------- ----------- -----------
Gross profit (loss) (597,682) -- (617,413) --
Operating expenses:
Research and development -- 51,895 -- 65,880
Selling 120,039 -- 290,633 --
General and administrative 1,825,722 531,034 3,598,309 924,142
----------- ----------- ----------- -----------
Total operating expenses 1,945,761 582,929 3,888,942 990,022
----------- ----------- ----------- -----------
Operating income (loss) (2,543,443) (582,929) (4,506,355) (990,022)
Other income (expense):
Interest income 3,910 -- 6,550 --
Interest expense (187,817) (2,838) (458,128) (15,016)
Other income (expense) 1,893 -- (57,034) --
----------- ----------- ----------- -----------
Total other income (expense) (182,014) (2,838) (508,612) (15,016)
----------- ----------- ----------- -----------
Net loss $(2,725,457) $ (585,767) $(5,014,967) $(1,005,038)
=========== =========== =========== ===========
Net loss per share, basic and diluted $ (0.06) $ (0.02) $ (0.11) $ (0.03)
=========== =========== =========== ===========
Weighted-average common
shares outstanding, basic and diluted 46,686,899 38,236,000 45,885,310 38,136,000
=========== =========== =========== ===========
See notes to condensed consolidated financial statements.
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LANDSTAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended June 30,
2001 2000
----------- ---------
Cash flows from operating activities
Net loss $(5,014,967) $(1,005,038)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,119,516 126,000
Loss on sale of property and equipment 62,366 --
(Increase) decrease in operating assets:
Trade receivables (131,354) --
Inventories (491,215) --
Prepaid expenses and other assets (220,878) --
Increase (decrease) in operating liabilities:
Accounts payable 1,242,674 7,079
----------- -----------
Net cash used in operating activities (3,433,858) (871,959)
Cash flows from investing activities:
Capital expenditures (1,449,936) (220,414)
Cash from acquisition 132,390 --
Proceeds from sale of property and equipment 5,000 --
----------- -----------
Net cash used in investing activities (1,312,546) (220,414)
Cash flows from financing activities:
Proceeds from revolving line of credit 4,708,672 --
Payments on revolving line of credit (5,460,375) --
Net proceeds from loan payable to stockholder and director 3,448,333 --
Payments on long-term debt (842,291) --
Issuance of common stock 2,747,927 633,571
Issuance of notes payable 224,709 --
Net advances (payments) to/from related parties -- 452,251
----------- -----------
Net cash provided by financing activities 4,826,975 1,085,822
----------- -----------
Net increase (decrease) in cash and cash equivalents 80,571 (6,551)
Cash and cash equivalents, beginning of period 29,542 10,042
----------- -----------
Cash and cash equivalents, end of period $ 110,113 $ 3,491
=========== ===========
See notes to condensed consolidated financial statements.
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LANDSTAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. However, the Company believes that the disclosures are
adequate to make the information presented not misleading. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2000.
The unaudited condensed consolidated financial statements included herein
reflect all adjustments (which include only normal recurring adjustments)
which are, in the opinion of management, necessary to state fairly the
results for the interim periods presented. The results of operations for
the interim periods presented are not necessarily indicative of the
operating results to be expected for any subsequent interim period or for
the year ending December 31, 2001.
The external auditors have not completed their review at the time of the
filing of this report.
2. CERTAIN SIGNIFICANT ACCOUNTING POLICIES
The Company had no revenues from operations and was considered to be in the
development stage through December 31, 2000. Effective January 8, 2001 the
Company acquired all outstanding shares of stock of PolyTek Rubber &
Recycling, Inc. (PolyTek) This acquisition is discussed in detail in Note
3. PolyTek is also included in "the Company", effective at the time of its
acquisition. The following accounting policies are additional policies that
have been adopted along with the acquisition of PolyTek. Other accounting
policies of the Company are described in the Company's Annual Report
referred to in Note 1 above.
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Property and Equipment
Property and equipment is recorded at cost, less accumulated depreciation.
Depreciation is calculated using the straight-line method over the
estimated useful lives of the assets.
The depreciation periods for the PolyTek assets are as follows:
Land Improvements 15 years
Buildings and Improvements 40 years
Machinery and Equipment 10 years
Transportation Equipment 5 years
Office Furniture and Equipment 5 to 10 years
Inventories and Recognition of Tire Collection Fees
Finished goods inventories are stated at the lower of cost (first-in,
first-out method) or market. Work in process and finished goods inventories
include materials, labor and allocated overhead.
The primary raw material used in the production of crumb rubber is used
tires. PolyTek does not generally purchase this raw material, but instead
collects tires under contracts with various counties in its area of
operation. The Company receives tire collection fees under third party
contracts, which are recorded as revenue upon the processing of tires into
the plant. Deferred revenues of $2,000,000 represents tire collection fees
relating to the 3,000,000 tires awaiting processing on June 30, 2001.
Intangible Assets
Intangible assets of PolyTek primarily include goodwill, which is the
excess of the acquisition price over the value assigned to identifiable
assets. It is being amortized using the straight-line method over the
expected economic life of 15 years.
Liquidity and Capital Resources
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the regular course of business. At June 30, 2001, the
Company has a working capital deficit of approximately $10.3 million. In
January, 2001, the Company acquired PolyTek (see Note 3); however, in the
more recent fiscal year ended September 30, 2000, PolyTek incurred a net
loss of approximately $6.5 million and used approximately $4.9 million in
cash flows from operations. In addition, PolyTek was in violation of one
debt covenant at June 30, 2001. The lender did waive the covenants. These
factors, among others, raise substantial doubt about the Company's ability
to continue as a going concern.
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3. ACQUISITION OF POLYTEK RUBBER & RECYCLING, INC.
Effective January 8, 2001, the Company entered into an agreement to
purchase all of the issued and outstanding shares of common and preferred
stock of this company. The Company used the purchase method of accounting
for this transaction. Operations of PolyTek Rubber & Recycling, Inc.
("PRR") have been consolidated with the Company as of January 1, 2001. The
Company exchanged 10,000,000 shares of its common stock for the outstanding
common stock of PRR. The Company will also exchange 15,000,000 shares of
its preferred stock (yet to be authorized and issued) in exchange for the
issued and outstanding preferred shares of PRR, $3.7 million of debt to the
sole shareholder as of January 8, 2001 and for $2,000,000 advanced to the
Company in the first quarter of 2001. Each share of preferred stock will be
convertible into two shares of the Company's common stock. The
consideration of stock given in the merger is valued at $9,000,000 based on
the current stock sales value of the Company's common stock at the time of
the acquisition.
The assets purchased included cash of $132,390, accounts receivable of
$1,915,500, inventory of $1,753,500, other assets of $395,000, net fixed
assets of $18,542,000 and other non-current assets of $1,256,000. In
conjunction with the agreement, the Company assumed accounts payable and
accrued liabilities of $3,944,000, deferred revenue of $2,000,000 and
long-term debt of $18,459,000. Approximately $6,000,000 of goodwill was
recorded as a result of this transaction.
PolyTek Rubber & Recycling, Inc., an Arizona corporation, was established
in July 1996. The Company and its subsidiaries operate in the rubber
recycling industry and derive their revenue principally from the sale of
crumb rubber produced at their manufacturing facilities in Arizona,
Michigan, Pennsylvania and Oklahoma to customers on 30 day terms.
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4. PROFORMA INFORMATION
The financial statements included in this report reflect only the activity
of Landstar, Inc. (prior to the PRR acquisition) for six months ended
June 30, 2000. The following would have been the consolidated net revenue,
net loss and per share information if PRR had been owned during that time:
Net revenues $ 6,298,500
Net loss $(3,470,497)
Net loss per share, basic and diluted $ (.09)
5. INVENTORIES
Inventories at June 30, 2001 were composed of $64,073 of raw materials,
$118,846 of work-in-process and $2,061,790 of finished goods.
6. PROPERTY AND EQUIPMENT
The cost of property and equipment and the related accumulated depreciation
at June 30, 2001 are as follows:
Land $ 698,000
Land Improvements 866,882
Building Improvements 4,059,084
Office and Building Improvements 848,036
Tire Collection Equipment 401,254
Factory Equipment 15,053,901
Office Furniture and Fixtures 362,590
Vehicles and Trailers 46,978
Construction in Progress 794,037
-----------
23,130,762
Less: accumulated depreciation (3,660,780)
-----------
$19,469,982
===========
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7. LONG-TERM DEBT
The Company's long-term debt consists of the following at June 30, 2001:
The Michigan Strategic Fund Bonds (a) $ 5,000,000
The Pennsylvania Acquisition Note (f) 1,446,080
The Arizona Acquisition Note (f) 3,948,124
The Oklahoma Acquisition Note (b) 1,126,387
The Oklahoma Acquisition Capital Lease (c) 536,577
The Tennessee Note (d) 477,211
The Oklahoma Installment Lease (e) 683,717
Note payable to financial institution from the Oklahoma Subsidiary;
guaranteed by the Company, interest at 9.89%, due in monthly
installments of $1,788, including interest, through December 2006,
collateralized by substantially all assets except land and building. 97,528
Capital lease payable from the Company, interest at approximately 13%,
due in quarterly installments of $2,613, including interest, through
September 2003, collateralized by the associated equipment. 18,324
Capital lease payable from the Company, interest at 10.67%, due in
quarterly installments of $7,499, including interest, through 2003,
collateralized by the associated equipment. 55,678
----------
13,389,626
Less current maturities (3,634,071)
----------
9,755,555
==========
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The future maturities of the Company's long-term debt are as follows:
Twelve Months Ending June 30,
-----------------------------
2002 $ 3,634,071
2003 2,435,670
2004 371,752
2005 397,580
2006 436,176
Thereafter 6,114,377
-----------
$13,389,626
===========
(a) The Issue was to mature on September 1, 2011. However, the Company did
not renew the Letter of Credit, which collateralized this issue on
July 31, 2001. Therefore, the Bonds were subject to mandatory tender on
August 1, 2001. The Trustee for the Bonds was paid on August 1, 2001.
The Certificate of Deposit, placed by the former sole shareholder of
PolyTek Rubber & Recycling, Inc., which collateralized the Letter of
Credit was converted to immediately available funds and transferred to
the Trustee. Long-term Debt of $5,000,000 will be replaced by the same
amount of equity in the Company in the name of this same shareholder.
This will be recorded in the third quarter.
(b) The Oklahoma Acquisition Note was assumed in connection with the
purchase of the Oklahoma manufacturing facility. The note is
collateralized by substantially all of the assets of PRR's Oklahoma
Subsidiary. The note bears interest at prime plus 1.5% and is due in
monthly installments of $17,936, including interest, with the balance
due in December 2006.
(c) The Oklahoma Acquisition Capital Lease was also assumed in connection
with the purchase of the Oklahoma manufacturing facility. The lease
bears interest at 6.7% and is due in monthly installments of $4,513,
including interest, with the balance due in December 2017. The lease is
collateralized by the land and building associated with the
manufacturing facility.
(d) The Tennessee Note bears interest at prime less 1.0% and is due in
monthly installments of $4,513, including interest, commencing in July
2000. The note matures June 2009. The note is collateralized by certain
land, buildings, receivables, and equipment.
The Tennessee Note contains restrictive covenants, including
requirements for the Company to meet certain financial ratios. The
Company was in violation of certain of these covenants as of September
30, 2000. The violations were subsequently waived by the financial
institution in a letter dated November 3, 2000. Management can provide
no assurance that the Company will not violate these covenants in the
future. Future violation of these covenants could result in the
obligation becoming due and payable on demand.
(e) On May 23, 2000, PRR's Oklahoma Subsidiary entered into an installment
lease with the holders of the Oklahoma Acquisition Note, consisting of
a series of non-revolving draws under a collateralized credit
agreement, for the purpose of financing the purchase and installation
of operating machinery. The draws bear interest at prime plus 2% and
are due in monthly payments of principal and interest through September
2005. The draws are unconditionally guaranteed by the Company and are
collateralized by the associated
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machinery acquired. Additionally, the obligation is
cross-collateralized with the Oklahoma Acquisition Note.
(f) In connection with the acquisition of the Arizona operations in 1997,
the PolyTek Rubber & Recycling, Inc. issued a note payable and a
security agreement for fixtures and equipment (the "Arizona Note"). The
Arizona Note is collateralized by a Deed of Trust on certain property
in Maricopa County, Arizona. The Arizona Note is due in annual
principal installments $1,325,000 through February 28, 2003. Interest
is payable in quarterly installments with a base rate at LIBOR plus one
percent per annum. Because the agreement includes the waiving of
certain interest payments, the original stated principal of $6,300,000
was discounted to $5,823,890 using 6.68%.
In connection with the acquisition of PRR's Pennsylvania Subsidiary,
the Company issued a note payable to NRI Pennsylvania representing
$2,500,000 deferred consideration (the "NRI Note"). The NRI Note is
collateralized by a mortgage on certain real property as defined in the
purchase agreement. The NRI Note is due in annual principal and
interest installments of $833,333 through May 1, 2003. Because the NRI
Note contains no stated interest rate, the original stated principal of
$2,500,000 was discounted to approximately $2,072,000 using, 10%.
As of June 30, 2001, aggregate principal maturities on the Arizona
Note and the NRI Note in each of the next three years are as follows:
Discounted
principal Imputed
Years Ending December 31, payments interest Total
------------------------ -------- -------- -----
2001 $2,390,916 $217,418 $2,608,334
2002 2,003,576 154,757 2,158,333
2003 2,072,504 85,829 2,158,333
---------- -------- ----------
$6,466,996 $458,004 $6,925,000
========== ======== ==========
8. LINES OF CREDIT
On January 10 and July 26, 2001, PRR and the Pennsylvania subsidiary,
respectively, entered into revolving line of credit agreements for
$1,500,000 and $1,000,000, respectively. In June 2001, all obligations
to the financial institution under those agreements were paid in full
and releases were obtained for all assets collateralizing the
agreements.
One June 25, 2001, the Company entered into an accounts receivable
factoring agreement with a different financial institution. The
agreement was initially for one month but has since been extended for
two years. The financial institution purchases customer accounts
receivables, at its option, for the Arizona, Pennsylvania and Oklahoma
subsidiaries. The purchase is on a non-recourse basis except they do
not bear the loss for customer disputes, discounts, credits, returns or
other adjustments. The financial institution initially advances 70% of
the amount of the invoice and the remainder, less fees, is advanced
once the invoice is paid by the customer. The interest rate varies
depending upon the age of the receivable at the time of payment. The
agreement is collateralized by substantially all of the assets of the
subsidiaries involved. There were no outstanding obligations under this
agreement as of June 30, 2001. There are no financial covenants
relating to this agreement.
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9. COMMITMENTS
The Company leases production equipment, office equipment and vehicles
under various noncancelable agreements that expire between June 2001 and
March 2005 which require various minimum annual rentals. The Company leases
office space with payments of $8,940 per month which expires in November
2005, and plant space with payments of $11,958 per month which will be
terminated in September 2001. In addition, the Company leases production
equipment on a month to month basis.
The total approximate minimum rental commitments under noncancelable leases
at June 30, 2001 are as follows:
Years Ending December 31,
-------------------------
2001 $114,110
2002 207,747
2003 195,186
2004 174,024
2005 100,103
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report contains
forward-looking statements. These forward-looking statements are subject to
a number of risks and uncertainties that could cause actual results to
differ materially from those reflected in such forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Factors That May
Affect Future Results and Market Price of Stock". Readers are cautioned not
to place undue reliance on these forward-looking statements, which reflect
management's opinions only as of the date hereof. The Company undertakes no
obligation to revise or publicly release the results of any revision to
those forward-looking statements. Readers should carefully review the risk
factors described in other documents the Company files from time to time
with the SEC, including its Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2000 and the Quarterly Reports on Form 10-QSB filed
by the Company in fiscal year 2001.
RESULTS OF OPERATIONS
Comparison of results of operations is made difficult because in the three
and six months ended June 30, 2000, the Company was a development stage
company with no revenues, five to six employees and no operating
facilities. A pilot facility was in process of being built in Dayton, Ohio.
The Company continued as a development company through the end of December
2000. However, significant staff was hired in the second half of the year
to prepare the Company for its launch into operations in 2001.
Effective January 8, 2001, the Company took its first step into operations
with the acquisition of PolyTek Rubber & Recycling, Inc. (See Note 3.) With
this action, they acquired four plants that manufacture crumb rubber.
Revenues for the first six months of 2001 were $7.1 million compared to
zero for LandStar, Inc. for the same period in the prior year. PolyTek
however produced $6.3 million in revenues in the first six months of 2000.
In that period in 2000, only two of the four plants were in full operation
for all six months and Michigan and Pennsylvania were added in April and
May 2000. In 2001 all four plants were producing, although Michigan was
closed for repairs for most of February and March 2001.
In 2001, the Company has lost $617,413 at the gross margin line due to a
combination of low sale prices of the crumb rubber and high costs produced
by inefficient operations. The Company is attempting to right this
situation by addressing both sides of the formula. First, current
negotiations are in process to increase our prices to our customers. There
has not been a price increase for a number of years while costs to
manufacture continue to rise. However, there are no guarantees that
management will be successful in obtaining the needed increases although
some minor increases have occurred. Management is also reviewing and
analyzing each plant on its own merits. The plants must be expanded since
this is a volume business. They must have the correct equipment, properly
configured with capable operations and preventative maintenance programs in
place to operate in a safe, efficient and profitable manner. Management has
the manufacturing and engineering personnel in place to accomplish this
review and analysis. At completion, a program is to be outlined for each
facility that will bring their operations to the proper production and
efficiency levels. As previously stated management had temporarily ceased
operations at the Flat Rock, Michigan facility in February and March.
Several capital projects were completed and an analysis of the products
being produced the customers the products were sold to and the price
obtained were all examined. After bringing production online and operating
the facility for another sixty days, management made the decision to
permanently cease production at this facility as of June 30, 2001. All of
the factors analyzed above reflected that with overhead burden at the
plant, sales prices and the cost of operating the cryogenic line would not
allow the Company to produce a profit at that facility. For the last
eighteen months the Flat Rock facility has losses totaling $4.7 million of
which $1.7 related to the six months ended June 30, 2001. Losses at the
gross margin line for this facility for those same six months was $1.5.
Without the Flat Rock plant, the gross margin would have been a positive
$855,000. The Company, at this time, has reached an understanding with the
landlord that effective September 30, 2001, the Company lease for that
facility will be terminated. The Company will forfeit the deposit relating
to the lease. The Company is currently dismantling the equipment in
Michigan and relocating it to the other three facilities. The equipment
will be used to increase the capacity at the other plants, improve
efficiency or produce new products.
Selling and general and administrative expenses for the six months ended
June 30, 2001 were $3.9 million compared to $1.0 million for LandStar, Inc.
in 2000. Include PolyTek for the first six months of 2000 and the selling,
general and administrative expenses would have been $2.6 million. The first
six month comparison reflects a $1,300,000 increase in selling general and
administrative expenses. PolyTek's expenses were relatively the same for
the six month period. LandStar's corporate expenses for 2001 grew from
$1.0 million for the first six months of 2000 to $2.25 million in 2001.
Again this is due to putting in place the corporate staff in the last half
of 2000 to prepare for the planned acquisitions in 2001. PolyTek and
LandStar both have staffs that are sized to handle much larger operations.
As previously stated, volume is very critical in this company and this
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industry. Without substantive increases in production and sales, either
through additional acquisitions or internal generation, the Company will
have to look at the ongoing staffing needs of the company. The first six
months of 2001 expenses were also somewhat overstated due to the severance
payments made to dismissed employees at the time of acquisition. This
amounted to approximately $562,000 in the first six months of 2001.
Additional costs have also been incurred for the LandStar personnel to
travel to the various facilities to complete their operations and
engineering analysis and to relocated Landstar's corporate offices from
Victoria, British Columbia, Canada to Scottsdale, Arizona. LandStar also
hired three employees that will manage the asphalt rubber division of the
Company: there were no revenues from this division in the six month period.
Interest expenses were in excess of $458,000 for the combined Landstar,
Inc. in 2001 compared to $15,000 for only Landstar in 2000. However,
Polytek incurred $664,000 in interest charges in the first six months of
2000. Therefore there was a $221,000 overall improvement from 2000 to 2001.
Other expenses in 2001 relate to losses incurred in the transfer of plant
equipment from Tennessee to the other manufacturing facilities.
LIQUIDITY AND FINANCIAL RESOURCES
The primary sources of liquidity during the first six months of 2001 was
through financing activities and advances from the former owner of PRR.
Proceeds from the revolving line of credit and the issuance of common stock
were the primary financing activities. $2,000,000 of the common stock
relates to the conversion advances made by the former shareholder of
PolyTek in the first quarter 2001 to common stock. Funds were mainly
utilized for working capital with $1,450,000 used for the acquisition of
plant and equipment.
As previously mentioned, the Company has replaced the former revolving
line of credit with an accounts receivable factoring agreement. At the
same time, the Company continues in its pursuit for other debt or equity
financing to obtain needed funds for the capital improvements,
acquisitions and working capital. Management has found difficulty in
finalizing any financing due to PPR's past financial performance and the
lack of prior operations for LandStar.
The Company did announce in an August 6, 2001 press release that it had
reached a tentative agreement on a non-binding financing arrangement for a
$20 million equity investment. The investment is subject to the
completion of the normal due diligence process. If completed, funds from
this investment would be used for the needed capital improvement and
expansion projects at the three remaining crumbing facilities and the
finalization of a pending acquisition.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is from time to time involved in litigation incidental to
the conduct of its business. At this time the Company is not involved in any
material legal proceedings either instituted by or against the Company.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6(a). EXHIBITS.
Not applicable.
ITEM 6(b). REPORTS ON FORM 8-K.
The Company filed one Form 8-K on January 23, 2001 which announced the
acquisition of PolyTek Rubber & Recycling, Inc. and the appointment of two
senior executives.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
Date: August 20, 2001 s/n/s D. Elroy Fimrite
-----------------------------------------
D. Elroy Fimrite - Chairman of the Board,
President and Chief Executive Officer
s/n/s Michael F. Jones
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Michael F. Jones - Vice President and
Chief Financial Officer
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