<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE QUARTERLY PERIOD ENDED COMMISSION FILE
NUMBER
SEPTEMBER 30, 2000 333-59137
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TRI-STATE OUTDOOR MEDIA GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
KANSAS 48-1061763
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3416 Highway 41 South Tifton, GA 31793
(Address of Principal Executive Offices) (Zip Code)
800-732-8261
(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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 / /
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date. As of September 30, 2000,
there were issued and outstanding 200 shares of the registrant's Common Stock,
par value $10.00 per share.
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TABLE OF CONTENTS
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PAGE NO.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets at September 30,
2000 and December 31,1999 ......................... 1
Statements of Operations for the
Three Months ended September 30, 2000 and
1999 and Nine Months ended September 30, 2000
and 1999 .......................................... 2
Statements of Cash Flows for the Nine Months
ended September 30, 2000 and 1999 ............... 3
Notes to the Financial Statements ................. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............... 6
Item 3. Quantitative and Qualitative Disclosures About
Market Risk ....................................... 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings ................................. 9
Item 2. Changes in Securities and Use of Proceeds ......... 9
Item 3. Defaults upon Senior Securities ................... 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information ................................. 9
Item 6. Exhibits and Reports on Form 8-K .................. 9
SIGNATURES..................................................... 10
Index to Exhibits ............................................. 11
</TABLE>
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRI-STATE OUTDOOR MEDIA GROUP, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
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(unaudited)
<S> <C> <C>
Current Assets
Cash $ 37 $ 155
Accounts receivable, net of allowance for doubtful
accounts 2000 $453; 1999 $533 4,552 4,020
Supplies 530 644
Prepaid production costs 548 557
Prepaid site leases, current portion 1,871 1,677
Prepaid commissions, current portion 726 641
Other current assets 289 342
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Total current assets 8,553 8,036
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Property and Equipment, net 69,592 70,486
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Other Assets
Intangible assets, net 41,960 46,348
Prepaid site leases and commissions, long-term portion 639 691
Deferred taxes 6,200 6,200
Other 309 364
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49,108 53,603
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$ 127,253 $ 132,125
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Current portion of long-term debt $ 17,620 $ 1,601
Accounts payable 2,348 540
Accrued interest 4,249 1,534
Accrued expenses 120 282
Deferred revenue 243 310
Due to SGH Holdings, Inc. 44 212
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Total current liabilities 24,624 4,479
Long-Term Debt,
net of current portion 103,826 119,824
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Total liabilities 128,450 124,303
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Commitments and Contingencies
Stockholder's Equity
Common stock, par value, $10 per share; authorized 10,000
shares; issued and outstanding, 200 shares 2 2
Paid-in capital 33,841 33,841
Accumulated deficit (35,040) (26,021)
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(1,197) 7,822
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$ 127,253 $ 132,125
========= =========
</TABLE>
See Notes to Financial Statements.
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TRI-STATE OUTDOOR MEDIA GROUP, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE OR PER SHARE AMOUNTS)
(UNAUDITED)
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<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
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Net revenues $ 7,918 $ 6,741 $ 23,100 $ 19,823
-------- -------- -------- --------
Operating expenses:
Direct operating expenses 2,837 2,430 8,177 7,004
General and administrative 1,083 968 3,596 3,088
Depreciation and amortization 3,509 2,232 9,836 6,655
-------- -------- -------- --------
7,429 5,630 21,609 16,747
-------- -------- -------- --------
Operating income 489 1,111 1,491 3,076
-------- -------- -------- --------
Other income (expense):
Interest expense (3,603) (3,208) (10,364) (9,394)
Other income 2 -- 21 136
Loss on sale of property and equipment (167) -- (167) --
-------- -------- -------- --------
Total other income (expense) (3,768) (3,208) (10,510) (9,258)
======== ======== ======== ========
Loss before income tax benefit (3,279) (2,097) (9,019) (6,182)
-------- -------- -------- --------
Income tax benefit -- -- -- --
-------- -------- -------- --------
Net loss $ (3,279) $ (2,097) $ (9,019) $ (6,182)
======== ======== ======== ========
Basic loss per common share:
Net loss $(16,395) $(10,485) $(45,095) $(30,910)
======== ======== ======== ========
Weighted common shares outstanding 200 200 200 200
======== ======== ======== ========
</TABLE>
See Notes to Financial Statements.
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TRI-STATE OUTDOOR MEDIA GROUP, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30,
(IN THOUSANDS)
(UNAUDITED)
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2000 1999
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OPERATING ACTIVITIES
Net loss $(9,019) $(6,182)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Loss on sale of property and equipment 167 --
Depreciation and amortization 9,836 6,655
Accrued interest on pledged securities -- (104)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (532) (901)
Supplies and prepaid production costs 123 (178)
Prepaid site leases (194) (372)
Prepaid commissions (33) (458)
Other assets 108 (787)
Increase (decrease) in:
Accounts payable 1,808 (624)
Accrued interest and other accrued expenses 2,553 2,519
Deferred revenue (67) 17
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Net cash provided by (used in) operating
activities 4,750 (415)
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INVESTING ACTIVITIES
Purchase of property and equipment (7,039) (6,783)
Proceeds from sale-and-leaseback transaction 920 1,975
Proceeds from sale of property and equipment 1,673 --
Proceeds from sale of pledged securities -- 5,504
Other -- 60
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Net cash provided by (used in)
investing activities (4,446) 756
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FINANCING ACTIVITIES
Borrowings under long-term debt agreement -- 275
Proceeds from revolver borrowings 7,600 5,120
Payments on revolver borrowings (7,000) --
Principal payments on long-term debt (627) (4,652)
Large in Due to SGH Holdings, Inc. (168) --
Deferred issuance costs (227) (1,069)
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Net cash used in
financing activities (422) (326)
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Net increase (decrease) in cash (118) 15
CASH:
Beginning 155 73
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Ending $ 37 $ 88
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SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest $ 7,649 $ 6,585
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SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Property and equipment acquired under capital leases $ 920 $ 1,975
======= =======
Early Extinguishment of capital leases from sale of
property and equipment $ 872 $ --
======= =======
</TABLE>
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SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
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Property and equipment acquired under capital leases $ 920 $ 1,975
======= =======
Early Extinguishment of capital leases from sale of
property and equipment $ 872 $ --
======= =======
</TABLE>
See Notes to Financial Statements.
<PAGE> 7
Notes to Financial Statements
(Unaudited)
NOTE 1
BASIS OF REPRESENTATION
The accompanying unaudited financial statements of Tri-State Outdoor Media
Group, Inc., (the "Company") have been prepared in conformity with generally
accepted accounting principles and with the instructions for Form 10-Q and Rule
10-01 of Regulation S-X as they apply to interim financial information.
Accordingly, they do not include all of the information and disclosures required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of financial position
and results of operations have been included. The operating results for the
three and nine month periods ended September 30, 2000 are not necessarily
indicative of the results to be expected for the year ending December 31, 2000.
Although the Company believes that the disclosures are adequate to make the
information presented not misleading, these financial statements should be read
in conjunction with the financial statements for the fiscal year ended December
31, 1999 and notes thereto included in the Company's Report on Form 10-K for the
fiscal year ended December 31, 1999.
NOTE 2
FINANCINGS
The Company has $100 million aggregate principal 11% Notes (the "Notes")
outstanding. The Company entered into an amended and restated loan agreement
("The Agreement") to the original credit agreement ("Credit Agreement") with The
First National Bank of Chicago originally dated September 20, 1998 on August 12,
1999 and further amended on August 14, 2000. The Agreement consists of a term
loan for $10 million and a revolving credit of $10 million. All of the company's
assets are pledged to secure this credit facility. This facility matures July 1,
2001.
Annual interest payments on the Notes are $11.0 million and with other
debt outstanding annual interest expense is currently running at approximately
$13.8 million. Substantially all of the Company's cash flow will have to be
devoted to interest payments on the Notes and to its credit facility. There can
be no assurance that the cash flow will be sufficient for such purpose, or if
borrowings are necessary, that the Company will be able to borrow funds
sufficient for its purposes. Failure to make the interest payments on the Senior
Notes of the Credit Agreement would have a material adverse effect on the
Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements
concerning, among other things, the Company's expected future revenues,
operations and expenditures, competitors or potential competitors, acquisition
activity, and the regulation of the outdoor advertising industry. These
forward-looking statements are identified by their use of terms and phrases such
as "anticipate," "believe," "could," "estimate," "expect," "intent," "may,"
"plan," "predict," "project," "will" and similar terms and phrases, including
references to assumptions. These statements are contained in certain sections of
this Quarterly Report and in the documents incorporated by reference herein.
These forward-looking statements represent the expectations of the Company's
management as of the filing date of this Report on Form 10-Q. The Company's
actual results could differ materially from those anticipated by the
forward-looking statements due to a number of factors, including (i) risks and
uncertainties relating to leverage; (ii) the need for additional funds; (iii)
the integration of companies acquired by the Company and the Company's ability
to recognize cost savings or operating efficiencies as a result of such
acquisitions; (iv) the continued popularity of outdoor advertising as an
advertising medium; (v) the regulation of the outdoor advertising industry and
(vi) the risks and uncertainties described under the caption "Factors Affecting
Future Operating Results" under Item 7. - Management's Discussion and Analysis
of Financial Condition and Results of Operations set forth in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
Net revenues. Net revenues increased 18% to $7.9 million for the three months
ended September 30, 2000 from $6.7 million for the three months ended September
30, 1999. The assets acquired in October 1999 accounted for approximately $.6
million of the period-to-period revenue growth.
Direct operating expenses. Direct operating expenses (which include sales, lease
and production expenses) increased 16.7% to $2.8 million for the third quarter
of 2000 from $2.4 million for the comparable period in 1999. This increase was
primarily the result of the increase in sales expense. Sales expense increased
as a percentage of net revenues from 9.4% in the third quarter of 1999 to 10.6%
in 2000. The Company has increased the quantity and quality of its sales force,
including new regional sales and marketing positions, to support future growth.
Lease expense increased as a percentage of net revenues in the third quarter
from 14.6% in 1999 to 16.1% in 2000 primarily due to assets acquired in October
1999. Production expense decreased as a percentage of net revenues from 11.7% in
the third quarter of 1999 to 9.2% in 2000, due to a shift in sales mix and lower
sign maintenance costs.
General and administrative expenses. General and administrative expenses
increased by 10.0% to $1.1 million for the quarter ended September 30, 2000 from
$1.0 million in 1999, a decrease as a percentage of net revenues to 13.7% from
14.4% primarily due to operating leverage.
Depreciation and amortization expense. Depreciation and amortization expense
increased to $3.5 million for the quarter ended September 30, 2000 from $2.2
million in 1999. The increase is due primarily to the assets acquired in October
1999.
Interest expense. Interest expense increased to $3.6 million for the third
quarter ended 2000 from $3.2 million for the comparable period in 2000. This
increases was primarily due to an increase in interest rates and the amount
outstanding with Bank One.
<PAGE> 9
Income taxes. At December 31, 1999, the Company had net operating loss carry
forwards of approximately $34.6 million for federal and state income tax
purposes, which expire in varying amounts from 2009 through 2018.
During the quarter ended September 30, 2000, the Company recorded a valuation
allowance of $1.3 million on deferred tax assets. At September 30, 2000, the
total valuation allowance recorded aggregated $8.9 million on deferred tax
assets of $15.1 million to reduce the total to an amount that management
believes will more likely than not be realized. Realization of deferred tax
assets is dependent upon sufficient future taxable income during the period that
deductible temporary differences and carry forwards are expected to be available
to reduce taxable income. If the Company is unable to generate sufficient
taxable income in the future, increases in the valuation allowance may be
required through a charge to income tax expense.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
Net revenues. Net revenues increased 16.7% to $23.1 million for the nine months
ended September 30,2000 from $19.8 million for the nine months ended September
30, 1999. The assets acquired in October 1999 accounts for approximately $2.0
million of the period-to-period revenue growth.
Direct operating expenses. Direct operating expenses (which include sales, lease
and production expenses) increased 17.1% to $8.2 million for the first nine
months of 2000 from $7.0 million for the comparable period in 1999. Sales
expense increased as a percentage of net revenues from 8.7% in the first nine
months of 1999 to 10.0% in 2000 due to an increase in sales personnel. The
Company has increased the quantity and quality of its sales force, including new
regional sales and marketing positions, to support future growth. Lease expense
increased as a percentage of net revenues from 14.9% in the first nine months of
1999 to 15.8% in 2000 primarily due to assets acquired in October 1999.
Production expense decreased as a percentage of net revenues from 11.7% in the
first nine months of 1999 to 9.7% in 2000, primarily due a shift in sales mix
and lower sign maintenance expense.
General and administrative expenses. General and administrative expenses
increased by 16.1% to $3.6 million for the nine months ended September 30, 2000
from $3.1 million in 1999, a decrease as a percentage of net revenues to 15.6%
from 15.7%.
Depreciation and amortization expense. Depreciation and amortization expense
increased to $9.8 million for the nine months ended September 30, 2000 from $6.7
million in 1999 due primarily to the assets acquired in October 1999.
Interest expense. Interest expense increased to $10.4 million for the nine
months ended 2000 from $9.4 million for the comparable period in 1999. This
increase was primarily due to an increase in interest rates and the amount
outstanding with Bank One.
Income taxes. At December 31, 1999, the Company had net operating loss carry
forwards of approximately $34.6 million for federal and state income tax
purposes, which expire in varying amounts from 2009 through 2018.
During the nine months ended September 30, 2000, the Company recorded a
valuation allowance of $3.5 million on deferred tax assets. At September 30,
2000 the total valuation allowance recorded aggregated $8.9 million on deferred
tax assets of $15.1 million to reduce the total to an amount that management
believes will more likely than not be realized. Realization of deferred tax
assets is dependent upon sufficient future taxable income during the period that
deductible temporary differences and carry forwards are expected to be available
to reduce taxable income. If the Company is unable to generate sufficient
taxable income in the future, increases in the valuation allowance may be
required through a charge to income tax expense.
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically satisfied its cash requirements with cash from
operations, revolving credit borrowings, other long-term debt financing, equity
financing and sales of assets. Its acquisitions have been financed primarily
with borrowed funds and equity financing.
The Company has $100 million aggregate principal 11% Notes (the "Notes")
outstanding. The Company entered into an amended and restated loan agreement
("The Agreement") to the original credit agreement ("Credit Agreement") with The
First National Bank of Chicago originally dated September 20, 1998 on August 12,
1999 and further amended on August 14, 2000. The Agreement consists of a term
loan for $10 million and a revolving credit of $10 million. All of the company's
assets are pledged to secure this credit facility. This facility matures July 1,
2001.
On August 14 , 2000, the Credit Agreement was amended to revise the maturity
date of the facilities from December 31, 2005 to July 1,2001, and to amend
certain financial covenants. Furthermore, the Credit Agreement was amended to
provide that the Company will be in default under the Credit Agreement if any of
the following defaults occur: (1) the Company shall fail to timely pay a
$200,000 fee to the Bank, or (2) SGH fails to deliver to the Bank on or before
October 6, 2000 a certain warrant to purchase common stock of SGH representing
0.85% of the fully diluted common stock of SGH, or (3) SGH fails to make a
contribution to the capital of the company (not to exceed $1,000,000) under a
certain Capital Call Agreement dated August 14 , 2000 executed by SGH and the
stockholders of SGH (which Capital Call Agreement requires such contribution to
the capital of the Company in the event of a monetary default under the Credit
Agreement). Delivery of the guaranty to fund under the Capital Call Agreement
has been extended to November 20, 2000.
In order to make the November 15, 2000 interest payment on the Notes, the
Company plans to draw the full amount available under the Credit Agreement and
obtained capital of up to $1 million from several of its shareholders. Under
the Credit Agreement, the Company's bank loan is now classified as a current
liability due July 1, 2001. Furthermore, the financial covenants in the Credit
Agreement become more restrictive at the end of each quarter. The Company may
not be able to meet these financial covenants in the future. If that were to
happen the loan could be accelerated. The Company is seeking to arrange a
refinancing of the Credit Agreement, however, there can be no assurance that
the Company will be able to refinance such loan. The Company has hired an
investment banking firm to explore various alternatives for the Company.
Net cash provided by operating activities was $4.8 million for the first nine
months of 2000 compared to net cash used in operating activities of $.4 million
for the first nine months of 1999. Net cash provided by operating activities
reflects the Company's net loss adjusted for non-cash items and net changes in
working capital components. The Company had working capital of ($16.1) million
as of September 30, 2000 due to the reclass of the Bank One loan as a current
liability, compared to working capital of $3.5 million as of December 31, 1999.
Annual interest payments on the Notes are $11.0 million and with other debt
outstanding annual interest expense is currently running at approximately $13.8
million. Substantially all of the Company's cash flow will have to be devoted to
interest payments on the Notes and to its credit facility. There can be no
assurance that the cash flow will be sufficient for such purpose, or if
borrowings are necessary, that the Company will be able to borrow funds
sufficient for its purposes. Failure to make the interest payments on the Notes
of the Credit Agreement would have a material adverse effect on the Company.
<PAGE> 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's market risk exposure
from that reported in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 incorporated by reference herein.
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
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 REPORT ON FORM 8-K
A. Exhibits
27.1 Financial Data Schedule. Filed herewith.
B. Report on Form 8-K.
A report on form 8-K was filed on August 25, 2000 reporting that The
Company entered into an amended and restated loan agreement to the
original agreement dated September 20, 1998 on August 14, 2000.
<PAGE> 12
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 thereunto duly authorized.
Tri-State Outdoor Media Group, Inc.
November 14, 2000 /s/Sheldon G. Hurst
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Sheldon G. Hurst
Chief Executive Officer and Director
November 14, 2000 /s/ William G. McLendon
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William G. McLendon
Chief Financial Officer, Secretary,
Director and Principal Accounting Officer
