US TRANSPORTATION SYSTEMS INC, SB-2/A, 1996-08-26

US TRANSPORTATION SYSTEMS INC
SB-2/A, 1996-08-26
LOCAL & SUBURBAN TRANSIT & INTERURBAN HWY PASSENGER TRANS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 26, 1996
REGISTRATION NO. 333-4104
===============================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------
AMENDMENT NO. 3
TO
FORM SB 2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------
U.S. TRANSPORTATION SYSTEMS, INC.
(Name of Small Business Issuer in its Charter)

<TABLE>
<S> <C> <C>
Nevada 4111 34-1397328
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>

33 WEST MAIN STREET
ELMSFORD, NEW YORK 10523
(914) 345-3339
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL
PLACE OF BUSINESS)
------
MR. MICHAEL MARGOLIES
CHIEF EXECUTIVE OFFICER
U.S. TRANSPORTATION SYSTEMS, INC.
33 WEST MAIN STREET
ELMSFORD, NEW YORK 10523
(914) 345-3339
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)

Copies To:

Felice F. Mischel, Esq. Thomas W. Hughes, Esq.
Thomas A. Rose, Esq. Lisa N. Tyson, Esq.
Schneck Weltman Hashmall & Mischel LLP Winstead Sechrest & Minick P.C.
1285 Avenue of the Americas 5400 Renaissance Tower
New York, New York 10019 1201 Elm Street
(212) 956-1500 Dallas, Texas 75270
(214) 745-5400
------

Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this registration statement.

If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933 check the following box. [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |B(

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |B(

If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |B(
===============================================================================
<PAGE>

CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------

<TABLE>
<CAPTION>
Amount Proposed Proposed Amount of
Title of Each Class To Be Maximum Offering Maximum Aggregate Registration
of Securities to Be Registered Registered Price Per Share(1) Offering Price(1) Fee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units ("Units"), each consisting
of one share of common stock, par
value $.01 per share ("Common
Stock") and one class C redeemable
Common Stock purchase warrant
("Class C Warrants")................ 2,300,000 $ 4.3125 $9,918,750 $3,419.99
Common Stock issuable upon
exercise of Class C
Warrants(2) ........................ 2,300,000 $ 4.3125 $9,918,750 $3,419.99
Underwriters' Unit Purchase
Option ............................. 1 $ 100.00 $ 100.00 --
Units issuable upon exercise
of Underwriters' Unit
Purchase Option .................... 200,000 $ 7.12 $1,424,000 $ 491.00
Common Stock issuable upon
exercise of Class C
Warrants issuable upon
exercise of Underwriters'
Unit Purchase Option(3) ............ 200,000 $ 7.12 $1,424,000 $ 491.00
Units to be sold by Selling
Stockholders ....................... 115,000 $ 4.3125 $ 497,938 $ 180.00
Common Stock to be sold by
Selling Stockholders ............... 211,111 $ 4.3125 $ 910,417 $ 313.94
Common Stock issuable upon
exercise of Selling
Stockholder Class C Warrants........ 115,000 $ 4.3125 $ 497,938 $ 180.00
Total ................................................................................................... $8,495.92*
</TABLE>
===============================================================================

* Of which $13,766.48 has previously been paid

(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457.

(2) This Registration Statement also covers any additional shares of Common
Stock which may become issuable by virtue of the anti-dilutive provisions
of the Class C Warrants. No additional registration fee is included for
these shares.

(3) This Registration Statement also covers any additional shares of Common
Stock which may become issuable by virtue of the anti-dilutive provisions
of the Underwriters' Unit Purchase Option or the Class C Warrants
issuable upon exercise thereof.

The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>

EXPLANATORY NOTE

This Registration Statement contains two forms of prospectus: one to be
used in connection with an offering by the Company and certain selling
securityholders of 2,115,000 Units, each Unit consisting of one share of
common stock ("Common Stock") and one class C redeemable common stock
purchase warrant ("Warrants") (the "Prospectus"), and one to be used in
connection with the sale of Units (each Unit consisting of one share of
Common Stock and one Warrant), by certain selling stockholders (the "Selling
Stockholder Prospectus"). The Prospectus and the Selling Stockholder
Prospectus will be identical in all respects except for the alternate pages
for the Selling Stockholder Prospectus included herein which are labeled
"Alternate Page for Selling Stockholder Prospectus."

<PAGE>

U.S. TRANSPORTATION SYSTEMS, INC.
CROSS REFERENCE SHEET
FOR PROSPECTUS UNDER FORM SB-2

<TABLE>
<CAPTION>
Form SB-2 Caption or Location
Item Number and Heading in Prospectus
--------------------------------------------------- ----------------------------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and Outside
Front Cover of Prospectus........................ Cover Page; Cross Reference Sheet; Outside Front
Cover Page of Prospectus

2. Inside Front and Outside Back Cover Pages of
Prospectus ...................................... Inside Front and Outside Back Cover Pages of
Prospectus

3. Summary Information and Risk Factors ............... Prospectus Summary; Risk Factors

4. Use of Proceeds .................................... Prospectus Summary; Use of Proceeds

5. Determination of Offering Price .................... Front Cover Page; Underwriting

6. Dilution ........................................... Not Applicable

7. Selling Security Holders ........................... Concurrent Offering

8. Plan of Distribution ............................... Front Cover Page; Underwriting

9. Legal Proceedings .................................. Business -- Litigation

10. Directors, Executive Officers, Promoters and
Control Persons ................................. Management

11. Security Ownership of Certain Beneficial Owners and
Management ...................................... Principal Stockholders

12. Description of Securities .......................... Description of Securities; Underwriting

13. Interest of Named Experts and Counsel .............. Legal Matters

14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities .. Indemnification for Securities Act Liabilities

15. Organization within Last Five Years ................ Not Applicable

16. Description of Business ............................ Business

17. Management's Discussion and Analysis or Plan
of Operation .................................... Management's Discussion and Analysis of
Financial Condition and Results of Operations

18. Description of Property ............................ Business - Property

19. Certain Relationships and Related Transactions ..... Certain Transactions

20. Market for Common Equity and Related
Stockholder Matters ............................. Market Prices of Common Stock; Shares Eligible
for Future Sale

21. Executive Compensation ............................. Management -- Executive Compensation

22. Financial Statements ............................... Selected Consolidated Financial Data; Financial
Statements

23. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ............. Not Applicable
</TABLE>

<PAGE>

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.

PRELIMINARY PROSPECTUS DATED AUGUST 26, 1996
SUBJECT TO COMPLETION
U.S. TRANSPORTATION SYSTEMS, INC.
2,115,000 UNITS
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK AND
ONE REDEEMABLE CLASS C COMMON STOCK PURCHASE WARRANT

Each unit ("Unit") offered consists of one share of common stock, $.01 par
value ("Common Stock"), and one redeemable class C warrant ("Class C
Warrants") of U.S. Transportation Systems, Inc. (the "Company"). Of the Units
offered hereby, 2,000,000 Units will be offered by the Company and 115,000
Units will be offered for the account of certain security holders (the
"Selling Securityholders"). The components of the Units will not be
separately transferable until October 11, 1996, or sooner with the consent of
First London Securities Corporation (the "Representative"). Each Class C
Warrant entitles the holder to purchase one share of Common Stock at an
exercise price of $ (100% of the offering price of the Units), subject to
adjustment, commencing October 11, 1996 until the third anniversary of the
date of this Prospectus. The Class C Warrants are subject to redemption by
the Company at a redemption price of $.01 per Class C Warrant on 10 days'
written notice, provided the closing bid price of the Common Stock has been
at least $ (135% of their exercise price), for 10 consecutive trading days
ending within 3 days of the date of the notice of redemption. See
"Description of Securities -- Class C Warrants." The offering price of the
Units will be equal to no less than 90% of the bid price of the
Common Stock at the effective time of the Registration Statement (the
"Effective Time").

The Common Stock is currently traded on The Nasdaq SmallCap MarketSM
("Nasdaq") under the symbol USTS. On August 22, 1996, the closing high bid
price of the Common Stock as reported by Nasdaq was $.71875. At the Effective
Time, the Company's outstanding shares of Common Stock will be reverse split
on a one-for-six basis. Prior to this offering (the "Offering") there has
been no public market for the Units or the Class C Warrants, and there can be
no assurance that a market will develop for the Class C Warrants in the
future, or that if developed, it will be sustained. The public offering price
of the Units and the initial exercise price and other terms of the Class C
Warrants offered hereby were determined by negotiation between the Company
and the Underwriters, based upon a number of factors, including the market
price of the Common Stock, and will not necessarily bear any direct
relationship to the Company's assets, earnings, book value per share or other
generally accepted criteria of value. See "Underwriting." The Company has
applied for quotation of the Units and Class C Warrants on Nasdaq under the
symbols "USTSU" and "USTSW," respectively. No approval has been received and
no assurance can be given that such quotation or listing will occur.

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. PURCHASERS
SHOULD CONSIDER CAREFULLY THE DISCUSSION UNDER "RISK FACTORS" BEGINNING ON
PAGE 9.

------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
===============================================================================================================
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Securityholders
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share .......... $------ $------ $------ $------
Total(3) ........... $------ $------ $------ $------
================================================================================================================
</TABLE>
(Footnotes on page 3)

The registration statement of which this Prospectus is a part covers the
offering for resale by Selling Securityholders of 115,000 Units (the "Bridge
Units"), including the 115,000 shares of Common Stock underlying the Class C

<PAGE>

Warrants contained in the Bridge Units (together with the Bridge Units, the
"Bridge Securities"). The Bridge Units will be issued at the Effective Date in
connection with the Company's private placement in April 1996 (the "Bridge
Financing"). Certain other stockholders are offering for sale an aggregate of
211,111 shares of Common Stock which they received in exchange for certain
contract rights. Such shares, together with the Bridge Securities are
collectively referred to herein as the "Selling Securityholder Securities."

The Units are offered on a firm commitment basis by the Underwriters when,
as and if delivered to and accepted by the Underwriters, subject to prior
sale, and certain other conditions. The Representative reserves the right to
withdraw, cancel or modify the Offering without notice and to reject any
order, in whole or in part. It is expected that delivery of the certificates
representing the Common Stock and Class C Warrants will be made against
payment therefor at the offices of First London Securities Corporation,
Dallas, Texas on or about ------, 1996.

------
First London Securities Corporation

------
The date of this Prospectus is ------, 1996
<PAGE>

(1) Does not include additional compensation to the Underwriters consisting
of (i) a non-accountable expense allowance equal to 2% of the gross
proceeds of the Offering by the Company, or $ ($ if the
over- allotment option is exercised in full), of which $62,500 has been
paid to date; (ii) an option to be sold to the Representative for nominal
consideration to purchase up to 200,000 Units (the "Underwriters' Unit
Purchase Option") at a per Unit price of 165% of the per Unit offering
price, subject to adjustment, exercisable during the four-year period
commencing one year from the Effective Date. In addition, the Company has
agreed to indemnify the Underwriters against certain civil liabilities,
including liabilities arising under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."

(2) After deducting underwriting discounts and commissions, but before
payment of the Underwriters' non- accountable expense allowance and other
expenses of the Offering (estimated at $300,000) payable by the Company.
See "Underwriting."

(3) The Company has granted the Underwriters an option, exercisable within 45
days after the Effective Date, to purchase up to 300,000 additional
Units, upon the same terms and conditions set forth above, solely to
cover over- allotments, if any (the "Over-Allotment Option"). If the
Over-Allotment Option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, and Proceeds to Company will be
$ , $ and $ , respectively. See
"Underwriting."

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS, THE
COMMON STOCK AND/OR THE CLASS C WARRANTS OFFERED HEREBY AT LEVELS ABOVE THOSE
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, THE REPRESENTATIVES MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE UNITS, COMMON STOCK, CLASS C WARRANTS OR
OTHER SECURITIES OF THE COMPANY ON NASDAQ IN ACCORDANCE WITH RULE 10b-6A
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."

3
<PAGE>

U.S. TRANSPORTATION SYSTEMS, INC.

A multifaceted transportation and entertainment company specializing in the
operation and management of transportation systems for private industry,
municipalities and airports throughout the United States; the manufacture of
sophisticated vehicle electrical components; and the design and manufacture of
automotive airbag assembly and folding machines.

Automated Solutions, Inc. (Phoenix, AZ)

Patented machinery for airbag folding, testing and robotics for the automotive
industry.

Jetport Express, Inc.
(Cincinnati International Airport)

Operates exclusive
round-the-clock shuttle service
at the airport, and
transportation to and from
various city and suburban
locations.
<PAGE>

PROSPECTUS SUMMARY

The following summary information is qualified in its entirety by
reference to the more detailed information, Consolidated Financial Statements
and Notes appearing elsewhere in this Prospectus. Except as otherwise noted,
all information in this Prospectus gives effect to (i) a one-for-five reverse
stock split effected in January 1994; (ii) except for the Consolidated
Financial Statements, a one-for-six reverse stock split to occur at the
Effective Time; and (iii) an offering price of $4.3125 per Unit, based upon
the closing bid price of the Common Stock on August 22, 1996, but assumes no
exercise of (i) the Class C Warrants; (ii) the Over-Allotment Option; (iii)
the Underwriters' Unit Purchase Option; (iv) warrants issued in connection
with the Company's public offering in February 1995; or (v) other outstanding
options and warrants. See "Capitalization," "Certain Transactions,"
"Description of Securities" and "Underwriting."

THE COMPANY

U.S. Transportation Systems, Inc., a Nevada corporation (the "Company"),
is currently primarily engaged in three business areas: (i) manufacturing
transportation machinery and equipment; (ii) providing transportation related
services; and (iii) providing entertainment services. The Company's
manufacturing division includes (a) Automated Solutions, Inc. ("ASI"), which
designs, manufactures and markets patented machinery which folds and tests
airbags and assembles airbag modules, for installation in passenger and
utility vehicles, and (b) American Trade-A-Bus of Texas, Inc. ("ATAB"), which
manufactures certain vehicle components (such as electrical wiring harnesses)
as a sub-contractor to a contractor of the United States Department of
Defense and provides related engineering services. The Company's
transportation related services consist of (a) providing over-the-road
package delivery services for air freight carriers doing business in Florida
provided under the names Armstrong Freight Service ("Armstrong"), and Trans
Lynx Express, Inc. ("Trans Lynx"); (b) providing bus and other motor vehicle
transportation services to businesses and municipalities on a contract basis
in various states, and (c) operating a fleet of company-owned and
privately-owned taxi cabs in Toledo and Lima, Ohio and a car service based in
Westchester County, New York. The Company's entertainment division consists
of five ticket brokerage agencies which sell tickets for theatrical, sports
and other entertainment events, including packaged tours of New York City.
During the year ended December 31, 1995 and the six months ended June 30,
1996, manufacturing operations accounted for approximately 30% and 37%,
respectively, transportation services accounted for approximately 54% and
54%, respectively, and entertainment services accounted for approximately 16%
and 9%, respectively, of total revenues. During such periods, manufacturing
operations, transportation services and entertainment services accounted for
approximately 80% and 40%, 17% and 66% and 3% and (6%), respectively, of
income (loss) from operations.

The Company commenced operations in 1979. Through 1993, the Company was
engaged to a material extent in the charter bus and line run (scheduled
routes between two or more destinations) business. As a result of government
deregulation of the industry in the mid 1980s, the Company's charter bus
operations began to experience increased competition and decreasing
profitability. In 1993, the Company determined that it would discontinue this
segment of its business. The Company completed the cessation of its charter
bus operations in 1995. In addition, in 1992, as a result of increased
competition, the Company discontinued a passenger line run business it had
operated between the New York metropolitan area and the Atlantic City
casinos. The discontinuance of the charter bus and passenger line run
operations created substantial fluctuations in the Company's revenues and
resulted in substantial losses to the Company; however, the Company believed
that pursuing a strategy of discontinuing unprofitable operations and
expanding operations in other segments of the transportation industry would
maximize its potential for increased profitability and growth.

In furtherance of this strategy, the Company made several acquisitions
during recent years, the most significant of which were the Company's
acquisitions of ATAB in October 1994 and ASI in November

4
<PAGE>

1995. In February 1996, the Company acquired certain assets, including
contract rights, from Krogel Air Freight, Inc. and Krogel Freight Systems of
Tampa, Inc. (collectively, "Krogel"), entities engaged in the package and
freight delivery service business in Tampa, Orlando and Jacksonville,
Florida. In June 1996, the Company acquired certain assets, primarily
trucking equipment, from Jackson and Johnson, Inc. ("J and J"), a full-load
trucking operation located in Syracuse, New York.

The Company's strategy is to pursue growth through acquisitions and
expansion of its current operations, in particular:

o Expansion of ASI. The Company believes that demand for ASI's products
will grow as governmental regulations increase the demand for driver
and passenger-side airbags. The Company intends to use a portion of the
proceeds of the Offering to relocate ASI to a larger facility and
substantially expand production capacity.

o Expansion of Armstrong. The Company will seek to expand Armstrong's
package and freight delivery services to other locations in Florida and
surrounding states.

o New Transportation Contracts. The Company will seek to procure new
transportation contracts to be performed by the Company's existing
transportation services locations.

o Strategic Acquisitions. The Company continues to seek the acquisition
of companies engaged in businesses related to or synergistic with the
Company's current operations.

The Company was incorporated in Nevada on February 6, 1979 under the name
Holland Industries, Inc. The Company changed its name to U.S. Transportation
Systems, Inc. in September 1990. The executive offices and all operational
activities of the Company and its subsidiaries are directed from its
headquarters located at 33 West Main Street, Elmsford, New York. The
Company's telephone number at that address is (914) 345-3339.

5
<PAGE>

THE OFFERING

Securities Offered by the
Company...................... 2,000,000 Units, each consisting of one
share of Common Stock and one Class C
Warrant. Each Class C Warrant entitles the
holder thereof to purchase one share of
Common Stock at a price of $______ (100% of
the offering price of the Units) per share
(the "Exercise Price"), subject to
adjustment in certain circumstances, during
the three year period commencing on
September 27, 1996. The Class C Warrants are
subject to redemption in certain
circumstances. See "Description of
Securities -- Class C Warrants."

Securities Offered Concurrently
by Selling Securityholders .. 115,000 Units (including 115,000 shares of
Common Stock underlying the Class C Warrants
contained in such Units) in the Offering and
211,000 shares of Common Stock in the
Concurrent Offering.

Common Stock Outstanding:

Prior to the Offering (1) ..... 3,460,702 shares of Common Stock

After the Offering ............ 5,460,702 shares of Common Stock

Class C Warrants Outstanding:

Prior to the Offering (2) ..... 115,000 Class C Warrants

After the Offering ............ 2,115,000 Class C Warrants

Use of Proceeds ............... The Company intends to use the net proceeds
of the Offering for repayment of certain
indebtedness, including $1,200,000 principal
amount of promissory notes (the "Bridge
Notes") issued in the Bridge Financing, for
working capital, and to finance expansion of
its existing businesses and potential
acquisitions. See "Use of Proceeds."

Risk Factors................... The securities offered hereby involve a high
degree of risk. See "Risk Factors."

Nasdaq Trading Symbols:

Units (proposed)............... USTSU

Common Stock .................. USTS

Class C Warrants (proposed).... USTSW

- ------
(1) Includes 115,000 shares included in the Bridge Units issuable upon the
Effective Date in connection with the Bridge Financing. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and "Concurrent Offering."

(2) Consists of 115,000 Class C Warrants included in the Bridge Units
issuable upon the closing date of the Offering in connection with the
Bridge Financing.

6
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL, PRO FORMA AND OPERATING DATA INFORMATION

<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
----------------------------- ----------------------------
1994 1995 1995 1996
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues .......................... $ 11,818,325 $17,350,973 $ 7,086,473 $13,718,768
Expenses .......................... 11,074,785 15,820,228 6,478,661 12,775,519
------------- ------------- ------------- -------------
Operating Income ................ 743,540 1,530,745 607,812 943,249
Other Expenses .................. (48,866) (603,628) (202,840) (108,766)
------------- ------------- ------------- -------------
Income from Continuing Operations
Before Income Taxes ............. 694,674 927,117 404,972 834,483
Income Tax (Benefit) .............. (63,811) (364,000) -- --
------------- ------------- ------------- -------------
Income from Continuing Operations . 758,485 1,291,117 404,972 834,843
Discontinued Operations ........... (853,480) (167,199) -- --
------------- ------------- ------------- -------------
Net Income (Loss) ................. (94,995) 1,123,918 404,972 834,843
Preferred Dividend ................ -- 191,700 95,850 95,850
------------- ------------- ------------- -------------
Net Income (Loss) Applicable to
Common Stockholders ............. $ (94,995) $ 932,218 $ 309,122 $ 738,633
============= ============= ============= =============
Net Income (Loss) Per Common Share:
Income from Continuing Operations . $ .11 $ .10 $ .05 $ .04
Discontinued Operations ......... (.12) (.01) -- --
------------- ------------- ------------- -------------
Earnings (Loss) Per Common Share $ (.01) $ .09 $ .05 $ .04
============= ============= ============= =============
</TABLE>

PRO FORMA STATEMENT OF OPERATIONS DATA (UNAUDITED):

The following unaudited pro forma statements of operation data do not
purport to be indicative of the results of operations that would have
occurred if the Company had acquired ASI, Armstrong, and J and J at the
beginning of the periods presented.

<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1994 December 31, 1995
----------------- -----------------
(in thousands)
<S> <C> <C>
Revenues .................. $ 32,807 $ 34,817
-------- --------
Expenses
Cost of sales ............ $ 7,197 $ 8,412
Operating Expenses ....... $ 26,693 $ 26,394
-------- --------
Total Expenses ............ $ 33,890 $ 34,806
Net Income (Loss) ......... $ (1,083) $ 11
======== ========
Earnings (Loss) per Share . $ (0.11) $ 0.00
======== ========
</TABLE>

The pro forma adjustments included above consist of:

<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1994 December 31, 1995
----------------- -----------------
<S> <C> <C>
Amortization of Goodwill ................ $ (545) $ (545)
Amortization of Covenant ................ (15) (15)
Interest Expense ........................ (270) (270)
Productive efficiency obtained through
adequate capitalization(1) ............ 100 1,800
Elimination of duplicative administrative
functions(1) .......................... 200 500
------- -------
Total ................................. $ (530) $ 1,470
======= =======
</TABLE>

- ------
(1) Savings amounts estimated by management. There can be no assurance of the
actual amount of savings, if any.

7
<PAGE>

<TABLE>
<CAPTION>
June 30, 1996
-------------------------------
December 31, As
1995 Actual Adjusted(1)(2)
-------------- ------------ ---------------
<S> <C> <C> <C>
Balance Sheet Data:
Working Capital .............. $ 1,416,261 $ 748,856 $ 6,963,106
Total Assets ................. 20,886,491 27,066,768 32,501,018
Long-Term Debt, Net of Current
Maturities .................. 3,245,567 3,243,304 2,643,304
Stockholders' Equity ......... 11,278,257 15,320,892 22,135,142
</TABLE>

- ------
(1) Gives effect to the sale of the Units offered hereby, the receipt of the
net proceeds therefrom and the use of a portion of the net proceeds to
repay the Bridge Notes and other debt and gives effect to the recognition
upon the repayment of the Bridge Notes of approximately $560,000 of
charges relating to the debt discount and debt issuance costs associated
with the Bridge Financing.
(2) Does not give effect to (i) the issuance of 119,444 shares of Common
Stock in connection with a covenant not-to-compete, and (ii) the issuance
of 56,500 shares of Common Stock to Argent Securities, Inc. ("Argent")
upon the exercise of outstanding options. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations,"
"Management" and "Certain Transactions."

8
<PAGE>

RISK FACTORS

The securities offered hereby are highly speculative and should be
purchased only by persons who can afford to lose their entire investment in
the Company. Each prospective investor should carefully consider the
following risk factors, as well as all other information set forth elsewhere
in this Prospectus.

Recent Losses; Fluctuations in Operating Results; Accumulated Deficit.
Between 1992 and 1995, the Company discontinued a substantial portion of its
transportation service business, specifically its charter bus and passenger
line run operations. During the same period, the Company continued to make
acquisitions in an effort to expand those areas of its business with
potential for growth and profitability. The discontinued operations resulted
in substantial losses to the Company. They have also resulted in the Company
experiencing significant fluctuations in revenues and, along with diminishing
margins in certain aspects of its ongoing transportation service business, in
net operating results in recent years. At June 30, 1996, the Company had an
accumulated deficit of approximately $5,913,000. Although the Company
operated profitably during the year ended December 31, 1995 and the six
months ended June 30, 1996, the majority of its profits were derived from the
operations of its manufacturing segment. Immediately prior to its acquisition
by the Company in November 1995, ASI had experienced declining revenues and
generated losses. Although the Company believes it has addressed the working
capital problems at ASI which led to such results, there can be no assurance
that ASI or the Company will continue to operate profitably, that any future
acquisitions will be successful or that the Company will experience any
substantial growth. See "Management's Discussion and Analysis of Financial
Condition and Result of Operations."

Charges Arising From Acquisitions and Bridge Financing. As part of the
acquisition of certain businesses acquired by the Company, the Company will
incur continuing amortization charges associated with assets of the acquired
companies or may be required to charge-off certain assets. Either of the
foregoing charges will result in a direct reduction of the net income of the
Company. In connection with the acquisition of ASI, the Company incurred
charges for the year ended December 31, 1995 and the six months ended June
30, 1996 of approximately $62,500 and $247,000, respectively. Such "non-cash"
charges which may be incurred in connection with future acquisitions may have
an adverse effect on the Company's net income in future periods. In addition,
upon completion of the Offering and repayment of the Bridge Notes the Company
will recognize a charge to operations of approximately $560,000 representing
the unamortized portion of the debt discount and issuance costs relating to
the Bridge Financing. Consequently, it is likely that the Company will report
a net loss during the quarter in which the Offering is consummated. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Risk of Acquisitions. Throughout its history, the Company has pursued a
practice of expansion through acquisition of the stock or assets of existing
companies. In the past certain of the Company's acquisitions proved to be
unsuccessful and were subsequently discontinued. Others have resulted in a
financial burden to the Company which substantially exceeded the Company's
expectations. The Company intends to continue to make acquisitions in the
future if opportunities arise. Such acquisitions generally entail a material
risk to the Company's financial condition, as the Company will generally
commit some portion of its resources to stabilizing and building the acquired
entity. Until the Company has operated the new entity for some period of
time, the entity's potential for profitability and the amount of the
Company's financial resources which will be required by the new entity are
largely matters of speculation. Since October 1994, the Company has made a
number of significant acquisitions, including among others, ATAB, Armstrong,
ASI, Krogel and certain assets of J and J. Should one or more of these
acquisitions fail to meet the Company's expectations, the failure could have
a material adverse effect on the Company's financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."

Dependence on Major Customers; Loss of Material Contracts. During the
years ended December 31, 1994 and 1995 and the six months ended June 30,
1996, several customers each accounted for in excess of 10% of the Company's
total revenues. During 1994 services provided to the Ford Motor Company
("Ford") accounted for 19% of total revenues. During 1995, services provided
to Ford and Stewart & Stevenson, Inc. ("S&S," ATAB's sole customer) accounted
for approximately 14% and 24% of total revenues, respectively.

The loss of material contracts has historically had an adverse impact on
the Company's results of operations. The current contracts with Ford and S&S
expire in June 1998 and September 1996, respectively.

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The Company is currently negotiating with S & S for a renewal of the contract
and expects that such renewal will be obtained. Furthermore, certain of the
Company's subsidiaries, in addition to ATAB and ASI, are dependent upon a
single customer. The loss of either the Ford or S&S contracts or the loss of
other key customers would have a material adverse effect on the Company's
financial condition and results of operations. See "Business."

Competition. The Company and its subsidiaries compete with many firms that
offer similar products and services some of which have substantially larger
facilities, personnel, financial and other resources than those of the
Company. Transportation service contracts, a primary source of the Company's
revenues, are generally awarded on a competitive bid basis. In bidding for
future contracts, the Company will be competing with many other firms. See
"Business."

Further, as regards ASI, there can be no assurance that other companies
may not develop superior airbag folding equipment to compete with ASI. In
addition, there are companies which produce other airbag module assembly
machines. Some of these companies have substantially greater financial and
other resources than those of the Company. See "Business -- Competition."

Dependence on Patents and Proprietary Technology. During the six months
ended June 30, 1996, a substantial portion (approximately 25%) of the
Company's revenues were derived from the operations of ASI. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company's success, therefore, may depend, in part, on its ability to
maintain patent protection for ASI's products and manufacturing processes and
to preserve such subsidiary's trade secrets. As of the date hereof, the
Company has six patents relating to ASI's technology. There can be no
assurance that others have not independently developed, or will not
independently develop, similar products and technologies or otherwise
duplicate any of ASI's products and technologies. In April 1996, the Company
commenced a legal action against a third party alleging infringement of ASI's
patented airbag folding technology. See "Business -- Legal Proceedings."

There can be no assurance that the validity of any patent issued to the
Company would be upheld if challenged by others in litigation or that the
Company's activities would not infringe patents owned by others. The Company
could incur substantial costs in defending itself in suits brought against
it, or in suits in which the Company seeks to enforce its patent rights
against others. In addition, the Company may be required to obtain licenses
to patents or other proprietary rights of third parties in connection with
the development and use of its products and technologies. No assurance can be
given that any such licenses required would be made available on terms
acceptable to the Company, or at all.

Bidding for Contracts. A majority of the Company's revenues are obtained
from services performed under contract to government authorities and private
corporations. Most of these contracts are obtained by participating in a
competitive bidding process. In order to formulate a bid for a contract, the
Company must make estimates of a great number of variables, including local
labor costs, local fuel costs, expected wear and tear on vehicles, and
ridership. If the Company materially underestimates its anticipated expenses,
it may win the bidding but find itself in a situation where performance under
the contract will result in a loss. If the Company materially overestimates
its anticipated expenses, a competitor is likely to win the bidding. The
Company has at times failed to maintain contracts because it was forced to
increase its bid due to increased costs relating to performance of the
contract or was otherwise underbid. There can be no assurance that the
Company will not lose additional contracts in the bidding process which may
have a material adverse effect on the Company's business. See "Business --
Business Development."

Possible Working Capital Shortages of ASI. A substantial portion of ASI's
revenues are not billable or otherwise received until completion of its
contracts. ASI's contracts may last for up to 26 weeks and require millions
of dollars of working capital. If the Company did not have the liquidity or
credit availability to make these expenditures, it would not be able to
properly complete existing contracts nor would it be in a position to
successfully bid new contracts. In such a situation, the Company's ability to
replace lost contracts or expand by obtaining new contracts would likely be
significantly damaged. Prior to the Company's acquisition of ASI, working
capital shortages resulted in substantial losses for ASI. There can be no
assurance that if ASI experiences substantial growth the Company would have
sufficient capital or credit to fund continuing operations. See "Business."

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Need for Additional Financing. The Company believes that the proceeds of
the Offering will be sufficient to finance the Company's working capital
requirements for a period of at least 12 months following the completion of
the Offering. The continued expansion and operation of the Company's business
beyond such 12 month period and its ability to make acquisitions may be
dependent upon its ability to obtain additional financing. The Company has no
commitments for any future financing and there can be no assurance that
additional financing from either debt or equity financing, bank loans or
other sources will be available on terms acceptable to the Company, or at
all. If available, any additional equity financings may be dilutive to the
Company's stockholders and any debt financing may contain restrictive
covenants and additional debt service requirements which could adversely
affect the Company's operating results. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

Dependence on Oil. Generally about 6% of the Company's expenses are paid
for oil-related products, principally diesel fuel. An increase in the price
of fuel at the pump, either because of increased oil prices or increased
taxes, may have a significant negative effect on the results of the Company's
operations. Accordingly, volatility in oil prices presents an ever-present
risk to the Company's business.

Dependence on Present Management. The Company has only three officers. The
success of the Company is dependent upon the services of its officers:
Michael Margolies, Chairman of the Board, Chief Executive Officer and
President, Terry A. Watkins, CPA, Executive Vice President, Chief Financial
Officer and Secretary, and Ronald P. Sorci, Treasurer and Controller. The
Company does not carry key man insurance on these officers, nor are there any
contracts retaining their services for a term (except with respect to Mr.
Sorci). The Company intends to seek other qualified persons to augment its
current management. There is no assurance that the Company will be able to
locate and retain qualified persons to replace any member of management or to
expand its current management. In addition to the foregoing, the Company's
operations are located in diverse geographical locations throughout the
United States further taxing the limited number of members of the Company's
management team. The prolonged unavailability of any current member of senior
management, whether as a result of death, disability or otherwise, could have
an adverse effect upon the business of the Company. See "Management."

Liability Insurance Coverage. From time to time, the transportation
industry has encountered severe problems in obtaining liability insurance to
cover the risk of loss arising from personal injury and property damage
claims. The Company is insured under liability policies which cover the
annual period from June 9 through June 8. The cost of this insurance for the
1996-1997 year will be approximately $365,000, which includes comprehensive
automobile and general liability coverage of $5 million per occurrence. The
Company has insurance coverage for all of its transportation services;
however, such coverage is subject to certain standard exclusions including,
but not limited to fines, penalties, exemplary or punitive damages or any
other type or kind of judgment or award which does not compensate the party
benefitting from the award or judgment for any actual loss or damage
sustained. There is no assurance that such liability coverage is sufficient
or that it will be available in the future, or if available, at rates that
will permit the Company to operate profitably. The Company has always
operated with full liability insurance coverage, and in the absence of such
coverage would not be permitted to operate as a common carrier. See "Business
- -- Insurance."

Effect of Issuance of Shares on Net Operating Loss Carryforwards. At
December 31, 1995, for federal income tax purposes, the Company had net
operating loss ("NOL") carryforwards of approximately $11,200,000 (due to
expire commencing in 2002 through 2009) and general business credit
carryforwards of approximately $647,000 (due to expire commencing in 1996
through 2000), which, absent an "ownership change" as described below, would
generally be available to offset any future taxable income and tax liability,
respectively, of the Company. The Company believes it may have experienced an
"ownership change" within the meaning of Section 382 of the Internal Revenue
Code of 1986, as amended, (the "Code"), as a result of various stock
transactions in which it has engaged through 1995. If such "ownership change"
occured, the Company does not expect to be able to utilize its full NOL and
tax credit carryforwards to offset future tax liability. The Company believes
that it will then only be able to use approximately $800,000 of its current
NOL per year. The limitation of the Company's NOL carryforwards may have a
materially adverse effect on the Company's net income and cash flow, should
the Company's pre-tax income increase in future years. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Note 6 to Consolidated Financial Statements."

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<PAGE>

Related Party Transactions. At numerous times throughout its history, the
Company has relied upon the financial resources of its three directors
(Michael Margolies, Jay Owen Margolies and Thomas Wegerbauer) to facilitate
certain corporate transactions and, on occasion, to provide working capital.
Also, at various times, Mr. Margolies or his affiliates have made loans to
the Company, of which $688,916 is outstanding at June 30, 1996. In December
1994, the Company acquired a corporation owned by members of the Margolies
family in exchange for 180,000 shares of Series C Preferred Stock, which has
the voting rights of 600,000 shares of Common Stock. The Company believes
that all of these transactions have been made on terms which were equal to or
more favorable to the Company than terms which might have been available in
arms-length transactions. The Company may borrow funds in the future from
management when needed in connection with acquisitions and other major
transactions. From time to time, moreover, Mr. Margolies may be called upon
to provide his personal guarantee of one or more of the Company's
obligations. If it appears to the Board of Directors that Mr. Margolies
should be compensated for providing such a guarantee, the Company may do so.
See "Certain Transactions."

Broad Discretion in Application of Proceeds; Absence of Substantive
Disclosure Relating to Acquisitions. Approximately $4,556,250 (62%) of the
net proceeds of the Offering has been allocated to working capital and
general corporate purposes, including future (as yet unidentified)
acquisitions and for expansion of current operations. Although management of
the Company will endeavor to evaluate the risks inherent in any particular
expenditure, there can be no assurance that the Company will properly
ascertain all such risks. Management of the Company will have virtually
unrestricted flexibility in identifying and selecting prospective acquisition
candidates. The Company does not intend to seek stockholder approval for any
acquisitions unless required by applicable law or regulations and
stockholders will most likely not have an opportunity to review financial
information on an acquisition candidate prior to consummation of an
acquisition. Thus, purchasers of the Units will be entrusting their funds to
the Company's management, upon whose judgment the investors must depend, with
only limited information concerning management's specific intentions. The
Company does not currently have any agreements, commitments or arrangements
with respect to any proposed acquisitions and there can be no assurance that
any acquisitions will be consummated.

Limited Stockholder Control of Management. The Company became a public
company in 1986. Since that time the Company has never held an annual meeting
of its stockholders, and the stockholders have not voted for the election of
directors. The Company may hold annual meetings of stockholders or other
meetings for the election of directors in the future, but has not yet
determined if or when it will do so. Nevada law does not require that the
Company hold annual meetings of stockholders, and provides that directors
continue to hold office until successors are elected, even after their terms
of office have expired. The directors of the Company could, therefore, hold
office permanently without the consent of the Company's stockholders.
Moreover, the current officers and directors of the Company and their
families own shares representing 14.5% of the voting power in the Company
assuming completion of the Offering. Therefore, even if a meeting of the
stockholders were held, the directors would likely be in a position to
re-elect themselves. See "Principal Stockholders."

The Nevada General Corporation Law does provide that if a corporation has
not elected directors during a period of 18 months, stockholders possessing
15% of the corporation's voting power may commence action in the courts of
Nevada to obtain an order that an election be held. In order to exercise this
right, stockholders of the Company who possess 15% of the outstanding common
stock would be required to file a petition in the District Court of the State
of Nevada for Carson County. They would then be directed by the Court as to
how notice of the petition should be given to the Company and its
stockholders.

Government Regulation; No Assurance of Compliance. The Company's
manufacturing facilities are subject to regulation and inspection standards
established by the Occupational Safety and Health Administration ("OSHA"). To
date, the Company's manufacturing facilities have not been inspected for
compliance with the standards established by OSHA. Although the Company
believes that it is in material compliance with current standards, there can
be no assurance that any inspection will not reveal that the Company has
failed to comply with the standards established by OSHA and that, as a
result, the Company may be required to expend sums, which can be substantial,
to assure compliance with OSHA regulations.

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<PAGE>

Department of Transportation and the Federal Highway Administration, as well
as local authorities. Each of these regulates various aspects of licensing,
permitting and operations of the Company's package delivery and bus services.
Although none of such regulations presently impose great burdens upon the
operation of the Company, such regulations are subject to constant change.
Unforeseen changes in such regulations may have a significant impact on the
Company, as they have in the past in connection with the deregulation of bus
services. See "Business -- Government Regulation."

Shares Eligible for Future Sale; Market Overhang from Outstanding Options.
Future sales of Common Stock by existing stockholders pursuant to Rule 144
under the Securities Act, pursuant to the Concurrent Offering or otherwise,
could have an adverse effect on the price of the Company's securities.
Pursuant to the Concurrent Offering, 211,111 shares of Common Stock have been
registered for resale concurrently with the Offering. In addition, the
Company issued Argent, the underwriter of the Company's February 1995 public
offering, a warrant to purchase an aggregate of 48,167 shares of Common Stock
underlying such warrant and other options and warrants to purchase 8,333
shares of Common Stock. As of June 30, 1996, the Company had outstanding
3,226,258 shares of Common Stock, of which 2,559,088 of such shares are
freely transferable without restriction or further registration under the
Securities Act and 667,170 shares are "restricted securities," as such term
is defined under the Securities Act. Warrants and options to purchase an
aggregate of 155,663 shares of Common Stock at prices ranging from $5.76 per
share to $12.00 are also outstanding. For the "restricted securities," under
Rule 144, if certain conditions are met, persons who satisfy a two year
"holding period" may sell within any three-month period a number of such
shares which does not exceed the greater of one percent of the total number
shares outstanding or the average weekly trading volume of such shares during
the four calendar weeks prior to such sale. After a three-year holding period
is satisfied, persons who are not "affiliates" of the issuer of the
securities are permitted to sell such shares without regard to these volume
restrictions.

No prediction can be made as to the effect, if any, that sales of shares
of Common Stock or the availability of such shares for sale will have on the
market prices of the Company's securities prevailing from time to time. The
possibility exists that the distribution of substantial amounts of currently
restricted shares or newly issued shares of Common Stock into the public
market may adversely affect prevailing market prices for the Common Stock and
could impair the Company's ability to raise capital in the future through the
sale of equity securities.

Lack of Market; Possible Volatility of Stock Price; Arbitrary
Determination of Offering Price. Prior to the Offering, there has been no
public market for the Units or the Class C Warrants, and there can be no
assurance that an active market will develop or be sustained. In the absence
of an active public trading market, an investor may be unable to liquidate
his or her investment. The offering price of the Units and the exercise price
and other terms of the Class C Warrants were determined by negotiations
between the Company and the Underwriters and are not necessarily related to
the Company's assets, earnings, book value per share, its results of
operations or any other generally accepted criteria of value and should not
be construed as indicative of their value. See "Underwriting."

The stock market has, from time to time, experienced significant price and
volume fluctuations that may be unrelated to the operating performance of any
particular company. Various factors and events, including future
announcements of new service offerings by the Company or its competitors,
developments or disputes concerning, among other things, regulatory
developments in the United States, and economic and other external factors,
as well as fluctuations in the Company's financial results, could have a
significant impact on the market price of the Company's securities.

Nasdaq Eligibility and Maintenance Requirements; Possible Delisting of
Securities from The Nasdaq Stock Market; Risks of Low-Priced Stocks. The
Company has applied for listing of the Units and Class C Warrants on Nasdaq,
where the Common Stock presently trades, at the Effective Time. For
continued listing, a company, among other things, must have $2,000,000 in
assets, $1,000,000 in equity and a minimum bid price of $1.00 per share
(absent a net worth of $2,000,000). If the Company is unable to satisfy
Nasdaq's maintenance criteria in the future, its securities may be delisted
from Nasdaq. In such event, the Company's securities would thereafter be
conducted in the over-the-counter market in the "pink sheets" or the National
Association of Securities Dealers Inc.'s ("NASD") "Electronic Bulletin
Board." As a consequence of such delisting, an investor would likely find it
more difficult to dispose of, or to obtain quotations as to, the price of the
Company's securities.

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<PAGE>

Penny Stock Regulation. In the event that the Company is unable to satisfy
Nasdaq's maintenance requirements, trading would be conducted in the "pink
sheets" or the NASD's Electronic Bulletin Board. In the absence of the Common
Stock being quoted on Nasdaq, or the Company having $2,000,000 in net
tangible assets, trading in the Common Stock would be covered by Rules 15g-1
through 15g-6 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") for non-Nasdaq and non-exchange listed
securities. Under such rules, broker/dealers who recommend such securities to
persons other than established customers and accredited investors must make a
special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction prior to sale. Securities also
are exempt from these rules if the market price is at least $5.00 per share.

The SEC adopted regulations that generally define a penny stock to be any
equity security that has a market price of less than $5.00 per share, subject
to certain exceptions (such exceptions including an equity security listed on
Nasdaq and an equity security issued by an issuer that has (i) net tangible
assets of at least $2,000,000, if such issuer has been in continuous
operation for three years, (ii) net tangible assets of at least $5,000,000,
if such issuer has been in continuous operation for less than three years, or
(iii) average revenue of at least $6,000,000 for the preceding three years).
Unless an exception is available, the regulations require the delivery, prior
to any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and the risks associated therewith.

If the Common Stock was subject to the regulations on penny stocks, the
market liquidity for the Common Stock could be severely affected by limiting
the ability of broker/dealers to sell the Common Stock and ability of
purchasers in the Offering to sell their securities in the secondary market.
There is no assurance that trading in the Company's securities will not be
subject to these or other regulations that would adversely affect the market
for such securities.

Potential Adverse Effect of Redemption of Class C Warrants. The Class C
Warrants are redeemable, in whole or in part, at a price of $.01 per Warrant,
commencing on the Effective Date, upon not less than 10 days prior notice if
the closing high bid price on Nasdaq, or the last sale price if traded on a
national exchange, per share of Common Stock on each of the 10 consecutive
trading days ending within 3 days prior to the date on which the Company
gives notice of redemption has been at least 135% of the exercise price of
the Class C Warrants. Notice of redemption of the Class C Warrants could
force the holders to (i) exercise the Warrants and pay the exercise price at
a time when it may be disadvantageous for them to do so; (ii) sell the Class
C Warrants at the current market price when they might otherwise wish to hold
them; or (iii) accept the nominal redemption price, which is likely to be
substantially less than the market value of the Class C Warrants at the time
of redemption. See "Description of Securities -- Class C Warrants."

Current Prospectus and State Blue Sky Registration Required to Exercise
Class C Warrants. Holders of the Class C Warrants will have the right to
exercise the Class C Warrants for the purchase of shares of Common Stock only
if a current prospectus relating to such shares is then in effect and only if
the shares are qualified for sale under the securities laws of the applicable
state or states. The Company has undertaken and intends to file and keep
effective and current a prospectus which will permit the purchase and sale of
the Common Stock underlying the Class C Warrants, but there can be no
assurance that the Company will be able to do so. Although the Company
intends to seek to qualify for sale the shares of Common Stock underlying the
Class C Warrants in those states in which the securities are to be offered,
no assurance can be given that such qualification will occur. In addition,
purchasers may buy Class C Warrants in the after-market or may move to
jurisdictions in which the Class C Warrants and the Common Stock underlying
the Class C Warrants are not so registered or qualified or exempt. In this
event, the Company would be unable lawfully to issue Common Stock to those
persons desiring to exercise their Class C Warrants (and the Class C Warrants
will not be exercisable by those persons) unless and until the Class C
Warrants and the underlying Common Stock are registered or qualified for sale
in jurisdictions in which such purchasers reside, or an exemption from such
registration or qualification requirements exists in such jurisdictions. The
Class C Warrants may lose or be of no value if a prospectus covering the
shares issuable upon the exercise thereof is not kept current or if such
underlying shares are not, or cannot be, registered in the applicable states.
See "Description of Securities -- Class C Warrants."

Effect of Outstanding Options and Warrants; Exercise of Registration
Rights. Upon completion of the Offering, the Company will have outstanding
(i) Class C Warrants to purchase 2,115,000 shares of Common

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Stock; (ii) the Underwriters' Unit Purchase Option to purchase an aggregate
of 400,000 shares of Common Stock, assuming exercise of the underlying Class
C Warrants; (iii) a warrant, held by Argent, the underwriter of the Company's
February 1995 public offering, exercisable to purchase an aggregate of 48,167
shares of Common Stock assuming conversion of the Series A Preferred Stock
underlying such warrant and the exercise of the Class A and Class B Warrants
contained in such underwriter's warrant; (iv) other options and warrants held
by Argent to purchase an aggregate of 8,333 shares of Common Stock; and (v)
Class A and Class B Warrants to purchase an aggregate of 56,665 shares of
Common Stock. Holders of such options and warrants are likely to exercise
them when, in all likelihood, the Company could obtain additional capital on
terms more favorable than those provided by such options and warrants.
Further, while such options and warrants are outstanding, the Company's
ability to obtain additional equity financing on favorable terms may be
adversely affected. The holders of the Underwriters' Unit Purchase Option and
the options and warrants issued to Argent have certain demand and
"piggy-back" registration rights with respect to their securities. Exercise
of such rights could involve substantial expense to the Company. See "Certain
Transactions," "Shares Eligible for Future Sale" and "Underwriting."

Lack of Dividends. The Company has never paid and does not plan to pay in
the foreseeable future any dividends on its Common Stock. It is currently
anticipated that earnings, if any, will be used to finance the development
and expansion of the Company's business.

Indemnification of Certain Potential Claims. In July 1996, the Company
entered into an employment and non-competition agreement with Ronald P. Sorci
to serve as the Company's treasurer and controller (the "Sorci Agreement").
Mr. Sorci had previously been engaged in the operation of RPS Executive
Limousines Ltd. ("RPS"). As part of the Sorci Agreement, the Company agreed
to indemnify Mr. Sorci for any liability or expense he may incur arising from
certain potential tax liabilities, leases or debts of RPS. The Company may
become liable in the future for such liabilities, the amount of which cannot
be ascertained at this time. See "Management -- Employment Agreements."

Possible Adverse Effect of Issuance of Preferred Stock. The Company's
Certificate of Incorporation authorizes the issuance of 10,000,000 shares of
"blank check" Preferred Stock, with designations, rights and preferences
determined from time to time by the Board. As a result of the foregoing, the
Board is empowered, without further stockholder approval, to issue Preferred
Stock with dividend, liquidation, conversion, voting or other rights that
could adversely affect the voting power or other rights of the holders of the
Common Stock. In the event of issuance, the Preferred Stock could be used,
under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of the Company, even if a change of control
was in the best interest of the Company's stockholders. Although the Company
has no plans to issue any additional shares of Preferred Stock, there can be
no assurance that the Company will not issue Preferred Stock at some time in
the future. See "Description of Securities -- Preferred Stock."

Possible Limitations on Market Making Activities in the Company's
Securities. The Company has been advised that the Underwriters intend to make
a market in the Company's securities. Rule 10b-6 under the Exchange Act may
prohibit such firms from engaging in any market-making activities with regard
to the Company's securities for the period from the nine business days (or
such other applicable "cooling off" period as Rule 10b-6 may provide) prior
to any solicitation by the Underwriters of the exercise of Class C Warrants
until the later of termination of such solicitation activity or the
termination (by waiver or otherwise) of any rights that the Underwriters may
have to receive a fee for the exercise of Class C Warrants following such
solicitation. As a result, the Underwriters may be unable to provide a market
for the Company's securities during certain periods while the Class C
Warrants are exercisable. In addition, under applicable rules and regulations
under the Exchange Act any person engaged in the distribution of the Selling
Securityholder Securities may not simultaneously engage in market-making
activities with respect to any securities of the Company for the applicable
"cooling off" period prior to the commencement of such distribution.
Accordingly, in the event that the Underwriters are engaged in a distribution
of the Selling Securityholder Securities, neither of such firms will be able
to make a market in the Company's securities during the applicable
restrictive period. Any temporary cessation of such market-making activities
could have an adverse effect on the market price of the Company's securities.
See "Underwriting."

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<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the Units offered hereby,
after deducting underwriting discounts and commissions and other expenses of
the Offering payable by the Company, are estimated to be $7,376,250
($8,527,688 if the Over-Allotment Option is exercised in full).

The Company has allocated (i) $1,220,000 to repay principal and accrued
interest on the Bridge Notes issued in the Bridge Financing (the proceeds of
which were used for working capital) and (ii) $600,000 to repay certain high
interest loans. The Bridge Notes, which bear interest at the rate of 5% per
annum, are due on the earlier of the closing of this Offering or November
1996.

The Company intends to use the balance of the net proceeds from the
Offering for working capital and strategic acquisitions. Part of the
Company's business strategy is to continue its growth through one or more
acquisitions, although the Company has not, to date, identified any
particular company to acquire. The Company continues to negotiate with and
conduct due diligence reviews with respect to potential acquisition
candidates, although no such acquisition is probable as of the date hereof.
To the extent that such identification is made in the future, a portion of
the net proceeds may be utilized for the purchase price, necessary equipment
and working capital for such acquisition(s). In addition, working capital
will be needed for (i) future expansion of ASI as governmental regulations
increase the demand for driver and passenger-side airbags; (ii) expansion of
the Armstrong package and freight delivery services to other locations; and
(iii) the procurement of new transportation contracts to be performed by the
Company's existing transportation services providers. The Company expects
that approximately $750,000 of the net proceeds of the Offering will be used
for the cost of enlarged building facilities for Armstrong and $250,000 will
be used for the cost of relocating ASI to larger facilities in Phoenix,
Arizona.

Any additional proceeds from the exercise of the Over-Allotment Option,
the Class C Warrants or the Underwriters' Unit Purchase Option will be used
for general corporate purposes.

The foregoing represents the Company's best estimates of the anticipated
use of the net proceeds of the Company based upon its present plans and
certain assumptions regarding general economic conditions and the Company's
future revenues and expenditures. Proceeds not immediately required for
specified uses will be invested principally in United States government
securities, short-term certificates of deposit, money market funds or other
short-term interest-bearing investments.

16
<PAGE>

CAPITALIZATION

The following table sets forth the (i) actual capitalization of the
Company as of June 30, 1996, after giving effect to the one-for-six reverse
stock split, (ii) pro forma capitalization of the Company as of June 30,
1996, after giving effect to (a) 119,444. shares to be issued in connection
with a covenant not-to-compete and (b) 56,500 shares issued to Argent upon
exercise of outstanding options, and (iii) as adjusted capitalization of the
Company as of June 30, 1996, giving effect to the issuance and sale by the
Company of the Units offered hereby, and the application of a portion of the
net proceeds thereof to repay the Bridge Notes and certain other
indebtedness. See "Use of Proceeds."

<TABLE>
<CAPTION>
June 30, 1996
-----------------------------------------------
Actual Pro Forma As Adjusted(1)
------------- ------------- --------------
<S> <C> <C> <C>
Bridge Financing ................................... $ 780,000 $ 780,000 --
Long-term notes payable, less current maturities ... $ 2,984,348 $ 2,984,348 $ 2,384,348
Due to related parties, less current maturities .... 258,956 258,956 258,956
Stockholders' equity:
Preferred Stock, $.01 par value, 10,000,000 shares
authorized; 180,000 Class C shares issued and
outstanding, redemption value $10.00 per share(2) 1,800,000 1,800,000 1,800,000
Common Stock, $.01 par value, 50,000,000 shares
authorized; 3,226,258 shares issued and outstanding;
3,402,202 shares pro forma; 5,517,202 shares as
adjusted(3) ................................... 32,262 34,022 55,172
Additional paid-in capital ......................... 20,043,585 20,833,573 28,188,673
Stock subscription receivable ...................... (37,785) (37,785) (37,785)
Deferred compensation .............................. (604,018) (604,018) (604,018)
Accumulated deficit ................................ (5,913,152) (5,913,152) (6,475,152)
Stockholders' equity ............................... 15,320,892 16,112,640 22,926,892
</TABLE>

- ------
(1) Gives effect to the recognition upon the repayment of the Bridge Notes of
approximately $560,000 of charges relating to the debt discount and debt
issuance costs associated with the Bridge Financing. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."

(2) Such shares of Class C Preferred Stock have an aggregate liquidation
preference of $1,800,000. See "Description of Securities -- Class C
Preferred Stock."

(3) Does not include (i) shares issuable upon exercise of the Over-Allotment
Option and the underlying Class C Warrants; (ii) 2,115,000 shares
issuable upon exercise of the Class C Warrants included in the Units
offered hereby; (iii) 115,000 shares issuable upon exercise of the Class
C Warrants included in the Bridge Units; (iv) 200,000 shares issuable
upon exercise of the Underwriters' Unit Purchase Option and the Class C
Warrants included in such option; and (v) 56,665 shares issuable upon
exercise of outstanding Class A and Class B redeemable stock purchase
warrants.

17
<PAGE>

PRICE RANGE OF SECURITIES

The following table sets forth the high and low bid information for the
Common Stock as quoted on Nasdaq. The prices for all periods take into
account the reverse stock splits effected in January 1994 and to be effected
on the Effective Date.

<TABLE>
<CAPTION>
Bid
------------------------------
High Low
--------- --------
<S> <C> <C>
Quarter Ending
- --------------
1996
June 30 ............. $ 9.42 $ 6.00
March 31 ............ $ 6.375 $ 4.125

1995
December 31 ......... $ 8.625 $ 5.25
September 30 ........ $10.071 $ 4.875
June 30 ............. $ 5.719 $ 3.00
March 31 ............ $ 6.00 $ 3.562

1994
December 31 ......... $ 5.625 $ 2.25
September 30 ........ $ 7.50 $ 2.25
June 30 ............. $12.00 $ 3.00
March 31 ............ $31.875 $12.00

</TABLE>

The foregoing quotations represent prices between dealers and do not
include retail mark-up, mark-down, or commissions, and may not necessarily
represent actual transactions.

As of August , 1996, the Company had approximately 3,250 stockholders of
record. On such date, the closing bid price of the Common Stock was $ .

DIVIDEND POLICY

To date, the Company has neither declared nor paid any dividends on its
Common Stock nor does the Company anticipate that such dividends will be paid
in the foreseeable future. Rather, the Company intends to reinvest any
earnings for the expansion and development of its business. Any payment of
cash dividends on its Common Stock in the future will be dependent upon the
prior payment of required dividends on Preferred Stock, the Company's
earnings, financial condition, capital requirements and other factors which
the Board of Directors deems relevant.

18
<PAGE>

SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA

The following table presents selected historical and pro forma
consolidated financial data for the years ended December 31, 1994 and 1995,
and for the six months ended June 30, 1995 and 1996. The financial data for
the year ended December 31, 1994 is derived from the consolidated financial
statements of the Company which have been audited by Mortenson and
Associates, P.C., independent public accountants and are included in this
Prospectus. The financial data for the year ended December 31, 1995 is
derived from the consolidated financial statements of the Company which have
been audited by Mahoney Cohen Rashba & Pokart CPA, PC, independent public
accountants and are included in this Prospectus. The historical financial
data for the six months ended June 30, 1995 and 1996 is derived from the
consolidated financial statements of the Company which have not been subject
to audit, but which have been prepared on a basis consistent with the audited
financial statements. In the opinion of management, the unaudited
consolidated financial statements include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
consolidated financial position and results of operations for those periods.
The results of operations for the six months ended June 30, 1996 are not
necessarily indicative of the results of operations for a full year. The
historical financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of the Company and related notes in
this Prospectus.

<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------------ -----------------------------
1994 1995 1995 1996
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ...................................... $11,818,325 $17,350,973 $7,086,473 $13,718,768
Expenses ...................................... 11,074,785 15,820,228 6,478,661 12,775,519
------------- ------------- ------------ -------------
Operating Income ............................. 743,540 1,530,745 607,812 943,249
Other Expenses ............................... (48,866) (603,628) (202,840) (108,766)
------------- ------------- ------------ -------------
Income from Continuing Operations Before Income
Taxes ........................................ 694,674 927,117 404,972 834,483
Income Tax (Benefit) .......................... (63,811) (364,000) -- --
------------- ------------- ------------ -------------
Income from Continuing Operations ............. 758,485 1,291,117 404,972 834,493
Discontinued Operations ....................... (853,480) (167,199) -- --
------------- ------------- ------------ -------------
Net Income (Loss) ............................. (94,995) 1,123,918 404,972 834,493
Preferred Dividend. ........................... -- 191,700 95,850 95,850
------------ ------------- ------------ -------------
Net Income (Loss) Applicable to Common
Stockholders ................................. $ (94,995) $ 932,218 $ 309,122 $ 738,633
============= ============= ============ =============
Net Income (Loss) Per Common Share:
Income from Continuing Operations ........... $ .11 $ .10 $ .05 $ .04
Discontinued Operations ..................... (.12) (.01) -- --
------------- ------------- ------------ -------------
Earnings (Loss) Per Common Share ............ $ (.01) $ .09 $ .05 $ .04
============= ============= ============ =============
</TABLE>

19
<PAGE>

PRO FORMA STATEMENT OF OPERATIONS DATA (UNAUDITED):

The following unaudited pro forma statements of operations data do not
purport to be indicative of the results of operations that would have
occurred if the Company had acquired ASI, Armstrong, and J and J at the
beginning of the periods presented.

The pro forma adjustments included above consist of:

<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1994 December 31, 1995
----------------- -----------------
<S> <C> <C>
Amortization of Goodwill ................ $(545) $ (545)
Amortization of Covenant ................ (15) (15)
Interest Expense ........................ (270) (270)
Productive efficiency obtained through
adequate capitalization(1) ............. 100 1,800
Elimination of duplicative administrative
functions(1) ........................... 200 500
----------------- -----------------
Total ................................. $(530) $1,470
================= =================
</TABLE>

- ------
(1) Savings amounts estimated by management. There can be no assurance of the
actual amount of savings, if any.

<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
-------------- ------------
<S> <C> <C>
Balance Sheet Data:
Working Capital .......................... $ 1,416,261 $ 748,856
Total Assets ............................. 20,886,491 27,066,768
Long-Term Debt, Net of Current Maturities . 3,245,567 3,243,304
Stockholders' Equity ..................... 11,278,257 15,320,892

</TABLE>

20
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and related Notes included elsewhere in
this Prospectus.

HISTORY; DISCONTINUED OPERATIONS

From its inception in 1979 until 1993, the Company was engaged to a
material extent in the charter bus and line run business. As a result of
government deregulation of the bus industry in the mid 1980s, the Company
began to experience increased competition and decreasing profitability. In
November 1987, the Company filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code. The Company was
discharged from bankruptcy in September 1989. In 1993, the Company determined
to discontinue its charter bus operations. The Company also ran a passenger
bus line between New York City and the Atlantic City casinos. Increased
competition and changes in the gaming industry led to decreased ridership and
price reductions which substantially decreased the profitability of this
passenger line run. In 1992, the Company decided to discontinue such line
run. The Company believed that pursuing a strategy of discontinuing
unprofitable operations and expanding operations in other segments of the
transportation industry would maximize its potential for increased
profitability and growth.

As expected, the discontinuance of the line run and the charter bus
businesses created substantial fluctuations in the Company's revenues and
resulted in substantial losses. After losses of approximately $2 million and
$850,000, respectively, from discontinued operations, the Company incurred
net losses of approximately $1.3 million and $95,000, respectively, during
the years ended December 31, 1993 and 1994. The Company substantially
completed the cessation of its line run operations in 1993 and its charter
bus operations in 1995.

Since 1993, the Company has pursued its strategy of acquiring businesses
in other segments of the transportation industry. The most significant
acquisitions have been those of ATAB in October 1994, Armstrong in June 1995
and ASI in November 1995. In addition the acquisition of the assets of Krogel
in February 1996 significantly expanded Armstrong's package and freight
delivery service business. Most recently, in June 1996 the Company acquired
certain assets of J and J, a full-load tractor-trailer operation operating
out of Syracuse, New York. Primarily as a result of the foregoing
acquisitions, the Company recorded a profit during the year ended December
31, 1995 ("1995") and the six months ended June 30, 1996.

RESULTS OF OPERATIONS

The Company's operations were classified into three principal industry
segments in 1995 and the 1996 Period: transportation, manufacturing and
entertainment. In 1994, the Company's operations were classified into two
principal industry segments; transportation and entertainment. The following
is a summary of selected segment information:

<TABLE>
<CAPTION>
1995 1996
1994 1995 Period Period
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net Sales to Unaffiliated Companies:
- -----------------------------------
Transportation ...................... $ 9,225,391 $ 9,455,622 $4,136,276 $ 7,413,965
Manufacturing ....................... -- 5,119,871 1,530,604 5,125,078
Entertainment ....................... 2,592,934 2,775,480 1,419,593 1,179,725
------------- ------------- ------------ -------------
Totals .............................. $11,818,325 $17,350,973 $7,086,473 $13,718,768
============= ============= ============ =============
Income (Loss) from Operations:
- -----------------------------
Transportation ...................... $ 904,720 $ 264,188 $ 259,129 $ 627,279
Manufacturing ....................... -- 1,225,799 369,312 374,260
Entertainment ....................... (161,180) 40,758 (20,629) (58,290)
------------- ------------- ------------ -------------
Totals .............................. 743,540 1,530,745 607,812 943,249
Other (expense), net .................. (48,866) (603,628) (202,840) (108,766)
------------- ------------- ------------ -------------
Income Before Income Taxes and
Discontinued Operations as Reported
in the Accompanying Statement of
Operations .......................... $ 694,674 $ 927,117 $ 404,972 $ 834,483
============= ============= ============ =============
</TABLE>

21
<PAGE>

SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995

Revenues increased 93.6% from approximately $7.1 million for the six
months ended June 30, 1995 (the "1995 Period") to approximately $13.7 million
for the six months ended June 30, 1996 (the "1996 Period") primarily as a
result of the acquisition of ASI in November 1995 and the acquisitions of a
number of package delivery businesses currently operating under the Armstrong
name completed in June and July 1995 and February 1996. ASI and Armstrong
accounted for approximately $3.5 million (25.3%) and $3.2 million (23.4%) of
total revenues during the 1996 Period. The Company's transportation revenues
increased by approximately 79.2%, reflecting the acquisition of Armstrong and
Krogel. Primarily as a result of the acquisition of ASI in November 1995,
manufacturing revenues for the 1996 Period increased approximately 234.8%
from the 1995 Period. Revenues from entertainment services decreased by
approximately 16.9% previously as a result of the termination of Sterling,
the Company's travel agency.

Cost of goods sold increased by approximately $2.9 million (360.4%) during
the 1996 Period, primarily reflecting expenses incurred in connection with
the manufacturing operations of ATAB and ASI. Operating expenses increased by
approximately $1.35 million (37.0%) during the 1996 Period reflecting the
expansion of operations, primarily as a result of the Armstrong and Krogel
acquisitions. As a percentage of revenues, the sum of operating expenses and
cost of goods sold was 63.3% for the 1996 Period compared to 62.9% during the
1995 Period.

Selling, general and administrative expenses increased by approximately
$1,038,000 (61.7%) during the 1996 Period, but decreased as a percentage of
revenues from 23.7% for the 1995 Period to 19.8% during the 1996 Period
reflecting improved economies of scale.

Rent expense increased by approximately $426,000 (389.2%) during the 1996
Period primarily as a result of an increase in equipment leases held by
Armstrong in connection with its delivery services. The Company intends to
(i) relocate ASI to substantially larger facilities during the next several
months and (ii) expand its package delivery business, and accordingly,
expects rental expense to increase significantly in the future.

Amortization expenses increased by approximately $287,000 (560.6%) during
the 1996 Period as a result of the ASI and Armstrong acquisitions and the
related increases in goodwill. Further, as a result of vehicle purchases for
the transportation operation, depreciation expense increased by approximately
$318,000 (175.1%) during the 1996 Period. The incurrence of such charges
relating to these and any future acquisitions may have an adverse effect on
the Company's net income in future periods. In addition, upon completion of
the Offering and repayment of the Bridge Notes, the Company will recognize a
charge to operations of approximately $560,000, representing the unamortized
portion of the debt discount and issuance costs relating to the Bridge
Financing. It is expected the foregoing charges will substantially eliminate
the Company's net income during the fiscal quarter in which the Offering is
completed and are likely to result in a net loss during such period.

As a result of the foregoing, net income increased 106.1% from $404,927
during the 1995 Period to $834,483 during the 1996 Period. A substantial
portion of the Company's profit during the 1996 Period was derived from ATAB.

YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994

Revenues increased 46.8% from approximately $11.8 million for 1994 to
approximately $17.4 million for 1995. Substantially all of such increase is
attributable to the acquisitions of ATAB in October 1994 and ASI in November
1995. ATAB and ASI accounted for approximately $4.2 million (24.3%) and
$900,000 (5.2%) of revenues, respectively, during 1995. The Company's
revenues from transportation services increased slightly (2.5%) during 1995,
as revenues derived from the Company's Armstrong acquisitions in June and
July 1995 offset decreases in other areas of this segment, including a
decrease resulting from services performed in connection with a World Cup
event which took place in 1994. Transportation service revenues accounted for
only 4.2% of the total increase in revenues during 1995. Revenues from
entertainment services increased 7% during 1995, accounting for only 3.3% of
the total increase.

22
<PAGE>

The Company incurred costs of goods sold in 1995 in connection with the
manufacturing operations of ATAB and ASI. Operating expenses, together with
costs of goods sold, increased by approximately $2.7 million (39.4%) during
1995 but decreased as a percentage of revenues, to 56% for 1995 from 59%
during 1994, primarily reflecting higher profit margins associated with the
manufacturing operations of ATAB and ASI.

Selling, general and administrative expenses increased by approximately
$1.3 million (39%) during 1995, but decreased as a percentage of revenues
from 29.2% for 1994 to 27.7% during 1995, reflecting greater economies of
scale.

Rent expense increased by approximately $300,000 (244.3%) during 1995,
reflecting equipment leases held by Armstrong in connection with its delivery
services. As a percentage of revenues, rent expense increased from 1.1%
during 1994 to 2.7% during 1995.

Depreciation and amortization expenses increased by approximately $320,000
(62.4%) during 1995 as a result of the ASI and Armstrong acquisitions and the
related increases in goodwill.

Total other expenses, net, increased approximately $555,000 during 1995
primarily as a result of a $420,000 loss on the sale of assets and the
write-off of a $76,000 note receivable.

During 1993, the Company adopted a plan to discontinue its charter
business operations. Accordingly, revenue and losses from this business have
been included as discontinued operations in the financial statements for 1994
and 1995. During such years, net losses from charter bus operations were
approximately $1.3 million and $410,000, respectively. At June 30, 1996, the
Company held for sale remaining net assets relating to the discontinued
operations consisting of one motor coach with a book value of approximately
$56,000. Therefore, the Company does not expect discontinued operations to
have a material impact on net income in the future.

On October 31, 1995, the Company's transportation service contract with
Delta was lost in the bidding process. The Company also assigned its AMTRAK
contract related to its former Toledo, Ohio charter bus operations to a third
party. Such contracts accounted for 3.1% of revenues and 5.1% of net income
during 1995. The Company expects that revenues and income from Armstrong and
its manufacturing segment will more than offset the loss of these contracts.
However, certain of the Company's subsidiaries continue to be dependent upon
either a sole or dominant customer and the loss of a major customer in the
future could have a material adverse impact on the Company's results of
operations.

At December 31, 1995, for United States federal income tax purposes, the
Company had consolidated net operating loss ("NOL") carryforwards of
approximately $11,200,000 due to expire commencing in 2002. The Company also
had general business credit carryforwards of approximately $647,000 due to
expire commencing in 1996. The availability of these NOL and tax credit
carryforwards to reduce or offset future taxable income and tax liability of
the Company is subject to various limitations under the Code. Because the
substantial portion of the tax credits expire in the next five years, and as
the Company is required to first utilize its NOL carryforward to offset
future earnings, the Company does not anticipate realizing any benefit from
its tax credits. Further, the Company's ability to utilize the NOL carry-
forward is restricted upon the occurrence of an "ownership change" within the
meaning of section 382 of the Code. Although the determination of whether an
ownership change has occurred is subject to factual and legal uncertainties,
the Company believes that an ownership change may have occurred as a result
of various stock transactions in which it engaged during 1995. If such
"ownership change" occurs, the Company will generally be permitted to utilize
NOL carryforwards (available on the date of such change) in any year
thereafter to reduce its income to the extent that the amount of such income
does not exceed the product of (the "Section 382 Limit") (i) the fair market
value of the Company's outstanding equity at the time of the ownership change
and (ii) a long-term tax-exempt rate published by the Internal Revenue
Service. As a result, the Company believes it may not be able to fully
utilize its NOL carryforwards. The Company believes its use of its
accumulated NOL will be limited to approximately $800,000 per year.

LIQUIDITY AND CAPITAL RESOURCES

Historically, the Company has financed its cash flow requirements from
bank borrowings, sales of debt and equity securities and funds generated from
operations. At June 30, 1996, the Company had working capital of
approximately $750,000.

23
<PAGE>

The Company has a line of credit (the "Line") with a bank in the aggregate
amount of $4.5 million. The Line, which bears interest at prime plus 3.5%
payable monthly, provides for accounts receivable financing up to $1 million,
with a sublimit equal to 80% of eligible receivables, and term loan financing
up to $3.5 million to be secured by equipment. Term loans under the Line are
payable monthly at a rate equal to 1/84th of the borrowing base balance,
computed at 70% of the appraised net realizable value of such equipment.
Borrowings are also secured by property owned by an officer of the Company.
See "Certain Transactions." The Company pays a 1% facility fee on the Line of
$3,750 per month. The Line terminates on September 1, 1996. The Company
expects that it will be able to renew the Line if it so desires.

In February 1995, the Company completed a public offering of units
comprised of convertible preferred stock (which was subsequently converted
into Common Stock). Net proceeds to the Company, after deduction of
underwriting discounts and commissions and other expenses of the offering
(but prior to the allocation of deferred offering costs) were approximately
$1.8 million which were used primarily for the funding of production of
airbag equipment at ASI and other general working capital purposes at ASI.

In November 1995, the Company issued approximately $3.2 million face
amount of 8% convertible debentures (the "Debentures") in a private offering
pursuant to Regulation S under the Act for which the Company received net
proceeds of approximately $1.8 million. In January 1996, the Debentures were
converted into 753,667 shares of Common Stock. In January 1996, the Company
issued shares of preferred stock in a private offering pursuant to Regulation
S under the Act for which it received net proceeds of $256,728. In March
1996, these shares were converted into 88,890 shares of Common Stock. The net
proceeds were used for working capital purposes at ASI.

In April 1996, the Company completed the Bridge Financing, issuing an
aggregate of $1,200,000 principal amount of Bridge Notes. The Company
received net proceeds of $982,000, after deducting the placement agent's
discount and expense allowance and other expenses of the offering. The Bridge
Notes are payable, together with accrued interest at the rate of 5% per
annum, on the earlier of November 26, 1996 or completion of the Offering. See
"Use of Proceeds." Upon repayment of the Bridge Notes, the Company will issue
to the investors in the Bridge Financing an aggregate of 69,136 Bridge Units
identical to the Units to be sold in the Offering. See "Concurrent Offering."
The Company will recognize a charge of approximately $560,000, representing
the debt discount and debt issuance costs associated with the Bridge
Financing, upon repayment of the Bridge Notes.

Except as set forth in "Use of Proceeds," the Company has no significant
commitments at this time which would require that it expend capital and
believes its current facilities and capital equipment are adequate for the
Company as currently structured. The aforementioned refinancing of the
Company's line of credit and the Company's debt due to related party
significantly increased the Company's credit availability and, combined with
the proceeds of the recent public offering of securities, creating a working
capital balance of $748,856 at June 30, 1996.

At June 30, 1996, the Company had $126,000 of irrevocable standby letters
of credit, $50,000 of which is to cover the Company's liability with respect
to pending accident claims, and the remainder of which collateralizes various
operational bonds. As of June 30, 1996, the Company has recorded a liability
of approximately $25,000 with respect to pending accident claims, which
amount is included in Other Current Liabilities. The Company has recorded all
contingent liabilities which it believes are likely and measurable and does
not anticipate actual losses in these matters to exceed what has been accrued
or to have a material effect on the Company's liquidity.

24
<PAGE>

BUSINESS

The Company is currently primarily engaged in three business areas: (i)
manufacturing transportation machinery and equipment; (ii) providing
transportation related services; and (iii) providing entertainment services.
The Company's manufacturing division includes (a) ASI, which designs,
manufactures and markets patented machinery which folds and tests airbags and
assembles airbag modules, for installation in passenger and utility vehicles,
and (b) ATAB, which manufactures certain vehicle components (such as
electrical wiring harnesses) as a sub-contractor to a contractor of the
United States Department of Defense and provides related engineering
services. The Company's transportation related services consist of (a)
providing over-the-road package delivery services for air freight carriers
doing business in Florida provided under the names Armstrong and Trans Lynx;
(b) providing bus and other motor vehicle transportation services to
businesses and municipalities on a contract basis in various states; and (c)
operating a fleet of company-owned and privately-owned taxi cabs in Toledo
and Lima, Ohio and a car service based in Westchester County, New York. The
Company's entertainment division consists of five ticket brokerage agencies
which sell tickets for theatrical, sports and other entertainment events,
including packaged tours of New York City. During the year ended December 31,
1995 and the six months ended June 30, 1996, manufacturing operations
accounted for approximately 30% and 37%, respectively, transportation
services accounted for approximately 54% and 54%, respectively, and
entertainment services accounted for approximately 16% and 9%, respectively,
of total revenues. During such periods, manufacturing operations,
transportation services and entertainment services accounted for
approximately 80% and 40%, 17% and 66% and 3% and (6%), respectively, of
income (loss) from operations.

The Company has made several acquisitions during recent years, the most
significant of which was the Company's acquisition of ASI in November 1995.
In addition, in February 1996, the Company acquired certain assets, including
contract rights, from Krogel which was engaged in the package and freight
delivery service business in Florida. In June 1996, the Company acquired
certain assets, primarily trucking equipment, from J and J, a full-load
trucking operation located in Syracuse, New York.

The Company's strategy is to pursue growth through acquisitions and
expansion of its current operations, in particular:

o Expansion of Armstrong. The Company will seek to expand Armstrong's
package and freight delivery services to other locations in Florida and
surrounding states.

o New Transportation Contracts. The Company will seek to procure new
transportation contracts to be performed by the Company's existing
transportation services locations.

o Strategic Acquisitions. The Company continues to seek the acquisition
of companies engaged in businesses related to or synergistic with the
Company's current operations.

TRANSPORTATION RELATED SERVICES

Contract Transportation Services

This segment of the Company's business consists of supplying buses, vans
or customized vehicles to customers pursuant to written contracts which are
generally awarded on a competitive bid basis. Customers include
municipalities and other governmental agencies, schools, the armed forces and
private industry.

During the past 14 years, the Company has developed an extensive
infrastructure to support its contract transportation activities. This
infrastructure consists of garage facilities, repair shops, contiguous
parking areas and computerized dispatch and communications capacity, all
staffed by an experienced group of maintenance, operational and
administrative personnel. While such support structures exist for all
localities from which the Company operates its contract activities, the
Company's strongest infrastructure hubs are centered in Detroit,

25
<PAGE>

Michigan, Toledo and Cincinnati, Ohio and Tampa, Florida. In all of its
localities, the Company has established sources for operational supplies and
repair parts, with round-the-clock dispatching, maintenance and road service.
As the Company pursues contract transportation opportunities, its objective
is to exploit the advantages of its infrastructure for efficient operations.

Most of the transportation contracts which the Company secures are awarded
on a competitive bid basis. A municipality, public authority or private
corporation sets forth the specifications for its transportation
requirements, and the Company and its competitors submit bids specifying
prices for the services and other terms requested in the solicitation of
bids. The contract is then awarded on the basis of price, financial
reliability of the bidder, and other considerations.

Upon the award of the contract (or, in cases where the Company obtains a
contract by private negotiation, upon the signing of the contract), the
Company may have to make a significant capital expenditure to establish the
facilities (including garage, tools and personnel) and obtain the equipment
(generally buses and spare parts) necessary to carry out the Company's
obligations under the contract. While capital expenditures do not occur in
every case in which the Company contracts with a new party, the Company's
experience has been that such expenditures are usually necessary and are
often significant. The Company will then recover the cost of its expenditures
from fees paid to it over the life of the contract.

One of the Company's largest transportation contracts is with the Ford
Motor Company. Under this contract, the Company has operated an internal bus
transportation system for employees at Ford's River Rouge plant in Dearborn,
Michigan, for the past 17 years. Under the terms of the contract, Ford pays
the Company on a per hour basis for bus service; the service operates 24
hours a day, 365 days a year. Revenues from this contract accounted for
approximately 19% and 14% of the Company's total revenues in 1994 and 1995,
respectively. The contract with Ford expires on June 30, 1998.

Other contract transportation services offered by the Company include its
agreement with Kenton County Airport Board ("Kenton") for services at the
Cincinnati Airport. Cincinnati has its main airport located over the state
border in Boone County, Kentucky. For the past 14 years, the Company has had
an arrangement with Kenton which gives the Company the exclusive right to
provide transportation, on behalf of the City of Cincinnati, between the
airport and various locations within the City. The Company also runs a
shuttle service at the airport under a contract with the City of Cincinnati.
The Company provides round-the-clock shuttle service between the various
terminals and parking lots, and is paid by the City on an hourly basis. The
term of the Company's arrangement with Kenton continues through August 2000.

In 1994, the Company completed a package of one-month contracts with
several participants in the 1994 World Cup. Based upon the success of the
World Cup contracts, the Company formed Transportation Management. The
business of Transportation Management is to organize and manage
transportation in connection with sporting and other large public events,
using vehicles owned by the Company or vehicles operated by other carriers
with whom Transportation Management enters into subcontracts. During 1995,
Transportation Management was designated as an approved transporter in
connection with the Hall of Fame Bowl and the Super Bowl, and will seek to
obtain similar arrangements in connection with other events.

Contract services such as these make up the fastest growing segment of the
Company's current transportation operations. The Company continues to seek
new transportation contracts to be performed by its existing subsidiary
service providers.

Trucking/Package Delivery Services

The primary business of Armstrong is delivery of packages and freight
under contract from air common carriers. The primary business of Trans Lynx
is ground delivery, generally between airports, of containerized air cargo
under contract from other common carriers. In both instances, these common
carriers are generally well-known overnight couriers. Management believes
that these overnight couriers utilize Armstrong because in the three Florida
cities of Tampa, Orlando and Jacksonville, the individual companies do not
have sufficient package and/or freight on any given day to warrant the
utilization of their own vehicles for deliveries; Armstrong acts as a
delivery service for approximately 200 of such air common carriers. The
Company's acquisition of Armstrong and Trans Lynx therefore, enables the
Company to participate in the growing package delivery industry without
making the immense capital investment necessary to establish a package
carrier which deals directly with the public.

26
<PAGE>

The Company's most recent acquisition involved certain assets from a
trucking operation in Syracuse, New York. This full-load tractor-trailer
operation, with trucking lanes substantially in the Northeast, operates under
the name of "Jay and Jay Transportation, Inc."

Taxi Cab and Car Services

The Company's taxi operations are located in Toledo and Lima, Ohio and are
performed by Black & White Cab, Inc. ("Black & White"), a wholly-owned
subsidiary of the Company. Black & White maintains a fleet of 76 cabs, of
which 21 are Company-owned and 55 of which are driver-owned.

The Company's car service operations are based in Westchester County, New
York and are performed for the general public by Transportation Systems Corp.
("Transportation Systems"), a wholly-owned subsidiary of the Company.
Transportation Systems maintains a fleet of 63 vehicles, a mixture of Town
Cars and vans, all of which are driver-owned or driver-leased; its largest
contract customer is IBM.

EQUIPMENT

As of June 30, 1996. the Company owned and maintains for operations a
fleet of 332 vehicles, including 6 highway coaches, 8 transit buses, 16
school buses, 11 vans, 3 minibuses, 2 tractors, 49 delivery straight trucks,
54 tractors, 151 trailers and 32 cabs, cars and service vehicles. The Company
also owns one highway coach (reduced from 37 coaches at December 31, 1994)
which it intends to sell.

To maintain its fleet, the Company operates a number of vehicle repair
centers staffed by mechanics and trained servicemen. These shops, most of
which operate around the clock, 365 days per year, service the Company's
vehicles exclusively.

BUSINESS DEVELOPMENT

The Company maintains an in-house Department of Business Development which
is continually seeking new business opportunities in transit management,
transit operations, airport ground transportation and other related fields.
The business development staff reviews requests for proposals and invitations
for bids, prepares formal proposals and bid submittals, negotiates awarded
contract terms, and participates in the initial start-up activities of newly
awarded contracts. The business development staff also provides technical
assistance to presently managed systems and operations.

The Company believes that its most promising avenue for expansion in its
transportation services segment is the acquisition of currently operating
transportation entities in the geographic areas where the Company's existing
support infrastructure is strongest and where it can assume expanded
responsibilities without significant increases in capital plant or personnel.
In addition to the efforts of the Company's Department of Business
Development, the Company's senior management is continuously engaged in
identifying selected targets for acquisition. See "Use of Proceeds."

MANUFACTURING SERVICES

With its acquisitions of ATAB in October 1994 and ASI in November 1995,
the Company expanded its business into manufacturing. During 1995 and the
1996 Period, the manufacturing segment accounted for approximately 30% and
37%, respectively, of the Company's revenues. ATAB is currently engaged in
providing engineering services and electrical component assembly to Stewart &
Stephenson, Inc. ("S & S"), a contractor for the U.S. government. ASI is
currently engaged in the manufacture of automatic airbag folding equipment
and a number of other components incorporated in either airbag module
assemblies or production of other safety components.

Transportation Component Manufacturing Services

The Company, through ATAB, is engaged in the business of providing
engineering services and electrical components to vehicle manufacturers. Its
facility in Sealy, Texas houses two divisions: the engineering

27
<PAGE>

services division and the harness production division. At the present time,
both divisions are performing services exclusively for one customer, S&S, a
contractor for the Department of Defense. The engineering services division
provides drafting and other services in relation to the Family of Medium
Tactical Vehicles that S&S produces for the U.S. Army. The harness production
division is engaged in the assembly of the enhanced electrical systems wiring
harness set components for that same military vehicle. ATAB provides these
services to S&S pursuant to short-term agreements generally lasting less than
18 months which have historically been renewed upon expiration.

Automatic Cushion (Airbag) Folding Equipment

In 1987, ASI began the development of cushion folding equipment for the
General Motors Corporation ("GM") and Ford. The original equipment was
semi-automatic in nature, requiring operator intervention to produce the
required finished folding patterns. As cushion geometry and construction
became more complex, cushion folding patterns also became more complex,
requiring a greater need for more automated processes to produce the
necessary folding consistency required. Automated folding also generally
reduces the folding time. ASI produced what the Company believes is the first
fully automatic driver side airbag folding equipment, requiring minimum
operator intervention. The operator simply loads the product into the
machine, and the machine produces the finished folded cushion within design
specifications. ASI has developed and patented numerous driver side folding
machines used by most major airbag manufacturers in the world.

In 1990, ASI was approached by its existing customer base to produce
equipment to fold passenger side cushions for module assembly. The passenger
side products were significantly more complex than driver side; however,
similar to driver, initial automation approaches embarked upon were
semi-automatic in nature. ASI was, to the Company's knowledge, the first
company to produce fully automatic passenger side cushion folding equipment.

Airbags folded on the Company's machinery are employed by GM, Ford,
Chrysler, Nissan, Toyota and Honda, among others.

Automatic and Semi-Automatic Riveting Equipment

In order to expand its product offering for producing airbag module
assemblies, ASI began producing custom rivet workstations for attaching the
cushion to the product housing. Similar to many automation integrators, ASI's
initial approach to entry in this market was to purchase existing rivet feed
and pull technology from the large pull rivet supply companies. Though
proficient at producing pull rivets, these companies produced rivet feed
systems that did not meet the system uptime requirement needed for necessary
production levels. ASI established its own rivet feed system that
significantly increased the reliability of this process. This rivet
technology is used today for cushion attachment as well as for attaching the
gas generator (inflator) to the module assembly, and for attaching the
decorative cover, matched to the automobile's interior, to the final
assembly.

Automatic and Semi-Automatic Screw and Nut Torque Equipment

In further expanding ASI product offerings to the automotive safety
components marketplace, ASI began building both screw and nut torque systems
in 1992. The addition of this expertise has allowed ASI to be a full system
supplier to major airbag module manufacturers such as TRW Safety Systems
(North America and Europe), Morton Automotive Products Division (North
America and Europe), Delphi Interior and Lighting Systems - GMC (previously
Inland Fisher Guide Division of General Motors), Allied Signal Bendix (North
America and Asia), and Takata International. Products produced for this
marketplace include passenger side inflatable restraint end plate screw
torque systems, decorative cover nut torque attach systems, and gas generator
(inflator) attach systems for both driver and passenger side products.

Gas Generator (Inflator) Subassembly Workstations

In 1993, ASI expanded into a new market arena of the automotive safety
restraints producers by supplying custom workstations for manufacturing
inflator filter assemblies. This arena has been dominated by major automation
players since its inception. ASI has produced this equipment for companies
such as Tally, Morton International. ASI currently produces passenger side
inflatable restraint filter assembly weld workstations, driver side inflator
assembly workstations for handling and loading graphite seals, slag filters,
final filters, gas shields, combustion chambers, and laser welding
load/unload workcells.

28
<PAGE>

Automated Test Equipment

As a supplement to the assembly of airbag modules, various aspects of the
production involve testing. ASI is currently the market leader in the
production of flow test (leak test) equipment for the drivers' side airbag,
which equipment Company management believes is used by all airbag
manufacturers in the United States. Additionally, ASI recently began its
penetration of this test equipment into the international market with sales
of this equipment to customers in Europe and Asia. ASI has also developed a
passenger filter permeability test device to verify airflow through finished
passenger inflator filters.

In 1990, ASI developed a driver and passenger side cushion over
pressurization machine used for collecting data during destructive testing of
airbags. This machine incorporated many new technical achievements for burst
test equipment. To the knowledge of Company management, it (i) is the only
machine capable of bursting a passenger side airbag without a liner, and (ii)
is the only burst test machine capable of inflating the driver side and
passenger side bags to shape before bursting them. This technology also is
adaptable for testing side impact bags.

To complete the product offering for module assembly, ASI has developed
electrical test machines to verify the performance of the electrical
initiator adaptor used for triggering the airbag deployment on both driver
and passenger airbags. This equipment is currently in use at Delphi Interior
and Lighting Systems, TRW Safety Systems and Morton Automotive Products
Division.

ASI has designed and built test workstations for verifying the hermetic
seal on airbag propellant holding containers located in the gas generation
(inflator) device. These systems include helium fill stations and helium leak
detection systems utilizing a mass spectrometer for sensing helium presence.

ASI is committed to maintain its position in the field of manufacturing
and test equipment for the airbag industry. ASI intends to continue its
efforts to expand its market segment in providing test and process equipment
to other industries. In addition, ASI has manufactured various automated
systems for the semiconductor and medical industry. These systems are
primarily utilized in the manufacturing facilities of these industries to
provide for higher production efficiency with consistent high quality.

ENTERTAINMENT SERVICES

The Company's entertainment segment is comprised of five corporate
divisions: Downtown Theater Ticket Agency, Inc. ("Downtown"), Premier Box
Office, Inc. ("Premier"), Broadway Theatours, Inc. ("Theatours"), Advance -
New York, a division of Downtown, and Advance - Chicago.

Downtown and Advance - New York are licensed theater agencies that
specialize in the retail sale of tickets for theater, sports and various
entertainment events in the New York metropolitan area. Advance - Chicago
specializes in the same business in Chicago. The firms purchase tickets at
their retail price or at a discount from retail and resell them at the retail
price plus a brokerage charge and a handling charge. These firms have been in
business for over 53 years, servicing corporate and individual clients
throughout the United States and the remainder of North America. The
companies' toll free numbers (800) THE-SHOW, (800) NY-SHOWS and (888)
NY-SHOWS are promoted nationwide as a prime source for tickets to events in
the New York area.

Theatours, which also utilizes the toll free numbers, provides prepackaged
New York tours which incorporate entertainment events with lodging, meals and
other amenities, and which are sold primarily through travel agents in the
United States and Canada. Broadway shows and the U.S. Open Tennis Tournament
are examples of prepackaged events.

During 1995 and the 1996 Period, revenues from entertainment services
accounted for approximately 16% and 9%, respectively, of the Company's
revenues.

PATENTS AND PROPRIETARY RIGHTS

A substantial portion of the Company's revenues are derived from the
operations of ASI. The Company's success, therefore, may depend, in part, on
its ability to maintain patent protection for ASI's products and

29
<PAGE>

manufacturing processes, to preserve such subsidiary's trade secrets and to
operate without infringing the proprietary rights of third parties. ASI is
dependent upon such trade secrets and in 1990 began vigorously pursuing
patents on automatic air bag folding technologies. ASI currently holds six
patents on automatic air bag folding methods and apparatus that are crucial
in folding the driver side, passenger side, and "side" impact air bags.
Currently ASI is the only automation equipment manufacturer that can
automatically fold a passenger side bag and install the folded bag into its
protective cover or housing. The Company may incur substantial costs in
seeking to enforce its patent rights against others; however, the Company
believes that any such expense will be off-set by the benefits provided by
such patents. See "Legal Proceedings."

GOVERNMENT REGULATION

The Company's manufacturing facilities are subject to regulation and
inspection standards established by OSHA. To date, the Company's
manufacturing facilities have not been inspected for compliance with the
standards established by OSHA, although the Company believes that is in
material compliance with current standards.

The Company's transportation operations are subject to regulation by
various agencies including the New York State Department of Transportation,
the Port Authority of New York and New Jersey, the U.S. Department of
Transportation and the Federal Highway Administration, as well as local
authorities. Each of these agencies regulates various aspects of licensing,
permitting and operations of the Company's package delivery and bus services.
Although none of such regulations presently imposes great burden upon the
operation of the Company, such regulations are subject to change. Unforeseen
changes in such regulations may have a significant negative impact on the
Company, as they have in the past in connection with the deregulation of bus
services.

LIABILITY INSURANCE COVERAGE

The Company must maintain liability insurance to cover the risk of loss
arising from personal injury and property damage claims. This insurance is
mandatory to permit the Company to operate as a passenger carrier.
Additionally, the cost of this insurance coverage, when available, has
increased dramatically. The cost of the Company's insurance for the 1996-1997
year will be approximately $365,000. The Company has always operated with
full liability insurance coverage, and in the absence of such coverage would
not be permitted to operate as a common carrier. The Company also carries
customary insurance coverage for its other operations.

EMPLOYEES

At July 31, 1996, the Company employed 506 employees. Of these, the
majority are drivers, factory manufacturing persons and other service
personnel. Approximately 50 employees perform office and administrative
functions.

The Company has contracts with a number of unions; however, less than 20%
of the Company's employees belong to a union. The Company believes its
present relations with its unions and other employees are good.

PROPERTIES

The parcels of real property owned by the Company, all of which are
improved, are: (1) a parcel of 4.25 acres at One Keeshin Drive, Toledo, Ohio;
(2) a parcel of less than one acre at 822 East Service Road, Boone County,
Kentucky, from which the Company operates under its arrangement with the City
of Cincinnati; (3) a parcel of less than one acre at 420 West Elm Street in
Lima, Ohio, from which the Company operates its Lima-based taxi service; (4)
a parcel of less than one acre at 3740 E. LaSalle St., Phoenix, Arizona, from
which ASI conducts its operations; and (5) a parcel of 9.627 acres at 2305
Pyka Road, Sealy,

30
<PAGE>

Texas, from which ATAB conducts its operations. The table below identifies
the properties leased by the Company and its subsidiaries for an annual
rental of $10,000 or more. Management of the Company believes that these
facilities are adequate for its operations as presently structured.

<TABLE>
<CAPTION>
Company Lessor Premises Term and Annual Rental
- -------------------------------- -------------------- ---------------- ----------------------
<S> <C> <C> <C>
U.S. Transportation Systems, Inc. Delcon Realty 33 West Main 11/1/95 to 10/31/00
St. Elmsford, NY $27,600

Shortway River Rouge, Inc. Harriet Friedman 661 S. Dix 7/1/92 to 6/30/97
Detroit, MI $24,600

Transportation Systems Corp. Delcon Realty 33 West Main 9/1/94 to 9/1/99
Elmsford, NY $22,500

Advance Entertainment -- NY JBRC 261 W. 35th St Month to Month
Suite 800 $25,200
New York, NY

Advance Entertainment -- Chicago Dan Development Ltd. 3340 N. Clark 7/15/95 to 7/30/97
Chicago, Il. $15,600

Armstrong Freight Service Ensign Properties 6022 Benjamin 6/1/94 to 5/31/97
Tampa, FL $40,257

Armstrong Freight Service EVV Florida 9025 Boggy Creek 1/31/93 to 11/30/96
Investments, Ltd. Orlando, FL $37,094
</TABLE>

LEGAL PROCEEDINGS

Mountainview Coach Lines Bankruptcy

In 1987, Mountainview Coach Lines, Inc. ("Mountainview"), a wholly-owned
subsidiary of the Company filed for bankruptcy protection. In 1989, the
Mountainview proceedings were converted from Chapter 11 to a Chapter 7
liquidation proceeding. The assets of Mountainview have been liquidated, and
early in 1994 the final judicial proceedings were completed. It is expected
that payment will be made by Mountainview's Trustee in Bankruptcy to
creditors by September 30, 1996. When payment is made, the Company will
receive $325,000 by reason of a priority claim which was settled by the
Bankruptcy Court on March 28, 1994 (the "Mountainview Settlement"). That
amount has been recorded as a receivable on the Company's balance sheet since
December 31, 1993.

Patent Infringement Claim by the Company

On April 9, 1996, ASI, through the Company, filed a patent infringement
complaint against Omega Automation, Inc. ("Omega") in the United States
District Court for the District of Delaware, accusing Omega of infringing
ASI's United States patent numbers 5,375,393 and 5,162,035 by its
manufacture, sale and use of automatic vehicle airbag folding equipment
covered by these patents. On May 17, 1996, Omega answered the Company's
complaint denying its material allegations and seeking a declaratory judgment
that both patents are invalid and not infringed and that one patent was
unenforceable. The Court has ordered a trial for September 8, 1997 and a
discovery deadline of February 3, 1997.

Accident Claims

The Company is subject to a number of claims arising over the years from
accidents involving the Company's transportation vehicles. The Company's
liability insurance fully covers each of these claims. The Company is
responsible, however, for the amount of the deductibles from insurance
coverage as to these claims. At December 31, 1995 the total amount of the
deductibles for which the Company was responsible in connection with pending
claims was approximately $100,000. The Company has recorded a liability of
approximately $75,000, which the Company believes is a reasonable estimate of
the loss it will incur in connection with settlement of these claims, based
on the advice of the Company's insurance carriers as to the likelihood that
an adverse result will occur.

The Company is party to various additional matters in litigation which
have arisen in the ordinary course of business. Management believes that the
Company's insurance coverage is adequate to protect the Company from material
adverse effects in connection with any adverse outcomes of such matters.

31
<PAGE>

MANAGEMENT

The following sets forth certain information regarding the executive
officers and directors of the Company:

<TABLE>
<CAPTION>
Name Age Position
--------------------- ----- --------------------------------------------------------------
<S> <C> <C>
Michael Margolies ... 68 Chairman of the Board, Chief Executive Officer and President
Terry A. Watkins .... 45 Executive Vice President, Chief Financial Officer and Secretary
Ronald Sorci ........ 46 Controller and Treasurer
Jay Owen Margolies .. 45 Director
K. Thomas Wegerbauer . 58 Director
Stanley Chason ...... 68 Director
Robert I. Blackman .. 68 Director

</TABLE>

Directors hold office until the next annual meeting of the Company's
stockholders and the election and qualification of their successors. If the
Company fails to hold an annual meeting of its stockholders, the term of
office of directors will be indefinite. The Company may hold annual meetings
of stockholders or other meetings for the election of directors in the
future, but has not yet determined if or when it will do so. To date, the
Company has not held any meetings of its stockholders. See "Risk Factors --
Limited Stockholder Control of Management." Officers hold office, subject to
removal at any time by the Board, until the meeting of directors immediately
following the next annual meeting of stockholders and until their successors
are appointed and qualified.

Michael Margolies has been a director of the Company, Chairman of the
Board and Chief Executive Officer of the Company since 1979 and has been
President since June 1995. Mr. Margolies is the father of Jay Owen Margolies,
the past President and one of the Company's Directors.

Terry A. Watkins has served as the Chief Financial Officer of the Company
since May 1993 and has been Secretary since June 1995. From 1992 until he
joined the Company, Mr. Watkins worked as a consultant on financial
accounting matters. For six years prior to that time, Mr. Watkins was the
Chief Operating Officer of Tem-Cole, Inc., a multi-state food produce
business. Within two years after the date on which Mr. Watkins terminated his
employment with Tem-Cole, Inc., a petition under the federal bankruptcy laws
was filed against that company. Prior to his employment by Tem-Cole, Inc.,
Mr. Watkins worked for the accounting firm of Deloitte Haskins & Sells for
five years and is a Certified Public Accountant.

Ronald Sorci has been Controller and Treasurer of the Company since July
10, 1996. From 1989 until July 1996, Mr. Sorci was President and owner of RPS
Executive Limousines Ltd., a luxury town car and limousine company servicing
fortune 500 companies worldwide.

Jay Owen Margolies has been a director of the Company since 1979. He is
currently employed as Senior Advisor by the Company on a part-time basis,
advising the Company regarding operations management. From 1988 until June
1995, he was the President and Chief Operating Officer of the Company. Prior
to becoming President, Mr. Margolies served as a Vice President of the
Company from 1983 to 1987. Jay Owen Margolies is the son of Michael
Margolies, the Company's Chief Executive Officer.

K. Thomas Wegerbauer has been a director of the Company since 1979. He
served as the President and Chief Operating Officer of the Company from 1979
to 1987. He now serves as a consultant to the Company on a part-time basis,
primarily advising the Company regarding contract bidding and labor
relations.

Stanley Chason has been a director of the Company since July 1996. From
1962 until his retirement in 1984, Mr. Chason held various positions with
Gelco Corporation ("Gelco"), a company listed on the New York Stock Exchange
which is engaged in all aspects of vehicle leasing. His last position with
Gelco was as Executive Vice President and a member of the Board of Directors.
Mr. Chason was also Chairman and Chief Executive Officer of the Fleet and
Management Services Division of Gelco.

Robert I. Blackman has been a director of the Company since July 1996. For
more than the past five years, Mr. Blackman has been the President and Chief
Executive Officer of the Best of Brooklyn Properties, Inc., a private real
estate investment firm.

32
<PAGE>

EXECUTIVE COMPENSATION

The following table sets forth all compensation awarded to, earned by, or
paid by the Company to the following persons for services rendered in all
capacities to the Company during each of the fiscal years ended December 31,
1995, 1994 and 1993: (1) the Company's Chief Executive Officer, and (2) each
of the other executive officers whose total salary and bonus for the fiscal
year ended December 31, 1995 exceeded $100,000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
(a) (d)
Name and (b) (c) Restricted (e)
Principal Position Year Salary Stock Award(1) Other(2)
------------------------------------ ------ ---------- -------------- ---------
<S> <C> <C> <C> <C>
Michael Margolies .................. 1995 $230,000
Chairman of the 1994 $230,000 $600,000
Board, Chief Executive Officer, and 1993 $230,000
President

Jay Owen Margolies ................. 1995 $ 62,500 $30,000
Former President 1994 $150,000 $183,000
1993 $150,000

</TABLE>

- ------
(1) Represents the market value of shares granted under a certain restricted
stock grant program created by the Company (the "Restricted Stock Grant
Program"). Aggregate grants under such program were 183,333 shares at
December 31, 1995, with a value on that date of $825,000. None of the
stock grants vest prior to August 15, 1998. They then vest in 25%
increments per year until August 15, 2001. No dividends are to be paid
with respect to unvested shares. The named executive officers held
174,000 restricted shares as follows: Michael Margolies (133,333 shares -
$600,000 value at December 31, 1995), Jay Owen Margolies (40,667 shares -
$183,000 at December 31, 1995).

(2) Represents salary earned for part-time employment services.

EMPLOYMENT AGREEMENTS

In addition, in connection with the acquisition of ASI, on November 13,
1995, the Company entered into employment agreements (the "ASI Employment
Agreements") with each of the former ASI stockholders as well as Miller B.
Lee, who had been ASI's Chief Financial Officer. The ASI Employment
Agreements provide the following:

<TABLE>
<CAPTION>
Employee Position with ASI Salary
------------------ ----------------------- ----------
<S> <C> <C>
William F. Baker President $120,000
Pierre J. Metivier Vice President $120,000
Jamal H. Saklou Vice President $115,000
Miller B. Lee Chief Financial Officer $100,000

</TABLE>

The ASI Employment Agreements provide that the four employees will share
in a bonus pool at the end of each of 1996, 1997 and 1998. The amount of such
bonus pool will be ten percent of ASI's pre-tax income during the respective
year in excess of $750,000, $1.5 million and $2.5 million for 1996, 1997 and
1998, respectively and such amount will be paid in cash and Common Stock.
Each ASI Employment Agreement also provides for a grant of stock options to
the employee. Messrs. Baker, Metivier and Saklou were awarded options to
purchase 3,333 shares at $7.50, 3,333 shares at $9.00 and 3,333 shares at
$12.00. Mr. Lee was awarded options to purchase 8,333 shares at $7.50, 8,333
shares at $9.00 and 8,333 shares at $12.00. The ASI Employment Agreements
contain a covenant which restricts the employee from entering into
competition with ASI until the later of (a) two years after his employment by
ASI terminates or (b) December 31, 2000.

In connection with the acquisition of Armstrong, Bart Citro, the President
of Armstrong, is entitled to receive a salary of $65,000 and an annual bonus
equal to 10% of Armstrong's annual pre-tax profits in excess of $100,000. In
addition, Mr. Citro agreed not to compete with the Company for the term of
his contract plus two years.

33
<PAGE>

On July 10, 1996, the Company entered into an employment agreement with
Ronald P. Sorci to act as the Company's treasurer and controller for a term
of five years. Mr. Sorci will receive (i) an annual salary of $100,000, (ii)
an annual non-accountable expense allowance of $25,000, (iii) 2,083 shares of
Common Stock each March 31 and November 30, and (iv) other customary
benefits. Mr. Sorci also entered into a covenant not to compete with the
Company for a period of seven years for which he will receive (i) $50,000,
(ii) 8,333 shares of Common Stock, and (iii) approximately 111,111 additional
shares of Common Stock.

In connection with the acquisition of certain assets from J and J, the
Company entered into an employment agreement with William Orr, the sole
stockholder of J and J. Mr. Orr will be employed by Jay and Jay
Transportation, Inc. for a term of three years and receive an annual salary
of $90,000. Mr. Orr will also receive 16,667 shares of Common Stock in
connection with his agreement not to compete with the Company.

REMUNERATION OF DIRECTORS

The Directors of the Company receive no compensation for their services,
but are reimbursed for out-of-pocket expenses incurred on the Company's
behalf.

RESTRICTED STOCK GRANT PROGRAMS

On January 18, 1994, the Board of Directors of the Company adopted a
Restricted Stock Grant Program (the "Program") pursuant to which 183,333
shares of Common Stock were reserved for issuance. The Program provided that
if the Company recorded more than $12,000,000 in sales during the twelve
months ending on June 30, 1994, the shares would be issued to each of the
Company's three officers (the "Grantees") who remained employed by the
Company on that date. Those conditions were satisfied, and the shares were
issued as follows:

Michael Margolies - 133,333 shares

Jay Owen Margolies - 40,667 shares

Terry A. Watkins - 9,333 shares

The terms of the Program were amended in April 1995. Under the amended
terms, the shares issued under the Program are subject to the following
restrictions:

After each of the fiscal years from 1996 through 1998, one-fifth of the
shares granted (36,666 associated with each year) are subject to forfeiture,
as follows:

- 12,222 will be forfeited if the Company's sales in that year are less
than $15,000,000.

- 12,222 will be forfeited if the Company's income from continuing
operations before income tax fails to exceed a "income standard." The "income
standards" will be: 1996 - $990,000; 1997 - $1,089,000; and 1998 -
$1,197,900.

- 12,222 will be forfeited if the Company's earnings per share fail to
exceed an "earnings standard." The "earnings standards" (based on 1,222,198
shares of Common Stock outstanding) will be: 1996 - $.78; 1997 - $.84; and
1998 - $.96. For 1996 the earnings per share standards refer to income after
taxes; for 1997 and 1998, the earnings per share standards refer to income
before taxes.

If any shares are subject to forfeiture in any one year due to failure to
meet the standards set forth above, but the average of that year and the
other three years would exceed the standard in that year, then the shares
will not be forfeited.

All shares held by a grantee shall be forfeited if his employment by the
Company terminates prior to the date the restrictions lapse. Further, the
shares are restricted from transfer, provided that with respect to 25% of the
number of shares granted under the Program, such shares will become
unrestricted stock on August 15, 1998. The restriction will lapse with
respect to each additional 25% of such number of shares on August 15 of each
successive year. The restriction will also lapse as to all shares granted to
a grantee on the first to occur of (i) the termination of that grantee's
employment with the Company by reason of his disability, (ii) the grantee's
death, (iii) termination of the grantee's employment by the Company without
good reason, or (iv) a change of control of the Company.

34
<PAGE>

During any tax year in which a grantee realizes taxable income by reason
of the lapse of the restrictions on the shares granted under the Program, the
Company will pay to such grantee a "Gross-Up Bonus" in cash equal to the
aggregate of (i) the additional federal, state and local income taxes
incurred by grantee as a result of realization of such taxable income, and
(ii) the federal, state and local income tax incurred by the grantee as a
result of the Gross-Up Bonus. In no event will the Gross-Up Bonus exceed the
aggregate of (i) the amount of the tax deduction for which the Company
receives a benefit for the tax year of the Company beginning during the tax
year of the grantee in which he realizes taxable income by virtue of the
lapse of the restrictions referred to above, and (ii) the amount of the tax
deduction for which the Company receives a benefit for such tax year of the
Company by virtue of the Gross-Up Bonus.

CONTINGENT STOCK GRANT PROGRAM FOR ASI STOCKHOLDERS

In addition to the Employment Agreements entered into with the former ASI
stockholders, on November 13, 1995, the Company adopted a Contingent Stock
Grant Program (the "ASI Program") pursuant to which 166,667 shares of Common
Stock were reserved for issuance to them. The ASI Program provides that
55,556 of the shares will be issued to each of the ASI Stockholders (the
"Grantees"). The shares issued under the ASI Program are subject to the
following restrictions:

After each of the three fiscal years from 1996 through 1998, one-third of
the shares granted (18,519 per Grantee per year) are subject to forfeiture.
5,556 of the shares will be forfeited if the Grantee is not an employee of
ASI on the last day of the fiscal year. The other 12,963 shares will be
forfeited if ASI's pre-tax income for the year does not exceed the threshold
stated below:

<TABLE>
<CAPTION>
Year Threshold
------- -----------
<S> <C>
1996 .................................. $ 750,000
1997 .................................. 1,500,000
1998 .................................. 2,500,000

</TABLE>

The shares granted under the ASI Program are restricted from transfer,
which restriction will lapse, with respect to 33% of such shares on April 15,
1997. The restriction will lapse with respect to each additional 33% of such
number of shares on April 15 of each successive year. The restriction will
also lapse as to all shares granted to a Grantee on the first to occur of (i)
the termination of that Grantee's employment with the Company by reason of
his disability, (ii) the Grantee's death, (iii) termination of the Grantee's
employment by the Company without good reason, or (iv) a change of control of
the Company.

There is no requirement under law for the Company's Board of Directors to
obtain stockholder approval of the Program or the ASI Program (collectively,
the "Programs"). Accordingly, the Board did not seek such approval. The
failure to obtain stockholder approval will adversely affect the Company only
if in any year the total compensation paid by the Company to any of its
officers (including taxable "compensation" occurring by reason of the lapse
of restrictions on shares granted under the Programs) exceeded $1,000,000. In
that case, the Company would not be able to take a deduction on its tax
return for the excess compensation by reason of its failure to obtain
stockholder approval of the Programs. The Board of Directors decided,
however, that the likelihood of total compensation to any officer exceeding
$1,000,000 is sufficiently small that it did not warrant obtaining
stockholder approval for the Programs.

INCENTIVE STOCK OPTION PLAN

The Company formerly had in place a stock option plan which terminated on
September 1, 1995. Options for a total of 5,500 shares were granted under
such plan, of which 4,666 were exercised and 834 were cancelled.

PROFIT SHARING PLAN

In August 1985, the Company's Board of Directors adopted a Profit Sharing
Plan and Trust (the "Plan") which is open generally to Company employees,
including its officers. The Plan provides that the Company may make
contributions in amounts up to 15% of total eligible participants'
compensation. Employees may

35
<PAGE>

also elect to contribute up to 10% of compensation paid during the period of
participation in the Plan, subject to certain conditions. Participants'
interests become fully vested upon their retirement, death or disability.
Upon termination of employment for any other reason, a vested interest of a
participant is based upon the schedule contained in the Plan. The Plan is
intended to qualify as a tax-exempt plan and trust under Sections 401 and 501
of the Code. To date, no contributions have been made under the Plan.

CERTAIN TRANSACTIONS

In connection with a public offering of the Company's securities in
February 1995, Argent, the underwriter of such offering, was issued a warrant
to purchase 17,000 shares of Series A Preferred Stock, convertible into an
aggregate of 48,167 shares of Common Stock, exercisable at a price of $5.76
per share of Common Stock until February 20, 1999. In addition Argent holds
additional options and warrants to purchase an aggregate of 8,333 shares of
Common Stock, exercisable at prices ranging from $4.50 to $5.76 per share,
until February 20, 1999, which securities were issued in 1994 and 1995, in
connection with the provision of certain investor relations and corporate
communication services provided to the Company, and the waiver of certain
rights contained in the underwriting agreement executed by Argent and the
Company.

From time to time prior to December 1994, the Company received working
capital loans from Camelot Consultants, Inc. ("Camelot"), a corporation owned
at the time by Michael Margolies, Chairman and Chief Executive Officer of the
Company, and Jay Owen Margolies, a director of the Company, and members of
their respective families. At December 31, 1993, the outstanding balance of
such loans was approximately $756,000 evidenced by a promissory note bearing
interest at 10.8% per annum payable in monthly installments of $25,000. An
additional $164,000, bearing interest at 10% per annum payable in monthly
installments of $4,650, was owed to Camelot in connection with the Company's
assumption of certain obligations upon the acquisition of one of its
transportation service subsidiaries. In 1994, Camelot transferred its notes
receivable to its stockholders. In December 1994, the aggregate outstanding
balance of approximately $708,000 of such notes was consolidated into a
single loan obligation bearing interest at 15% per annum payable in weekly
installments of $10,000. At June 30, 1996, the remaining balance was
approximately $689,000. It is anticipated that such amount will be repaid
from the Company's cash flow from operations and not the proceeds of the
Offering.

In December 1994, the Company acquired all of the outstanding capital
stock of Camelot from the Margolies family in exchange for the issuance of
180,000 shares of Series C Preferred Stock. See "Principal Stockholders" and
"Description of Securities-Preferred Stock." An independent appraisal
undertaken at the time valued Camelot at $1,488,750.

On September 1, 1993 the Company's former wholly-owned subsidiary,
Suncoast Holdings, Inc., entered into a joint venture with SSTC to operate a
business called Suncoast Transportation in Tampa, Florida. SSTC is
wholly-owned by Thomas Hastings, who was at that time a Vice President of the
Company. The Company gave SSTC a promissory note for $132,000 as
consideration for its interest in the joint venture to which SSTC transferred
all of its assets. On September 1, 1994 the Company purchased from SSTC its
interest in the other 50% of Suncoast Transportation, and agreed to issue as
consideration 62,500 shares of the Company's Common Stock. Substantially all
of the assets of the Suncoast Holdings, Inc. were subsequently sold.

The holders of the Series C Preferred Stock (i.e. members of the Margolies
Family) have guaranteed that if the Company realizes a loss on the resale of
any assets acquired by the Company as a result of its acquisitions of Camelot
and Suncoast Transportation, they will surrender shares of the Series C
Preferred Stock with a face value equal to the amount of the loss. In March
1995, the Company sold a substantial portion of the assets (including buses)
of Suncoast Transportation for $70,000 in cash and notes in the principal
amount of $592,000. In October 1995, the Company sold a substantial portion
of the assets (including buses) of its Toledo, Ohio based charter operations
for various notes totalling approximately $1,250,000.

Pursuant to the terms upon which the Company purchased ATAB in October
1994, the previous stockholders of ATAB (the "ATAB Stockholders") were
entitled to receive a continuing profit participation

36
<PAGE>

from the business of ATAB, option to purchase an aggregate of 36,666 shares
of Common Stock at $3.00 per share over a period of four years and aggregate
consulting fees of $850,000. In June 1996, in exchange for the foregoing
profit participation, options and consulting fees, the Company issued an
aggregate of 75,000 shares of Common Stock to the ATAB Stockholders.

In August 1994, the Company issued an aggregate of 183,333 shares of
Common Stock to Michael Margolies, Jay Owen Margolies and Terry Watkins,
pursuant to the Program. See "Management - Restricted Stock Grant Programs."
Such shares are subject to forfeiture in the event the Company fails to
attain certain revenues and earnings levels.

The Company believes that the terms of all of the foregoing transactions
were no less favorable to the Company than those which could have been
obtained from non-affiliated parties. Any future transactions between the
Company and its affiliates will be approved by a majority of the
disinterested directors and will be on terms no less favorable to the Company
than those which could be obtained from unrelated third parties.

37
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the
beneficial ownership of Common Stock by (i) each stockholder known by the
Company to be a beneficial owner of more than 5% of the outstanding Common
Stock, (ii) each director of the Company, and (iii) all directors and
officers as a group. Except as otherwise indicated, the Company believes that
the beneficial owners of the Common Stock listed below, based on information
furnished by such owner, have sole investment and voting power with respect
to such shares.

<TABLE>
<CAPTION>
Shares of
Percentage of Series C Percentage of Aggregate
Shares of Common Preferred Outstanding Percentage
Common Stock Stock Owned Stock Series C of
------------------
Voting Power
Name and Address Beneficially Before After Beneficially Preferred Aggregate After
of Beneficial Owner+ Owned(1) Offering Offering Owned Stock Voting Power Offering
-------------------------- ------------ -------- -------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael Margolies(2) ..... 202,416 5.8% 3.7% 156,600(3) 87% 724,416 12.1%

Jay Owen Margolies(2) .... 63,754 1.9% 1.2% 23,400 13% 141,755 2.6%

K. Thomas Wegerbauer ..... 1,000 * * -- -- 1,000 *

Margolies Family Trust(4) . -- -- -- 90,000 50% 300,000 5.2%

Stanley Chason ........... -- -- -- -- -- -- --

Robert I. Blackman ....... -- -- -- -- -- -- --

All executive officers and
directors as a group (6
persons)(1) ............. 276,503 8.1% 5.1% 180,000 100% 876,503 14.5%
</TABLE>

- ------
* Less than 1%

+ The address of each named person is c/o the Company, 33 West Main Street,
Elmsford, New York 10523.

(1) Include shares of Common Stock issued pursuant to the Restricted Stock
Grant Program as follows: Michael Margolies - 133,333 shares, Jay Owen
Margolies - 40,666 shares, Terry A. Watkins - 9,333 shares. See
"Management - Restricted Stock Grant Programs."

(2) Michael Margolies and Jay Owen Margolies are father and son. Each,
however, specifically disclaims any present ownership interest in the
securities of the Company owned by the other.

(3) Includes 90,000 shares of Series C Preferred Stock owned by the Margolies
Family Trust. Michael Margolies disclaims beneficial ownership of said
shares.

(4) The trustee of the Margolies Family Trust is Elaine Margolies, wife of
Michael Margolies. The beneficiaries of the Margolies Family Trust are
Mrs. Margolies and children of Michael Margolies.

DESCRIPTION OF SECURITIES

The total authorized capital stock of the Company consists of 50,000,000
shares of Common Stock, $.01 par value per share and 10,000,000 shares of
Preferred Stock, $.01 par value per share. The following descriptions of the
capital stock are qualified in all respects by reference to the Certificate
of Incorporation and By-laws of the Company, copies of which are filed as
Exhibits to the Registration Statement of which this Prospectus is a part.

As of the date hereof, 3,345,702 shares of Common Stock were issued and
outstanding, and 180,000 shares of Preferred Stock were issued and
outstanding.

UNITS

Each Unit offered hereby consists of one share of Common Stock and one
Class C Warrant. The Common Stock and the Class C Warrants contained in the
Units will not be detachable or separately transferable for a period of 45
days from the Effective Date, or sooner with the consent of the
Representative.

COMMON STOCK

The holders of outstanding shares of Common Stock are entitled to share
ratably on a share-for-share basis with respect to any dividends when, as and
if declared by the Board of Directors out of funds legally available
therefor. Each holder of Common Stock is entitled to one vote for each share
held of record and are

38
<PAGE>

not entitled to cumulative voting rights. The Common Stock is not entitled to
conversion or preemptive rights and is not subject to redemption. Upon
liquidation, dissolution or winding up of the Company, and subject to the
prior rights of holders of the Company's Preferred Stock, the holders of
Common Stock are entitled to receive pro rata all of the net assets of the
Company available for distribution to its stockholders. All outstanding
shares of Common Stock are, and the shares of Common Stock offered hereby
will upon issuance be, fully paid and nonassessable.

CLASS C WARRANTS

Each Class C Warrant entitles its holder to purchase one share of Common
Stock at an exercise price of $____ per share, subject to adjustment,
commencing on September 27, 1996 through August 27, 1999.

The Class C Warrants will be issued pursuant to a warrant agreement (the
"Warrant Agreement") among the Company, the Underwriters and Continental
Stock Transfer & Trust Co., the warrant agent, and will be evidenced by
warrant certificates in registered form.

The exercise price of the Class C Warrants and the number and kind of
shares of Common Stock or other securities and property issuable upon
exercise of the Class C Warrants are subject to adjustment in certain
circumstances, including stock splits, stock dividends, or subdivisions,
combinations or reclassifications or upon issuance of shares of Common Stock
at prices lower than the market price of the Common Stock, with certain
exceptions. Additionally, an adjustment will be made upon the sale of all or
substantially all of the assets of the Company in order to enable holders of
Class C Warrants to purchase the kind and number of shares of stock or other
securities or property (including cash) receivable in such event by a holder
of the number of shares of Common Stock that might otherwise have been
purchased upon exercise of the Class C Warrants.

The Class C Warrants do not confer upon the holder any voting or any other
rights of a stockholder of the Company. Upon notice to the holders of Class C
Warrants, the Company has the right to reduce the exercise price or extend
the expiration date of the Class C Warrants.

Class C Warrants may be exercised upon surrender of the Class C Warrant
certificate evidencing those Class C Warrants on or prior to the expiration
date (or earlier redemption date) of the Class C Warrants to the Warrant
Agent, with the form of "Election to Purchase" on the reverse side of the
warrant certificate completed and executed as indicated, accompanied by
payment of the full exercise price (in the United States funds, by cash or
certified bank check payable to the order of the Warrant Agent) for the
number of Class C Warrants being exercised.

No fractional shares will be issued upon exercise of the Class C Warrants.
However, if a holder of a Class C Warrant exercises all Class C Warrants then
owned of record by him, the Company will pay to that holder, in lieu of the
issuance of any fractional share which would be otherwise issuable, an amount
in cash based on the market value of the Common Stock on the last trading day
prior to the exercise date.

No Class C Warrant will be exercisable unless at the time of exercise the
Company has filed with the Commission a current prospectus covering the
issuance of shares of Common Stock issuable upon exercise of the Class C
Warrant and the issuance of shares has been registered or qualified or is
deemed to be exempt from registration or qualification under the securities
laws of the state of residence of the prospectus relating to the issuance of
shares of Common Stock upon the exercise of the Class C Warrants until the
expiration of the Warrants, subject to the terms of the Warrant Agreement.
While it is the Company's intention to maintain a current prospectus, there
is no assurance that it will be able to do so.

The Class C Warrants are redeemable, in whole or in part, by the Company
at a price of $.01 per Class C Warrant, upon 10 days prior written notice to
the registered holders of the Class C Warrants if the closing bid price or
last sale price per share of the Common Stock (if the Common Stock is then
traded on Nasdaq or another national securities exchange, respectively) on
each of the ten consecutive trading days, ending on the third business day
prior to the date of any redemption notice, equals or exceeds at least $____
(135% of the then exercise price)(subject to adjustment in certain events).
The Class C Warrants shall be exercisable until

39
<PAGE>

the close of the business day preceding the date fixed for redemption. In
addition, subject to the rules of the NASD, the Company has agreed to engage
the Underwriters as warrant solicitation agents, in connection with which
they would be entitled to a 5% fee upon exercise of the Class C Warrants. See
"Underwriting."

PREFERRED STOCK

The preferred stock may be issued in one or more series, the terms of
which may be determined at the time of issuance by the Board of Directors,
without further action by stockholders, and may include voting rights
(including the right to vote as a series on particular matters), preferences
as to dividends and liquidation, conversion rights, redemption rights and
sinking fund provisions. The issuance of any such preferred stock could
adversely affect the rights of the holders of Common Stock and, therefore,
reduce the value of the Common Stock. The ability of the Board of Directors
to issue preferred stock could discourage, delay or prevent a takeover of the
Company. The Company does not have any current plans to issue any preferred
stock, except for the 180,000 shares of Series C Preferred Stock currently
outstanding. The Series C Preferred Sock has a liquidation preference of
$10.00 per share. Each share of Series C Preferred Stock is entitled to 3.333
votes on each matter voted upon by holders of Common Stock. At any time after
January 1, 2000, the Company may redeem each share of Series C Preferred
Stock at $10.00 per share. See "Risk Factors -- Preferred Stock."

TRANSFER AGENT AND CLASS C WARRANT AGENT

The transfer agent and registrar for the Common Stock and the warrant
agent for the Class C Warrants is Continental Stock Transfer & Trust Co.

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of Common Stock by existing stockholders pursuant to Rule 144
under the Securities Act, pursuant to the Concurrent Offering or otherwise,
could have an adverse effect on the market price of the Company's securities.
Pursuant to the Concurrent Offering, 211,111 additional shares of Common
Stock have been registered for resale concurrently with the Offering. In
addition, a warrant was issued to Argent in connection with the February 1995
public offering by the Company, to acquire 17,000 shares of Series A
Preferred Stock which stock is convertible into 48,167 shares of Common
Stock, and other options and warrants are held by Argent to purchase an
aggregate of 8,333 shares of Common Stock.

Of the 3,226,258 shares of Common Stock of the Company outstanding as of
June 30, 1996, 667,170 shares are restricted securities, as that term is
defined in Rule 144 promulgated under the Securities Act. Absent registration
under the Securities Act, the sale of such restricted shares is subject to
Rule 144, as promulgated under the Securities Act. In general, under Rule
144, subject to the satisfaction of certain other conditions, a person,
including an affiliate of the Company, who has beneficially owned restricted
shares of Common Stock for at least two years is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1%
of the total number of outstanding shares of the same class, or if the Common
Stock is quoted on Nasdaq, the average weekly trading volume during the four
calendar weeks preceding the sale. A person who has not been an affiliate of
the Company for at least three months immediately preceding the sale and who
has beneficially owned the shares of Common Stock for at least three years is
entitled to sell such shares under Rule 144 without regard to any of the
volume limitations described above. The Company's officers, directors and
holders of more than 5% of outstanding Common Stock have agreed not to sell
their shares for a period of 12 months from the Effective Date without the
prior consent of the Underwriters. No assurance can be made as to the effect,
if any, that sales of shares of Common Stock or the availability of such
shares for sale will have on the market prices prevailing from time to time.
Nevertheless, the possibility that substantial amounts of Common Stock may be
sold in the public market may adversely affect prevailing market prices for
the Common Stock and could impair the Company's ability to raise capital in
the future through the sale of equity securities.

40
<PAGE>

UNDERWRITING

The Underwriters have agreed, subject to the terms and conditions of the
underwriting agreement between the Company and the Representative (the
"Underwriting Agreement"), to purchase from the Company the 2,000,000 Units
offered hereby and to purchase from the Selling Securityholders 115,000 Units
offered hereby on a firm commitment basis, if any are purchased.

The Underwriters have severally agreed to purchase from the Company the
number of Units set forth opposite their respective names:

<TABLE>
<CAPTION>
Name of Underwriter Number of Units
-------------------- ---------------
<S> <C>
First London Securities Corporation .....................
Total ................................................ 2,115,000
===============
</TABLE>

The Representative advised the Company that the Underwriters propose to
offer the Units to the public at the offering price set forth on the cover
page of this Prospectus and to selected dealers who are members of the NASD,
at such prices less concessions of not in excess of $[ ] per Unit, of which a
sum not in excess of $[ ] per Unit may in turn be reallowed to other dealers
who are members of the NASD, including the Underwriters. After the
commencement of the Offering, the public offering price, the concession and
the reallowance may be changed by the Underwriters.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Underwriters a non-accountable expense allowance
equal to 2% of the gross proceeds derived from the sale of Units offered by
the Company hereby, including any Units purchased pursuant to the
Over-allotment option, $62,500 of which has been paid to date.

The Company has granted to the Representative an option exercisable during
the 45-day period commencing on the date of this Prospectus, to purchase from
the Company at the public offering price, less underwriting discounts, up to
300,000 additional Units solely for the purpose of covering over-allotments,
if any.

Holders of 576,504 shares of Common Stock (including all of the Company's
officers and directors) have agreed not to sell, assign, transfer or
otherwise dispose publicly of any of their shares of Common Stock for a
period of 12 months from the date of this Prospectus without the prior
written consent of the Representative, which consent shall not be
unreasonably withheld.

The Company has agreed not to solicit Class C Warrant exercises other than
through the Representative, unless the Representative decline to make such
solicitation. Upon any exercise of the Class C Warrants after the first
anniversary of the date of this Prospectus, the Company will pay the
Representative a fee of 5% of the aggregate exercise price of the Class C
Warrants, if (i) the market price of the Common Stock on the date the Class C
Warrants are exercised is greater than the then exercise price of the
Warrants; (ii) the exercise of the Class C Warrants was solicited by a member
of the NASD designated in writing by the holders of such Class C Warrants as
having solicited the exercise; (iii) the Class C Warrants are not held in a
discretionary account; (iv) disclosure of compensation arrangements was made
both at the time of the Offering and at the time of exercise of the Class C
Warrants; and (v) the solicitation of exercise of the Class C Warrant was not
in violation of Rule 10b-6 promulgated under the Exchange Act.

Rule 10b-6 may prohibit the Underwriters from engaging in any market
making activities with regard to the Company's securities for the period from
nine business days (or such other applicable period as Rule 10b-6 may
provide) prior to any solicitation by the Underwriters of the exercise of
Class C Warrants until the later of the termination of such solicitation
activity or the termination (by waiver or otherwise) of any right that the
Underwriters may have to receive a fee for the exercise of Class C Warrants
following such solicitation. As a result, the Underwriters may be unable to
provide a market for the Company's securities during certain periods while
the Class C Warrants are exercisable.

41
<PAGE>

The Company has agreed to sell to the Underwriters and their designees,
for nominal consideration, the Representative's Unit Purchase Option to
purchase up to 200,000 Units, substantially identical to the Units being
offered hereby except that the Class C Warrants included therein are subject
to redemption by the Company at any time after the Unit Purchase Option has
been exercised and the underlying warrants are outstanding. The
Representative's Unit Purchase Option is exercisable during the four-year
period commencing one year from the date of this Prospectus at an exercise
price of $___ per Unit, subject to adjustment in certain events to protect
against dilution, and is not transferable for a period of one year from the
date of this Prospectus except to officers of the Underwriters or to members
of the selling group. The Company has agreed to register during the four-year
period commencing one year from the date of this Prospectus, the securities
issuable upon exercise thereof under the Securities Act, the initial such
registration to be at the Company's expense and the second at the expense of
the holders. The Company has also granted certain "piggy-back" registration
rights to holders of the Representative's Unit Purchase Option.

Prior to the Offering, there has been no public market for the Units or
the Class C Warrants. Consequently, the offering price of the Units and the
exercise price and other terms of the Class C Warrants have been determined
by negotiation between the Company and the Underwriters and are not related
to the Company's asset value, earnings, book value or other such criteria of
value. Factors considered in determining the offering price of the Units and
the exercise price and other terms of the Class C Warrants include
principally, the prospects for the industry in which the Company operates,
the Company's management, the general condition of the securities markets,
the demand for securities in similar industries and the current trading price
of the Common Stock.

The following table sets forth the number of Units to be offered for sale
by each Selling Securityholder. Except for the Common Stock and Class C
Warrants, the Selling Securityholders have no beneficial ownership of the
Company's securities and upon the sale of all securities offered, will have
no beneficial ownership of the Company's securities.

<TABLE>
<CAPTION>
Shares of
Common Stock
Issuable Upon
Exercise of
Class C
Units Warrants
-------- ---------------
<S> <C>
Stanley & Barbara Chason 16,772 10,800
Richard & Ida Brooks .. 2,396 2,396
Fred Meyers ........... 2,396 2,396
Joseph E. Franklin .... 2,396 2,396
Mitchel Kersch ........ 4,792 4,792
Neil Anderson ......... 2,396 2,396
Herbert Cyrlin ........ 2,396 2,396
Jerry Gunn ............ 7,188 7,188
Leif Zipkin ........... 2,396 2,396
K&K Realty ............ 1,192 1,192
Geoffrey DeBelloy ..... 2,396 2,396
Greg Supinsky ......... 2,396 2,396
Albert Kula ........... 2,396 2,396
Michael Miller ........ 2,396 2,396
Bruce & Linda Pollekoff . 2,396 2,396
Robert Wiendenhorn .... 2,396 2,396
Andrew Green .......... 2,396 2,396
Arthur Luxenberg ...... 4,792 4,792
CLFS Equities ......... 7,188 7,188
The Earnest Group ..... 2,396 2,396
Lawrence Michels ...... 2,396 2,396
Dean F. Morehouse ..... 2,396 2,396
Allen Notowitz ........ 2,396 2,396
Nat Compton ........... 2,396 2,396

42
<PAGE>

Shares of
Common Stock
Issuable Upon
Exercise of
Class C
Units Warrants
-------- ---------------
Wayne Saker ........... 3,592 3,592
Anthony & Vivian Cuccia . 1,192 1,192
Camilla Bellick ....... 2,396 2,396
Walter Browning ....... 1,192 1,192
Irwin Simon ........... 2,396 2,396
Mitchell Kersch ....... 2,396 2,396
Perry Weitz ........... 2,396 2,396
Emjay Corp. ........... 2,396 2,396
Moshe & Dan Levy JTWROS . 7,188 7,188
Laurence Friedman ..... 4,792 4,792
</TABLE>

CONCURRENT OFFERING

The registration statement of which this Prospectus forms a part also
includes a prospectus with respect to an offering by the Selling
Securityholders. An aggregate of 211,111 shares of Common Stock may be sold
by other stockholders. The Company will not receive any proceeds from the
sale of the Selling Securityholder Securities. Sales of securities by Selling
Securityholders or even the potential of such sales could have an adverse
effect on the market prices of the Units, the Common Stock and the Class C
Warrants.

There are no material relationships between any of the Selling
Securityholders and the Company, nor have any such material relationships
between any of the Selling Securityholders and the Company existed within the
past three years. The Company has been informed by the Underwriters that
there are no agreements between the Underwriters and any Selling
Securityholder regarding the distribution of the Selling Securityholder
Securities.

The sale of the securities by the Selling Securityholders may be effected
from time to time in transactions (which may include block transactions by or
for the account of the Selling Securityholders) in the over-the-counter
market or in negotiated transactions, a combination of such methods of sale
or otherwise. Sales may be made at fixed prices which may be changed, at
market prices or in negotiated transactions, a combination of such methods of
sale or otherwise.

Selling Securityholders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents
for the Selling Securityholders or to broker-dealers who may purchase shares
as principals and thereafter sell the securities from time to time in the
over-the-counter market, in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders and/or the
purchasers from whom such broker-dealer may act as agents or to whom they may
sell as principals or otherwise.

Certain of the Selling Securityholders may purchase Units in the Offering.
In such event, each such Selling Securityholder will be required to represent
to the Company and the Underwriters that he is purchasing the Units for
investment purposes and not with a view toward resale.

Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Selling Securityholder's Securities may
not simultaneously engage in market-making activities with respect to any
securities of the Company during the applicable "cooling-off" period (at
least two and possibly nine business days) prior to the commencement of such
distribution. Accordingly, in the event the Underwriters are engaged in a
distribution of the Selling Securityholder securities, none of such firms
will be able to make a market in the Company's securities during the
applicable restrictive period. However, the Underwriters have not agreed to
nor are any of them obligated to act as broker-dealer in the sale of the
Selling Securityholder securities. In addition, each Selling Securityholder
desiring to sell will be subject to the applicable provisions of the Exchange
Act and the rules and regulations thereunder, including without limitation
Rules 10b-6 and 10b-7, which provisions may limit the timing of the purchases
and sales of shares of the Company's securities by such Selling
Securityholder.

43
<PAGE>

The Selling Securityholders and broker-dealers, if any, acting in
connection with such sales might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of the securities might be deemed to be
underwriting discount and commissions under the Securities Act.

LEGAL OPINIONS

Certain legal matters with respect to the issuance of the securities
offered hereby will be passed upon for the Company by Schneck Weltman
Hashmall & Mischel LLP, New York, New York. Winstead Sechrest & Minick P.C.,
Dallas, Texas, has acted as counsel for the Underwriters in connection with
the Offering.

EXPERTS

The Consolidated Financial Statements included in this Prospectus and
elsewhere in the Registration Statement as of December 31, 1995 and for the
year then ended have been audited by Mahoney Cohen Rashba & Pokart, CPA, PC,
independent public accountants as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in accounting and auditing in giving said report. The Consolidated
Financial Statements included in this Prospectus and elsewhere in the
Registration Statement for the year ended December 31, 1994 have been audited
by Moore Stephens, P.C. (formerly Mortenson and Associates, P.C.),
independent public accountants as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in accounting and auditing in giving said report.

On January 9, 1996, the Company, by action of the Board of Directors,
dismissed Moore Stephens, P.C. (formerly Mortenson and Associates, P.C.) from
its engagement as the Registrant's principal accountant to audit the
Registrant's financial statements for the year ended December 31, 1995.

The report of Mortenson and Associates, P.C. on the Company's financial
statements for the years ended December 31, 1994 and 1993 did not contain an
adverse opinion or a disclaimer of opinion, and was not qualified or modified
as to uncertainty, audit scope, or accounting principles. There had been no
disagreement on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreement, if
not resolved to Moore Stephens, P.C.'s (formerly Mortenson and Associates,
P.C.) satisfaction, would have caused Moore Stephens, P.C. (formerly
Mortenson and Associates, P.C.) to make reference in connection with its
reports to the subject matter of the disagreement.

ADDITIONAL INFORMATION

The Company has filed with the Commission, a Registration Statement on
Form SB-2 with respect to the securities being offered hereby. This
Prospectus does not contain all the information set forth in such
Registration Statement, as permitted by the Rules and Regulations of the
Commission. For further information with respect to the Company and such
securities, reference is made to the Registration Statement and to the
exhibits and schedules filed therewith. Each statement made in this
Prospectus referring to a document filed as an exhibit to the Registration
Statement is qualified by reference to the exhibit for a complete statement
of its terms and conditions. The Registration Statement, including exhibits
thereto, may be inspected, without charge, by anyone at the principal office
of the Commission in Washington, D.C. and copies of all or any part thereof
may be obtained from the Commission's principal office, Public Reference Room
of the Securities and Exchange Commission, Rom 1024, 450 Fifth Street N.W.,
Washington D.C. 20549, and at the Commission's regional offices at 7 World
Trade Center, New York, New York 10048 and 50 West Madison Street, Suite
1400, Chicago, Illinois 60661, upon payment of the Commission's charge for
copying.

AVAILABLE INFORMATION

The Company has filed with the Commission, Washington, D.C., a
Registration Statement on Form SB-2 under the Securities Act with respect to
the securities offered by this Prospectus. For further information with
respect to the securities offered hereby, reference is made to the
Registration Statement and to the exhibits listed in the Registration
Statement.

44
<PAGE>

The Company is subject to the information requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports, proxy
statements and other information with the Commission. Reports, Proxy
Statements and other information can be inspected and copies made at the
public reference facilities of the Commission, Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, as well as the following
Regional Offices: 7 World Trade Center, New York, New York, 10007, and Room
1204 Everett McKinley Dirksen Building, 219 South Dearborn Street, Chicago,
Illinois, 60604. Copies can also be obtained at prescribed rates from the
Commission's Public Reference Section, Judiciary Plaza, 450 Fifth Avenue,
N.W., Washington, D.C. 20549.

The Commission maintains a World Wide Web Site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.

45
<PAGE>

U. S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Pages
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Independent Auditors' Report .................................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and June 30, 1996 (Unaudited) ............... F-4
Consolidated Statements of Operations for the Years Ended December 31, 1994 and 1995 and the
Six Months Ended June 30, 1995 and 1996 (Unaudited) ............................................ F-6
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1994 and 1995 and
the Six Months Ended June 30, 1996 (Unaudited) ................................................. F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994 and 1995 and the
Six Months Ended June 30, 1995 and 1996 (Unaudited) ............................................ F-10
Notes to Consolidated Financial Statements ...................................................... F-13
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors
U.S. Transportation Systems, Inc.

We have audited the accompanying consolidated balance sheet of U.S.
Transportation Systems, Inc. and subsidiaries as of December 31, 1995, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of U.S. Transportation Systems, Inc. and subsidiaries as of December 31,
1995, and the consolidated results of their operations and their cash flows
for the year then ended, in conformity with generally accepted accounting
principles.

MAHONEY COHEN RASHBA & POKART, CPA, PC
New York, New York
March 30, 1996

F-2
<PAGE>

INDEPENDENT AUDITOR'S REPORT

To the Stockholders and Board of Directors of
U.S. Transportation Systems, Inc.
New York, New York

We have audited the accompanying statements of operations, stockholders'
equity, and cash flows of U.S. Transportation Systems, Inc. and its
subsidiaries for the year ended December 31, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of U.S.
Transportation Systems, Inc. and its subsidiaries for the year ended December
31, 1994, in conformity with generally accepted accounting principles.

MORTENSON AND ASSOCIATES,
P.C.
Certified Public Accountants.

Cranford, New Jersey
March 29, 1995

F-3
<PAGE>

U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31, 1995 June 30, 1996
----------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ....................................... $ 1,727,789 $ 1,427,404
Cash -- restricted .............................................. 165,753 147,178
Accounts receivable, net of allowance for doubtful accounts of
$321,000 and $321,000 (Note 3) ................................ 2,850,858 3,896,922
Notes receivable ................................................ 368,367 343,374
Net investment in sales-type leases (Note 2) .................... 572,214 571,810
Inventories (Note 1) ............................................ 976,903 920,189
Costs and estimated earnings in excess of billings (Note 17) .... 243,295 1,115,060
Prepaid and other assets ........................................ 873,749 829,491
------------ -------------
TOTAL CURRENT ASSETS ....................................... 7,778,928 9,251,428
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Revenue equipment (Notes 3 and 4) ............................... 3,064,587 7,740,064
Other ........................................................... 3,179,675 2,989,831
------------ ------------
Total -- at cost .............................................. 6,244,262 10,729,895
Less: Accumulated depreciation .................................. (2,693,604) (2,972,890)
------------ ------------
PROPERTY, PLANT AND EQUIPMENT-- NET .................................. 3,550,658 7,757,005
------------ ------------
ASSETS HELD FOR RESALE (Note 14) ..................................... 152,500 55,953
------------ ------------
OTHER ASSETS:
Net investment in sales-type leases (Note 2) .................... 2,021,326 2,019,898
Goodwill, net of accumulated amortization of $264,452 and $587,298
(Note 1) ...................................................... 5,039,692 4,949,346
Other intangible assets, net of accumulated amortization of
$65,800 and $80,621 (Note 1) .................................. 326,767 386,946
Notes receivable ................................................ 413,105 385,077
Deferred taxes (Note 6) ......................................... 750,000 750,000
Other assets .................................................... 853,515 1,511,115
------------ ------------
TOTAL OTHER ASSETS ................................................... 9,404,405 10,002,382
------------ ------------
TOTAL ASSETS ......................................................... $20,886,491 $27,066,768
============ ============
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE>

U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31, 1995 June 30, 1996
----------------- ---------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft .............................................. $ -- $ 1,056,578
Notes payable (Notes 3 and 4) ............................... 3,230,336 4,713,633
Accounts payable ............................................ 1,873,362 1,544,397
Accrued liabilities ......................................... 650,407 629,453
Billings in excess of costs and estimated earnings (Note 17) . 354,512 128,551
Due to related party (Note 9) ............................... 254,050 429,960
----------------- ---------------
TOTAL CURRENT LIABILITIES ........................................ 6,362,667 8,502,572
----------------- ---------------
LONG-TERM OBLIGATIONS, NET OF CURRENT MATURITIES:
Notes payable (Note 4) ...................................... 1,121,034 2,984,348
Convertible debentures (Note 18) ............................ 1,776,288 --
Due to related party (Note 9) ............................... 348,245 258,956
----------------- ---------------
TOTAL LONG-TERM OBLIGATIONS, NET OF CURRENT
MATURITIES ..................................................... 3,245,567 3,243,304
----------------- ---------------
COMMITMENTS AND CONTINGENCIES (NOTES 5, 10, 11, 19)
STOCKHOLDERS' EQUITY (Notes 11 and 20):
Preferred stock -- par value $.01 per share, redemption value $10.00
per share: Authorized -- 10,000,000 shares Issued and outstanding
-- 180,000 shares ......................................... 1,800,000 1,800,000
Common stock -- par value $.01 per share: Authorized -- 20,000,000
and 50,000,000 shares Issued and outstanding -- 13,392,209 and
19,357,545 shares ......................................... 133,922 193,575
Additional paid-in capital .................................. 16,944,909 19,882,272
Stock subscription receivable ............................... (290,285) (37,785)
Deferred compensation (Note 11) ............................. (658,504) (604,018)
Retained earnings (deficit) ................................. (6,651,785) (5,913,152)
----------------- ---------------
TOTAL STOCKHOLDERS' EQUITY ....................................... 11,278,257 15,320,892
----------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....................... $20,886,491 $27,066,768
================= ===============
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE>

U. S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Years Ended Six Months Ended
December 31, June 30,
------------------------------- -----------------------------
1994 1995 1995 1996
------------- -------------- ------------ -------------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES ........................... $11,818,325 $17,350,973 $7,086,473 $13,718,768
------------- -------------- ------------ -------------
EXPENSES:
Cost of goods sold ............... -- 2,268,418 797,829 3,673,512
Operating expenses ............... 6,971,440 7,451,745 3,656,020 5,007,902
Selling, general and administrative 3,456,278 4,804,429 1,682,526 2,720,917
Depreciation ..................... 437,483 638,101 181,626 499,657
Rent expense ..................... 134,684 463,660 109,547 535,865
Amortization of intangible assets . 74,900 193,875 51,113 337,666
------------- -------------- ------------ -------------
TOTAL EXPENSES ..................... 11,074,785 15,820,228 6,478,661 12,775,519
------------- -------------- ------------ -------------
INCOME FROM OPERATIONS ............. 743,540 1,530,745 607,812 943,249
------------- -------------- ------------ -------------
OTHER INCOME (EXPENSES):
Interest expense ................. (211,510) (350,024) (151,955) (280,893)
Interest income .................. 125,659 276,057 98,137 134,882
Gain (loss) on sales of assets ... (25,750) (419,775) (157,060) 55,828
Write off of notes receivable .... -- (75,796) -- --
Other expense .................... 62,735 (34,090) 8,038 (18,583)
------------- -------------- ------------ -------------
TOTAL OTHER EXPENSES, NET .......... (48,866) (603,628) (202,840) (108,766)
------------- -------------- ------------ -------------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES ..................... 694,674 927,117 404,972 834,483
INCOME TAX EXPENSE (BENEFIT) ....... (63,811) (364,000) -- --
------------- -------------- ------------ -------------
INCOME FROM CONTINUING OPERATIONS .. 758,485 1,291,117 404,972 834,483
DISCONTINUED OPERATIONS -- adjustment
of estimated loss on disposal of
segment, net of income tax benefit of
$236,189 and $86,000 in December 31,
1994 and 1995 (Note 14) .......... (853,480) (167,199) -- --
------------- -------------- ------------ -------------
NET INCOME (LOSS) .................. (94,995) 1,123,918 404,972 834,483
LESS: PREFERRED DIVIDEND ........... -- 191,700 95,850 95,850
------------- -------------- ------------ -------------
NET INCOME (LOSS) APPLICABLE TO COMMON
SHAREHOLDERS ..................... $ (94,995) $ 932,218 $ 309,122 $ 738,633
============= ============== ============ =============
EARNINGS (LOSS) PER COMMON SHARE:
Income from continuing operations . $ .11 $ .10 $ .05 $ .04
Discontinued operations .......... (.12) (.01) -- --
------------- -------------- ------------ -------------
EARNINGS (LOSS) PER COMMON SHARE ... $ (.01) $ .09 $ .05 $ .04
============= ============== ============ =============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ...................... 6,989,933 10,941,525 6,855,252 17,708,489
============= ============== ============ =============
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>

U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)

<TABLE>
<CAPTION>
Common Stock Preferred Stock
--------------------- ---------------------
Shares Amount Shares Amount
--------- -------- ------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 ......... 6,153,240 $61,532 -- $ --
--------- -------- ------- ----------
Net proceeds from exercise of
warrants .......................... 17,950 180 -- --
Common stock issued in connection
with purchase of Suncoast
Transportation .................... 375,000 3,750 -- --
Preferred stock issued in connection
with purchase of Camelot
Consultants, Inc. ................. (327,000) (3,270) 180,000 1,800,000
Restricted stock grant issuance .... 1,100,000 11,000 -- --
Stock options issued ............... -- -- -- --
Other .............................. 14,000 140 -- --
Net loss ........................... -- -- -- --
--------- -------- ------- ----------

Balance, December 31, 1994
(carried forward) ................. 7,333,190 $73,332 180,000 $1,800,000
--------- -------- ------- ----------

</TABLE>

(RESTUBBED TABLE CONTINUED FROM ABOVE)

<TABLE>
<CAPTION>
Additional Stock Sub- Deferred Retained
Paid-In scription Compen- Earnings
Capital Receivable sation (Deficit) Total
----------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 ......... $13,610,693 $ -- $ -- $ (7,460,268) $6,211,957
----------- ---------- ----------- ------------- -----------
Net proceeds from exercise of
warrants .......................... 44,695 -- -- -- 44,875
Common stock issued in connection
with purchase of Suncoast
Transportation .................... 114,632 -- -- -- 118,382
Preferred stock issued in connection
with purchase of Camelot
Consultants, Inc. ................. (1,116,273) -- -- -- 680,457
Restricted stock grant issuance .... 814,000 -- (780,803) -- 44,197
Stock options issued ............... 34,376 -- (30,556) -- 3,820
Other .............................. 6,860 -- -- -- 7,000
Net loss ........................... -- -- -- (94,995) (94,995)
----------- ---------- ----------- ------------- -----------

Balance, December 31, 1994
(carried forward) ................. $13,508,983 $ -- $ (811,359) $ (7,555,263) $7,015,693
----------- ---------- ----------- ------------- -----------

</TABLE>

F-7
<PAGE>

U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)

<TABLE>
<CAPTION>
Common Stock Preferred Stock
---------------------- ------------------------
Shares Amount Shares Amount
---------- -------- --------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1994
(brought forward) .............. 7,333,190 $ 73,332 180,000 $ 1,800,000
---------- -------- --------- -----------
Preferred stock issuance ........ -- -- 170,000 2,040,000
Preferred stock conversion ...... 2,550,000 25,500 (170,000) (2,040,000)
Restricted stock grant issuance . -- -- -- --
Stock options issued ............ -- -- -- --
Preferred dividends ............. 57,480 575 -- --
Common stock issued in connection
with purchase of Armstrong
Freight Express ................ 780,000 7,800 -- --
Common stock issued in connection
with purchase of Trans-Lynx
Express ........................ 116,539 1,165 -- --
Common stock issued in connection
with purchase of Automated
Solutions ...................... 1,800,000 18,000 -- --
Common stock issued in exchange
for consulting services ........ 335,000 3,350 -- --
Common stock issued in connection
with contract settlement ....... 50,000 500 -- --
Stock options exercised ......... 370,000 3,700 -- --
Net income ...................... -- -- -- --
---------- -------- --------- -----------
Balance, December 31, 1995 ...... 13,392,209 $133,922 180,000 $ 1,800,000
========== ======== ========= ===========

</TABLE>

(RESTUBBED TABLE CONTINUED FROM ABOVE)

<TABLE>
<CAPTION>
Additional Stock Sub- Deferred Retained
Paid-In scription Compen- Earnings
Capital Receivable sation (Deficit) Total
------------ ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994
(brought forward) .............. $13,508,983 $ -- $(811,359) $ (7,555,263) $ 7,015,693
------------ ----------- ----------- ------------- -----------
Preferred stock issuance ........ (1,073,524) -- -- -- 966,476
Preferred stock conversion ...... 2,014,500 -- -- -- --
Restricted stock grant issuance . -- -- 135,667 -- 135,667
Stock options issued ............ -- -- 17,188 -- 17,188
Preferred dividends ............. (575) -- -- (220,440) (220,440)
Common stock issued in connection
with purchase of Armstrong
Freight Express ................ 557,700 -- -- -- 565,500
Common stock issued in connection
with purchase of Trans-Lynx
Express ........................ 83,325 -- -- -- 84,490
Common stock issued in connection
with purchase of Automated
Solutions ...................... 1,332,000 -- -- -- 1,350,000
Common stock issued in exchange
for consulting services ........ 239,275 -- -- -- 242,625
Common stock issued in connection
with contract settlement ....... 35,750 (36,250) -- -- --
Stock options exercised ......... 247,475 (254,035) -- -- (2,860)
Net income ...................... -- -- -- 1,123,918 1,123,918
------------ ----------- ----------- ------------- -----------
Balance, December 31, 1995 ...... $16,944,909 $ (290,285) $ (658,504) $ (6,651,785) $11,278,257
============ =========== =========== ============= ===========

</TABLE>

F-8
<PAGE>

U. S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONCLUDED)
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)

<TABLE>
<CAPTION>
Common Stock Preferred Stock
---------------------- ---------------------
Shares Amount Shares Amount
---------- -------- ------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 (brought
forward) ......................... 13,392,209 $133,922 180,000 $1,800,000
Preferred stock issuance .......... -- -- 300 300,000
Debentures converted into common
stock ............................ 4,522,002 45,220 -- --
Preferred stock conversion ........ 533,334 5,333 (300) (300,000)
Restricted stock grant issuance ... -- -- -- --
Stock options issued .............. -- -- -- --
Repurchase of common stock ........ (285,000) (2,850) -- --
Preferred dividends ............... -- -- -- --
Common stock issued in connection
with a covenant not-to-compete ... 100,000 1,000 -- --
Net proceeds from exercise of
warrants ......................... 200,000 2,000 -- --
Proceeds from equity portion of
bridge loan ...................... -- -- -- --
Net proceeds from exercise of stock
options .......................... 160,000 1,600 -- --
Common stock issued in exchange for
consulting services .............. 625,000 6,250 -- --
Common stock issued in connection
with purchase of Krogel .......... 110,000 1,100 -- --
Net income ........................ -- -- -- --
---------- -------- ------- ----------
Balance, June 30, 1996
(Unaudited) ...................... 19,357,545 $193,575 180,000 $1,800,000
========== ======== ======= ==========

</TABLE>

(RESTUBBED TABLE CONTINUED FROM ABOVE)

<TABLE>
<CAPTION>
Additional Stock Sub- Deferred Retained
Paid-In scription Compen- Earnings
Capital Receivable sation (Deficit) Total
----------- ---------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 (brought
forward) ......................... $16,944,909 $(290,285) $ (658,504) $ (6,651,785) $11,278,257
Preferred stock issuance .......... (43,272) -- -- -- 256,728
Debentures converted into common
stock ............................ 1,731,068 -- -- -- 1,776,288
Preferred stock conversion ........ 294,667 -- -- -- --
Restricted stock grant issuance ... -- -- 54,486 -- 54,486
Stock options issued .............. -- -- 13,368 -- 13,368
Repurchase of common stock ........ (210,900) -- -- -- (213,750)
Preferred dividends ............... -- -- -- (95,850) (95,850)
Common stock issued in connection
with a covenant not-to-compete ... 74,000 -- -- -- 75,000
Net proceeds from exercise of
warrants ......................... 73,000 -- -- -- 75,000
Proceeds from equity portion of
bridge loan ...................... 344,000 -- -- -- 344,000
Net proceeds from exercise of stock
options .......................... 130,900 -- -- -- 132,500
Common stock issued in exchange for
consulting services .............. 462,500 252,500 (13,368) -- 707,862
Common stock issued in connection
with purchase of Krogel .......... 81,400 -- -- -- 82,500
Net income ........................ -- -- -- 834,483 834,483
----------- ---------- ----------- ------------- ------------
Balance, June 30, 1996
(Unaudited) ...................... $19,882,272 $ (37,785) $(604,018) $(5,913,152) $15,320,892
=========== ========== =========== ============= ============

</TABLE>

F-9
<PAGE>

U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Years Ended Six Months Ended
December 31, June 30,
---------------------------- ----------------------------
1994 1995 1995 1996
----------- ------------- ----------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Income from continuing operations .......... $ 758,485 $1,291,117 $ 404,974 $ 834,483
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ............ 512,383 831,976 232,739 837,324
Amortization of deferred compensation .... -- 152,855 -- --
Deferred tax benefit ..................... (300,000) (450,000) -- --
Provision for losses on accounts receivable 151,500 -- -- --
Write off of notes receivable ............ -- 75,796 -- --
Gain (loss) on sales of assets ........... 25,750 419,775 157,060 (55,828)
Change in assets and liabilities:
Accounts receivable ................... (546,548) (453,941) 149,756 (1,046,064)
Inventories ........................... (11,776) (358,305) (74,479) 56,714
Other receivables ..................... 8,170 (14,980) 7,781 39,174
Prepaid and other assets .............. 142,936 (272,272) (197,408) (35,742)
Costs and estimated earnings in excess of
billings ............................ -- (221,615) -- (871,765)
Accounts payable ...................... (88,696) (762,358) (295,747) (328,965)
Accrued liabilities ................... (212,574) (280,481) (77,704) (109,669)
Billings in excess of costs and estimated
earnings ............................ -- (579,261) -- (225,961)
----------- ------------- ----------- -------------
Net cash provided by (used in) continuing
operations ............................... 439,630 (621,694) 306,972 (906,299)
----------- ------------- ----------- -------------
Loss from discontinued operations .......... (853,480) (167,199) -- --
Adjustments to reconcile loss to net cash used
in discontinued operations:
Depreciation and amortization ......... 521,932 208,992 -- --
Change in net assets and liabilities and
losses of discontinued operations ... 177,798 (248,504) (289,046) --
----------- ------------- ----------- -------------
Net cash provided by (used in) discontinued
operations ............................... (153,750) (206,711) (289,046) --
----------- ------------- ----------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
(CARRIED FORWARD) ........................ $ 285,880 $ (828,405) $ 17,926 $ (906,299)
----------- ------------- ----------- -------------
</TABLE>

See notes to consolidated financial statements.

F-10
<PAGE>

U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

<TABLE>
<CAPTION>
Years Ended Six Months Ended
December 31, June 30,
-------------------------------- ------------------------------
1994 1995 1995 1996
-------------- -------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (BROUGHT FORWARD) ............. $ 285,880 $ (828,405) $ 17,926 $ (906,299)
-------------- -------------- ------------- -------------
INVESTING ACTIVITIES:
Capital expenditures .................... (339,369) (786,891) (154,196) (1,317,481)
Acquisition of intangible assets ........ (64,032) -- -- (150,000)
Proceeds from sales of assets ........... 675,202 1,047,756 798,922 10,500
Transfers from cash -- restricted ....... 161,107 16,726 (4,590) 18,575
Advances on notes and leases receivable . (74,000) (160,552) (252,405) --
Collection of notes and leases receivable . 440,601 813,431 357,824 170,030
Other ................................... 35,115 (246,796) (35,542) (95,614)
-------------- -------------- ------------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES .............................. 834,624 683,674 710,013 (1,363,990)
-------------- -------------- ------------- -------------
FINANCING ACTIVITIES:
Cash overdraft .......................... 35,570 (35,570) (35,570) 1,056,578
Cash received from related parties ...... 250,000 295,465 134,875 338,555
Cash paid to related parties ............ (470,405) (400,946) (100,000) (251,934)
Cash obtained through business acquisitions -- 75,266 -- --
Proceeds from issuance of preferred stock . -- 1,555,933 1,555,933 256,728
Proceeds from bridge loan ............... -- -- -- 982,000
Payment of preferred dividends .......... -- (220,439) -- (95,850)
Principal payments on debt .............. (10,061,606) (10,949,935) (5,352,981) (4,934,891)
Borrowings on debt ...................... 8,927,485 9,776,459 4,301,528 4,411,218
Deferred offering costs ................. (589,457) -- -- --
Proceeds from issuance of convertible
debentures ........................... -- 1,776,287 -- --
Proceeds from options and warrants exercised 44,875 -- -- 207,500
-------------- -------------- ------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES .............................. (1,863,538) 1,872,520 503,785 1,969,904
-------------- -------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ............................. (743,034) 1,727,789 1,231,724 (300,385)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 743,034 -- -- 1,727,789
-------------- -------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR/PERIOD $ -- $ 1,727,789 $ 1,231,724 $ 1,427,404
============== ============== ============= =============
</TABLE>

See notes to consolidated financial statements.

F-11
<PAGE>

U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
Years Ended Six Months Ended
December 31, June 30,
------------------------- -----------------------
1994 1995 1995 1996
---------- ----------- ---------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Cash paid during the year/period for:
Interest ........................... $578,815 $484,600 $210,000 $281,000
========== =========== ========== =========
</TABLE>

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES

The Company acquired revenue equipment during the years ended December 31,
1994 and 1995 and during the six months ended June 30, 1995 and 1996
utilizing long-term debt of $375,947, $554,907, $149,137 and $3,400,999,
respectively.

During the year ended December 31, 1994 and 1995, the Company sold buses
in exchange for $1,230,418 and $2,151,630, respectively, of sales-type
financing lease receivables and during the six months ended June 30, 1995 and
1996, the Company sold buses in exchange for $898,118 and $96,547,
respectively, of sales-type financing leases receivable.

In October 1994, the Company issued a $200,000 note in exchange for 100%
of the outstanding common stock of American Trade-A-Bus of Texas, Inc.

In December 1994, the Company issued 180,000 shares of preferred stock in
exchange for 100% of the outstanding common stock of Camelot Consultants,
Inc.

In August 1994, the Company issued 375,000 shares of common stock to
complete the acquisition of Suncoast Transportation, a partnership the
Company jointly formed in September 1993.

During 1995, the Company issued 335,000 shares of common stock in exchange
for consulting services.

During 1995, the Company sold various assets, including the discontinued
charter operations, in exchange for notes receivable aggregating to $403,500
and the assignment of $58,579 of debt held by the Company.

In June 1995, the Company issued 780,000 shares of common stock in
exchange for 100% of the outstanding common stock of Avanti Delivery
Services, Inc. and Priority Express, Inc.

In July 1995, the Company issued 116,539 shares of common stock in
exchange for 100% of the outstanding common stock of Trans-Lynx Express, Inc.

In November 1995, the Company issued 1,800,000 shares of common stock in
exchange for 100% of the outstanding common stock of Automated Solutions,
Inc.

During the six months ended June 30, 1996, holders of $1,776,288 of
convertible debentures converted such debentures into 4,522,002 shares of the
Company's common stock.

During the six months ended June 30, 1996, the Company converted 300
shares of convertible preferred stock into 533,334 shares of common stock.

During the six months ended June 30, 1996, the Company acquired 285,000
shares of its common stock for $213,750.

During the six months ended June 30, 1995 and 1996, the Company accrued
$95,850 of preferred dividends, in both periods.

In February 1996, the Company issued 110,000 shares of its common stock
valued at $82,500, as part of its acquisition of certain personal property
and contract rights from Krogel Freight Systems of Tampa, Inc. and Krogel Air
Freight, Inc.

In March 1995, the Company sold a substantial portion of the assets of
Suncoast Transportation for $25,000 cash and a promissory note of $175,000.

In June 1996, the Company issued 100,000 shares of common stock in
connection with a covenant not-to-compete.

In June 1996 the Company issued 625,000 shares of common stock and forgave
notes aggregating $252,500 in exchange for a consulting agreement.

See notes to consolidated financial statements.

F-12
<PAGE>

U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(INFORMATION AT JUNE 30, 1996 AND FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)

[1] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

U.S. Transportation Systems, Inc. and Subsidiaries (the "Company's") are
currently engaged in three business areas: (i) providing transportation
related services; (ii) manufacturing transportation machinery and equipment;
and (iii) providing entertainment services. The Company's operations are
conducted in selected cities throughout the United States and
internationally.

As more fully discussed in Note 13, during 1995 the Company purchased
Avanti Delivery Services, Inc., Priority Express Services, Inc. and Trans
Lynx Express, Inc. which operate a package delivery and container air cargo
service The Company also purchased Automated Solutions, Inc. ("ASI") which is
engaged in designing and manufacturing machinery which folds and tests
airbags.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and all of its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.

USES OF ESTIMATES

The preparation of consolidated financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.

REVENUE RECOGNITION

The Company recognizes revenue when services are performed. The Company
recognizes contract revenue using the percentage-of-completion method of
contract accounting. Contract revenues earned are recorded using the
percentage of contract costs incurred to date to total estimated contract
costs.

Anticipated losses on contracts are charged to earnings as soon as such
losses can be estimated. Changes in estimated profits on contracts are
recognized during the period in which the change in estimate is known.

INVENTORIES

Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market. Inventories were comprised of:

<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
-------------- -----------
(Unaudited)
<S> <C> <C>
Parts ...................... $175,947 $150,320
Raw materials ............... 686,043 582,461
Sundry ..................... 114,913 187,408
-------------- -----------
$976,903 $920,189
============== ===========
</TABLE>

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. The Company records
depreciation utilizing the straight-line method over estimated useful lives
of 10 to 17 years for highway coaches and 3 to 7 years for school buses and
other revenue equipment with no residual value. Other depreciable assets have
estimated useful lives of 3 to 30 years, with no assumed residual value.
Overhauls of major highway coach components are capitalized and written off
utilizing the straight-line method over a period of thirty months.

F-13
<PAGE>

[1] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

When an asset is sold or otherwise disposed of, the cost and related
accumulated depreciation are removed from the respective accounts, and any
resulting gain or loss is reflected in income.

INVESTMENT TAX CREDIT

The Company accounts for investment and other tax credits (when available)
by the flow-through method.

CASH RESTRICTED

The Company maintains cash balances in certificates of deposit which
secure letters of credit for various insurance policies and bonds. It is the
Company's policy to classify the restricted cash consistent with the
liabilities to which they relate. Therefore, the Company treats restricted
cash securing letters of credit as a current asset; all restricted cash
securing bonds is treated as long-term.

CASH EQUIVALENTS

The Company considers all highly liquid instruments purchased with a
maturity of three months or less to be cash equivalents.

GOODWILL

Goodwill and other intangible assets are amortized by the straight-line
method over lives ranging from 5 to 20 years. The Company periodically
evaluates the carrying value and the periods of amortization of goodwill
based on the current and expected future non-discounted income from
operations of the entities giving rise to the goodwill to determine whether
events and circumstances warrant revised estimates of carrying value or
useful lives. Goodwill identifiable to a particular segment or group of
assets is charged to earnings upon disposition of the particular segment or
group of assets.

EARNINGS (LOSS) PER SHARE

Earnings (loss) per share are computed based on the weighted average
number of shares of common stock and common stock equivalents outstanding
during the periods presented. Common stock equivalents include shares
issuable upon conversion of the Company's convertible debentures and exercise
of certain of the Company's options and warrants. All share and per share
amounts have been retroactively adjusted for the one-for-five reverse stock
split declared on January 6, 1994.

RECLASSIFICATION

The December 31, 1994 financial statements have been restated to conform
to the current years presentation.

[2] NET INVESTMENT IN SALES-TYPE LEASES

The Company's leasing activities consist entirely of revenue equipment.
These leases expire at various times through November 1999. There were no
initial or executory costs with respect to these leases.

The following is a summary of the components of the Company's net
investment in these sales-type leases at December 31, 1995 and June 30, 1996:

<TABLE>
<CAPTION>
December 31, June 30
1995 1996
-------------- ------------
(Unaudited)
<S> <C> <C>
Total Minimum Lease Payments Receivable . $3,376,000 $3,362,000
Less: Unearned Income .................. 782,460 770,292
-------------- ------------
NET INVESTMENT IN SALES-TYPE LEASES .... $2,593,540 $2,591,708
============== ============
</TABLE>

F-14
<PAGE>

[2] NET INVESTMENT IN SALES-TYPE LEASES - (Continued)

Minimum lease payments to be received as of December 31, 1995 are as
follows:

<TABLE>
<CAPTION>
<S> <C>
1996 ................................................... $ 864,000
1997 ................................................... 797,000
1998 ................................................... 711,000
1999 ................................................... 492,000
2000 ................................................... 283,000
Thereafter ............................................. 229,000
-----------
TOTAL .................................................. $3,376,000
===========
</TABLE>

[3] SECURED LINE OF CREDIT

The Company has two financing agreements. The first contains a term loan
component and an accounts receivable financing component with an aggregate
maximum borrowing balance of $4,500,000. The accounts receivable component of
the line of credit is secured by accounts receivable and has a maximum
borrowing limit of $1,000,000. The borrowing base is computed at 80% of
eligible receivables. The term loan component is secured by equipment,
primarily buses, and is payable at 1/84 of the borrowing base balance plus
interest per month. The remaining balance is due September 3, 1996, the
termination date of the agreement. The borrowings are further secured by
property belonging to an officer of the Company. Borrowings under the finance
agreement bear interest at prime plus 3.5 percent (12% at December 31, 1995).
At December 31, 1995, the amount borrowed and outstanding under the line of
credit agreement was $2,226,254 and is included on the balance sheet in Notes
Payable (see Note 4).

The second is secured by all business assets and accounts receivable of
ASI. Borrowings bear interest at prime plus 2% (10.5% at December 31, 1995).
At December 31, 1995, the amount outstanding was $82,630 and is included on
the balance sheet in notes payable (see Note 4). During the six months ended
June 30, 1996, the agreement was terminated and all remaining balances were
paid.

[4] NOTES PAYABLE

Notes payable consist of the following at December 31, 1995 and June 30,
1996:

<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
-------------- ------------
(Unaudited)
<S> <C> <C>
Secured line of credit (Note 3) ..................................... $2,308,884 $2,261,990
Notes payable and capitalized leases, collateralized by equipment, payable
monthly and maturing through March 1998, interest rates ranging from
8% to 14% (including certain notes with interest based upon the prime
rate, average interest rate approximating 10%) .................... 880,459 4,505,595
Notes payable, unsecured, resulting from acquisitions, payable monthly
and maturing through June 1997 with interest rates ranging from 9% to
10% ............................................................... 350,393 326,503
Mortgage notes payable, collateralized by real property, payable in monthly
installments of $5,310 and $4,637 through August 1998 and February 2020,
respectively, (average interest rate approximately 11%) Property with
a carrying value approximating $875,000 secures the mortgages ..... 642,919 603,893
Other ............................................................... 168,715 -0-
-------------- ------------
Total Notes Payable ................................................. 4,351,370 7,697,981
Less: Current Maturities .......................................... 3,230,336 4,713,633
-------------- ------------
NON-CURRENT NOTES PAYABLE ........................................... $1,121,034 $2,984,348
============== ============
</TABLE>

F-15
<PAGE>

[4] NOTES PAYABLE - (Continued)

Annual maturities of notes payable, as of December 31, 1995, are as
follows:

<TABLE>
<CAPTION>
<S> <C>
1996 ................................... $3,230,336
1997 ................................... 291,000
1998 ................................... 194,000
1999 ................................... 118,000
2000 ................................... 50,000
Thereafter ............................. 468,034
------------
TOTAL .................................. $4,351,370
============
</TABLE>

[5] LONG-TERM LEASES

The Company leases real property under operating leases expiring in 2005.
These leases generally require that the Company pay all costs of maintenance,
insurance and licenses. Future minimum payments, on non-cancelable operating
leases with initial or remaining terms of one year or more, are as follows at
December 31, 1995:

<TABLE>
<CAPTION>
Operating
Leases
(Non-Related)
-------------
<S> <C>
1996 .................................................. $139,000
1997 .................................................. 92,000
1998 .................................................. 43,000
1999 .................................................. 18,000
-------------
TOTAL MINIMUM LEASE PAYMENTS ........................... $292,000
=============

</TABLE>

[6] INCOME TAX EXPENSE

The Company accounts for its income taxes under the liability method.
Under this method, deferred tax liabilities and assets are determined based
on the difference between the financial statement carrying amounts and tax
basis of assets and liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse. Differences between
financial reporting and tax basis arise most frequently from differences in
timing of income and expense recognition and as a result of business
acquisitions.

At December 31, 1995, the Company has recorded a deferred tax asset of
$750,000, consisting of a deferred tax asset of $4,511,000 offset by a
deferred tax liability of $784,000 and a valuation allowance of $2,977,000.
The valuation allowance represents a decrease of $8,000 from the December
31,1994 valuation allowance balance of $2,985,000. The decision to record a
deferred tax asset of $750,000 was based upon management's evaluation that,
with the acquisitions of American Trade-A-Bus of Texas, Inc. ("ATAB") and ASI
and the discontinuation of unprofitable operations, future profits are
certain enough to substantiate the recording of an asset. At December 31,
1995, the Company had available for tax purposes net operating loss ("NOL")
carryforwards of approximately $11,200,000 and general business credits of
approximately $647,000, (exclusive of those available to ASI which are
discussed below). NOL carryforwards will expire commencing in 2002 and ending
in 2009, as follows: $4,060,000 expiring in 2002; $1,440,000 expiring in
2007; $5,310,000 expiring in 2008; and the remainder expiring in 2009. Tax
credit carryforwards will expire commencing in 1996 and ending in 2000;
because of the timing of the tax credits, and as ("IRS") rules require the
NOL to be first utilized to offset future earnings, the Company does not
anticipate realizing any benefit from its tax credits.

F-16
<PAGE>

U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
(Information at June 30, 1996 and for the six-month periods ended
June 30, 1995 and 1996 is unaudited)
[6] INCOME TAX EXPENSE - (Continued)
ASI, a wholly-owned subsidiary acquired in November 1995, has available
NOL carryforward of approximately $2,000,000, expiring in 2010. This amount
was not included in the computation of the of the deferred tax asset noted
above as it can only be utilized against future taxable earnings generated by
ASI.

Although the Company does anticipate realizing benefit from the
substantial portion of its NOL carryforward, the Company has reserved
$2,977,000 against these expected benefits. This is due to the relative
uncertainty regarding long-term future earnings and the NOL annual
limitations resulting from an "ownership change" in 1995, within the meaning
of section 382 of the IRS Code. Although the determination of whether an
ownership change has occurred is subject to factual and legal uncertainties,
the Company believes that an ownership change occurred in 1995 from the
issuance of preferred stock and the subsequent conversion of the convertible
debentures into common stock. Under an ownership change, the Company will be
permitted to utilize NOL carryforwards (available on the date of such change)
in any year thereafter to reduce its income to the extent that the amount of
such income does not exceed the product of (the "Section 382 limit") the fair
market value of the Company's outstanding equity at the time of the ownership
change and long term tax exempt rate published by the IRS; the Company's
Section 382 limits in 1997 and beyond will be approximately $800,000 per
year, and accordingly, the Company will not be able to utilize its full NOL
benefits.

A reconciliation of the total income taxes computed by applying the
statutory federal rate and the effective tax rate follows for the years ended
December 31, 1994 and 1995:

<TABLE>
<CAPTION>
1994 1995
--------------------- ------------------------
Income Income
Taxes % Taxes %
----------- ------ ------------- -------
<S> <C> <C> <C> <C>
Federal Statutory Tax Rate ...... $ 236,189 34% $ 439,000 34%
Use of NOL to offset tax ........ (300,000) (43) (803,000) (62)
----------- ------ ------------- -------
Total Federal Income Tax Benefit . $ (63,811) (9)% $ (364,000) (28)%
=========== ====== ============= =======

</TABLE>

The components of deferred taxes are as follows as of December 31, 1995:

<TABLE>
<CAPTION>
Assets Liabilities
------------- -------------
<S> <C> <C>
Accelerated Depreciation . $284,000
Discontinued Operations . 35,000
Installment Sales ....... 465,000
Bad Debts ............... $ 56,000
Tax Credits ............. 647,000
Net Operating Loss ...... 3,808,000
------------- -------------
Total ................... 4,511,000 784,000
Valuation Allowance ..... (2,977,000)
------------- -------------
TOTAL ................... $ 1,534,000 $784,000
============= =============
</TABLE>

F-17
<PAGE>

[7] SEGMENT INFORMATION

In 1994, the Company's operations are classified into two principal
industry segments: transportation and entertainment and in 1995 into three
principal industry segments; transportation, manufacturing and entertainment.
The following is a summary of segment information:

<TABLE>
<CAPTION>
December 31, June 30, June 30,
1994 1995 1995 1996
------------- -------------- ------------ -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Sales to Unaffiliated Companies:
Transportation .................... $ 9,225,391 $ 9,455,622 $4,136,276 $ 7,413,965
Manufacturing ..................... -- 5,119,871 1,530,604 5,125,078
Entertainment ..................... 2,592,934 2,775,480 1,419,593 1,179,725
------------- -------------- ------------ -------------
Totals ............................ $11,818,325 $17,350,973 $7,086,473 $13,718,768
============= ============== ============ =============
Income (Loss) from Operations:
Transportation .................... $ 904,720 $ 264,188 $ 259,129 $ 627,279
Manufacturing ..................... -- 1,225,799 369,312 374,260
Entertainment ..................... (161,180) 40,758 (20,629) (58,290)
------------- -------------- ------------ -------------
Totals ............................ 743,540 1,530,745 607,812 943,249

Other expense, net ..................... (48,866) (603,628) (202,840) (108,766)
------------- -------------- ------------ -------------
Income Before Income Taxes and Discontinued
Operations as Reported in the Accompanying
Statement of Operations .............. $ 694,674 $ 927,117 $ 404,972 $ 834,483
============= ============== ============ =============
Identifiable Assets from Continuing
Operations:
Transportation .................... $ 7,490,488 $10,954,873 $8,860,847 $16,041,527
Manufacturing ..................... -- 3,337,854 745,511 4,409,617
Entertainment ..................... 338,635 324,805 346,577 473,380
------------- -------------- ------------ -------------
Totals ............................ $ 7,829,123 $14,617,532 $9,952,935 $20,924,524
============= ============== ============ =============
Depreciation and Amortization:
Transportation .................... $ 495,591 $ 553,771 $ 150,734 $ 503,401
Manufacturing ..................... -- 258,417 67,250 324,278
Entertainment ..................... 16,792 19,788 14,755 9,644
------------- -------------- ------------ -------------
Totals ............................ $ 512,383 $ 831,976 $ 232,739 $ 837,323
============= ============== ============ =============
Capital Expenditures:
Transportation .................... $ 914,218 $ 1,080,292 $ 241,630 $ 4,718,480
Manufacturing ..................... -- 198,084 61,705 3,100
Entertainment ..................... 55,130 14,427 -- --
------------- -------------- ------------ -------------
Totals ............................ $ 969,348 $ 1,292,803 $ 303,335 $ 4,721,580
============= ============== ============ =============

</TABLE>

F-18
<PAGE>

[8] MAJOR CUSTOMERS

Revenues from a single transportation contract with Ford Motor Company
approximated 19% and 14% of the Company's total revenues in 1994 and 1995,
respectively. Revenues received in 1995 approximated $2,364,000 and their
receivables at year end approximated $252,000.

ATAB, a wholly-owned subsidiary, derives 100% of its revenue from Stewart
and Stevenson. Revenues received in 1995 approximated $4,112,000 and their
receivable at year end approximated $839,700.

[9] RELATED PARTY TRANSACTIONS

At December 31, 1995 and June 30, 1996, the Company owed its Chairman and
related family entities $602,295 and $497,068, respectively, which consists
of the following:

<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
-------------- -----------
(Unaudited)
<S> <C> <C>
Balance due, beginning of period ....................... $ 707,676 $ 602,295
Loans .................................................. 240,000
Accrued preferred stock dividends ...................... 191,700 95,850
Accrued interest charged to operations ................. 103,865 49,771
Repayments ............................................. (400,946) (299,000)
-------------- -----------
Balance due, end of period ............................. $ 602,295 $ 688,916
============== ===========
Annual maturities as of December 31, 1995 are as follows:
1996 ................................................... $ 254,050
1997 ................................................... 294,890
1998 ................................................... 53,355
--------------
Total .................................................. $ 602,295
==============

</TABLE>

The above loan bears interest at 15% per annum, with weekly payments
including interest of $6,313.

The Company maintains an account with a brokerage firm. The broker is the
Chairman's son.

[10] PROFIT-SHARING PLAN

One of the company's adopted a voluntary profit-sharing plan for the
benefit of its employees. Contributions are at the discretion of the company.
No contributions were accrued or paid during the years ended December 31,
1994 and 1995. Another company maintains a non-contributory 401(k) plan.

[11] STOCK

STOCK OPTIONS

The Company has the following stock options plans:

-- In August 1995, the Company adopted an incentive stock option plan for
the benefit of its key officers, directors and employees. The Company
reserved 120,000 shares of its common stock for issuance under the
Plan, which expired on September 1, 1995.

F-19
<PAGE>

[11] STOCK - (Continued)

STOCK OPTIONS (Continued)

-- On April 11, 1995, as part of an agreement with Argent Securities, Inc.
("Argent") Argent gave up its right to first refusal to underwrite
future equity offerings of the Company, and its right to nominate two
members to the Company's Board of Directors; in exchange the Company
reserved and issued to Argent options to purchase 200,000 shares of the
Company's common stock as follows:
100,000 shares at $ .75 per share through April 11, 1998
50,000 shares at $1.00 per share through April 11, 1998
50,000 shares at $1.25 per share through April 11, 1997

-- In October 1994, the Company issued stock options, pursuant to a
consulting agreement in connection with the acquisition of ATAB, for
110,000 shares of common stock in 1994 and 300,000 shares of common
stock in 1995, of which 355,000 options were exercised in 1995 at $.50
and $.75 per share. The Company recorded a deferred compensation amount
of $34,375 in relation to this plan for the amount the shares under
option, valued at the market price at time of the grant, exceeded the
aggregate exercise price of the stock option, which amount is being
amortized over two years.

-- In November 1995, the Company, pursuant to the acquisition of ASI,
reserved and issued options to certain principals and/or employees to
purchase 330,000 shares of common stock as follows:
110,000 shares at $1.25 per share between December 1, 1996 through
December 31, 1998
110,000 shares at $1.50 per share between December 1, 1997 through
December 31, 1998
110,000 shares at $2.00 per share between December 1, 1998 through
December 31, 1998

A summary of the plans are as follows:

<TABLE>
<CAPTION>
Stock Option Incentive
Plan for Stock Other
Non Employee Options; Options;
Directors, Shares Shares
Consultants & Exercise Under Exercise Under Exercise
Advisors Price Option Price Option Price
--------------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
December 31, 1993 ... -- $ -- 5,000 $ .06 -- $ --
Granted .............. -- -- -- -- 110,000 .50
Exercised ............ -- -- -- -- -- --
Expired .............. -- -- -- -- -- --
Cancelled ............ -- -- -- -- -- --
--------------- ---------- ----------- ---------- ----------- ----------
Outstanding at
December 31, 1994 ... -- -- 5,000 -- 110,000 --
--------------- ---------- ----------- ---------- ----------- ----------
Granted .............. 200,000 .75-1.25 -- -- 640,000 .75-2.00
Exercised ............ -- -- (5,000) (.06) (365,000) .50-.75
Expired .............. -- -- -- -- -- --
Cancelled ............ -- -- -- -- -- --
--------------- ---------- ----------- ---------- ----------- ----------
Outstanding and
exercisable at December
31, 1995 ............ 200,000 -- 385,000
=============== =========== ===========
</TABLE>

F-20
<PAGE>

[11] STOCK - (Continued)

STOCK GRANT

On January 18, 1994, the Board of Directors of the Company adopted a
Restricted Stock Grant Program (the "Program") pursuant to which 1,100,000
shares of Common Stock were reserved for issuance. The Program provides that
if the Company met certain sales and income goals for the twelve months ended
June 30, 1994, the shares would be granted to each of the Company's executive
officers (the "Grantees") who remain employed by the Company on that date.
These 1,100,000 shares of restricted common stock were issued to the
Company's Executive Officers on August 15, 1994 and may be voted by Grantees.
Originally, the restricted Common Stock shares issued were subject to
forfeiture each year on May 1 of 1995 through 1998 if total Company sales for
the preceding fiscal year did not meet certain goals, and it was the
Company's opinion that attainment of the specified sales goals was probable.
The Plan was amended in April 1995. Subsequent to the amendment, 20% of the
restricted Common Stock shares issued shall be subject to forfeiture each
year on May 1 of 1995 through 1999 if the Company does not meet certain
sales, profit and income per share goals for the preceding fiscal year. The
amendment divides the grant into three sections; one third of the grant is
based on obtaining a minimum sales goal, one third is based on a specified
amount of income from operations and one third based on earnings per share.
If the second and third goal are not met in any one year, they can be carried
over to the subsequent year. All items were met in 1994 and items one and two
were met in 1995. Additionally, on August 15, 1998 and August 15 of each
successive year through August 15, 2001, restrictions shall lapse on 25% of
the restricted Common Stock shares issued (and not forfeited due to the
Company's failure to meet the specified goals); however, all shares on which
restrictions have not lapsed shall be forfeited by the grantee upon the
grantee's termination of employment with the Company. The shares were valued
at $.75 per share, the price of the Common Stock at time of issuance and a
deferred compensation contra equity account, amortized over the 84 month
period restrictions and forfeiture provisions lapse, was recorded at time of
issuance. The balance of the deferred compensation at December 31, 1995 was
$658,504. Deferred compensation expense in connection with this grant was
$135,667 and $33,197, respectively, for the years ended December 31, 1995 and
1994, respectively. When and if the restrictions lapse on the restricted
Common Stock shares, the Company, under certain conditions, will indemnify
the Grantees of the income tax consequences accruing to the Grantees by
virtue of the lapse of restrictions.

STOCK SPLIT

On January 6, 1994, the Company's Board of Directors declared a
one-for-five reverse stock split of its common stock, effective January 26,
1994. The par value of the common stock remains at $.01 per share. All share
data have been adjusted for the effects of the split.

STOCK WARRANTS

In connection with its 1991 public offering, the Company had outstanding
2,012,500 of each of its Class A, Class B and Class C common stock purchase
warrants with original exercise prices of $.75, $1.00 and $1.25,
respectively. In August 1993, the Company's board of directors approved a
reduction in the exercise price of its Class A, B and C common stock purchase
warrants to $.50 per warrant, or $2.50 per share pursuant to the
aforementioned stock split. During 1994, 89,750 warrants were exercised,
generating cash of $44,875. The Class A warrant and Class B warrant expired
on June 9, 1994. The Class C warrant expired on December 9, 1994.

On December 1, 1994, Argent and the Company entered into a Letter of
Agreement, pursuant to which Argent Securities, Inc. agreed to provide
investor relations and corporate communications services to the Company for a
period of one year. In consideration of those services, the Company agreed to
pay an annual fee of $20,000 and to issue to Argent warrants to purchase
400,000 shares of the Company's Common Stock at $.375 per share. On April 11,
1995 the Company and Argent entered into a second Letter Agreement. Among the
terms of the new agreement were a reduction to 200,000 of the shares which
Argent could purchase under the warrants issued to it in 1994.

F-21
<PAGE>

[11] STOCK - (Continued)

STOCK WARRANTS (Continued)

Argent was the underwriter of an offering of securities which the Company
completed on February 28, 1995. Argent received commissions and a
non-accountable expense allowance in compensation for those services. In
connection with that offering, the Company sold to Argent an Underwriter's
Warrant for a nominal price. The Underwriter's Warrant will permit Argent to
purchase 17,000 shares of Series A Preferred Stock and 17,000 Class A Common
Stock Purchase Warrants between February 21, 1996 and February 20, 1999.

There are currently outstanding 170,000 Class A Common Stock Purchase
Warrants, each of which allows the holders to purchase a share of Common
Stock and a Class B Common Stock Purchase Warrant for $1.35. Each Class B
Warrant permits the purchase of a share of Common Stock at $1.65. The Class A
Warrants will expire on August 20, 1996; the Class B Warrants, if issued,
would expire on February 28, 1997.

STOCK AUTHORIZATION

On February 11, 1994, the Company's Board of Directors approved an
increase in the authorized common stock shares from 10,000,000 to 20,000,000
and approved the authorization of 10,000,000 $.01 par value preferred stock
shares with such distinguishing designations as may be determined by the
Company's Board of Directors. Effective February 21, 1996, the Board of
Directors approved an increase in the authorized common stock shares from
20,000,000 to 50,000,000 shares.

[12] MOUNTAIN VIEW SETTLEMENT

In 1993 the pending litigation between Mountain View Coach Lines, Inc.
(which is in Chapter 7 bankruptcy proceeding) and the State of New York was
settled for $376,000. This settlement, which was approved by the bankruptcy
court on March 28, 1994, insures Mountain View sufficient assets to pay all
of its administrative expenses and priority claims. The Company's approved
priority claims against Mountain View's assets aggregate $325,000. These
claims were not recorded previous to December 31, 1993 by the Company as this
receivable was not considered realizable until the aforementioned settlement.
The bankruptcy estate could not be concluded until payment of the settlement
with the State of New York cleared administrative procedures, which process
took longer than originally anticipated. On January 25, 1995, the New York
State Court of Claims signed the judgement for $376,000 in favor of Mountain
View Coach Lines, Inc. Per advice of counsel, the Company presently
anticipates collection of the Mountain View claim by June 30, 1996.

[13] ACQUISITIONS

On July 11, 1994, the Company purchased the trade name, customer list and
all other assets of Audience Projects Inc. of Chicago, a theater ticket
subscription agency. The acquisition was completed with a cash payment of
$33,000 and was accounted for as a purchase. Goodwill of $14,000 arose from
the transaction and is being amortized over five years.

In October 1994, the Company acquired all of the capital stock of ATAB of
Texas, Inc., a corporation engaged in providing engineering services and
manufacturing electrical components for transportation vehicles, in exchange
for a non-interest bearing $200,000 note payable in ten equal monthly
payments. The acquisition was accounted for as a purchase. Goodwill of
$190,000 arose from the transaction and is being amortized over five years.

On December 31, 1994 the Company purchased 100% of the outstanding shares
of Camelot Consultants, Inc., a company engaged in owning and leasing buses
to third parties and leasing to the Company the premises in Toledo, Ohio and
a corporation owned by officers of the Company and their family, for 180,000
shares of preferred stock with the following features: dividends cumulative
and payable annually on December

F-22
<PAGE>

U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
(Information at June 30, 1996 and for the six-month periods ended
June 30, 1995 and 1996 is unaudited)
[13] ACQUISITIONS - (Continued)
31 at a rate of $1.065 per share; redeemable at the option of the Issuer
after January 1, 2000, at a price of $10.00 per share; voting rights at the
rate of twenty common stock voting shares per each preferred share. The
acquisition was accounted for as a purchase due to the preferred stock issued
by the Company. Due to the relationship of the entities, no "step-up in
basis" was performed on the assets acquired; the assets were recorded at the
net book value on the acquirees books, or $680,457 after retirement of the
327,000 shares of the Company's common stock held by the acquiree at the time
of the acquisition.

In June 1995, the Company acquired the capital stock of Avanti Delivery
Services, Inc. and Priority Express Service, Inc. for an aggregate of 780,000
shares of Common Stock and, in July 1995, the assets of Falcon Freight, Inc.
for $20,000. The acquired companies were all Florida based corporations which
collectively operate a package delivery service under the name "Armstrong
Freight Service" ("Armstrong"). Further, in July 1995, the Company acquired
the capital stock of Trans Lynx Express Inc. ("TLE"), another Florida based
company that provides ground transportation of containerized air cargo, for
116,539 shares of common stock. These acquisitions were accounted for as
purchases, which resulted in aggregate recorded goodwill of $449,483 for the
excess of the purchase price over the fair value of the assets acquired, less
liabilities assumed. Goodwill is being amortized over eight years.

In November 1995, the Company acquired all of the issued and outstanding
capital stock of ASI in exchange for 1,800,000 shares of Common Stock. ASI is
engaged in designing, manufacturing and selling machinery which folds and
tests airbags and assembles airbag modules, for installation in passenger and
utility vehicles. ASI holds several design patents on automatic bag folding
machinery and the process through which these machines operate. This
acquisition was also accounted for as a purchase, which resulted in recorded
goodwill of $3,970,072 for the excess of the purchase price over the fair
value of the assets acquired, less liabilities assumed. Goodwill is being
amortized over eight years.

The purchase price for all acquisitions in 1995 was allocated as follows:

<TABLE>
<CAPTION>
<S> <C>
Property and equipment ................................. $ 953,800
Intangible assets ..................................... 4,464,300
Working capital, net .................................. (3,395,700)
-------------
$ 2,022,400
=============
</TABLE>

F-23
<PAGE>

[13] ACQUISITIONS - (Continued)

The following unaudited pro forma statements does not purport to be
indicative of the results of operations that would have occurred if U.S.
Transportation Systems, Inc. had acquired ASI and Armstrong at the beginning
of the periods presented.

<TABLE>
<CAPTION>
(UNAUDITED)
------------------------------------------------------------------------------------------------------
Armstrong
Freight
U.S Systems and Total Before
Transportation Automated Trans Lynx Pro Forma Pro Forma
Systems Solutions, Inc. Express Before Adjustments Total
-------------- --------------- ------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Year Ended
December 31, 1994
- --------- .........
Revenue ........... $11,818,000 $ 8,766,000 $1,064,000 $21,648,000 $ -- $21,648,000
-------------- --------------- ------------- --------------- -------------- --------------
Cost of sales ..... -- 7,197,000 -- 7,197,000 -- 7,197,000
-------------- --------------- ------------- --------------- -------------- --------------
Operating expense . 11,913,000 1,686,000 1,067,000 14,666,000 545,000 15,211,000
-------------- --------------- ------------- --------------- -------------- --------------
Net income (loss) . $ (95,000) $ (117,000) $ (3,000) $ (215,000) $ (545,000)(1) $ (760,000)
============== =============== ============= =============== ============== ==============
Loss per share .... $ (.08)
==============
Year Ended
December 31, 1995
- --------- .........
Revenue ........... $15,331,000 $ 6,927,000 $2,053,000 $24,311,000 $ -- $24,311,000
-------------- --------------- ------------- --------------- -------------- --------------
Cost of sales ..... 1,873,000 6,539,000 -- 8,412,000 -- 8,412,000
-------------- --------------- ------------- --------------- -------------- --------------
Operating expenses . 12,432,000 2,549,000 2,047,000 17,028,000 (1,355,000) 15,673,000
-------------- --------------- ------------- --------------- -------------- --------------
Net income (loss) . $ 1,026,000 $(2,161,000) $ 6,000 $ (1,129,000) $ 1,355,000(2) $ 226,000
============== =============== ============= =============== ============== ==============
Earnings per share . $ .02
==============

</TABLE>

- ------
(1) The only proforma adjustment for the year ended December 31, 1994 relates
to amortization of goodwill.

(2) The proforma adjustments for the year ended December 31, 1995 consists of
the following:

<TABLE>
<CAPTION>
<S> <C>
Amortization of goodwill ..................................... $ (545,000)
Productive efficiency obtained through adequate capitalization . 1,600,000
Elimination of duplicative administrative functions ........... 300,000
------------
$1,355,000
============
</TABLE>

[14] DISCONTINUED OPERATIONS

On December 31, 1993, the Company adopted a formal plan to discontinue its
charter bus operations. The Company's charter operations were primarily
located in New York, Atlantic City and Toledo. The Company's charter
operations had minimal gross profit margins which continued to decrease over
the last few years and, in fact, were profitable only when used in
conjunction with contract operations. The decision to discontinue the charter
segment was, thus, precipitated by management's belief that charter
operations no longer represented a profitable segment and that the Company's
assets could best be utilized elsewhere.

During 1994, the Company disposed of its charter operations in New York
and New Jersey by selling off assets and transferring assets to other Company
locations. Additionally, in 1995 the Company disposed of its charter
operations in Florida and Ohio as continuing operations. Assets held for sale
at December 31, 1995, is $152,500, representing three highway motorcoaches
which the Company anticipates selling for an aggregate amount approximating
the balance at December 31, 1995.

F-24
<PAGE>

U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
(Information at June 30, 1996 and for the six-month periods ended
June 30, 1995 and 1996 is unaudited)
[14] DISCONTINUED OPERATIONS - (Continued)
The Company has reclassified the segment's assets (which consist primarily
of revenue equipment) which it plans to sell to "Assets Held for Sale". The
remainder of the segment's assets will be incorporated into other aspects of
the Company's business. Liabilities of the segment can be satisfied utilizing
funds generated by the segment during the phase-out period. During the years
ended December 31, 1994 and 1995, respectively, the Company increased its
reserve for estimated loss on disposal of discontinued operations by $853,480
and $167,199 (net of income tax benefit of $236,189 and $86,000,
respectively) as a result of losses from discontinued operations exceeding
the Company's previous provision for such losses. The Company generated
$1,452,000 and $3,091,000 from the sale of assets of the discontinued segment
during the years ended December 31, 1994 and 1995, respectively; $777,000 and
$2,123,000 in the form of sale-type leases in 1994 and 1995; and $375,000 in
two promissory notes. Cash flow from the discontinued segment for the years
ended December 31, 1994 and 1995 is as follows:

<TABLE>
<CAPTION>
1994 1995
-------------- ------------
<S> <C> <C>
Losses from discontinued operations .................. $(1,334,569) $ (410,431)
Add: Depreciation on assets being used in discontinued
operations .......................................... 521,932 208,992
Cash proceeds from sale of assets of discontinued
operations(including $246,787 and $410,120 from
collection of lease receivables) .................... 921,787 1,003,620
-------------- ------------
Total Cash Provided from Discontinued Operations ..... $ 109,150 $ 802,181
============== ============

</TABLE>

Operating results of the Company's charter segment for the twelve months
ended December 31, 1994 and 1995 are shown separately in the accompanying
statement of operations. Net sales of the Company's charter segment were
$4,311,291 and $1,275,182 for the years ended December 31, 1994 and 1995,
respectively. Such amounts are not included in net sales in the accompanying
"Statements of Operations".

Interest expense has been allocated to discontinued operations. Interest
expense allocated to discontinued operations totals $371,000 and $129,000 in
1994 and 1995, respectively, and is comprised of: 1) interest directly
attributed to the discontinued operations; and 2) interest not directly
attributed to any operating segment, which amount has been allocated based
upon the ratio of net assets of the discontinued operation to the sum of the
Company's total net assets.

[15] FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist primarily of trade receivables
and payables, notes receivable and payable, investments in sales-type leases,
convertible debentures and related party debt. The book values of trade
receivables and payables are considered to be representative of their
respective fair values. It was not practicable to estimate the fair value of
notes receivable and payable, investments in sales-type leases, convertible
debentures and related party debt.

[16] CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

The Companies have cash deposits with various financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000.

The Companies maintain cash funds with a brokerage house. These accounts
are insured up to $100,000 by Securities Investor Protection Corporation.

F-25
<PAGE>

[17] UNCOMPLETED CONTRACTS

Costs, estimated earnings and billings on estimated contracts at December
31, 1995 and June 30, 1996 consist of:

<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
-------------- ------------
(Unaudited)
<S> <C> <C>
Costs incurred on uncompleted contracts .............. $ 2,002,975 $1,304,277
Estimated earnings ................................... 939,517 346,523
-------------- ------------
Billings remaining on completed contracts ............ -- 10,706
2,942,492 1,661,506
Billings on uncompleted contracts .................... (3,053,709) (674,997)
-------------- ------------
Total ................................................ $ (111,217) $ 986,509
============== ============
Included in the accompanying balance sheet under the following
captions:
Costs and estimated earnings in excess of billings ... $ 243,295 $1,115,060
Billings in excess of costs and estimated earnings ... (354,512) (128,551)
-------------- ------------
Total ................................................ $ (111,217) $ 986,509
============== ============

</TABLE>

[18] CONVERTIBLE DEBENTURES AND CONVERTIBLE PREFERRED STOCK

In November 1995, the Company sold an aggregate of $3,150,000 principal
amount of 8% convertible debentures for approximately $1,776,000 and in
February 1996, the Company sold $300,000 of convertible preferred stock. Each
of these transactions were made in reliance upon Regulation S of the
Securities Act. The Securities and Exchange Commission (the "Commission"),
has taken the position that certain sales of securities pursuant to
Regulation S, effected in a manner similar to the sales made by the Company
(which includes the sale of a substantial number of shares at a significant
discount to the then market price, which shares were resold soon after the 40
day holding period expired), were in fact not made in compliance with such
Regulation. Although management believes that its transactions were in
compliance with the requirements of Regulation S, there can be no assurance
that the Commission will not review such transactions and determine that
securities laws have been violated. If this were to occur, the Company could
become subject to actions by the Commission which could result in an
injunction against the Company from future violations of the federal
securities laws and/or fines against the Company. Any such actions by the
Commission could have an adverse impact on the Company for which no reserve
has been established. In January 1996, the debentures were converted by the
holders into 4,522,000 shares of common stock.

[19] COMMITMENTS AND CONTINGENCIES

The Company is a party to various matters in litigation. These matters are
subject to many uncertainties and the outcome of all individual matters is
not predictable. Although the amount of liability at December 31, 1995 with
respect to these matters cannot be currently determined, management believes,
based upon the advice of legal counsel, that the outcome of such litigation
will not have a material adverse affect on the consolidated financial
position, operations, cash flow or liquidity of the Company.

The Company is primarily regulated by the Department of Transportation
("DOT") which sets certain safety standards which must be met by the
Company's revenue equipment and sets certain driver requirements.
Substantially all of the Company's transportation segment is subject to these
regulations.

At December 31, 1995, the Company has $126,000 of irrevocable standby
letters of credit, $50,000 of which is to cover the Company's liability with
respect to pending accident claims and $76,000 of which is to

F-26
<PAGE>

U.S. TRANSPORTATION SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
(Information at June 30, 1996 and for the six-month periods ended
June 30, 1995 and 1996 is unaudited)
[19] COMMITMENTS AND CONTINGENCIES - (Continued)
collateralize various operational bonds. At December 31, 1995, the Company
has recorded a liability of approximately $75,000 with respect to pending
accident claims, which amount is included in "Accrued Liabilities", in the
accompanying balance sheet. The Company has recorded all contingent
liabilities which it believes are likely and measurable and does not
anticipate actual losses in these matters to exceed what has been accrued.

The Company maintains a self-insurance program for that portion of health
care costs not covered by insurance. The Company is liable for claims up to
$25,000 per family annually, and aggregate claims up to $500,000 annually.
Self insurance costs are accrued based upon the aggregate of the liability
for reported claims. The company recorded expense in connection with the
insurance plan of $480,000 and $297,000 for 1995 and 1994, respectively.

[20] SUBSEQUENT EVENTS

The Company has entered into a letter of intent for a public offering of
approximately $7,500,000 of common stock. It is anticipated that such
offering will be completed during the middle of 1996, although there can be
no assurance as to when or if such offering will be completed.

[21] INTERIM PERIODS (UNAUDITED)

In the opinion of the Company, the accompanying unaudited consolidated
financial statements include all adjustments (which consist only of normal
recurring items) necessary to present fairly the financial position as of
June 30, 1996, and the results of operations and cash flows for the six
months ended June 30, 1996 and 1995. The results for the six months ended
June 30, 1996, are not necessarily indicative of the results to be expected
for the year.

On June 24, 1996 the Company purchased certain assets from Jackson &
Johnson, Inc. for $160,000 in cash and the assumption of approximately
$2,930,000 in accrued debt. This acquisition will be accounted for as a
purchase.

F-27
<PAGE>

ATAB of Texas,
Inc. (Sealy, TX)

Partial views of the manufacturing facility where wiring harnesses and
electrical components are produced for fifteen truck vehicles for the U.S.
Department of Defense.

Advance Entertainment (New York, NY)

Armstrong Freight Services, Inc.
(Tampa, Orlando, and Jacksonville, FL).

Provides local truck delivery of packages and freight
for over 200 air carriers.

Division includes New York Convention Concierge which provides
services such as theater tickets, dining, transportation and other
special arrangements for N.Y. area visitors.
<PAGE>

=============================================================================

Until ------, 1996 (twenty-five days after the date of this Prospectus),
all dealers effecting transactions in the registered securities, whether or
not participating in the distribution thereof, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as underwriters and with respect to their unsold
allotment or subscriptions.
------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
--------
<S> <C>
Prospectus Summary ............................ 4
Summary Consolidated Financial Information .... 7
Risk Factors .................................. 9
Use of Proceeds ............................... 16
Capitalization ................................ 17
Price Range of Securities ..................... 18
Dividend Policy ............................... 18
Selected Historical and Pro Forma Consolidated
Financial Data ............................... 19
Management's Discussion and Analysis of Results
of Operations and Financial Condition ........ 21
Business ...................................... 25
Management .................................... 32
Certain Transactions .......................... 36
Principal Shareholders ........................ 38
Description of Securities ..................... 38
Shares Eligible for Future Sale ............... 40
Underwriting .................................. 41
Concurrent Offering ........................... 42
Legal Opinions ................................ 43
Experts ....................................... 43
Additional Information ........................ 43
Available Information ......................... 44
Index to Consolidated Financial Statements .... F-1
</TABLE>

No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must
not be relied on as having been authorized by the Company. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy, by
any person in any jurisdiction in which it is unlawful for such person to
make such offer or solicitation. Neither the delivery of this Prospectus nor
any offer, solicitation or sale made hereunder, shall under any circumstances
create an implication that the information herein is correct as of any time
subsequent to the date of the Prospectus.

=============================================================================
<PAGE>

=============================================================================

U.S. TRANSPORTATION
SYSTEMS, INC.

2,115,000 Units

------
PROSPECTUS
------

FIRST LONDON
SECURITIES CORPORATION

, 1996

=============================================================================
<PAGE>

[Alternate Page for Selling Shareholder Prospectus]

PRELIMINARY PROSPECTUS DATED AUGUST 26, 1996 SUBJECT TO COMPLETION

U.S. TRANSPORTATION SYSTEMS, INC.
211,111 SHARES OF COMMON STOCK

This Prospectus relates to the sale by certain selling shareholders (the
"Selling Shareholders") of 211,111 shares of Common Stock. None of the
proceeds from the sale of the Common Stock (collectively, the "Securities")
by the Selling Shareholders will be received by the Company. The Company will
bear all expenses (other than selling commissions and fees and expenses of
counsel or other advisors to the Selling Shareholders) in connection with the
registration and sale of the Common Stock being offered by the Selling
Shareholders. See "Selling Shareholders."

The Securities will be offered by the Selling Shareholders in transactions
in the over-the-counter market, in negotiated transactions or a combination
of such methods of sale, at fixed prices which may be changed, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, or at negotiated prices. The Selling Shareholders may effect
such transactions by selling the Securities to or through broker/dealers, and
such broker/dealers may receive compensation in the form of discounts,
concessions or commissions from the Selling Shareholders and/or the
purchasers of the Common Stock for whom such broker/dealers may act as agent
or to whom they sell as principal, or both. The Selling Shareholders may be
deemed to be "underwriters" as defined in the Securities Act of 1933 (the
"Securities Act"). If any broker-dealers are used by the Selling
Shareholders, any commissions paid to broker-dealers and, if broker-dealers
purchase any shares of Common Stock as principals, any profits received by
such broker-dealers on the resales of the shares of Common Stock may be
deemed to be underwriting discounts or commissions under the Securities Act.
In addition, any profits realized by the Selling Shareholders may be deemed
to be underwriting commissions. All costs, expenses and fees in connection
with the registration of the shares offered by selling Shareholders will be
borne by the Company. Brokerage commissions, if any, attributable to the sale
of the shares will be borne by the Selling Shareholders. See "Selling
Shareholders" and "Plan of Distribution."

The Units, Common Stock and Class C Warrants are traded on The Nasdaq
SmallCap Market ("Nasdaq") under the symbols "USTSU," "USTS" and "USTSW,"
respectively.

Concurrently with the commencement of this offering, the Company offered
by separate Prospectus, 2,115,000 Units. The Company's offering (the
"Offering") is being offered through First London Securities Corporation (the
"Representative").

THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" PAGE 9.

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is , 1996.

<PAGE>

[Alternate Page for Selling Shareholder Prospectus]

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission,
Washington, D.C. (the "Commission") a Registration Statement on Form SB-2
under the Securities Act with respect to the securities offered by this
Prospectus. For further information with respect to the securities offered
hereby, reference is made to the Registration Statement and to the exhibits
listed in the Registration Statement.

THE OFFERING

Securities Offered ............ 211,111 shares of Common Stock

Common Stock outstanding....... 5,460,702 shares of Common Stock

Class C Warrants outstanding... 2,115,000 Class C Warrants

Use of Proceeds................ The Company will not receive any proceeds
from this Offering. The Company intends to
use the net proceeds of the Offering for the
repayment of certain indebtedness, including
$1,200,000 principal amount of promissory
notes (the "Bridge Notes") issued in the
Bridge Financing, for working capital, and
to finance expansion of its existing
businesses and potential acquisitions. See
"Use of Proceeds."

Risk Factors................... The securities offered hereby involve a high
degree of risk. See "Risk Factors."

Proposed Nasdaq Trading
Symbols:.....................

Units.......................... USTSU

Common Stock................... USTS

Class C Warrants............... USTSW

1
<PAGE>

[Alternate Page for Selling Shareholder Prospectus]

USE OF PROCEEDS

The Company will not receive any proceeds from the sale of Units or shares
of Common Stock by the Selling Stockholders. The net proceeds to the Company
from the sale of the Units offered by the Underwriters, after deducting
underwriting discounts and commissions and other expenses of the Offering
payable by the Company, are estimated to be $7,376,250 ($8,527,688) if the
Over-Allotment Option is exercised in full).

The Company intends to use the balance of the net proceeds from the
Offering for working capital and strategic acquisitions. Part of the
Company's business strategy is to continue its growth through one or more
acquisitions, although the Company has not, to date, identified any
particular company to acquire. The Company continues to negotiate with and
conduct due diligence reviews with respect to potential acquisition
candidates, although no such acquisition is probable as of the date hereof.
To the extent that such identification is made in the future, a portion of
the net proceeds may be utilized for the purchase price, necessary equipment
and working capital for such acquisition(s). In addition, working capital
will be needed for (i) future expansion of ASI as governmental regulations
increase the demand for driver and passenger-side airbags; (ii) expansion of
the Armstrong package and freight delivery services to other locations; and
(iii) the procurement of new transportation contracts to be performed by the
Company's existing transportation services providers. The Company expects
that approximately $750,000 will be used for the cost of enlarged building
facilities for Armstrong and $250,000 will be used for the cost of relocating
ASI to larger facilities in Phoenix, Arizona.

Any additional proceeds from the exercise of the Over-Allotment Option,
the Class C Warrants or the Underwriters' Unit Purchase Option will be used
for general corporate purposes.

16
<PAGE>

[Alternate Page for Selling Shareholder Prospectus]

TRANSFER AGENT AND CLASS C WARRANT AGENT

The transfer agent and registrar for the Common Stock and the warrant
agent for the Class C Warrants is Continental Stock Transfer & Trust Co.

SHARES ELIGIBLE FOR FUTURE SALE

Of the 3,226,258 shares of Common Stock of the Company outstanding as of
June 30, 1996, 667,170 shares are restricted securities, as that term is
defined in Rule 144 promulgated under the Securities Act, and 69,136 Units
offered for sale hereby are subject to a six month "lock-up" period. Absent
registration under the Securities Act, the sale of such restricted shares is
subject to Rule 144, as promulgated under the Securities Act. In general,
under Rule 144, subject to the satisfaction of certain other conditions, a
person, including an affiliate of the Company, who has beneficially owned
restricted shares of Common Stock for at least two years is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of 1% of the total number of outstanding shares of the same class, or
if the Common Stock is quoted on Nasdaq, the average weekly trading volume
during the four calendar weeks preceding the sale. A person who has not been
an affiliate of the Company for at least three months immediately preceding
the sale and who has beneficially owned the shares of Common Stock for at
least three years is entitled to sell such shares under Rule 144 without
regard to any of the volume limitations described above. The Company's
officers, directors and holders of more than 5% of outstanding Common Stock
have agreed not to sell their shares for a period of 12 months from the
Effective Date without the prior consent of the Representative. No assurance
can be made as to the effect, if any, that sales of shares of Common Stock or
the availability of such shares for sale will have on the market prices
prevailing from time to time. Nevertheless, the possibility that substantial
amounts of Common Stock may be sold in the public market may adversely affect
prevailing market prices for the Common Stock and could impair the Company's
ability to raise capital in the future through the sale of equity securities.

CONCURRENT REGISTRATION OF UNITS

Concurrently with this Offering, the Company and certain Selling
Securityholders are offering 2,115,000 Units in a public offering through the
Underwriters.

SELLING SHAREHOLDERS AND PLAN OF DISTRIBUTION

An aggregate of 211,000 shares of Common Stock may be sold by Selling
Securityholders. The Company will not receive any proceeds from the sale of
the Selling Securityholder Securities. Sales of securities by Selling
Securityholders or even the potential of such sales could have an adverse
effect on the market prices of the Units, the Common Stock and the Class C
Warrants.

1
<PAGE>

[Alternate Page for Selling Shareholder Prospectus]

Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Selling Securityholder's Securities may
not simultaneously engage in market-making activities with respect to any
securities of the Company during the applicable "cooling-off" period (at
least two and possibly nine business days) prior to the commencement of such
distribution. Accordingly, in the event the Underwriters are engaged in a
distribution of the Selling Securityholder securities, neither of such firms
will be able to make a market in the Company's securities during the
applicable restrictive period. However, the Underwriters have not agreed to
nor is either of them obligated to act as broker-dealer in the sale of the
Selling Securityholder securities. In addition, each Selling Securityholder
desiring to sell will be subject to the applicable provisions of the Exchange
Act and the rules and regulations thereunder, including without limitation
Rules 10b-6 and 10b-7, which provisions may limit the timing of the purchases
and sales of shares of the Company's securities by such Selling
Securityholder.

The following table sets forth the number of shares of Common Stock to be
offered for sale by each Selling Securityholder. Except for the Common Stock
the Selling Securityholders have no beneficial ownership of the Company's
securities and upon the sale of all securities offered, will have no beneficial
ownership of the Company's securities.

<TABLE>
<CAPTION>
Shares of
Common Stock
------------
<S> <C>
William Orr ..................................................... 16,667
Ronald Sorci .................................................... 119,444
Brake Alert, Inc. ................................................ 75,000
</TABLE>

LEGAL OPINIONS

EXPERTS

On January 9, 1996, the Company, by action of the Board of Directors,
dismissed Moore Stephens, P.C. (formerly Mortenson and Associates, P.C.),
from its engagement as the Registrant's principal accountant to audit the
Registrant's financial statements for the year ended December 31, 1995.

2
<PAGE>

[Alternate Page for Selling Shareholder Prospectus]

The report of Moore Stephens, P.C. (formerly Mortenson and Associates, P.C.)
on the Company's financial statements for the years ended December 31, 1994 and
1993 did not contain an adverse opinion or a disclaimer of opinion, and was not
qualified or modified as to uncertainty, audit scope, or accounting principles.
There had been no disagreement on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreement, if not resolved to Moore Stephens, P.C.'s (formerly Mortenson and
Associates, P.C.) satisfaction, would have caused Moore Stephens, P.C. (formerly
Mortenson and Associates, P.C.) to make reference in connection with its reports
to the subject matter of the disagreement.

ADDITIONAL INFORMATION

3
<PAGE>

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 78.751 of the General Corporation Law of the State of Nevada
authorizes a corporation to provide indemnification to a director, employee
or agent of the corporation, including attorneys' fees, judgments, fines and
amounts paid in settlement, actually and reasonably incurred by him in
connection with such action, suit or proceeding, if such party acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful as
determined in accordance with the statute.

Section 78.751 further provides that indemnification shall be provided if
the party in question is successful on the merits.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. If a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
Director, officer or controlling person in connection with the securities
being registered) the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.

Indemnification Undertaking In Accordance with Item 512(i) of Regulations S-K

Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act") may be permitted to directors, officers
or persons controlling the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is therefor unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and is therefor unenforceable and will
be governed by the final adjudication of such issue.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee ..................................... $ 13,727
NASD Filing Fee .......................................... $ 4,601
Nasdaq listing expenses* .................................. $ 15,000
Transfer Agent Fees* ..................................... $ 2,500
Printing Costs* .......................................... $ 30,000
Legal Fees and Expenses* .................................. $100,000
Accounting Fees and
Expenses* .............................................. $ 40,000
Blue Sky Fees and Expenses* $ 27,000
Miscellaneous* ........................................... $ 67,172
----------
Total .................................................... $300,000
==========
</TABLE>

- ------
* Indicates expenses that have been estimated for the purpose of filing.

II-1
<PAGE>

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

Except as set forth below, there were no sales of unregistered securities
by the Company during the prior three years:

On July 25, 1994, the Company issued 8,333 shares of Common Stock to Gold
Transportation Services as compensation for a lease termination. The sale was
exempt pursuant to Section 4(2) of the Act since the sale was not made in a
public offering and was made to a company whose principals had access to
detailed information about the Company and were buying for their own
accounts.

On August 15 1994, the Company issued 183,333 shares of Common Stock to
Michael Margolies, Jay Owen Margolies and Terry Watkins pursuant to the
Company's Restricted Stock Grant program. The sale was exempt pursuant to
Section 4(2) of the Act since the sale was not made in a public offering and
was made to individuals who had access to detailed information about the
Company and were buying for their own accounts.

On September 1, 1994 the Company issued 58,333 shares of Common Stock to
Suncoast School Transportation Corporation in consideration of certain assets
related to Suncoast Transportation. In January 1995 the Company issued an
additional 4,167 shares upon amendment of the agreement relating to the
acquisition. The sale was exempt pursuant to Section 4(2) of the Act since
the sale was not made in a public offering and was made to an individual who
had access to detailed information about the Company and was buying for his
own account.

On December 31, 1994 the Company issued a total of 180,000 shares of
Series C Preferred Stock to Michael Margolies, Jay Owen Margolies, and the
Margolies Family Trust in consideration of the outstanding capital stock of
Camelot Consultants, Inc. The sale was exempt pursuant to Section 4(2) of the
Act since the sale was not made in a public offering and was made to
individuals who had access to detailed information about the Company and were
buying for their own accounts.

On June 12, 1995 the Company issued 5,833 shares of Common Stock to Stock
Deck Communications, Ltd. as payment for advertising services. The sale was
exempt pursuant to Section 4(2) of the Act since the sale was not made in a
public offering and was made to a corporation whose principals had access to
detailed information about the Company and were buying for their own account.

On June 30, 1995 the Company issued 130,000 shares of Common Stock to Bart
and Joanne Citro as payment for two corporations known as "Armstrong Freight
Service". The sale was exempt pursuant to Section 4(2) of the Act since the
sale was not made in a public offering and was made to individuals who had
access to detailed information about the Company and were buying for their
own account.

On July 19, 1995 the Company issued a total of 19,421 shares of Common
Stock to Bart Citro, Russell Jarmusch and Larry Schaefer as payment for the
corporation known as "Trans Lynx Express Inc. The sale was exempt pursuant to
Section 4(2) of the Act since the sale was not made in a public offering and
was made to individuals who had access to detailed information about the
Company and were buying for their own account.

On July 1, 1995 the Company issued 16,667 shares of Common Stock to
Sheldon Kraft as payment for consulting services The sale was exempt pursuant
to Section 4(2) of the Act since the sale was not made in a public offering
and was made to an individual who had access to detailed information about
the Company and was buying for his own account.

On July 1, 1995 the Company issued 33,333 shares of Common Stock to
Corporate Network, Inc. as payment for radio broadcasting services. The sale
was exempt pursuant to Section 4(2) of the Act since the sale was not made in
a public offering and was made to a corporation whose principals had access
to detailed information about the Company and were buying for their own
account.

On September 30, 1995 the Company issued 50,000 shares of Common Stock to
American Trade-A-Bus, Inc. The sale was exempt pursuant to Section 4(2) of
the Act since the sale was not made in a public offering and was made to a
corporation whose principals had access to detailed information about the
Company and were buying for their own account.

II-2
<PAGE>

In November 1995, the Company issued 300,000 shares of Common Stock to
William F. Baker, Jamal Saklou and Pierre Metivier in consideration of the
outstanding capital stock of Automated Solutions, Inc. The sale was exempt
pursuant to Section 4(2) of the Act since the sale was not made in a public
offering and was made to individuals who had access to detailed information
about the Company and were buying for their own account.

On February 23, 1996, the Company purchased certain personal property,
intangible assets and contract rights from Krogel Air Freight, Inc. and
Krogel Freight Systems of Tampa, Inc. for $150,000 in cash and 18,333 shares
of Common Stock. The sale was exempt pursuant to Section 4(2) of the Act
since the sale was not made in a public offering and was made to a
corporation whose principals had access to detailed information about the
Company and were buying for their own account.

In November, 1995, the Company issued 8% convertible debentures in the
principal amount of $1,776,228, which debentures were converted by the
holders into 753,667 shares of Common Stock in January 1996. The sales of
debentures was exempt from registration pursuant to Regulation S.

In January, 1996, the Company issued 8% convertible preferred stock in the
principal amount of $300,000, which preferred stock were converted by the
holders into 88,889 shares of Common Stock in January 1996. The sale of
preferred stock was exempt from registration pursuant to Regulation S.

In July 1996, the Company issued 16,667 shares of Common Stock to William
Orr in connection with his agreement not to compete with the Company.

In July 1996, the Company issued 119,444 shares of Common Stock to Ronald
P. Sorci in connection with his agreement not to compete with the Company.

Except as noted, the sales set forth above are claimed to be exempt from
registration with the Securities and Exchange Commission pursuant to Section
4(2) of the Securities Act of 1933, as transactions by an issuer not
involving any public offering.

ITEM 27. LIST OF EXHIBITS

<TABLE>
<CAPTION>
Exhibit Description of Exhibit Page No.
- ----------- ---------------------------------------------------------------------------------------- ------------
<S> <C> <C>
1-a Form of Underwriting Agreement*

3-a. Articles of Incorporation, as amended to January 13, 1986. (1)

3-a(1) Certificate of Amendment of Certificate of Incorporation -- filed as an exhibit to
Quarterly Report on Form 10-Q for Quarter Ended September 30, 1990 and incorporated
herein by reference.

3-a(2) Certificate of Amendment of Certificate of Incorporation dated March 7, 1994. (3)

3-a(3) Form of Certificate of Designation of Series A Preferred Stock. (3)

3-a(4) Certificate of Designation of Series C Preferred Stock. (3)

3-b. By-laws. (1)

4-a. Specimen of Common Stock Certificate. (1)

4-b Specimen of Preferred Stock Certificate. (3)

4-c. Specimen of Class A Warrant; Specimen of Class B Warrant. (3)

4-d. Form of Class A and Class B Warrant Agreement. (3)

4-e Form of Class C Warrant Agency Agreement between the Company and Continental Stock
Transfer & Trust Co.

4-f Specimen of Class C Warrant Certificate

4-g Form of Underwriter's Warrant*

5 Opinion of Schneck Weltman Hashmall & Mischel LLP

10-a. Employee Stock Option Plan. (1)

II-3
<PAGE>

Exhibit Description of Exhibit Page No.
- ----------- ---------------------------------------------------------------------------------------- ------------
10-b. Employee Profit Sharing Plan. (1)

10-c. Loan and Security Agreement with CIT Group dated September 2, 1993 - filed as an exhibit
to the Company's registration statement on Form S-1 (33-42894) and incorporated herein
by reference.

10-d. Restricted Stock Grant Program. (2)

10-e. Plan of Reorganization - filed as an exhibit to the Company's Current Report on Form 8-K
dated September 21, 1989 and incorporated herein by reference.

10-f. Agreement dated April 6, 1987 between the Company and Ford Motor Company - filed as an
Exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1986
and incorporated herein by reference.

10-g. Amendment to the Company's Agreement with Ford Motor Company dated July 1, 1991.
Confidential treatment has been requested for certain portions of this exhibit, and
these portions have been omitted. (2)
10-h(1) Stock Purchase Agreement dated December 26, 1994 related to acquisition of Camelot
Consultants, Inc. (3)

10-h(2) Exchange Agreement dated January 20, 1995 related to acquisition of Camelot Consultants,
Inc. (3)

10-i Stock Purchase Agreement dated October 8, 1994 between the Company and American
Trade-A-Bus, Inc. (3)

10-j(1) Letter of Agreement between the Company and Argent Securities, Inc. dated December 1,
1994. (3)

10-j(3) Warrant to Purchase Shares issued by the Company to Argent Securities, Inc. dated
December 1, 1994. (3)

10-k(1) Asset Purchase Agreement dated August 31, 1994 among Suncoast Holdings, Inc., Suncoast
School Transportation Corporation, and U.S. Transportation Systems, Inc. (3)

10-k(2) Amendment to Asset Purchase Agreement dated January 20, 1995 among Suncoast Holdings,
Inc., Suncoast School Transportation Corporation, and U.S. Transportation Systems, Inc.
(3)

11. Statement re: computation of per share earnings for period ended December 31, 1995*

22. Subsidiaries --

Shortway River Rouge, Inc.
Black & White Cab Company, Inc.
Downtown Theater Ticket Agency, Inc.
Premier Box Office, Inc.
Broadway Theatours, Inc.
Transportation Systems Corp.
American Trade-A-Bus of Texas, Inc.
Automated Solutions, Inc.
Trans Lynx Express, Inc.
Priority Express Service, Inc. d/b/a Armstrong Freight Services
Advance Entertainment - Chicago, Inc.
Transportation Management Services, Inc.
Bus Properties, Inc.
Jetport Express, Inc.
Jay & Jay Transportation, Inc.

II-4
<PAGE>

Exhibit Description of Exhibit Page No.
- ----------- ---------------------------------------------------------------------------------------- ------------
24-a Consent of Mahoney Cohen Rashba & Pokart, CPA

24-b Consent of Moore Stephens, PC

24-c Consent of Schneck Weltman Hashmall & Mischel LLP (contained in exhibit 5)
</TABLE>

- ------
* Previously filed with this Registration Statement.
(1) Previously filed with the Securities and Exchange Commission as an
exhibit to the Company's S-1 registration statement (File Number
33-1071).
(2) Previously filed with the Securities and Exchange Commission as an
exhibit to the Company's SB-2 registration statement (File Number
33-70862).
(3) Previously filed with the Securities and Exchange Commission as an
exhibit to the Company's SB-2 registration statement (File Number
33-79738).

ITEM 28. UNDERTAKINGS

A. CERTIFICATES

The undersigned company hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)
to reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement; (iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.

II-5
<PAGE>

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Company certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Elmsford and the State of New York on the day of
August 23, 1996.

U.S. TRANSPORTATION SYSTEMS, INC.
By: /s/ MICHAEL MARGOLIES
-------------------------------
Michael Margolies, Chief
Executive Officer

In accordance with to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated on August 23, 1996.

<TABLE>
<CAPTION>
Name Title
---------------------------- ----------------------------------------------
<S> <C>
/s/ MICHAEL MARGOLIES
--------------------------- Chief Executive Officer, Chairman of the Board and
Michael Margolies President

/s/ JAY OWEN MARGOLIES
---------------------------
Jay Owen Margolies Director

/s/ K. THOMAS WEGERBAUER
---------------------------
K. Thomas Wegerbauer Director

/S/ ROBERT I. BLACKMAN
---------------------------
Robert I. Blackman Director

/s/ STANLEY CHASON
---------------------------
Stanley Chason Director

/s/ TERRY A. WATKINS
--------------------------- Executive Vice President, Chief Financial Officer
Terry A. Watkins (Principal Accounting Officer) and Secretary
</TABLE>

II-6

<PAGE>

EXHIBIT 24A
CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this registration statement on Form SB-2 of
our report dated March 30, 1996, on our audit of the financial statements of
U.S. Transportation Systems, Inc. as of and for the year ended December 31,
1995. We also consent to the reference to our firm under the caption
"Experts."

MAHONEY COHEN RASHBA & POKART, CPA, PC
New York, NY
August 26, 1996

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EXHIBIT 24B
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We consent to the reference to our firm under the heading "Experts" and to
the use of our report dated March 29, 1995 in this Registration Statement
[Form SB-2] for U.S. Transportation Systems, Inc.

On July 1, 1996, the firm of Mortenson and Associates, P.C. changed its
name to Moore Stephens, P.C.

MOORE STEPHENS, P.C.
Certified Public Accountants
Cranford, New Jersey
August 26, 1996