FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal quarter ended March 31, 1999
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-2882
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ESCO TRANSPORTATION CO.
-----------------------
(Exact name of registrant as specified in its charter)
DELAWARE 55-0257510
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification no.)
incorporation or organization)
6505 HOMESTEAD
HOUSTON, TEXAS 77028
--------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 635-1008
---------------
Securities registered pursuant to Section 12 (b) of the Act:
NONE
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock $ .001 par value per share
---------------------------------------
Title of class
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No.
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Common Stock, $ .001 Par Value 14,179,112
------------------------------ ----------
(Class) (Outstanding as of March 31, 1999)
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant on March 31, 1999 was approximately $5,011,045.
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TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements Page
------
Balance Sheets for the Three Months Ended March 31,
1999 (unaudited) and for the Year Ended December 31, 1998 3
(audited)
Statements of Income for the Three Months Ended
March 31, 1999 (unaudited) and 1998 (unaudited) 4
Statements of Stockholders' Equity for the Three Months
Ended March 31, 1999 (unaudited)
5
Statements of Cash Flows for the Three Months Ended
March 31, 1999 (unaudited) and 1998 (unaudited) 6
Notes to the Financial Statements (unaudited) 7 - 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II OTHER INFORMATION
Item 1. Recent Developments in Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports in Form 8-K 16
Signatures 17
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ESCO TRANSPORTATION CO.
Balance Sheet
March 31,1999 December 31,1998
--------------- ------------------
ASSETS (Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 89,956 $ 25,833
Accounts Receivable, Net of Allowance for
Bad Debts of $472,253 in 1998 and
$500,097 in 1999 4,073,551 5,755,857
Truck Maintenance Supplies 113,327 106,058
Notes Receivable - Stockholders 645,429 51,293
Prepaid Expenses - Current 256,708 158,337
Other Current Assets 89,747 128,697
--------------- ------------------
TOTAL CURRENT ASSETS 5,268,718 6,226,075
--------------- ------------------
PROPERTY AND EQUIPMENT
Property and Equipment 10,864,612 10,904,274
Less Accumulated Depreciation (3,101,909) (2,785,694)
--------------- ------------------
7,762,703 8,118,580
--------------- ------------------
OTHER ASSETS
Prepaid Insurance - Net of Current Portion 64,500 64,500
Other Assets - Non Current 153,518 133,090
--------------- ------------------
Total Other Assets 218,018 197,590
--------------- ------------------
TOTAL ASSETS $ 13,249,439 $ 14,542,245
=============== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable - Trade $ 763,202 $ 756,895
Accrued and Other Liabilities 740,885 313,893
Amounts Due Factor 4,787,517 6,434,481
Current Portion of Long-Term Debt 1,857,332 1,860,814
--------------- ------------------
TOTAL CURRENT LIABILITIES 8,148,936 9,366,083
LONG-TERM DEBT - NET OF CURRENT PORTION 4,479,253 4,978,916
DEFERRED INCOME TAXES 0 0
COMMITMENTS 0 0
--------------- ------------------
TOTAL LIABILITIES 12,628,189 14,344,999
--------------- ------------------
STOCKHOLDERS' EQUITY
Common Stock, $.0001 Par Value; 35,000,000
Shares Authorized; 12,527,612 Shares
Issued and Outstanding in 1998 and
14,179,112 in 1999 1,561 1,569
Additional Paid-In Capital 1,592,515 931,906
Retained Earnings (Deficit) (458,590) (318,844)
--------------- ------------------
1,135,486 614,631
Less Note Receivable from Stockholder (492,232) (413,385)
Less Treasury Stock, At Cost (22,004) (4,000)
--------------- ------------------
TOTAL STOCKHOLDERS' EQUITY 621,250 197,246
--------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,249,439 $ 14,542,245
=============== ==================
</TABLE>
3
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<CAPTION>
ESCO TRANSPORTATION CO.
Statements of Income
For the Three Months Ended March 31, 1999 and 1998
1999 1998
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUE:
Freight Revenue $ 7,122,841 $ 5,819,735
Oil and Gas Revenue 1,171 1,464
------------ ------------
TOTAL REVENUE 7,124,012 5,821,199
------------ ------------
EXPENSES:
Cost of Freight Revenue 4,861,439 4,265,291
General Administrative Expenses 1,712,600 1,296,091
Depreciation and Depletion 364,913 337,909
------------ ------------
TOTAL EXPENSES 6,938,952 5,899,291
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OPERATING INCOME 185,060 (78,092)
OTHER INCOME (EXPENSE)
Interest Income 3,153 8
Other Income 8,729 3,000
Interest Expense (329,695) (278,293)
Gain (Loss) on Sale of Assets (6,994) 150
------------ ------------
Total Other Income (324,807) (275,135)
------------ ------------
NET INC. (LOSS) BEFORE TAXES (139,747) (353,227)
Income Tax 0 0
------------ ------------
NET INCOME (LOSS) $ (139,747) $ (353,227)
============ ============
Net Income (Loss) Per Share $ (0.011) $ (.028)
============ ============
Weighted Average Number of Shares Outstanding 13,179,391 12,477,612
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4
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<CAPTION>
ESCO TRANSPORTATION CO.
Statement of Stockholders' Equity
For the Three Months Ended March 31, 1999 (Unaudited)
Note
Additional Retained Receivable
Paid-In Earnings Treasury From
Common Stock Capital (Deficit) Stock Shareholder Total
------------------- ---------- ---------- --------- ---------- ----------
Shares Amount
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Balance at December 31, 1998 12,527,612 $1,569 $ 931,906 $(318,844) $ (4,000) $(413,385) $ 197,246
Correction 0 (174) 174 0 0 0 0
Acquistion 100,000 10 39,990 0 0 0 40,000
Stock Issued Under Management Incentive 1,425,000 143 569,858 0 0 0 570,001
Advances to Stockholder - Stock Purchase 0 0 0 0 0 (78,847) (78,847)
Employee Stock Bonus 126,500 13 50,587 0 0 0 50,600
Treasury Stock 0 0 0 0 (18,004) 0 (18,004)
Net (Loss) 0 0 0 (139,746) 0 0 (139,746)
---------- ------- ---------- ---------- --------- ---------- ----------
Balance at March 31, 1999 14,179,112 $1,561 $1,592,515 $(458,590) $(22,004) $(492,232) $ 621,250
========== ======= ========== ========== ========= ========== ==========
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5
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<CAPTION>
ESCO TRANSPORTATION CO.
Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 1998
1999 1998
------------ ----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Cash Provided by Operating Activities $ 644,711 $ 725,705
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment 0 (25,222)
Other 0 (1,093)
Proceeds from Sale of Property and Equipment 43,542 0
Shareholder Advance (102,981) 0
------------ ----------
Net Cash Used in Investing Activities (59,439) (26,315)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Payments on Short-Term Debt 0 (64,709)
Net Payments on Long-Term Debt (503,145) (494,404)
Purchase Treasury Stock (18,004) 0
------------ ----------
Net Cash Provided (Used) by Financing Activities (521,149) (559,113)
------------ ----------
Net Increase in Cash and Cash Equivalents 64,123 140,277
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 25,833 22,678
------------ ----------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 89,956 $ 162,955
============ ==========
Non Cash Transactions:
Stock Issued to Acquire Business $ 40,000 $ 21,000
Stock Issued Under Management Incentive Agreement 570,001 0
Stock Issued to Employees 50,600 47,439
------------ ----------
Total Non-Cash Transactions $ 660,601 $ 68,439
============ ==========
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6
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7
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ITEM 1. Financial Statements (Continued)
ESCO TRANSPORTATION CO.
Notes to the Financial Statements
March 31, 1999 (Unaudited)
Note 1 - Interim Financial Statements
- ------------------------------------------
The accompanying unaudited financial statements of ESCO Transportation Co., (the
"Company") have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in annual financial statements have been condensed
or omitted pursuant to those rules and regulations. However, the Company
believes the disclosures contained herein are adequate to make the information
presented not misleading. The financial statements reflect, in the opinion of
management, all material adjustments (which include only normal recurring
adjustments) necessary to present fairly the Company's financial position and
results of operations.
Note 2 - Organization
- ------------------------
The Company was incorporated under the name of Power Oil Company in 1916 in West
Virginia. In 1992, the Company was reincorporated as a Delaware corporation.
The Company changed its name from "Power Oil Company to "ESCO Transportation
Co." in 1994.
ESCO Transportation maintains two divisions with distinct transportation
services offered by each. The Company's Intermodal division primarily hauls
container and piggyback shipments between shipping locations and railroads or
ports. This division operates out of facilities in Houston, Texas; Ontario,
California; Memphis, Tennessee; and Dallas, Texas. The Company also maintains
an Over-The-Road division that performs long haul services for numerous
customers within the United States. The main office for this division is
located in Springdale, Arkansas. The Company's corporate office is located in
Houston, Texas.
Note 3 - Summary of Significant Accounting Policies
- ----------------------------------------------------------
A. Basis of Accounting
---------------------
Income and expenses are recorded on the accrual method of accounting for
financial and federal income tax reporting purposes.
B. Use of Estimates
------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts and related disclosures. Actual results could differ
from these estimates. Management believes that the estimates are reasonable.
C. Revenue Recognition
--------------------
Revenue and direct costs are recognized when the shipment is completed.
8
<PAGE>
ITEM 1. Financial Statements (Continued)
ESCO TRANSPORTATION CO.
Notes to the Financial Statements
March 31, 1999 (Unaudited)
Note 3 - Summary of Significant Accounting Policies (Continued)
- -----------------------------------------------------------------------
D. Cash and Cash Equivalents
----------------------------
For purposes of the statements of cash flows, the Company considers all cash on
hand, cash in bank (demand deposits), savings accounts, cash held in brokerage
accounts and highly liquid debt instruments purchased with a maturity of three
months or less to be cash and cash equivalents.
E. Property and Equipment
------------------------
Property and equipment are carried at cost. Depreciation for financial
reporting purposes has been computed on the straight-line method over the
estimated useful lives of the assets which range from three to twenty years.
Accelerated methods of depreciation are used for computation of depreciation
expense for income tax reporting purposes.
F. Oil and Gas Properties
-------------------------
The Company accounts for its oil and gas exploration and development activities
using the successful efforts method. Under this method of accounting,
exploratory drilling costs which result in the discovery of proved reserves are
capitalized. All other exploratory costs, including geological and geophysical
costs, are expensed when incurred. Development costs, including development of
dry holes, are capitalized when incurred. The Company incurred no exploration
and development costs during the three months ended March 31, 1999.
Depletion of capitalized costs on producing properties is computed on a
property-by-property basis utilizing the unit-of-production method. Depletion
expense was $1,496 for 1999 and $1,494 for 1998.
Lease acquisition costs are capitalized when incurred. Leasehold improvements
are recognized through a charge to operations if the lease expires or management
decides to abandon the Company's interest.
When assets are retired, abandoned or otherwise disposed of, the related costs
and accumulated depreciation are removed from the accounts, and gain or loss is
included in income.
9
<PAGE>
ITEM 1. Financial Statements (Continued)
ESCO TRANSPORTATION CO.
Notes to the Financial Statements
March 31, 1999 (Unaudited)
Note 3 - Summary of Significant Accounting Policies (Continued)
- -----------------------------------------------------------------------
G. Income Taxes
-------------
The Company uses the liability method of accounting for income taxes under which
deferred tax assets and liabilities are recognized for deductible temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax basis. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment. For the three months ended March 31, 1999, net operating
loss benefits were offset by a valuation allowance.
H. Net Income Per Share
-----------------------
Net income per common share is based on the weighted average number of shares
outstanding during the year. The Company declared a one-for-four reverse stock
split in 1994. The Company declared a one-for-ten forward stock split in 1996.
All share and per share amounts have been adjusted to reflect the stock splits.
I. Concentration of Credit Risk
-------------------------------
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of trade accounts receivable. In the normal
course of business the Company grants credit without collateral to customers.
Consequently, the Company's ability to collect the amounts due from customers is
affected by economic conditions.
J. Fair Value of Financial Instruments
---------------------------------------
The Company has a number of financial instruments, none of which are held for
trading purposes. The Company estimates that the fair value of all financial
instruments at March 31, 1999 does not differ materially from the aggregate
carrying values of its financial instruments recorded in the accompanying
balance sheet. The estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies. Considerable judgement is necessarily required in interpreting
market data to develop the estimates of fair value, and, accordingly, the
estimates are not necessarily indicative of the amounts that the Company could
realize in the current market exchange.
10
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ITEM 1. Financial Statements (Continued)
ESCO TRANSPORTATION CO.
Notes to the Financial Statements
March 31, 1999 (Unaudited)
Note 4 - Property and Equipment
- ------------------------------------
Property and equipment consists of the following:
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<CAPTION>
Balance at Balance at
Description 3/31/99 12/31/98
- ------------------------------ ------------ ------------
<S> <C> <C>
Land $ 706,369 $ 706,370
Buildings and Improvements 13,554 13,554
Office Equipment 304,517 300,007
Communications Equipment 356,868 356,869
Furniture and Fixtures 30,133 30,133
Trucks, Tractors, and Trailers 9,128,443 9,099,802
Yard Equipment 324,728 397,539
------------ ------------
10,864,612 10,904,274
Less Accumulated Depreciation (3,101,909) (2,785,694)
------------
$ 7,762,703 $ 8,118,580
============ ============
</TABLE>
Note 5 - Long-Term Debt and Financing Arrangements
- ---------------------------------------------------------
Pursuant to a factoring agreement, the Company factors all of its accounts
receivable. The Company purchases all factored accounts receivable over ninety
days old and the factor withholds are reserved of 10% of the uncollected and
unrepurchased accounts. The factor has a security interest in accounts
receivable purchased and the Company's obligation to the factor is guaranteed by
the majority shareholder who is also an officer and another office of the
Company.
Due primarily to the repurchase feature of the factoring agreement, the Company
accounts for the factored accounts receivable as a secured borrowing rather than
a sale. Many receivables are not collected within ninety days and have to be
repurchased by the Company. As of March 31, 1999, the total amount due to the
factor is $4,787,517.
The following schedule summarizes the Company's long-term debt and capital
leases.
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<CAPTION>
Balance at
Description 3/31/99
- ---------------------------------------- -----------
<S> <C>
Stockholder Notes Payable $ 0
Notes Payable and Capital Leases Payable 6,336,585
-----------
$ 6,336,585
===========
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11
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ITEM 1. Financial Statements (Continued)
ESCO TRANSPORTATION CO.
Notes to the Financial Statements
March 31, 1999 (Unaudited)
Note 6 - Segment Information
- --------------------------------
The following represents the 1999 segment information by each of the Company's
segments or groups of services.
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<CAPTION>
Quarter Quarter
Ended Ended
3/31/99 3/31/98
----------- -----------
<S> <C> <C>
Revenue from External Customers:
Intermodal $4,393,020 $2,913,631
Over the Road 2,730,992 2,907,568
Combined Revenue $7,124,012 $5,821,199
=========== ===========
Quarter Quarter
Ended Ended
3/31/99 3/31/98
----------- -----------
Net Income:
Intermodal $ 4,240 $ (292,501)
Over the Road (143,987) (60,726)
Combined Net Income $ (139,747) $ (353,227)
=========== ===========
3/31/99 3/31/98
----------- -----------
Total Net Long Lived Assets:
Intermodal $6,690,526 Not
Over the Road 1,072,171 Available
Combined Net Assets $7,762,703
===========
</TABLE>
The information for segmented long lived assets is not readily available for
1998.
Differences in the basis of segmentation
- ---------------------------------------------
During the quarter ended March 31, 1999, the Company began segregating its
operations between the intermodal and the over the road divisions. For the
annual report ended December 31, 1998, the Company did not segregate its
operations in this manner and reported only one segment.
For the period ended March 31, 1999, all of the Company's operations are
conducted within the United States.
12
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ITEM 2. Management's Discussion and Analysis or Plan of Operation
OVERVIEW
- --------
During the first quarter of 1999, the Company began to implement substantial
changes its operating plans and directions for 1999. Effective March 1, 1999,
the Company formed a new management team consisting of Edwis Selph. Sr. as the
new Chief Executive Officer, Robert Weaver as the new President and Chief
Operating Officer, and Robert Darilek, CPA, as the Chief Financial Officer. The
team's short-term objectives were to evaluate the Company's operations and
establish long- and short-term goals for the Company. Initially, the team
evaluated activities and procedures in place through the first quarter of 1999
and assisted with the year-end closeout. The new team has been able to identify
problems in the Company's processes for billing and collecting accessorials in
addition to determining the need to formalize an operating plan and budget.
Through the end of the first quarter, the team prepared an operating budget,
identified new lines of authority and directed each terminal manager with new
objectives and responsibilities, including fiscal responsibilities, and
evaluated staffing and overall needs at each location. In addition, the new
team plans to identify potential acquisition targets of the Company to grow
revenues in the future, and identify opportunities to increase business through
relationships and expansion of business in existing operating areas.
OPERATIONS
- ----------
The Company operated at a loss for the first quarter with a substantial part
attributed to the booking of additional reserves to offset potential billing
errors which occurred during the first quarter of 1999. The management team
worked with the Company auditors to increase reserves through December 31, 1998
in an amount exceeding $300,000 and during the first quarter of 1999, increase
the reserves by an additional $30,000.
Management is also in the process of developing a long-range business plan for
the Company, including the evaluation of additional capital needs and
refinancing requirements.
Some of the key operational results that occurred in the first quarter are as
follows:
1. The Company continued to incur losses during the first quarter and
continued to use its factoring line with Commercial Billing Services to fund its
receivables and provide necessary cash flow to maintain current payments on long
and short-term debt. The general and administrative costs as a percentage of
total revenue increased over the first quarter of 1998 primarily due to costs
associated with the new management team and additional increases in the
accessorial adjustments. Although the first quarter of 1999 showed a net
operating loss, operating income was 2.6% of revenue which represented an
improvement over prior years. Management anticipates this number to increase
through the balance of 1999.
2. Because the Company continued to incur losses during the first quarter,
it continued to use its factoring line of credit with Commercial Billing
Services to fund its billings and provide the necessary cashflow to maintain
current payments on its long-term debt.
13
<PAGE>
ITEM 2. Management's Discussion and Analysis or Plan of Operation (Continued)
OPERATIONS (CONTINUED)
- -----------------------
3. Revenue for the first quarter increased by approximately $1,302,000 over
1998, representing an approximate 22% increase. The first quarter historically
represents a period of reduced activity for the Company but the first quarter of
1999 shows better than expected growth.
4. During the first quarter, the Company also added a collections manager.
The Company anticipates seeing improved cashflow from collections of past-due
balances, particularly those balances that are outside the credit terms with its
factoring company.
YEAR 2000 ISSUE
- -----------------
The Year 2000 issue is the result of date coding within computer programs that
were written using just two digits rather than four digits to define the
applicable year. If not corrected, these date codes could cause computers to
fail to calculate dates beyond 1999 and as a result, computer applications could
fail or create erroneous results by or at the Year 2000.
The Company, together with outside vendors engaged by the Company, have made
assessments of the Company's potential Year 2000 exposure related to its
computerized information systems. Because of the nature of the Company's
operations, many of its computerized information systems will be required to
process information which includes post-year 2000 date coding well in advance of
January 1, 2000. The Company has substantially completed its overall assessment
of Year 2000 issues associated with its current systems and is currently engaged
in efforts to remediate potential year 2000 exposure with respect to those
systems, including the identification, selection, and implementation of a major
new Year 2000 compliant software system. Following the remediation phase, the
Company engages in testing of the applicable systems in order to verify Year
2000 compliance. The Company utilizes a variety of remediation and testing
methods in connection with its Year 2000 compliance efforts. Management
believes that the Company's compliance plan is progressing such that Year 2000
exposures will be mitigated prior to any critical dates. To date, no material
information technology projects of the Company have been delayed as a result of
the Company's Year 2000 compliance efforts.
The Company has also made assessments of the potential Year 2000 exposure
associated with its embedded technology systems, such as telephone systems,
freight hauling tracking systems, and accounting and payment systems. Based on
such assessments, the Company does not believe that it has significant Year 2000
exposure with respect to such embedded technology systems.
The Company is currently involved in discussion with important suppliers,
business partners, customers, and other third parties to determine the extend to
which the Company may be vulnerable to the failure of these parties to identify
and correct their own Year 2000 issues. In the ongoing acquisition of software
and hardware installations, the Company generally requires that its vendors
certify the Year 2000 compliance of acquired products. The Company believes
that its own software vendors are Year 2000 compliant.
14
<PAGE>
ITEM 2. Management's Discussion and Analysis or Plan of Operation (Continued)
YEAR 2000 ISSUE (CONTINUED)
- ------------------------------
The Company is utilizing and will continue to utilize both internal and external
resources to reprogram or replace its computer systems such that the systems can
be expected to be Year 2000 compliant in advance of respective critical dates.
During the three months ended March 31, 1999, the Company capitalized $29,310
with respect to new software purchases and installations which are Year 2000
compliant. The total estimated remaining cost of modification of existing
software and new Year 2000 compliant systems is $300,000 which includes costs
attributable to the planned purchase and implementation of a new accounting and
dispatch system. The cost of this new software is being capitalized. The level
of expense anticipated in connection with Year 2000 issues is not expected to
have a material effect on the Company's result of operations. The costs of the
Company's Year 2000 compliance efforts are expected to be funded out of both
operating cash flow and outside financing.
During the quarter ended March 31, 1999, the Company continued to implement its
Year 2000 plan. The progress made was in accordance with the plan, including
progress on the new system which is expected to go online on or before December
1999. There was no new information which came to management's attention that
would indicate that the plan should be altered significantly or that the plan
would not be successful in the time frame prescribed by the plan.
The dates of expected completion and the costs of the Company's Year 2000
remediation efforts are based on management's estimates, which are derived
utilizing assumptions of future events, including the availability of certain
resources, third party remediation plans, and other factors. There can be no
guarantee that these estimates will be achieved, and if the actual timing and
costs for the Company's Year 2000 remediation program differ materially from
those anticipated, the Company's financial results and financial condition could
be significantly affected. Additionally, despite testing by the Company, the
Company's systems may contain undetected errors or defects associated with Year
2000 issues for remediation or to complete its Year 2000 remediation and testing
efforts prior to respective critical dates, as well as the failure of third
parties with whom the Company has an important relationship to identify,
remediate, and test their own Year 2000 issues and the resulting disruption
which could occur in the Company's systems and could have material adverse
effects on the Company's business, results of operations, cash flow, and
financial condition.
15
<PAGE>
ITEM 2. Management's Discussion and Analysis or Plan of Operation (Continued)
SAFE HARBOR
- ------------
This report on Form 10-Q or 10-QSB (the Report) contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
which are intended to be covered by the safe harbors created thereby. Investors
are cautioned that all forward-looking statements necessarily involve risks and
uncertainty, including, without limitation, the risk of a significant natural
disaster, the expansion or contraction in its various lines of business, the
impact of inflation, the impact of Year 2000 issues, the ability of the Company
to meet its debt obligation, changing licensing requirements and regulations in
the United States pertinent to its business, the ability of the Company to
expand its businesses, the effect of pending or future acquisitions as well as
acquisitions which have recently been consummated, general market conditions,
competition, licensing and pricing. All statements, other than statements of
historical facts, included or incorporated by reference in the Report that
address activities, events or developments that the Company expects or
anticipates will or may occur in the future, including, without limitation, such
things as future capital expenditures (including the amount and nature thereof),
business strategy and measures to implement such strategy, competitive
strengths, goals, expansion, and growth of the Company's businesses and
operations, plans, references to future success, as well as other statements
which includes words such as "anticipate," "believe," "plan," "estimate,"
"expect," and "intend" and other similar expressions, constitute forward-looking
statements. Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could over time prove to be inaccurate and, therefore, there can be
no assurance that the forward-looking statements included in this Report will
themselves prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be achieved.
CORPORATE FILINGS
- ------------------
The Company filed an amendment to its Articles of Incorporation in January 1999
to clarify the authorized capital stock in the Articles; 20,000,000 shares of
common and 15,000,000 of preferred.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Recent Developments in Legal Proceedings
The Company's two litigation matters were previously referenced in the Form
10-QSB dated March 31, 1998 and its statements are incorporated herein by
reference.
ITEM 2. Changes in Securities - NONE
ITEM 3. Defaults Upon Senior Securities - NONE
ITEM 4. Submission of Matters to a Vote of Security Holders - NONE
ITEM 5. Other Information - NONE
ITEM 6. Exhibits and Reports of Form 8-K - NONE
17
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated:
_____________________________ _____________________________
Edwis L. Selph, Sr. Date
Chairman of the Board
_____________________________ _____________________________
Robert Weaver Date
President
______________________________ _____________________________
Robert F. Darilek, CPA Date
Chief Financial Officer
18
<PAGE>
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