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 June 30, 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 June 30, 1999)
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant on June 30, 1999 was approximately $ 4,117,612.
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TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements Page
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<S> <C> <C>
Balance Sheets for the Three Months Ended June 30,
1999 (unaudited) and for the Year Ended December 31, 1998 3
(audited)
Statements of Income for the Three Months Ended
June 30, 1999 (unaudited) and 1998 (unaudited) 4
Statements of Stockholders' Equity for the Three Months
Ended June 30, 1999 (unaudited)
5
Statements of Cash Flows for the Three Months Ended
June 30, 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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PART I FINANCIAL INFORMATION
Item 1.
ESCO TRANSPORTATION CO.
Balance Sheets
June 30, 1999 December 31, 1998
--------------- -------------------
ASSETS (Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ (37,025) $ 25,833
Accounts Receivable, Net of Allowance for
Bad Debts of $472,253 in 1998 and
$402,495 in 1999 4,689,317 5,755,857
Truck Maintenance Supplies 136,951 106,058
Notes Receivable - Stockholders 726,210 51,293
Prepaid Expenses - Current 224,217 158,337
Other Current Assets 245,587 128,697
--------------- -------------------
TOTAL CURRENT ASSETS 5,985,257 6,226,075
--------------- -------------------
PROPERTY AND EQUIPMENT
Property and Equipment 10,675,017 10,904,274
Less Accumulated Depreciation (3,300,715) (2,785,694)
--------------- -------------------
7,374,302 8,118,580
--------------- -------------------
OTHER ASSETS
Prepaid Insurance - Net of Current Portion 0 64,500
Other Assets - Non Current 133,946 133,090
--------------- -------------------
133,946 197,590
--------------- -------------------
TOTAL ASSETS $ 13,493,505 $ 14,542,245
=============== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable - Trade $ 729,634 $ 756,895
Accrued and Other Liabilities 799,577 313,893
Amounts Due Factor 5,364,675 6,434,481
Current Portion of Long-Term Debt 1,855,975 1,860,814
--------------- -------------------
TOTAL CURRENT LIABILITIES 8,749,861 9,366,083
--------------- -------------------
LONG-TERM DEBT - NET OF CURRENT PORTION 3,931,328 4,978,916
DEFERRED INCOME TAXES 0 0
COMMITMENTS 0 0
STOCKHOLDERS' EQUITY
Common Stock, $.0001 Par Value; 35,000,000
Shares Authorized; 14,179,112 and 12,527,612 Shares
Issued and Outstanding in 1999 and 1998 1,561 1,569
Additional Paid-In Capital 1,592,515 931,906
Retained Earnings (Deficit) (236,275) (318,844)
--------------- -------------------
1,357,801 614,631
Less Note Receivable from Stockholders (523,481) (413,385)
Less Treasury Stock, At Cost (22,004) (4,000)
--------------- -------------------
TOTAL STOCKHOLDERS' EQUITY 812,316 197,246
--------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,493,505 $ 14,542,245
=============== ===================
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3
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<TABLE>
<CAPTION>
ESCO TRANSPORTATION CO.
Statements of Income
For the Three and Six Months Ended
June 30, 1999 and 1998
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
1999 1998 1999 1998
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUE:
Freight Revenue $ 8,455,025 $ 6,731,585 $15,577,866 $12,642,345
Oil and Gas Revenue 963 1,116 2,134 2,580
------------ ------------ ------------ ------------
TOTAL REVENUE 8,455,988 6,732,701 15,580,000 12,644,925
------------ ------------ ------------ ------------
EXPENSES:
Cost of Freight Revenue 5,914,582 4,857,425 10,776,020 9,047,124
General Administrative Expenses 1,678,890 1,285,575 3,391,490 2,581,667
Depreciation and Depletion 368,400 338,888 733,313 676,797
------------ ------------ ------------ ------------
TOTAL EXPENSES 7,961,872 6,481,888 14,900,823 12,305,588
------------ ------------ ------------ ------------
OPERATING INCOME 494,116 250,813 679,177 339,337
OTHER INCOME (EXPENSE)
Interest Income 9,837 1,733 12,990 1,741
Other Income 6,289 8,700 15,016 11,700
Interest Expense (339,163) (344,703) (668,858) (622,996)
Gain (Loss) on Sale of Assets 51,237 80,125 44,244 80,275
------------ ------------ ------------ ------------
(271,800) (254,145) (596,608) (529,280)
------------ ------------ ------------ ------------
NET INC. (LOSS) BEFORE TAXES 222,316 (3,332) 82,569 (189,943)
Income Tax 0 0 0 0
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 222,316 $ (3,332) $ 82,569 $ (189,943)
============ ============ ============ ============
Net Income (Loss) Per Share $ 0.016 $ (0.000) $ 0.006 $ (0.015)
============ ============ ============ ============
Weighted Average Number of Shares Outstanding 14,179,112 12,511,678 13,682,013 12,494,739
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4
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<CAPTION>
ESCO TRANSPORTATION CO.
Statement of Stockholders' Equity
For the Six Months Ended June 30, 1999 (Unaudited)
Note
Additional Retained Receivable
Paid-In Earnings Treasury From
Common Stock Capital (Deficit) Stock Shareholder Total
------------------- ---------- ---------- --------- ---------- ----------
Shares Amount
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<S> <C> <C> <C> <C> <C> <C> <C>
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
Acquisition 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 (110,096) (110,096)
Employee Stock Bonus 126,500 13 50,587 0 0 0 50,600
Purchase of Treasury Stock 0 0 0 0 (18,004) 0 (18,004)
Net Income (Loss) 0 0 0 82,569 0 0 82,569
---------- ------- ---------- ---------- --------- ---------- ----------
Balance at June 30, 1999 14,179,112 $1,561 $1,592,515 $(236,275) $(22,004) $(523,481) $ 812,316
========== ======= ========== ========== ========= ========== ==========
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5
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<CAPTION>
ESCO TRANSPORTATION CO.
Statements of Cash Flows
For the Six Months Ended June 30, 1999 and 1998
1999 1998
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Cash Provided by Operating Activities $ 1,093,232 $ 1,457,427
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (136,194) (44,228)
Proceeds from Sale of Property and Equipment 270,547 220,903
Stockholder Advance (220,012) (198,301)
Purchase Non-Compete Agreement 0 (135,560)
------------ ------------
Net Cash Used in Investing Activities (85,659) (157,186)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Payments on Short-Term Debt 0 (70,319)
Net Payments on Long-Term Debt (1,093,650) (1,100,676)
Proceeds from Capital Leases 53,934 0
Payments on Capital Leases (12,711) 0
Purchase Treasury Stock (18,004) 0
------------ ------------
Net Cash Provided (Used) by Financing Activities (1,070,431) (1,170,995)
------------ ------------
Net Increase in Cash and Cash Equivalents (62,858) 129,246
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 25,833 22,678
------------ ------------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ (37,025) $ 151,924
============ ============
Non Cash Transactions:
Stock issued to acquire business $ 40,000 $ 21,000
Stock issued under management incentive agreements 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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ITEM 1. Financial Statements (Continued)
ESCO TRANSPORTATION CO.
Notes to the Financial Statements
June 30, 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.
7
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ITEM 1. Financial Statements (Continued)
ESCO TRANSPORTATION CO.
Notes to the Financial Statements
June 30, 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 six
months ended June 30, 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 $2,992 for 1999 and $2,988 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.
8
<PAGE>
ITEM 1. Financial Statements (Continued)
ESCO TRANSPORTATION CO.
Notes to the Financial Statements
June 30, 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 six months
ended June 30, 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 June 30, 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.
9
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ITEM 1. Financial Statements (Continued)
ESCO TRANSPORTATION CO.
Notes to the Financial Statements
June 30, 1999 (Unaudited)
Note 4 - Property and Equipment
- ------------------------------------
Property and equipment consists of the following:
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<CAPTION>
Balance at Balance at
Description 6/30/99 12/31/98
- ------------------------------ ------------ ------------
<S> <C> <C>
Land $ 706,369 $ 706,370
Buildings and Improvements 13,554 13,554
Office Equipment 322,812 300,007
Communications Equipment 363,682 356,869
Furniture and Fixtures 30,133 30,133
Trucks, Tractors, and Trailers 8,999,379 9,099,802
Yard Equipment 239,088 397,539
------------ ------------
10,675,017 10,904,274
Less Accumulated Depreciation (3,300,715) (2,785,694)
------------ ------------
$ 7,374,302 $ 8,118,580
============ ============
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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 June 30, 1999, the total amount due to the
factor is $5,364,675.
The following schedule summarizes the Company's long-term debt and capital
leases.
<TABLE>
<CAPTION>
Balance at
Description 6/30/99
- ---------------------------------------- -----------
<S> <C>
Stockholder Notes Payable $ 0
Notes Payable and Capital Leases Payable 5,787,303
-----------
$ 5,787,303
===========
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10
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ITEM 1. Financial Statements (Continued)
ESCO TRANSPORTATION CO.
Notes to the Financial Statements
June 30, 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 Six Months Six Months
Ended Ended ended ended
6/30/99 6/30/98 6/30/99 6/30/98
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue from External Customers:
Intermodal $5,124,214 $ 3,787,107 $ 9,517,224 $ 6,791,763
Over the Road 3,331,784 2,945,594 6,062,776 5,853,162
Combined Revenue $8,455,998 $ 6,732,701 $15,580,000 $12,644,925
=========== ============ ============ ============
Quarter Quarter Six Months Six Months
Ended Ended ended ended
6/30/99 6/30/98 6/30/99 6/30/98
----------- ------------ ------------ ------------
Net Income:
Intermodal $ 228,054 $ 137,978 $ 232,294 $ 12,093
Over the Road (5,738) (141,310) (149,725) (202,036)
Combined Net Income $ 222,316 $ (3,332) $ 82,569 $ (189,943)
=========== ============ ============ ============
6/30/99 6/30/98
----------- ------------
Total Net Long Lived Assets:
Intermodal $6,469,451 Not
Over the Road 904,851 Available
-----------
Combined Net Assets $7,374,302
===========
</TABLE>
The information for segmented long lived assets is not available for 1998.
Differences in the Basis of Segmentation
- ---------------------------------------------
During the quarter ended June 30, 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 June 30, 1999, all of the Company's operations are
conducted within the United States.
11
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ITEM 2. Management's Discussion and Analysis or Plan of Operation
OVERVIEW
- --------
During the second quarter of 1999, the Company continued to implement numerous
changes resulting from input of the new management team. These changes included
the following:
a. The addition of a new Vice President of Operations to review processes at
all locations and ensure procedures are in place to identify and correct
billing errors. The new Vice President of Operations' responsibilities also
includes oversight of processes to improve on-time performance and
accountability of the terminal managers.
b. The addition of a new corporate Controller to monitor day-to-day accounting
department operations. The short-term objectives of the accounting
department are to improve monthly reporting processes and ensure proper
cutoffs on a monthly basis. The Company has also implemented procedures to
forward financial data timely to the department managers, which allows for
timely adjustments, and issuing weekly reports on actual versus budgeted
revenue.
Management continues to expand its opportunities for growth and signed a letter
of intent to acquire Panther Lines, Inc. and Value Distribution, Inc. (See
December 31, 1998 Form 10-KSB, MD&A Discussion incorporated herein by
reference.) Management plans to continue negotiations with investors to add
working capital to the Company through additional debt on equity contributions.
OPERATIONS
- ----------
The operating results for the second quarter resulted in an operating income of
$222,000, which primarily resulted in a substantial decline in accessorial
adjustments and increased revenue for the quarter. Revenue increased by
$1,723,000 or 25% over 1998. The net results were substantially ahead of budget
and the Company will continue to expand business opportunities to facilitate
profitability for the remainder of 1999.
Administrative costs for the second quarter decreased from the first quarter
primarily because of a decline in accessorial adjustments. Certain
administrative costs increased, including the cost of the additional management
team and audit costs that were incurred during this period.
During the second quarter, the management team identified a new financial and
dispatch system which will network all offices to a centralized location at the
corporate headquarters in Houston, Texas. Management is proceeding to map a
timeline to implement the software before the end of 1999. (See Year 2000
Issue.)
By the end of the second quarter, the Company began to experience improvement in
its operations and see improvement in cash collections from the collections
manager. The Company fully intends to continue this management strategy and
identify areas of cost containment, including evaluation of personnel needs, and
the consideration of methods in which to reduce overall administrative costs
during the remaining quarters of 1999.
12
<PAGE>
ITEM 2. Management's Discussion and Analysis or Plan of Operation
(Continued)
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. 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 requests that its vendors
certify the Year 2000 compliance of acquired products. The Company believes
that its own software vendors are Year 2000 compliant.
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 six months ended June 30, 1999, the Company expensed $17,920 with
respect to Year 2000 compliance and 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.
13
<PAGE>
ITEM 2. Management's Discussion and Analysis or Plan of Operation
(Continued)
YEAR 2000 ISSUE (CONTINUED)
- ------------------------------
During the quarter ended June 30, 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.
STOCKHOLDER ADVANCES
- ---------------------
As noted in Note M to the financial statements in the December 31, 1998 10-KSB,
the Company has and continues to advance funds to a major stockholder for the
purchase of company shares owned by the stockholder. As also noted in the
December 31, 1998 10-KSB MD&A discussion, the Company has signed a letter of
intent to acquire Panther Lines, Inc and Value Distribution, Inc. in Los Angeles
and Stockton, California. As part of the purchase transaction, the stockholder
has agreed to contribute 1,000,000 shares of common stock to facilitate the
transaction and reduce or eliminate any receivable due from the stockholder.
14
<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.
15
<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
16
<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
17
<PAGE>
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