<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1998
--------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ________________ to ___________
Commission file number 0-25352
------------
Ampace Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3988574
- --------------------------------- -------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
201 Perimeter Park Road, Suite A, Knoxville, TN 37922
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(423) 691-5799
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 No X
------ ----------
State the number of shares outstanding of each of the Issuer's classes
of common equity, as of the last practicable date: 3,062,713 at October 31, 1998
------------------------------
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
See Financial Statements attached hereto. These financial statements
have been amended to reflect $859,250 of additional goodwill and other
intangible assets impairment charges and to reclassify $364,000 of expenses
previously recorded as restructuring costs as additional depreciation and
amortization costs.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations should be read in conjunction with the
attached unaudited interim condensed consolidated financial statements and notes
thereto, and with the Company's audited consolidated financial statements and
notes thereto for the calendar year ended December 31, 1997.
The condensed consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The Company has suffered
recurring losses from operations, has a deficit working capital at June 30, 1998
of approximately $10.5 million, and is in violation of certain of the financial
covenants under its line of credit agreement that expires on January 1, 1999 for
which no commitments exist to refinance, all of which raise substantial doubt
about the Company's ability to continue as a going concern. See Notes 2 and 5 of
the Notes to Condensed Consolidated Financial Statements and the discussion
included herein for further information on these matters and management's plans.
The condensed consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1997 TO THREE MONTHS ENDED JUNE 30,
1998
The following table sets forth items in the Condensed Consolidated
Statements of Operations as a percentage of operating revenues for the three
months ended June 30:
<TABLE>
<CAPTION>
Percentage of
Operating Revenue
-----------------------------
1997 1998
------ ------
<S> <C> <C>
Operating revenues 100.0% 100.0%
------ ------
Operating expenses:
Salaries, wages and employee benefits 39.2 39.6
Purchased transportation 9.2 16.0
Fuel 16.1 12.3
Depreciation and amortization 11.8 13.1
Rent 7.4 7.3
Operating supplies and expenses 7.1 10.7
Insurance and claims 2.8 3.0
Operating taxes and licenses 2.1 1.5
General and administrative expenses 3.2 5.6
Communications and utilities 1.6 2.2
Restructuring charge -- 18.1
------ ------
Total operating expenses 100.5 129.4
------ ------
Operating loss (0.5) (29.4)
Interest expense, net 4.0 3.4
------ ------
Loss before income taxes (4.5) (32.8)
------ ------
Income taxes (1.6) --
------ ------
Net loss (2.9)% (32.8)%
====== ======
</TABLE>
<PAGE> 3
OPERATING REVENUES
Operating revenues for the second quarter of 1998 increased
approximately $2.2 million or 25% to $11.0 million from $8.8 million in the
second quarter of 1997. The increase in operating revenues was due primarily to
increased revenues associated with the completion of the Company's fifth and
sixth acquisitions, Walker Trucking which became the Columbus operation of
Ampace Freightlines, effective June 1, 1997, and Roy Widener Motor Lines, Inc.
and Morristown Transportation Systems, Inc. ("Widener acquisition") which became
the East Tennessee operation of Ampace Freightlines, effective January 29, 1998,
respectively.
The net loss for the quarter ended June 30, 1997 increased from
$258,875 to $3,608,850 for the quarter ended June 30, 1998. This increase was
due primarily to losses generated from the operations of the two most recent
acquisitions, Walker Trucking and Widener acquisition, and the recognition of an
approximate $2.0 million restructuring charge. The loss will negatively impact
the Company's ability to become profitable in 1998.
OPERATING EXPENSES
Salaries, wages and employee benefits increased from 39.2% of revenue
in 1997 to 39.6% of revenue in 1998 due to increased wages and employee health
benefits. Purchased transportation increased from 9.2% of revenue in 1997 to
16.0% for 1998. This increase was the result of the increased usage of
independent contractors. Fuel expense declined from 16.1% during the second
quarter of 1997 to 12.3% in 1998 as a result of lower fuel prices and higher
miles per gallon during 1998 and because a higher percentage of revenue was
handled by independent contractors during 1998.
Depreciation and amortization as a percentage of revenue increased from
11.8% during the second quarter of 1997 to 13.1% for the same period in 1998.
Included in depreciation and amortization expense for 1998 are approximately
$364,000 of equipment abandonment losses and approximately $42,000 of gains on
sale of equipment; included in depreciation and amortization for 1997 are
approximately $27,000 of losses on sale of equipment. Excluding such losses,
depreciation and amortization as a percentage of revenues would be less than the
corresponding period in the previous year due to additional freight handled by
independent contractors in 1998. Operating supplies and expenses increased as a
percentage of revenue in the second quarter of 1998 to 10.7% from 7.1% for the
same period in 1997 primarily as a result of the Widener acquisition and the
integration charges associated with it. Operating taxes and licenses decreased
from 2.1% of revenue in 1997 to 1.5% for 1998. This decrease was the result of
tax savings associated with recently implemented tax minimization strategies
which include the registration of equipment in the specific states of use and
the increased usage of owner operators during 1998.
General and administrative expenses increased from 3.2% of revenue
during the second quarter of 1997 to 5.6% during 1998. This increase was created
by significant consulting and legal fees incurred in the second quarter as a
result of the development and implementation of the restructuring plans as well
as significant temporary labor expenses that were incurred during the second
quarter for special projects. Communication expense increased from 1.6% of
revenue in the second quarter of 1997 to 2.2% of revenue in 1998. This increase
resulted from additional usage of in-truck mobile communications and dedicated
phone lines required due to the Company's most recent acquisitions. The
restructuring charge in 1998 is the result of management's decision to scale
back the level of operations of the Company, downsizing of the Company's fleet
of revenue equipment, and concentrating efforts within the most profitable
regions and on the most profitable customers.
Interest expense as a percentage of revenue decreased to 3.3% in 1998
from 4.0% in 1997 due to a greater revenue base.
For the quarter ended June 30, 1998, the Company did not recognize any
deferred income tax benefit from the operating losses generated. The ultimate
realization of the operating loss carryforwards generated during the quarter
ended June 30, 1998 and those generated in previous years is dependent upon the
generation of future taxable income. Management considers the scheduled reversal
of deferred tax liabilities, projected future taxable income, and tax planning
<PAGE> 4
strategies in making this assessment. Based upon levels of historical taxable
losses and uncertainty regarding the generation of taxable income in future
years, management has established a valuation allowance equal to net deferred
tax assets at June 30, 1998.
During June 1998, the Company adopted a restructuring plan with the
purpose of downsizing the current fleet and taking the Company forward through
the last six months of 1998. The Company abandoned its previous strategy of
acquiring companies to maintain growth and achieve critical mass. The Company
instead focused on profit improvement and cash flow management. Under the
restructuring plan, the Company intends to reduce its number of tractors and
trailers in operation by approximately 75 and 570 units, respectively. In
addition to the reduction of the fleet size, the Company plans to sell the
Columbus, Ohio and Orlando, Florida operating locations, and to close the
Asheboro, North Carolina facility and combine its Morristown and Knoxville,
Tennessee office locations. In connection with the restructuring plan
implemented by the Company during June of 1998, the Company recorded a charge
for restructuring costs in the amount of $1,995,250 which consists of the
following items: approximately $582,000 due to the impairment of goodwill
associated with certain facilities; approximately $581,000 due to the impairment
of a noncompete covenant associated with one of these facilities; approximately
$567,000 for estimated losses to be incurred as a result of the fleet downsizing
and the disposal of certain terminals; approximately $180,000 for severance pay;
and approximately $85,000 for other costs to be incurred as a result of the
restructuring of the Company.
There exists a reasonable possibility that additional impairments of
long-lived assets, including intangible assets and goodwill, may be necessary in
the near term. If such impairment provisions or other exit costs are required in
the near term, it is reasonably possible that such charges will have a material
adverse effect on the Company's financial condition, results of operations and
liquidity.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 TO SIX MONTHS ENDED JUNE 30, 1998
The following table sets forth items in the Condensed Consolidated
Statements of Operations as a percentage of operating revenues for the six
months ended June 30:
<TABLE>
<CAPTION>
Percentage of
Operating Revenue
-----------------------------
1997 1998
------ ------
<S> <C> <C>
Operating revenues 100.0% 100.0%
------ ------
Operating expenses:
Salaries, wages and employee benefits 39.6 40.7
Purchased transportation 9.1 16.2
Fuel 16.9 12.5
Depreciation and amortization 12.1 11.1
Rent 5.9 7.6
Operating supplies and expenses 7.5 10.0
Insurance and claims 3.3 3.2
Operating taxes and licenses 2.0 1.8
General and administrative expenses 1.4 4.9
Communications and utilities 1.6 1.9
Restructuring charge -- 9.4
------ ------
Total operating expenses 99.4 119.3
------ ------
Operating income (loss) 0.6 (19.3)
Interest expense, net 4.3 3.2
------ ------
Loss before income taxes (3.7) (22.5)
Income taxes (1.3) --
------ ------
Net loss (2.4)% (22.5)%
====== ======
</TABLE>
<PAGE> 5
OPERATING REVENUES
Operating revenues for the first six months of 1998 increased
approximately $4.8 million or 29% to $21.3 million from $16.5 million in the
first six months of 1997. The increase in operating revenues was due primarily
to increased revenues associated with the completion of the Company's fourth,
fifth and sixth acquisitions, Bar-J Enterprises which was combined into the
existing Calhoun operation, effective May 5, 1997, Walker Trucking which became
the Columbus operation of Ampace Freightlines, effective June 1, 1997, and Roy
Widener Motor Lines, Inc. and Morristown Transportation System, Inc. (Widener
acquisition) which became the East Tennessee operation of Ampace Freightlines,
effective January 29, 1998, respectively.
The net loss for the six months ended June 30, 1997 increased from
$395,442 to $4,772,167 for the six months ended June 30, 1998. This increase was
due primarily to losses generated from the operations of the two most recent
acquisitions, Walker Trucking and the Widener acquisition, and the recognition
of an approximate $2.0 million restructuring charge. In addition, a favorable
sales tax refund was recognized in the first quarter of 1997. The loss will
negatively impact the Company's ability to become profitable in 1998.
OPERATING EXPENSES
Salaries, wages and employee benefits increased from 39.6% of revenue
in 1997 to 40.6% of revenue in 1998 due to increased wages and employee health
benefits. Purchased transportation increased from 9.1% of revenue in 1997 to
16.2% for 1998. This increase was the result of the increased usage of
independent contractors. Fuel expense declined from 16.9% during the first six
months of 1997 to 12.5% in 1998 as a result of lower fuel prices and higher
miles per gallon during 1998 and because a higher percentage of revenue was
handled by independent contractors during 1998.
Depreciation and amortization as a percentage of revenue declined from
12.1% during the first six months of 1997 to 11.1% for the same period in 1998
as a result of the additional freight handled by independent contractors in
1998. Rent increased during 1998 to 7.6% from 5.9% in 1997 as a result of
financing some of the 1997 and 1998 acquisition and expansion equipment with
operating leases. Operating supplies and expenses increased as a percentage of
revenue in the first six months of 1998 to 10.0% from 7.5% for the same period
in 1997 primarily as a result of the Widener acquisition and the integration
charges associated with it. Operating taxes and licenses decreased from 2.0% of
revenue in 1997 to 1.8% for 1998. This decrease was the result of tax savings
associated with tax minimization strategies which include the registration of
equipment in the specific states of use and the increased usage of owner
operators during 1998.
General and administrative expenses increased from 1.4% of revenue
during the first six months of 1997 to 4.9% during 1998. This increase was
created by a one time sales tax refund recognized in the first quarter of 1997
and significant consulting and legal fees incurred in the second quarter of 1998
as a result of the determination of restructuring plans. Additionally,
significant temporary labor expenses were incurred during the second quarter
prior to the May 8, 1998 headcount reduction. Communication expense increased
from 1.6% of revenue in the first six months of 1997 to 1.9% of revenue in 1998.
This increase resulted from additional usage of in-truck mobile communications
and dedicated phone lines required due to the Company's most recent
acquisitions.
For the six months ended June 30, 1998, the Company did not recognize
any deferred income tax benefit from the operating losses generated. The
ultimate realization of the operating loss carryforwards generated during the
six months ended June 30, 1998 and those generated in previous years is
dependent upon the generation of future taxable income. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon levels of
historical taxable losses and uncertainty regarding the generation of taxable
income in future years, management has established a valuation allowance equal
to net deferred tax assets at June 30, 1998.
For a discussion of the restructuring charges, see management's
discussion and analysis for the second quarter.
<PAGE> 6
LIQUIDITY AND CAPITAL RESOURCES
Since its public stock offering in February 1995, the Company has used
the proceeds from the offering to fund acquisitions and support business
development activities. Working capital requirements have been funded with cash
generated from operations and a line of credit secured by the Company's trade
receivables. Equipment purchases have principally been financed by manufacturers
or by asset-based lenders.
During the second quarter of 1998, the Company borrowed approximately
$525,500 from its line of credit to support working capital needs.
Current liabilities at December 31, 1997 and June 30, 1998 include the
guaranteed residuals of maturing capitalized leases, while the corresponding
asset values are shown as property and equipment, a long-term asset. This amount
of guaranteed residuals is approximately $2.7 million at June 30, 1998.
During February 1998 the loan covenants on the Company's line of credit
were modified to require (i) a minimum tangible net worth of $1.0 million at
March 31, 1998, (ii) a minimum net worth of $4.6 million at September 30, 1998,
(iii) a debt-to-equity ratio not to exceed 4:1 at September 30, 1998, and (iv)
maintenance of a $600,000 excess borrowing base at September 30, 1998. In
addition to the above mentioned loan covenant changes, the interest rate on the
line of credit was increased to 1% over the bank's Prime Rate on June 30, 1998
and will be increased to 2% over the bank's Prime Rate at July 31, 1998. As of
June 30, 1998, the Company was in violation of financial covenants under the
Company's line of credit. The agreement expires on January 1, 1999, and has been
classified as a current liability at June 30, 1998. The Company has had
discussions with its revolving credit lender who has indicated that it will most
likely discontinue its relationship with the Company upon maturity of the
current lending arrangement. The Company has no commitment for financing to
replace the facility on January 1, 1999.
As of June 30, 1998, approximately 65% of the trade payables were past
due, and, of the amount past due, approximately 6% were greater that 45 days
past due. The Company has been using the extensions of vendor payables to create
short-term cash flow. The Company's efforts to maximize the short-term cash flow
of the Company has not seriously jeopardized relationships with trade vendors
and has allowed the Company to continue to make payroll. The Company will
continue to extend its vendors for the remainder of the year. However, there can
be no assurance that the Company's trade vendors will allow such extensions to
continue.
During June 1998, the Company adopted a restructuring plan with the
purpose of downsizing the current fleet and taking the Company forward through
the last six months of 1998. Under the restructuring plan, the Company intends
to reduce its current number of tractors and trailers in operation by
approximately 75 and 570 units, respectively. This reduction of revenue
equipment will be accomplished through the cancellation of existing operating
leases, turning in revenue equipment for which the related obligations are
expiring and selling equipment and using the sales proceeds to pay off equipment
obligations. In addition to the fleet reductions, management is also in
discussion with each of its revenue equipment vendors/creditors, from several of
whom the Company has obtained written commitments for restructured debt terms
which include payment deferrals for up to six months, refinancing of the related
obligations over extended periods and other debt modifications.
The Company has also had discussions with its revolving credit lender
who has indicated they will not call the debt prior to its maturity date of
January 1, 1999, assuming that the collateral borrowing base, which management
currently projects to not decline significantly based on the proposed
restructuring previously discussed, does not significantly deteriorate during
the remainder of 1998. However, the revolving credit lender has indicated its
intent that it will most likely discontinue its relationship with the Company
upon the maturity of the current lending arrangement.
Although management has undertaken extensive restructuring efforts,
there can be no assurance that the Company will be able to effectively implement
the restructuring plan as described above such that the Company will be able to
significantly improve operating results or become
<PAGE> 7
profitable during 1998. Should the Company be unable to effectively implement
the restructuring plan or obtain additional short-term and long-term financing
alternatives, management may have to make further downsizing and restructuring
decisions which could include filing for relief under Federal bankruptcy laws.
YEAR 2000 COMPLIANCE
The Company began assessing its information technology systems to
determine if such systems were Year 2000 compliant in 1997 and has determined
that such systems are not compliant. To become compliant, management has
determined that it must purchase new software for all of its financial
information reporting as well as for its freight dispatching purposes. The
Company believes that various vendors can provide the Company with such software
programs which are Year 2000 compliant. Although the Company has not determined
which such software programs are best suited for its needs, and accordingly does
not know what the cost of such programs will be, management believes that the
cost of such programs including installation will be less than $100,000 assuming
that outside resources are not necessary to implement the conversion to the new
systems.
The Company has not adopted a formal plan to contact its vendors and
customers to determine whether their systems are Year 2000 compliant. Daily
business transactions include electronic data interchange of information (EDI)
with customers as well as the use of electronic fuel cards for over the road
fuel purchases and repair expenses. Year 2000 compliance failures in these areas
could negatively impact the Company's ability to operate the freight equipment
or bill and collect revenues.
The ability of the Company to become Year 2000 compliant will be
influenced in part by the success of their other restructuring efforts and to
obtain adequate financing. The Company has not adopted a contingency plan for
addressing Year 2000 issues.
FORWARD LOOKING STATEMENTS
This report contains statements that may be considered as
forward-looking or predictions concerning future operations. Such statements are
based on management's belief or interpretation of information currently
available. These statements and assumptions involve certain risks and
uncertainties and management can give no assurance that such expectations will
be realized. Among all the factors and events that are not within the Company's
control and could have a material impact on future operating results are general
economic conditions, cost and availability of diesel fuel, adverse weather
conditions, availability of drivers, the ability to obtain adequate financing
and the ability to achieve profitable operations. In addition, the Year 2000
issue is extremely complex and compliance failures on the part of customers
and/or vendors that are outside the control of the Company could have a material
negative impact on future operating results.
<PAGE> 8
PART II
OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
The Company's line of credit contains certain loan covenants, including
the following financial covenants in which the Company must maintain: (i) a
minimum tangible net worth of $1.0 million at 3/31/98, (ii) a minimum net worth
of $4.6 million at 9/30/98, (iii) a debt-to-equity ratio not to exceed 4:1 at
9/30/98, and (iv) maintenance of a $600,000 excess borrowing base at 9/30/98. As
of June 30, 1998, the Company was in violation of certain of these financial
covenants with respect to its line of credit.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit No. Description
27 Financial Data Schedule
<PAGE> 9
AMPACE CORPORATION & SUBSIDIARY
Condensed Consolidated Balance Sheets
December 31, 1997 and June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 539,165 --
Accounts Receivable, net 4,084,210 5,004,200
Other current assets 1,066,138 862,287
------------ -----------
Total current assets 5,689,513 5,866,487
------------ -----------
Property and equipment, net 10,146,259 16,203,123
Other assets 2,295,674 1,703,573
------------ -----------
$ 18,131,446 23,773,183
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt and
capital lease obligations 4,233,820 9,885,467
Other current liabilities 2,558,626 6,488,369
------------ -----------
Total current liabilities 6,792,446 16,373,836
Long-term debt and capital lease obligations
excluding current installments 6,277,118 7,109,632
------------ -----------
Total liabilities 13,069,564 23,483,468
------------ -----------
Stockholders' equity:
Common stock, $.0001 par value. Authorized
10,000,000 and issued 3,075,000 shares in 1997
and 3,100,000 shares in 1998 308 310
Additional paid in capital 7,475,874 7,475,872
Accumulated deficit (2,371,147) (7,143,314)
Treasury stock, 37,287 shares at cost (43,153) (43,153)
------------ -----------
Total stockholders' equity 5,061,882 289,715
------------ -----------
Commitments and contingencies $ 18,131,446 23,773,183
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 10
AMPACE CORPORATION & SUBSIDIARY
Condensed Consolidated Statements of Operations
Three Months Ended June 30, 1997 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1997 1998
------------ -----------
<S> <C> <C>
Operating revenues $ 8,817,233 11,005,643
------------ -----------
Operating expenses:
Salaries, wages and employee benefits 3,455,362 4,357,842
Purchased transportation 814,337 1,759,837
Fuel 1,418,056 1,350,375
Depreciation & amortization 1,044,326 1,437,347
Rent 649,871 806,717
Operating supplies & expenses 624,680 1,180,788
Insurance & claims 246,273 325,060
Operating taxes & licenses 187,240 168,208
General & administrative expenses 284,041 622,590
Communication & utilities 137,777 241,334
Restructuring charge -- 1,995,250
------------ -----------
Total operating expenses 8,861,964 14,245,348
Operating loss (44,731) (3,239,705)
Interest expense, net 352,735 369,145
------------ -----------
Loss before taxes (397,466) (3,608,850)
Income taxes (138,591) --
------------ -----------
Net loss $ (258,875) (3,608,850)
============ ===========
Weighted average common shares-basic and diluted 3,100,000 3,062,713
============ ===========
Loss per share - basic and diluted $ (.08) $ (1.18)
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 11
AMPACE CORPORATION & SUBSIDIARY
Condensed Consolidated Statements of Operations
Six Months Ended June 30, 1997 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1997 1998
------------ -----------
<S> <C> <C>
Operating revenues $ 16,503,323 21,261,648
------------ -----------
Operating expenses:
Salaries, wages and employee benefits 6,532,411 8,641,959
Purchased transportation 1,509,695 3,441,418
Fuel 2,785,203 2,662,182
Depreciation & amortization 1,998,848 2,367,892
Rent 980,345 1,618,199
Operating supplies & expenses 1,235,855 2,134,549
Insurance & claims 538,397 670,650
Operating taxes & licenses 337,585 371,787
General & administrative expenses 224,698 1,049,270
Communication & utilities 264,724 409,616
Restructuring charge -- 1,995,250
------------ -----------
Total operating expenses 16,407,761 25,362,72
Operating income (loss) 95,562 (4,101,124)
Interest expense, net 708,856 671,043
------------ -----------
Loss before taxes (613,294) (4,772,167)
Income taxes (217,852) --
------------ -----------
Net loss $ (395,442) (4,772,167)
============ ===========
Weighted average common shares-basic and diluted 3,100,000 3,062,713
============ ===========
Loss per share - basic and diluted $ (.13) (1.56)
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 12
AMPACE CORPORATION & SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1997 1998
------------ -----------
<S> <C> <C>
Operating activities:
Net loss $ (395,442) (4,772,167)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 1,998,848 2,367,892
Restructuring charges -- 1,163,250
Changes in operating assets and liabilities:
Accounts receivable, net (1,572,447) (919,990)
Other current assets (766,536) 363,771
Other current liabilities 980,294 3,506,335
------------ -----------
Net cash provided by operating activities 244,717 1,127,841
------------ -----------
Investing activities:
Proceeds from disposals of equipment 636,805 774,701
Acquisitions (438,924) (223,715)
Purchases of property and equipment (450,356) (3,615,653)
------------ -----------
Net cash used by investing activities (252,475) (3,064,667)
------------ -----------
Financing activities:
Proceeds from long-term debt 1,523,000 3,431,744
Purchase of treasury stock (6,103) --
Payment of non-compete obligation (77,000) --
Principal payments on long-term debt and capital leases (1,589,709) (2,034,083)
------------ -----------
Net cash provided (used) by financing activities (149,812) 1,397,661
------------ -----------
Net decrease in cash and cash equivalents (157,570) (539,165)
Cash and cash equivalents at beginning of period 534,629 539,165
------------ -----------
Cash and cash equivalents at end of period $ 377,059 --
------------ ===========
Supplementary disclosure of cash flow information:
Interest paid $ 709,000 627,007
============ ===========
Income taxes refunded $ -- (336,081)
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE> 13
AMPACE CORPORATION & SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) BASIS OF PRESENTATION
The interim consolidated condensed financial statements contained herein
reflect all adjustments which, in the opinion of management, are
necessary for a fair statement of financial condition, results of
operations and cash flows for the periods presented. They have been
prepared in accordance with Rule 10-01 of Regulation S-X and do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. Operating
results for the three months and for the six months ended June 30, 1998
are not necessarily indicative of the results that may be expected for
the entire year ending December 31, 1998. These condensed consolidated
financial statements should be read in conjunction with the audited
financial statements and the notes, as filed with the Securities and
Exchange Commission as part of the Company's 1997 Form 10-KSB.
The condensed consolidated financial statements have been prepared assuming
the Company will continue as a going concern. The Company has suffered
recurring losses from operations, has a deficit in working capital at
June 30, 1998 of approximately $10.5 million, and is in violation of
certain of the financial covenants under its line of credit agreement
that expires on January 1, 1999 for which no commitments exist to
refinance, all of which raise substantial doubt about the Company's
ability to continue as a going concern. See Notes 2 and 5 for further
information on these matters and management's plans. The condensed
consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
(2) DEBT AND LIQUIDITY
Long-term debt and capital leases consist of:
<TABLE>
<CAPTION>
12/31/97 6/30/98
----------- ---------
<S> <C> <C>
Revolving credit agreement $ 2,106,656 2,999,399
Various equipment notes payable in
monthly installments of $68,976 at
8.05% to 8.52%, due October 2001 2,622,630 2,296,818
Note payable in monthly installments of
$75,931 at 9.44%, due February 2002 -- 2,814,066
Note payable in monthly installments of
$42,553 at 9.75% due February 2001 -- 1,191,246
Note payable in monthly installments of
$26,060 at 9.36% due February 2001 -- 735,263
Note payable in monthly installments of
$43,228 at 8.83%, due October 1999 875,071 687,026
Note payable in monthly installments of
$22,250 at 9.42%, due June 1999 304,497 185,689
Various equipment notes payable in
monthly installments of $5,249 at
7.98% to 8.70%, due December 2002 256,863 236,654
</TABLE>
(Continued)
<PAGE> 14
AMPACE CORPORATION & SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
<TABLE>
<CAPTION>
12/31/97 6/30/98
----------- ---------
<S> <C> <C>
Non-compete payable in annual installments
of $77,400, interest imputed at 8.25%,
due March 2000 172,989 108,747
Note payable in monthly installments of
$2,340 at 1% over prime, due September 1999 152,303 145,390
Acquisition note payable, interest due
quarterly at 8.00%, due March 2000 100,000 100,000
Various equipment leases payable in monthly
installment of $5,476 to $59,155 at 8.15%,
due through January 1999 2,519,831 2,744,542
Various equipment leases payable in monthly
installments of $5,777 to $36,336 at 9.20%,
due through June 2000 -- 1,776,794
Various equipment leases payable in monthly
installments of $6,425 to $16,567 at 9.64%
to 10.32%, due through June 1999 817,319 656,229
Various equipment leases payable in monthly
installments of $5,210 to $5,240 at 6.46%,
due September 1998 224,598 168,479
Equipment lease payable in monthly install-
ments of $2,703 to $4,055 at 6.60%, due
August 1998 138,617 108,364
Various other debt and capital leases 219,564 40,393
----------- -----------
10,510,938 16,995,099
Less current maturates 4,233,820 9,885,467
----------- -----------
$ 6,277,118 $ 7,109,632
=========== ===========
</TABLE>
Effective December 31, 1995, the Company entered into a revolving credit
agreement with a bank which expires January 1, 1999. The agreement
establishes a borrowing base of up to $3,000,000 and bears interest,
payable monthly, at either the prime rate or the London Interbank
Offered Rate plus 200 or 225 basis points depending on certain financial
ratios of the Company.
(Continued)
<PAGE> 15
AMPACE CORPORATION AND SUBSIDIARY
Noted to Condensed Consolidated Financial Statements
(Unaudited)
In February 1998 the loan covenants under the Company's line of credit were
modified to include (1) a minimum tangible net worth of $1,000,000 at
3/31/98 (2) a minimum net worth of $4,600,000 at 9/30/98, (3) a maximum
debt to shareholder equity of 4.00:1.00 at 9/30/98, and (4) maintenance
of a $600,000 excess borrowing base at 9/30/98. In addition to the above
mentioned loan covenant changes, the interest rate on the line of credit
will increase to 1% over the bank's Prime Rate at June 30, 1998 and to
2% over the bank's Prime Rate at July 31, 1998. As of June 30, 1998, the
Company was in violation of certain of the financial covenants under the
Company's line of credit. The agreement expires on January 1, 1999, and
has been classified as a current liability at June 30, 1998.
Management has not obtained any commitments to refinance its revolving
credit agreement, and there can be no assurance that the Company will be
able to obtain such financing, or if available, will be available at
terms acceptable to the Company. However, management believes that
equity in revenue equipment will allow the Company to satisfy some
portion of its capital lease obligations that are coming due within the
next 12 - 18 months.
During June 1998, the Company adopted a restructuring plan with the purpose
of downsizing the current fleet and taking the Company forward through
the last six months of 1998. Under the restructuring plan, the Company
intends to reduce its current number of tractors and trailers in
operation by approximately 75 and 570 units, respectively. This
reduction of revenue equipment will be accomplished through the
cancellation of existing operating leases, turning in revenue equipment
for which the related obligations are expiring and selling equipment and
using the sales proceeds to pay off equipment obligations. In addition
to the fleet reductions, management is also in discussion with each of
its revenue equipment vendors/creditors, from several of whom the
Company has obtained written commitments for restructured debt terms
which include payment deferrals for up to six months, refinancing of the
related obligations over extended periods and other debt modifications.
The Company has also had discussions with its revolving credit lender who
has indicated they will not call the debt prior to its maturity date of
January 1, 1999, assuming that the collateral borrowing base, which
management currently projects to not decline significantly based on the
proposed restructuring previously discussed, does not significantly
deteriorate during the remainder of 1998. However, the revolving credit
lender has indicated its intent that it will most likely discontinue its
relationship with the Company upon the maturity of the current lending
arrangement.
Although management has undertaken extensive restructuring efforts, there
can be no assurance that the Company will be able to effectively
implement the restructuring plan as described above such that the
Company will be able to significantly improve operating results or
become profitable during 1998. Should the Company be unable to
effectively implement the restructuring plan or obtain additional
short-term and long-term financing alternatives, management may have to
make further downsizing and restructuring decisions which could include
filing for relief under Federal bankruptcy laws.
(3) EARNINGS PER SHARE
Basic and diluted loss per share is calculated using the net loss of the
Company as the numerator and the weighted-average shares outstanding as
the denominator. There is no difference between basic and diluted loss
per share since the assumed exercise of common stock options and
warrants would be anti-dilutive. At June 30, 1998 and 1997, the number
of shares under options and warrants that were outstanding but were not
included in the computation of diluted loss per share were 870,250 and
490,250, respectively.
<PAGE> 16
AMPACE CORPORATION AND SUBSIDIARY
Noted to Condensed Consolidated Financial Statements
(Unaudited)
(4) CONTINGENCIES
The Company is the defendant in a claim filed with the United States Equal
Employment Opportunity Commission ("EEOC") by a former employee of the
Company alleging race and disability discrimination. Although no formal
judgment has been made, the EEOC has recommended an award against the
Company in the amount of $133,000, including both compensatory and
punitive damages. The Company denies that it has discriminated against
the former employee and intends to vigorously defend this claim in an
administrative hearing with the EEOC. Accordingly, no accrual has been
established by the Company at June 30, 1998 related to this claim, as in
the opinion of management, such contingency is neither probable nor
reasonably estimable.
The Company is also involved in certain other claims and pending litigation
arising as a result of the liquidity problems of the Company as well as
from the normal conduct of business. As a result of the liquidity and
cash flow problems of the Company, additional claims and litigation
could arise against the Company. Such additional claims could involve
amounts material to the Company and could adversely impact the financial
position, results of operations and liquidity of the Company, including
both the voluntary or involuntary petition for bankruptcy under the
Federal bankruptcy laws.
(5) RESTRUCTURING
The Company assesses the impairment of long-lived assets, including
identifiable intangibles and goodwill, whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. At June 30, 1998, the Company has made such assessment and
concluded that an impairment provision is required. Accordingly, during
June, the Company began to implement a plan to restructure its
management and finances.
On June 22, 1998 Bruce Jones and Jay Taylor resigned as Chief Financial
Officer and Chief Executive Officer respectively. David Freeman was
hired as Chief Executive Officer to replace Mr. Taylor. Mr. Jones and
Mr. Taylor are still employed by the company working on special projects
and they continue to maintain their seats on the Board of Directors. The
Company plans to sell excess equipment, reduce head count, refinance
debt agreements and dispose of nonessential operations. The Company has
recorded a charge for restructuring costs in the amount of $1,995,250
which consists of the following items: approximately $582,000 due to
impairment of goodwill associated with certain facilities; approximately
$581,000 due to the impairment of a noncompete covenant associated with
one of these facilities; approximately $567,000 for estimated losses to
be incurred as a result of fleet downsizing and the disposal of certain
terminals; approximately $180,000 for severance pay; and approximately
$85,000 for other costs incurred as a result of the restructuring of the
Company.
There exists a reasonable possibility that additional impairments of
long-lived assets, including intangible assets and goodwill, may be
necessary in the near term. If such impairment provisions or other exit
costs are required in the near term, it is reasonably possible that such
charges will have a material adverse effect on the Company's financial
condition, results of operations and liquidity.
<PAGE> 17
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Ampace Corporation
Date November 16, 1998 BY: \s\ David C. Freeman
----------------- -----------------------------------------
David C. Freeman, Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 5,088,693
<ALLOWANCES> 84,493
<INVENTORY> 0
<CURRENT-ASSETS> 5,866,487
<PP&E> 25,615,043
<DEPRECIATION> 9,411,920
<TOTAL-ASSETS> 23,773,183
<CURRENT-LIABILITIES> 16,373,836
<BONDS> 16,995,099
0
0
<COMMON> 310
<OTHER-SE> 289,405
<TOTAL-LIABILITY-AND-EQUITY> 23,773,183
<SALES> 21,251,648
<TOTAL-REVENUES> 21,261,648
<CGS> 25,362,772
<TOTAL-COSTS> 25,362,772
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 671,043
<INCOME-PRETAX> (4,772,167)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,772,167)
<EPS-PRIMARY> (1.56)
<EPS-DILUTED> (1.56)
</TABLE>
