<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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 Small Business Issuer 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 June 30, 1998
--------------------------
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
See Financial Statements attached hereto
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. It also contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors including the ability
to obtain adequate financing, ability to achieve profitable operations, timing
of acquisitions, availability of drivers, fuel prices and the addition of new
customers.
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 of 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 3
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.
<TABLE>
<CAPTION>
Three Months Ended June 30
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 9.8
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 5.7
Communications and utilities 1.6 2.2
Restructuring charge -- 13.6
----- -----
Total operating expenses 100.5 121.7
----- -----
Operating loss (0.5) (21.7)
Interest expense, net 4.0 3.3
----- -----
Loss before income taxes (4.5) (25.0)
Income taxes (1.6) --
----- -----
Net loss (2.9)% (25.0)%
===== =====
</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 System, Inc. (Widener acquisition) which became
the East Tennessee operation of Ampace Freightlines, effective January 29, 1998,
respectively.
The net loss for the quarter ended March 31, 1997 increased from
$258,875 to $2,749,600 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 a
$1.5 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 declined
from 11.8% during the second quarter of 1997 to 9.8% for the same period in 1998
as a result of the recognition of equipment gains of approximately $42,000
which are reflected as a reduction of depreciation expense and 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 5.7% during 1998. This increase was created
by significant consulting and legal fees incurred in the second quarter as a
result of 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.
<PAGE> 4
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
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, pursuant to the requirements of Statement of
Financial Accounting Standards No. 109.
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. The goodwill acquired with
the acquisitions of Merchants Dutch Express, Inc. and Amanday Express, Inc. have
been determined to be impaired. A $304,000 adjustment to goodwill related to the
above mentioned entities will be recognized as part of the company's
restructuring plan. Additionally, the Company recorded a restructuring charge
for approximately $820,000 for estimated losses to be incurred as a result of
fleet downsizing and the disposal of certain terminals; approximately $180,000
for severance pay; approximately $111,000 for the termination of certain lease
commitments; and approximately $85,000 for other costs incurred as a result of
the restructuring of the Company.
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.
<TABLE>
<CAPTION>
Six Months Ended June 30
Percentage of
Operating Revenue
-------------------
1997 1998
---- ----
<S> <C> <C>
Operating revenues 100.0% 100.0%
Operating expenses:
Salaries, wages and employee benefits 39.6 40.6
Purchased transportation 9.1 16.2
Fuel 16.9 12.5
Depreciation and amortization 12.1 9.4
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 -- 7.1
Total operating expenses 99.4 115.2
----- -----
Operating income (loss) 0.6 (15.2)
Interest expense, net 4.3 3.2
----- -----
Loss before income taxes (3.7) (18.4)
Income taxes (1.3) --
----- -----
Net loss (2.4)% (18.4)%
===== =====
</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 $3,912,917 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 a $1.5 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 9.4% for the same period in
1998 as a result of the recognition of equipment gains of approximately $138,000
which are reflected as a reduction in depreciation expense and 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.
<PAGE> 6
For a discussion of the restructuring charges, see management's
discussion and analysis for the second quarter.
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 $525,500 from
its line of credit to support working capital needs.
The working capital at December 31, 1997 and June 30, 1998 reflect as a
current liability the guaranteed residuals of maturing capitalized leases, while
the corresponding asset values are shown as Property and Equipment, a long-term
asset. This amount is approximately $2.69 million.
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 by 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 to 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.
Although management has not obtained any commitments to refinance its
revolving credit agreement, the Company believes it will be able to obtain such
refinancing through other potential lenders. Additionally, with the
restructuring charge recorded by the Company during the second quarter of 1998
and the other top management personnel changes made by the Company, management
believes the operating results of the Company will improve during the second
half of 1998. Management also believes that the equity in revenue equipment will
allow the Company to be able to satisfy a significant portion of its capital
lease obligations as such become due over the next several months. However,
there can be no assurance that the Company will become profitable during 1998.
Should the Company be unable to obtain additional financing or achieve
profitable operations, management may have to make additional downsizing
decisions.
YEAR 2000 COMPLIANCE
In 1997, the Company assessed its computer systems and began
converting such systems to be Year 2000 compliant. This conversion is expected
to be completed by the end of 1998. The Year 2000 problem is the result of
computer programs being written using two digits rather than four to define the
applicable year. Management does not anticipate the costs of becoming Year 2000
compliant will have a material impact on the Company's financial position,
results of operations or liquidity. The Company does not currently have any
information concerning the Year 2000 compliance status of its suppliers and
customers.
<PAGE> 7
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 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. 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> 8
AMPACE CORPORATION & SUBSIDIARIES
Condensed Consolidated Balance Sheets
December 31, 1997 and June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
---- ----
ASSETS
<S> <C> <C>
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 2,562,823
------------ ------------
$ 18,131,446 $ 24,632,433
============ ============
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) (6,284,064)
Treasury stock, 37,287 shares at cost (43,153) (43,153)
------------ ------------
Total stockholders' equity 5,061,882 1,148,965
Commitments and contingencies
------------ ------------
$ 18,131,446 $ 24,632,433
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 9
AMPACE CORPORATION & SUBSIDIARIES
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 1,073,347
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 -- 1,500,000
----------- ------------
Total Operating Expenses 8,861,964 13,386,098
----------- ------------
Operating loss (44,731) (2,380,455)
Interest expense, net 352,735 369,145
----------- ------------
Loss before taxes (397,466) (2,749,600)
Income taxes (138,591) --
----------- ------------
Net loss $ (258,875) $ (2,749,600)
=========== ============
Weighted average common shares-basic and diluted 3,100,000 3,062,713
=========== ============
Loss per share - basic and diluted $ (.08) $ (.90)
=========== ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 10
AMPACE CORPORATION & SUBSIDIARIES
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 2,003,892
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 -- 1,500,000
------------ ------------
Total operating expenses 16,407,761 24,503,522
------------ ------------
Operating income (loss) 95,562 (3,241,874)
Interest expense, net 708,856 671,043
------------ ------------
Loss before taxes (613,294) (3,912,917)
Income taxes (217,852) --
------------ ------------
Net loss $ (395,442) $ (3,912,917)
============ ============
Weighted average common shares-basic and diluted 3,100,000 3,062,713
============ ============
Loss per share - basic and diluted $ (.13) $ (1.28)
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 11
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) (3,912,917)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization and gain on sale
of assets 1,998,848 2,003,892
Restructuring charges -- 1,500,000
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 2,093,085
----------- -----------
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> 12
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
of 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 3 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.
(2) DEBT AND LIQUIDITY
Long-term debt consists 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
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
(Continued)
</TABLE>
<PAGE> 13
<TABLE>
<CAPTION>
<S> <C> <C>
Various equipment leases payable in monthly
installments 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 installments
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 maturities 4,233,820 9,885,467
----------- -----------
$ 6,277,118 $ 7,109,632
=========== ===========
</TABLE>
AMPACE CORPORATION AND SUBSIDIARY
Noted to Condensed Consolidated Financial Statements
(Unaudited)
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.
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
March 31, 1998, (2) a minimum net worth of $4,600,000 at September 30,
1998, (3) a maximum debt to shareholder equity of 4.00:1.00 at September
30, 1998, and (4) 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 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.
Although management has not obtained any commitments to refinance its
revolving credit agreement, the Company believes that it will be able to
obtain such refinancing through other potential lenders. However, 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. Also, management believes that equity in revenue equipment will
allow the Company to satisfy a significant portion of its capital lease
obligations that are coming due within the next 12-18 months.
(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.
(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 from the normal conduct of business. Based on the present
knowledge of the facts and, in certain cases, opinions of outside
counsel, management believes the resolution of these claims and pending
<PAGE> 14
litigation will not have a material adverse effect on the financial
condition, results of operations or liquidity of the Company.
(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 $1,500,000
which consists of the following items; approximately $304,000 due to
impairment of goodwill associated with certain facilities, approximately
$820,000 for estimated losses to be incurred as a result of fleet
downsizing and the disposal of certain terminals; approximately $180,000
for severance pay; approximately $111,000 for the termination of certain
lease commitments; 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 affect on the Company's financial
condition and results of operations.
<PAGE> 15
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 August 13, 1998 BY: s/ David C. Freeman
--------------- -----------------------------------------
David C. Freeman, Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AMPACE CORPORATION FOR THE SIX MONTHS ENDED JUNE 30,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<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> 5,087,590
<ALLOWANCES> 84,493
<INVENTORY> 0
<CURRENT-ASSETS> 5,866,487
<PP&E> 25,615,043
<DEPRECIATION> 9,411,920
<TOTAL-ASSETS> 24,632,433
<CURRENT-LIABILITIES> 16,373,836
<BONDS> 16,995,099
0
0
<COMMON> 310
<OTHER-SE> 1,148,655
<TOTAL-LIABILITY-AND-EQUITY> 24,632,433
<SALES> 21,251,648
<TOTAL-REVENUES> 21,261,648
<CGS> 24,503,522
<TOTAL-COSTS> 24,503,522
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 671,043
<INCOME-PRETAX> (3,912,917)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,912,917)
<EPS-PRIMARY> (1.28)
<EPS-DILUTED> (1.28)
</TABLE>
