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, 1998
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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.
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(Exact name of registrant as specified in its charter)
DELAWARE 55-0257510
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(State or other jurisdiction of (I.R.S. Employer Identification no.)
incorporation or organization)
6505 HOMESTEAD
HOUSTON, TEXAS 77028
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 635-1008
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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 12,494,739
------------------------------ ----------
(Class) (Outstanding as of June 30, 1998)
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant on June 30, 1998 was approximately $6,622,212.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements Page
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Balance Sheets for the Three Months Ended June 30,
1998 (unaudited) and for the Year Ended December 31, 1997 (audited) 3
Statements of Income for the Three Months Ended
June 30, 1998 (unaudited) and 1997 (unaudited) 4
Statements of Stockholders' Equity for the Three Months
Ended June 30, 1998 (unaudited)
5
Statements of Cash Flows for the Three Months Ended
June 30, 1998 (unaudited) and 1997 (unaudited) 6
Notes to the Financial Statements (unaudited) 7 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II OTHER INFORMATION
Item 1. Recent Developments in Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports in Form 8-K 13
Signatures 14
ESCO TRANSPORTATION CO.
Balance Sheet
June 30, 1998 December 31, 1997
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ASSETS (Unaudited) (Audited)
CURRENT ASSETS:
Cash and Cash Equivalents $ 151,924 $ 22,678
Accounts Receivable, Net of Allowance for
Bad Debts of $481,108 in 1997 and
$474,376 in 1998 2,963,333 2,282,893
Truck Maintenance Supplies 27,159 0
Notes Receivable - Stockholders 49,810 20,000
Prepaid Expenses - Current 121,516 36,597
Other Current Assets 38,956 204,460
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TOTAL CURRENT ASSETS 3,352,698 2,566,628
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PROPERTY AND EQUIPMENT
Property and Equipment 10,482,872 10,611,537
Less Accumulated Depreciation (2,155,220) (1,511,048)
--------------- -------------------
8,327,652 9,100,489
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OTHER ASSETS
Prepaid Insurance - Net of Current Portion 82,798 101,097
Other Assets - Non Current 224,612 34,692
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307,410 135,789
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TOTAL ASSETS $ 11,987,760 $ 11,802,906
=============== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable to Stockholders $ 0 $ 70,319
Accounts Payable - Trade 586,364 375,213
Bank Overdrafts 309,897 280,715
Accrued and Other Liabilities 510,453 422,878
Amounts Due Factor 2,746,653 1,262,094
Current Portion of Long-Term Debt 1,769,623 1,807,738
--------------- -------------------
TOTAL CURRENT LIABILITIES 5,922,990 4,218,957
LONG-TERM DEBT - NET OF CURRENT PORTION 5,582,627 6,645,188
DEFERRED INCOME TAXES 0 0
COMMITMENTS 0 0
--------------- -------------------
TOTAL LIABILITIES 11,505,617 10,864,145
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STOCKHOLDERS' EQUITY
Common Stock, $.0001 Par Value; 20,000,000
Shares Authorized; 12,176,760 Shares
Issued and Outstanding in 1997 and
12,494,739 in 1998 1,569 1,218
Additional Paid-In Capital 931,906 863,818
Retained Earnings (Deficit) (278,841) 77,725
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654,634 942,761
Less Treasury Stock, At Cost (4,000) (4,000)
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650,634 938,761
Less Note Receivable from Shareholder (168,491) 0
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TOTAL STOCKHOLDERS' EQUITY 482,143 938,761
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,987,760 $ 11,802,906
=============== ===================
3
ESCO TRANSPORTATION CO.
Statements of Income
For the Three and Six Months Ended June 30, 1998 and 1997
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
1998 1997 1998 1997
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUE:
Freight Revenue $ 6,731,585 $ 5,986,562 $12,551,320 $11,068,893
Oil and Gas Revenue 1,116 1,818 2,580 4,384
------------ ------------ ------------ ------------
TOTAL REVENUE 6,732,701 5,988,380 12,553,900 11,073,277
------------ ------------ ------------ ------------
EXPENSES:
Cost of Freight Revenue 4,857,425 4,025,473 9,122,722 7,452,585
General Administrative Expenses 1,285,575 1,441,820 2,581,667 2,771,422
Depreciation and Depletion 338,888 241,793 676,797 415,706
------------ ------------ ------------ ------------
TOTAL EXPENSES 6,481,888 5,709,086 12,381,186 10,639,713
------------ ------------ ------------ ------------
OPERATING INCOME 250,813 279,294 172,714 433,564
OTHER INCOME (EXPENSE)
Interest Income 1,733 361 1,741 1,147
Other Income 8,700 0 11,700 0
Interest Expense (344,703) (135,436) (622,996) (248,261)
Gain (Loss) on Sale of Assets 80,125 0 80,275 0
------------ ------------ ------------ ------------
(254,145) (135,075) (529,280) (247,114)
------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE INCOME TAXES (3,332) 144,219 (356,566) 186,450
Income Tax 0 (6,334) 0 0
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (3,332) $ 150,553 $ (356,566) $ 186,450
============ ============ ============ ============
Net Income (Loss) Per Share $ (0.000) $ 0.012 $ (0.029) $ 0.015
============ ============ ============ ============
Weighted Average Number of Shares Outstanding 12,511,678 12,176,760 12,494,739 12,176,760
4
ESCO TRANSPORTATION CO.
Statements of Stockholders' Equity
For the Six Months Ended June 30, 1998 (Unaudited)
Note
Additional Retained Receivable
Paid-In Earnings Treasury From
Common Stock Capital (Deficit) Stock Shareholder Total
------------------ -------- ---------- --------- ---------- ----------
Shares Amount
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Balance at December 31, 1997 12,176,760 $1,218 $863,818 $ 77,725 $(4,000) $ 0 $ 938,761
Correction 174,352 174 (174) 0 0 0 0
Employee Stock Bonus 126,500 127 47,312 0 0 0 47,439
Memphis Acquisition 50,000 50 20,950 0 0 0 21,000
Note receivable from Shareholder 0 0 0 0 0 (168,491) (168,491)
Net (Loss) 0 0 0 (356,566) 0 0 (356,566)
---------- ------ --------- ---------- -------- ---------- ----------
Balance at June 30, 1998 12,527,612 $1,569 $931,906 $(278,841) $(4,000) $(168,491) $ 482,143
========== ====== ========= ========== ======== ========== ==========
5
ESCO TRANSPORTATION CO.
Statements of Cash Flows
For the Six Months Ended June 30, 1998 and 1997
1998 1997
------------ ------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Cash Provided by Operating Activities $ 1,457,427 $ 369,094
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (44,228) (3,015,683)
Loans Made 0 (78,870)
Procceds from Sale of Property and Equipment 220,903 57,304
Shareholder Advance (198,301) 0
Purchase Non- Compete Agreement (135,560) 0
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Net Cash Used in Investing Activities (157,186) (3,037,249)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Payments on Short-Term Debt (70,319) (182,948)
Net Payments on Long-Term Debt (1,100,676) (517,738)
Proceeds from Long-Term Debt 0 2,868,541
Sale of Stock 0 500,000
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Net Cash Provided (Used) by Financing Activities (1,170,995) 2,667,855
------------ ------------
Net Increase in Cash and Cash Equivalents 129,246 (300)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 22,678 20,450
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CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 151,924 $ 20,150
============ ============
6
ITEM 1. Financial Statements
ESCO TRANSPORTATION CO.
Notes to the Financial Statements
June 30, 1998 (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
ITEM 1. Financial Statements (Continued)
ESCO TRANSPORTATION CO.
Notes to the Financial Statements
June 30, 1998 (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, 1998.
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 1997 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
ITEM 1. Financial Statements (Continued)
ESCO TRANSPORTATION CO.
Notes to the Financial Statements
June 30, 1998 (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, 1998, 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, 1998 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
ITEM 1. Financial Statements (Continued)
ESCO TRANSPORTATION CO.
Notes to the Financial Statements
June 30, 1998 (Unaudited)
Note 4 - Property and Equipment
- ------------------------------------
Property and equipment consists of the following:
Balance at Balance at
Description 6/30/98 12/31/97
- ------------------------------ ------------ ------------
Land $ 267,519 $ 385,019
Buildings and Improvements 197,053 323,228
Office Equipment 231,153 210,338
Communications Equipment 356,869 353,281
Furniture and Fixtures 30,133 29,483
Trucks, Tractors, and Trailers 9,145,654 9,145,654
Yard Equipment 254,491 164,534
------------ ------------
10,482,872 10,611,537
Less Accumulated Depreciation (2,155,220) (1,511,048)
------------
$ 8,327,652 $ 9,100,489
============ ============
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, 1998, the total amount due to the
factor is $2,746,653.
The following schedule summarizes the Company's long-term debt and capital
leases.
Balance at
Description 6/30/98
- ---------------------------------------- -----------
Stockholder Notes Payable $ 0
Notes Payable and Capital Leases Payable 7,352,250
-----------
$ 7,352,250
===========
10
ITEM 2. Management's Discussion and Analysis or Plan of Operation
OVERVIEW
- --------
During the second quarter of 1998, the Company ended in a much more positive
note than several previous quarters. The Company saw increases in revenue and
improved profitability over the first quarter plus the Company paid most
suppliers to within thirty days. The improvements in cashflow and profitability
were primarily due to the restructuring of the Company's receivables financing
and the reduction of administrative costs through the Company's ongoing effort
to automate administration.
Quarterly revenue from trucking operations was up $837,000 or 13.9% as compared
to the previous year. The increase in revenue is due mostly to the Company's
increase in freight volume within its Dallas, Texas and Memphis, Tennessee
operations.
The Company paid a combination of cash and stock totaling $363,000 to Andy
Freidel, the owner of Intermodal Logistics Company, Inc. for a two year
noncompete agreement within the intermodal transportation industry and access to
business relationships in Memphis, Tennessee. As a result of this agreement,
the Company was able to significantly expand its operation in Memphis,
Tennessee.
The Company also worked to expand its Dallas, Texas operation. Plans were begun
to transfer key personnel from the Company's Houston, Texas office in order to
maximize growth and profitability in the Dallas, Texas region.
The Company began preparing to sell off its vacant Houston, Texas and Memphis,
Tennessee properties.
The Company's Truckload Division expanded operations in April 1998 by acquiring
a new office and an eight bay shop for performing maintenance of its fleet
dispatched out of Springdale, Arkansas.
The Board of Directors voted to purchase 4,000,000 shares of Company stock owned
by a shareholder's spouse for a promissory note of $1,000,000 and retire these
shares as treasury. The Company's promissory note was guaranteed by the
shareholder. The spouse has no voting rights or otherwise in the Company's
stock.
11
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.
12
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
13
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:
ESCO Transportation Co.
_______________________________ ______________________________
Edwis L. Selph, Sr. Date
President/Chief Executive Officer
_______________________________ ______________________________
Edwis L. Selph, Jr. Date
Secretary/Treasurer
14