FORM 10-Q 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 September 30, 2000 ------------------------------------ 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 ---------------------------------- ESCO TRANSPORTATION CO. ------------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 55-0257510 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification no.) incorporation or organization) 4301 EASTPARK DRIVE HOUSTON, TEXAS 77028 -------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 635-1008 --------------- Securities registered pursuant to Section 12 (b) of the Act: NONE Securities registered pursuant to Section 12 (g) of the Act: Common Stock $ .001 par value per share --------------------------------------- Title of class Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X . Registrant is working --- --- diligently to become current in its filings. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No X . Registrant has not had a bankruptcy ---- ----- plan confirmed by a court as of the date of this filing hereof. 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 12,552,997 ------------------------------ ---------- (Class) (Outstanding as of September 30, 2000)

~~ESCO~~TABLE ~~TRANSPORTATION~~OF ~~CO.~~CONTENTS ~~Balance~~PART ~~Sheets~~I ~~June~~FINANCIAL ~~30,~~INFORMATION ~~2000~~Item ~~December~~1. ~~31,~~Financial ~~1999~~Statements ~~---------------~~Page ----~~---------------~~ ~~ASSETS~~Statements ~~(Unaudited) (Audited) CURRENT ASSETS: Cash and Cash Equivalents $ 13,128 $ 109,929 Accounts Receivable, Net~~ of ~~Allowance~~Income for ~~Bad~~the ~~Debts~~Three ~~of $829,280 in 2000~~ and ~~$338,000~~Nine inMonths ~~1999~~Ended ~~8,873,184~~September 630,~~172,164~~ ~~Truck~~2000 ~~Maintenance~~(Unaudited) ~~Supplies 144,799 152,557 Employee Advances~~ and ~~Driver~~1999 ~~Loans~~(Unaudited) ~~269,719~~3 ~~117,092~~Balance ~~Notes~~Sheets ~~Receivable~~for -the ~~Employees,~~Nine ~~Current~~Months ~~90,642~~Ended ~~241,830~~September ~~Notes Receivable - Stockholders 383~~30,~~338~~ ~~217,109~~2000 ~~Prepaid~~(Unaudited) ~~Expenses~~and ~~197,516~~for ~~134,046~~the ~~Other~~Year ~~Current~~Ended ~~Assets~~December ~~130~~31,~~425~~ ~~26,085~~1999 --------------- ------------------- TOTAL CURRENT ASSETS 10,102,751 7,170,812 --------------- ------------------- PROPERTY AND EQUIPMENT Property and Equipment 12,568,094 12,516,566 Less Accumulated Depreciation (~~4,701,850~~Unaudited) ~~(3,980,000)~~4 ~~---------------~~Statements ~~------------------- 7,866,244 8,536,566 --------------- ------------------- OTHER ASSETS Intangibles, Net~~ of ~~Accumulated~~Cash ~~Amortization~~Flows ~~430,123~~for ~~82,871~~the ~~Notes~~Nine ~~Receivable~~Months -Ended ~~Employees,~~September ~~Non Current~~ 30,~~506~~ 02000 ~~Other~~(Unaudited) ~~Assets~~and -1999 ~~Non~~(Unaudited) ~~Current~~5 ~~19,755~~Notes ~~35,392~~to ~~---------------~~the ~~-------------------~~Financial ~~480,384~~Statements ~~118,263~~(Unaudited) 6-~~--------------~~13 ~~-------------------~~Item ~~TOTAL~~2. ~~ASSETS~~Management's $Discussion ~~18,449,379~~& $Analysis ~~15,825,641~~of ~~===============~~Financial ~~===================~~Condition ~~LIABILITIES~~and ~~AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable~~ 14-16 ~~Trade~~Results $of ~~1,262,702~~Operations $PART ~~1,247,094~~II ~~Bank~~OTHER ~~Overdrafts~~INFORMATION ~~1,111,241~~Item ~~436,838 Accrued and Other Liabilities~~ 1~~,401,686~~. ~~980,700~~Recent ~~Amounts~~Developments ~~Due~~in ~~Factor~~Legal ~~9,524,542~~Proceedings ~~6,944,085 Current Portion of Long~~17-~~Term~~18 ~~Debt~~Item 2~~,280,161~~. ~~2,038,470~~Changes ~~Current~~in ~~Portion~~Securities of18 ~~Obligations~~Item ~~under~~3. ~~Capital~~Defaults ~~Lease~~upon ~~279,292~~Senior ~~235,603~~Securities ~~---------------~~18 ~~-------------------~~Item ~~TOTAL~~4. ~~CURRENT~~Submission ~~LIABILITIES 15,859,624 11,882,790 LONG-TERM DEBT Long-Term Debt, Net~~ of ~~Current~~Matters ~~Portion~~to ~~2,097,245~~a ~~3,138,735~~Vote ~~Obligations under Capital Lease, Net~~ of ~~Current~~Security ~~Portion~~Holders ~~730,663 852,633 --------------- -------------------~~ 18~~,687,532~~ ~~15,874,158~~Item ~~--------------- ------------------- STOCKHOLDERS' EQUITY Preferred Stock, $~~5.~~001~~ ~~Par~~Other ~~Value;~~Information ~~15,000,000~~18 ~~Shares~~Item ~~Authorized; None Issued Common Stock, $~~6.~~001~~ ~~Par~~Exhibits ~~Value; 20,000,000 Authorized; 12,818,017~~ and ~~14,084,017~~Reports ~~Issued;~~on ~~1,576~~Form ~~1,560 12,550,497 and 13,818,997 Outstanding in 2000 and 1999 Additional Paid~~8-InK ~~Capital~~19 ~~1,550,041~~Signatures 1,625,765 Retained Earnings (Deficit) (999,771) (396,385) --------------- ------------------- 551,846 1,230,940 Less Note Receivable from Stockholders (701,427) (1,191,635) Less Treasury Stock, At Cost (88,572) (87,822) --------------- ------------------- TOTAL STOCKHOLDERS' EQUITY (238,153) (48,517) --------------- ------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,449,379 $ 15,825,641 =============== ===================20

ESCO TRANSPORTATION CO. Statements of Income For the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2000 and December 31, 1999 FOR THE THREE MONTHS FOR THE ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30 ENDED ~~JUNE~~SEPTEMBER 30 2000 1999 2000 1999 ------------~~----------~~ ------------~~--------~~ ------------ ------------ (Unaudited) (Unaudited) (Unaudited) (Unaudited) OPERATING REVENUE: Freight Revenue $ 12,~~710~~304,~~765~~417 $ 8,~~455~~778,~~025~~050 $2436,~~510~~191,~~075~~464 $1524,~~577~~294,~~866~~211 Oil and Gas Revenue 2,660 1,~~388~~022 ~~963 2~~5,~~720~~380 23,~~134~~156 ------------~~----------~~ ------------~~--------~~ ------------ ------------ TOTAL OPERATING REVENUE 12,~~712~~307,~~153~~077 8,~~455~~779,~~988~~072 2436,~~512~~196,~~795~~844 1524,~~580~~297,~~000~~367 ------------~~----------~~ ------------~~--------~~ ------------ ------------ OPERATING EXPENSES: Cost of Freight Revenue 9,~~524~~520,~~948~~324 56,~~914~~749,~~582~~512 1728,~~949~~319,~~266~~508 1018,~~776~~076,~~020~~865 General Administrative Expenses 2,~~894~~769,~~034~~754 1,~~678~~692,~~890~~600 57,~~463~~469,~~629~~087 35,~~391~~084,~~490~~091 Depreciation and Depletion ~~434~~103,~~020~~488 ~~368~~72,~~400~~325 ~~895~~301,~~985~~250 ~~733~~192,~~313~~599 ------------~~----------~~ ------------~~--------~~ ------------ ------------ TOTAL OPERATING EXPENSES 12,~~853~~393,~~002~~566 78,~~961~~514,~~872~~437 2436,~~308~~089,~~880~~845 1423,~~900~~353,~~823~~555 ------------ ------------ ------------ ------------ OPERATING INCOME (86,489) 264,635 106,999 943,812 ------------ ------------ ~~OPERATING INCOME (140,849) 494,116 203,915 679,177~~ OTHER INCOME (EXPENSE): Interest Income 010,990 912,~~837~~477 2334,~~602~~592 1225,~~990~~467 Other Income 5(17,~~597~~095) ~~6,289~~0 192,~~109~~015 15,016 Interest Expense (~~463~~539,~~977~~788) (~~339~~371,~~163~~930) (~~859~~1,~~240~~388,601) (~~668~~1,~~858~~040,789) Gain (Loss) on Sale of Assets 11(236,~~844~~449) 5135,~~237~~851 9(227,~~228~~221) 4480,~~244~~094 ------------ ------------ ------------ ------------ TOTAL OTHER INCOME (EXPENSE): (782,342) (323,602) (1,579,215) (920,212) ------------ ------------ ~~(446,536) (271,800) (807,301) (596,608)~~ ------------ ------------ INC. (LOSS) BEFORE REORG. ITEMS (868,831) (58,967) (1,472,216) 23,600 REORGANIZATION ITEMS: Professional Fees 59,707 0 59,707 0 ------------ ------------ ------------ ------------ NET INC. (LOSS) BEFORE TAXES (~~587~~928,~~385~~538) ~~222~~(58,~~316~~967) (~~603~~1,~~386~~531,923) 8223,~~569~~600 ~~Income~~INCOME ~~Tax~~TAX: 0 0 0 0 ------------~~----------~~ ------------~~--------~~ ------------ ------------ NET INCOME (LOSS) $ (~~587~~928,~~385~~538) $ ~~222~~(58,~~316~~967) $ (~~603~~1,~~386~~531,923) $ 8223,~~569~~600 ============~~==========~~ ============~~========~~ ============ ============ Net Income (Loss) Per Share $ (0.~~047~~072) $ (0.~~016~~004) $ (0.~~046~~113) $ 0.~~006~~002 ============~~==========~~ ============~~========~~ ============ ============ Weighted Average Number of Shares Outstanding 12,~~550~~932,~~497~~997 14,179,112 13,~~247~~613,~~456~~970 1314,~~682~~179,~~013~~112

See Notes to Unaudited Condensed Financial Statements 3

ESCO TRANSPORTATION CO. ~~Statement~~Balance ofSheets ~~Stockholders' Equity~~ For the ~~Six~~Nine and Twelve Months Ended ~~June~~September 30, 2000 and December 31, 1999 September 30, 2000 December 31, 1999 -------------------- ------------------- ASSETS (Unaudited) ~~Note~~(Unaudited) ~~Retained~~------ CURRENT ASSETS: Cash and Cash Equivalents $ 49,857 $ 109,929 Accounts Receivable, ~~Additional~~Net ~~Earnings~~of ~~From~~Allowance ~~Common~~for ~~Stock~~Bad ~~Paid~~Debts of $781,087 in 2000 and $403,228 in 1999 7,444,590 6,172,164 Truck Maintenance Supplies 126,275 152,557 Employee Advances and Driver Loans 218,365 117,092 Notes Receivable -In ~~Capital~~Employees, ~~(Deficit)~~Current ~~Treasury~~96,363 ~~Stock~~241,830 ~~Shareholder~~Notes ~~Total~~Receivable - Stockholders 396,593 217,109 Prepaid Expenses 377,712 134,046 Other Current Assets 152,102 26,085 -------------------- -- ----------------- TOTAL CURRENT ASSETS 8,861,857 7,170,812 ---------- ---------- ------------------- PROPERTY AND EQUIPMENT: Property and Equipment 11,369,217 12,516,566 Less Accumulated Depreciation (4,478,724) (3,980,000) -------------------- ------------------- ~~Shares~~NET ~~Amount~~PROPERTY ~~Shares~~AND ~~Amount~~EQUIPMENT: 6,890,493 8,536,566 ----------- ---------- --------- ---------- ~~Balance~~OTHER atASSETS: ~~December 31~~Intangibles, ~~1999~~Net 14of Accumulated Amortization 353,~~084~~110 82,~~017~~871 $Notes 1Receivable - Employees,~~560~~ $1Non Current 10,~~625~~804 0 Other Assets - Non Current 18,~~765~~261 ~~$(396~~35,~~385)~~392 ~~(265~~-------------------- ------------------- TOTAL OTHER ASSETS: 382,~~020)~~175 ~~$(87~~118,~~822)~~263 -------------------- ------------------- TOTAL ASSETS $(1 16,~~191~~134,~~635)~~525 $ ~~(48~~15,~~517)~~825,641 ~~Shares~~==================== ~~issued~~=================== inLIABILITIES ~~Quantum~~AND ~~Acquisition~~STOCKHOLDERS' ~~159,000~~EQUITY ~~159~~------------------------------------ ~~476~~CURRENT LIABILITIES: Accounts Payable - Trade $ 2,~~841~~290,949 0$ 01,247,094 0Bank 0Overdrafts ~~477~~640,~~000~~775 ~~Management~~436,838 ~~Incentive~~Accrued ~~Shares~~and ~~Returned~~Other (Liabilities 1,~~425~~461,~~000)~~463 ~~(143) (569~~980,~~857)~~700 0Amounts 0Due 0Factor ~~570~~8,~~000~~551,843 06,944,085 ~~Shareholder~~Current ~~Notes~~Portion ~~Receivable~~of ~~Interest~~Long-Term 0Debt 02,070,288 172,~~292~~038,470 0Current 0Portion 0of ~~(17,292)~~Obligations 0under ~~Advances~~Capital toLease ~~Stockholder~~271,492 235,603 -------------------- ~~Stock~~------------------- ~~Purchase~~TOTAL 0CURRENT 0LIABILITIES 015,286,810 011,882,790 0LONG-TERM 0DEBT: ~~(62,500)~~Long-Term ~~(62~~Debt,~~500)~~ ~~Purchase~~Net of ~~Treasury~~Current ~~Stock~~Portion 01,352,774 03,138,735 0Obligations 0under (2Capital Lease,~~500)~~ ~~(750)~~Net 0of ~~(750)~~Current ~~Net~~Portion ~~Income~~661,630 ~~(Loss)~~852,633 0-------------------- 0------------------- 0TOTAL ~~(603~~LONG-TERM DEBT 2,~~386)~~014,404 03,991,368 LIABILITIES SUBJECT TO COMPROMISE: 0 0 ~~(603,386)~~ ----------- ---------- ----------- -------- TOTAL LIABILITIES 17,301,214 15,874,158 -- --------- --------- ------------------- STOCKHOLDERS' EQUITY -------------------- ~~Balance~~Preferred atStock, ~~June~~$.001 30Par Value; 15,000,000 ~~2000~~Shares Authorized; None Issued Common Stock, $.001 Par Value; 20,000,000 Authorized; 12,~~818~~820,517 and 14,084,017 $Issued; 12,552,997 and 13,818,997 Outstanding in 2000 and 1999 1,~~576~~577 $1,~~550~~560 Additional Paid-In Capital 1,~~041~~562,316 $1,625,765 Retained Earnings (~~999~~Deficit) (1,~~771~~928,308) (~~267~~396,~~520~~385) $-------------------- ------------------- (364,415) 1,230,940 Less Note Receivable from Stockholders (713,702) (1,191,635) Less Treasury Stock, At Cost (88,572) $(87,822) -------------------- ------------------- TOTAL STOCKHOLDERS' EQUITY (~~701~~1,~~427~~166,689) $(~~238~~48,~~153~~517) ~~===========~~-------------------- ~~==========~~------------------- ~~===========~~TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 16,134,525 $ 15,825,641 ========== ========= =~~========~~ ============ =======~~===~~

See Notes to Unaudited Condensed Financial Statements 4

ESCO TRANSPORTATION CO. Statements of Cash Flows For the ~~Six~~Nine Months Ended ~~June~~September 30, 2000 and 1999 2000 1999 ------------ ------------ (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net Cash Provided by Operating Activities $ 156,~~184,088~~344 $ 1,~~093~~940,~~232~~590 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Property and Equipment (~~136~~204,~~298~~796) (~~136~~2,~~194~~274,883) Purchase of Selma Receivables (15,629) 0 Purchase of Quantum ~~Transportation~~Intangibles (67,874) 0 Shareholder Advance (203,687) (371,249) Payments Received on Notes Receivable 45,578 0 Payments Received from Shareholders 3,900 0 Proceeds from Sale of Property and Equipment 0454,006 ~~270~~867,~~547~~326 ------------ ------------ Net Cash Provided (Used) in Investing Activities ~~(204~~11,~~172)~~498 (851,~~659~~778,806) CASH FLOWS FROM FINANCING ACTIVITIES: Net Payments on Long-Term Debt (~~969~~1,~~317~~789,268) (12,~~093~~077,~~650~~629) Proceeds from Capital Leases 0 53686,~~934~~282 Payments on Capital Leases (92184,~~630~~715) (1244,~~711~~919) ~~Stockholder~~Proceeds ~~Advance~~from ~~(113~~Long-Term Debt 1,~~042)~~846,819 ~~(220~~1,~~012)~~336,874 Purchase Treasury Stock (750) (1834,~~004~~007) ------------ ------------ Net Cash Provided (Used) by Financing Activities (1127,~~175,739~~914) (1133,~~070,431~~399) ------------ ------------ Net Increase (Decrease) in Cash and Cash Equivalents (~~195~~60,~~823~~072) ~~(62~~28,~~858)~~385 CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 109,929 25,833 ------------ ------------ CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ ~~(85~~49,~~894)~~857 $ ~~(37~~54,~~025)~~218 ============ ============ Non Cash Transactions: Stock issued to acquire business $ 0 $ 40,000 Stock issued to acquire Quantum Transportation 477,000 0 Stock issued under management incentive agreements (570,001) 570,001 Stock issued to Employees 0 50,600 ------------ ------------ Total Non-Cash Transactions $ (93,001) $ 660,601 ============ ============

See Notes to Unaudited Condensed Financial Statements 5 Item 1. Financial Statements (Continued) ESCO TRANSPORTATION CO. Notes to the Unaudited Condensed Financial Statements September 30, 2000 (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 - Chapter 11 Bankruptcy Filing ------------------------------------------- The Company had a going concern footnote to its financial statements as of December 31, 1999. The Company had incurred net losses in 1999 and 1998 and had a working capital deficit of $4.7 million and a deficit in the stockholders' equity at December 31, 1999. This deficit position continued throughout the first three quarters of 2000. Additionally, on April 20, 2000, Compass Bank acknowledged that the Company was in default on its factoring agreement, but subsequently agreed that the Company would have an extended deadline of September 1, 2000 to comply with the terms set forth in this agreement. Although the Company attempted to alleviate the conditions set forth in its agreement with Compass Bank and although the Company's revenue has continued to grow at a significant rate, a concurrent increase in interest and other expenses (discussed at greater length in Management's Discussion, Analysis, and Plan of Operation) promulgated the Company to file a voluntary petition on September 25, 2000 (the "Date of the Petition") under Chapter 11 of the Federal Bankruptcy Code, the Southern District of Texas in re: 00-38785-H5-11; ESCO Transportation Company. From and since the Date of Petition, the Company has maintained possession of its property, and has continued to remain in control of its ongoing business affairs as a Debtor-in-Possession pursuant to the provisions of 11 U.S.C. Sec.Sec. 1107 and 1108. Note 3 - Summary of Significant Accounting Policies ---------------------------------------------------------- A. Correction in recording Drivers' Reimbursements --------------------------------------------------- Drivers' reimbursements for such items as insurance, radios, pagers, uniforms, and license fees had been booked in the past as Revenue. A correction was made to book these items in Cost of Sales to offset the associated expenses for all of 2000. The financial information for three and nine months for 2000 and 1999 reflects this correction. For the three months ended September 30, 2000 and 1999, revenue and cost of sales decreased by $332,670 and $256,055 respectively. For the nine months ended September 30, 2000 and 1999, revenue and cost of sales decreased by $955,698 and $317,760 respectively. Item 1. Financial Statements (Continued) 6 Item 1. Financial Statements (Continued) ESCO TRANSPORTATION CO. Notes to the Unaudited Condensed Financial Statements September 30, 2000 (Unaudited) Note 3 - Summary of Significant Accounting Policies (Continued) ----------------------------------------------------------------------- B. Correction in recording Depreciation for Trucks and Trailers ------------------------------------------------------------------- Depreciation for trucks and trailers had been booked in the past as an operating expense under the title Depreciation and Depletion. A correction was made to book depreciation on trucks and trailers in Cost of Sales. The financial information for three and nine months for 2000 and 1999 reflects this correction. For the three months ended September 30, 2000 and 1999, cost of sales increased by $336,084 and $310,961 respectively. For the nine months ended September 30, 2000 and 1999, costs of sales increased by $1,067,931 and $923,999 respectively. C. 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. D. Revenue Recognition -------------------- Revenue and direct costs are recognized when the shipment is completed. E. 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 will be adjusted for the effects of changes in tax laws and rates on the date of enactment. For the nine months ended September 30, 2000, net operating loss benefits were offset by a valuation allowance. The valuation allowance did not change materially from the balance at December 31, 1999. 7 Item 1. Financial Statements (Continued) ESCO TRANSPORTATION CO. Notes to the Unaudited Condensed Financial Statements September 30, 2000 (Unaudited) F. Net Income Per Share ----------------------- Net income per common share is based on the weighted average number of shares outstanding during the year. The Company acquired Quantum Transportation in January, 2000 as disclosed in Note P - Subsequent Events of the Company's December 31, 1999 Form 10KSB. The purchase price includes the options for the seller to receive additional shares of stock with an expiration of six years from the acquisition date if the shares of stock do not reach a benchmark price of $3.00 per share. If these shares were converted as of September 30, 2000, an additional 3,816,000 shares would be issued under this agreement. The dilution effect on earnings per share for the additional shares issued is not disclosed in the accompanying financial statements because they would be anti-dilutive if reported since the Company is currently operating at a loss. 8 Item 1. Financial Statements (Continued) ESCO TRANSPORTATION CO. Notes to the Unaudited Condensed Financial Statements September 30, 2000 (Unaudited) Note 4 - Amounts Due to Compass Bank ------------------------------------------- Pursuant to the Bankruptcy agreement, as of September 30, 2000, the Company owed Compass Bank $8,551,843, which is secured by accounts receivable and all other assets and as of the date of this filing the balance is approximately $8.2 million. Note 5 - Cash and Cash Equivalents ---------------------------------------- Included in the totals for Cash and Cash Equivalents for September 30, 2000, is a certificate of deposit in the amount of $11,326, which is pledged as a security deposit with a vendor. This certificate of deposit was acquired in the purchase of Quantum Transportation, Inc. on January 19, 2000. Note 6 - Segment Information -------------------------------- The Company's operations are divided into three segments by type of operations, which are intermodal operations, over-the-road operations, and storage operations. Intermodal operations consist of short-haul, drayage shipments primarily from railroad ramps to customer docks and are operated out of various company locations. Over-the-road operations represent long haul, door-to-door deliveries for customers. Storage operations represent the Company's container yard operated in Memphis, Tennessee. The following tables present 2000 and 1999 segment information: 9 Item 1. Financial Statements (Continued) ESCO TRANSPORTATION CO. Notes to the Unaudited Condensed Financial Statements September 30, 2000 (Unaudited) Note 6 - Segment Information (Continued) --------------------------------------------- Three Months Ended September 30, 2000 ---------------------------------------------------------- Earnings Sales (Loss) ----------- ---------- Intermodal $ 8,211,199 $(139,590) Over-the-Road 3,640,893 (545,629) Storage 452,325 281,377 Other 2,660 (524,696) ----------- ---------- $12,307,077 $(928,538) =========== ========== Nine Months Ended September 30, 2000 ---------------------------------------------------------- Earnings Sales (Loss) ----------- ------------ Intermodal $22,805,357 $ (649,081) Over-the-Road 12,166,682 (1,108,664) Storage 1,219,425 750,785 Other 5,380 (524,963) ----------- ------------ $36,196,844 $(1,531,923) =========== ============ Nine Months Ended September 30, 2000 ---------------------------------------------------------- Additions to Long-Term Long-Lived Assets Assets Total Assets ---------- ------------- ------------- Intermodal $1,167,053 $ 75,747 $ 10,392,823 Over-the-Road 5,580,204 86,933 5,580,204 Storage 143,236 143,236 Other 18,262 ---------- ------------- ------------- $6,890,493 $ 162,680 $ 16,134,525 ========== ============= ============= 10 Item 1. Financial Statements (Continued) ESCO TRANSPORTATION CO. Notes to the Unaudited Condensed Financial Statements September 30, 2000 (Unaudited) Note 6 - Segment Information (Continued) --------------------------------------------- Three Months Ended September 30, 1999 ---------------------------------------------------------- Earnings Sales (Loss) ---------- ---------- Intermodal $5,165,810 $ 571,395 Over-the-Road 3,509,835 (741,945) Storage 102,405 115,048 Other 1,022 (3,465) ---------- ---------- $8,779,072 $ (58,967) ========== ========== Nine Months Ended September 30, 1999 ---------------------------------------------------------- Earnings Sales (Loss) ----------- ---------- Intermodal $14,356,306 $ 745,331 Over-the-Road 9,572,882 (891,670) Storage 365,023 171,272 Other 3,156 (1,333) ----------- ---------- $24,297,367 $ 23,600 =========== ========== Nine Months Ended September 30, 1999 ---------------------------------------------------------- Total Net Additions to Long-Term Long-Lived Assets Assets Total Assets ----------- ------------- ------------- Intermodal $ 544,141 $ 258,184 $ 8,599,293 Over-the-Road 7,833,734 1,957,625 6,381,447 Storage 152,880 152,880 Other 18,261 18,261 ----------- ------------- ------------- $ 8,549,016 $ 2,215,809 $ 15,151,881 =========== ============= ============= The segmented information is prepared under generally accepted accounting principles. The amounts also incorporate the allocation of overhead costs based on the number of loads on the various segments operated within the Company. For the period ended September 30, 2000, all of the Company's operations are conducted within the United States. 11 Item 1. Financial Statements (Continued) ESCO TRANSPORTATION CO. Notes to the Unaudited Condensed Financial Statements September 30, 2000 (Unaudited) Note 7 - Going Concern -------------------------- The financial statements have been prepared assuming that ESCO Transportation Co. will continue as a going concern. The Company incurred net losses for the quarter and year-to-date ended at September 30, 2000 of $928,538 and $1,531,923 respectively. In 1999 and 1998, the Company had a working capital deficit of approximately $4.7 million and had a deficit in stockholders' equity at December 31, 1999. On September 25, 2000 the Company filed for Chapter 11 Bankruptcy. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. The Company intends to file an Exit Plan with the Bankruptcy Court within 200 days from September 25th, 2000. The Company is currently operating under a Cash Collateral Agreement agreed to by creditors and approved by the Court. (See Note 10 - Subsequent Events) Note 8 - Recent Pronouncements ---------------------------------- In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulleting No. 101 (SAB 101), Revenue Recognition in Financial Statements. SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition issues in financial statements. In June 2000, the SEC issued Staff Accounting Bulletin No. 101B (SAB 101B), Amendment: Revenue Recognition in Financial Statements. SAB 101B delays the implementation date of SAB 101 for registrants with fiscal years that begin between December 16, 1999 and March 15, 2000. The Company will adopt SAB 101 as required in the fourth quarter of 2000 and is evaluating the effect that such adoption may have on its consolidated results of operations and financial position. 12 Item 1. Financial Statements (Continued) ESCO TRANSPORTATION CO. Notes to the Unaudited Condensed Financial Statements September 30, 2000 (Unaudited) Note 9 - Acquisitions ------------------------ None Note 10 - Subsequent Events ------------------------------- The Gulfport, Selma, Ripon, and Savanna terminals were closed in January, February, February, and March of 2001 respectively. A new intermodal terminal was opened in Charlotte, North Carolina on February 14, 2001. The number of trucks and trailers at the Springdale terminal has been reduced to decrease operating costs and bring the over-the-road segment toward being profitable. The Company's financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred a net loss of $1,531,923 for the nine months ended September 30, 2000, and has not yet filed the bankruptcy plan. These factors, among others, raise substantial doubt as to the Company's ability to continue as a going concern. The Company's management intends to raise additional operating funds through equity and/or debt offerings. However, there can be no assurance that management will be successful in this endeavor. 13 Item 2. Management's Discussion & Analysis of Financial Condition and Results of Operations OVERVIEW -------- During the second and third quarters of 2000, the Company decided to streamline its management configuration. During the second quarter the Company accepted the resignations of its president, chief financial officer, secretary/treasurer and a long time Board member in addition to other staff reductions. The Company has used these resignations as an opportunity to revise officer positions and realign and combine tasks and functions. This revised plan allows a cost savings to the Company of over $500,000 on an annualized basis. After considering its alternatives and reviewing the financial position with its CFO and other advisors, the Board of Directors made the further determination that the Company needed to work down its debt position and reorganize for its return to profitability. The Company sought protection under Chapter 11 of the Bankruptcy Code on September 25, 2000 due to its inability to make payments on debt service for some of its equipment. The Company is currently selling and offering for sale, certain non-essential equipment, specifically older model trucks and trailers. The Company's sale of equipment has resulted in a significant reduction in debt service and increased cash flow. Streamlined management and restructured over-the-road operations during the third quarter as well as in October and November of 2000 reduced operating costs. Management's short-term plan is to reduce the over-the-road fleet, replace outdated and deteriorating equipment with owner-operator managed equipment, and redirect its over-the-road division into traffic lanes, which increase average revenues per mile, and can generate profitable operations. This reduction of capital equipment will lower debt service. Management has continued to evaluate and improve its intermodal operations and its container storage yard operations. ESCO has historically operated profitably in the intermodal division before one-time adjustments, but it has also shown losses historically in the over-the-road division. The Company finished the third quarter of 2000 with a net loss of ($928,538) and a year-to-date net loss of ($1,531,923). In the third quarter of 2000, management continued to work with Compass Bank on its agreement to provide working capital for ESCO on an ongoing basis until September 25, 2000 at which time the Company filed for Chapter 11 Bankruptcy. The Company is currently operating as a Debtor-in-Possession. The Company is presently operating under a Cash Collateral Agreement by and between the Company and Compass Bank (hereinafter referred to as the "Agreement"). Pursuant to the terms of the Agreement, Compass Bank continues to permit the Company the use of pre-petition accounts receivable collections. Compass Bank is the Company's largest creditor with an outstanding claim in the amount of approximately $8.2 million. 14 Item 2. Management's Discussion & Analysis of Financial Condition and Results of Operations (Continued) OVERVIEW (Continued) -------- The Company anticipates filing a plan of reorganization within 30 days from the date of the filing of this 10-Q. As part of its plan, the Company intends to continue to liquidate non-essential equipment and to continue to increase sales through its intermodal division. The plan anticipates replacement financing of the present Compass Bank indebtedness. A plan of reorganization is anticipated to be filed in this matter in which the Company will propose a workout of its present position and a return to profitability. Management believes that the plan of reorganization should be confirmed by June of 2001. OPERATIONS ---------- As stated above, the Company operated at a net loss of ($928,538) for the third quarter of 2000. This amount includes a one-time loss of ($236,449) due to the sale of under-utilized equipment. A comparison of three-month and nine month figures for 2000 over 1999 reveals the following increases: -------------------------------- -------------------- ------------------ Three Month Change Nine Month Change -------------------------------- -------------------- ------------------ Revenue 40.2% 49.0% -------------------------------- -------------------- ------------------ Cost of Freight Revenue 41.1% 56.7% -------------------------------- -------------------- ------------------ General Administrative Expenses 63.6% 46.9% -------------------------------- -------------------- ------------------ The Company's operating profits for nine months decreased from $943,812 in 1999 to $106,999 in 2000 before interest expense. Interest expense increased by approximately 33.4% over the same period in 1999 primarily due to the increase in the factoring line and reduction of long-term debt at lower interest rates. SAFE HARBOR ------------ This report on Form 10-Q (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 15 Item 2. Management's Discussion & Analysis of Financial Condition and Results of Operations (Continued) SAFE HARBOR (Continued) ------------ as other statements, which include words such as "anticipate," "believe," "plan," "estimate," "expect," and "intend" and other similar expressions, constitute forward-looking statements. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could over time prove to be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Report will themselves prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. CORPORATE FILINGS ------------------ The Company filed an amendment to its Articles of Incorporation in January 2000 to clarify the authorized capital stock in the Articles to be 20,000,000 shares of common and 15,000,000 of preferred. SIGNIFICANT EVENTS ------------------- As stated earlier, the Company filed for Chapter 11 Bankruptcy on September 25, 2000. RELATED PARTY TRANSACTIONS ---------------------------- None 16 PART II. OTHER INFORMATION Item 1. Recent Developments in Legal Proceedings As of the date of filing hereof, April 17, 2001, the Company is involved in the following litigation: Case No. EDCV 98-220 RT (VAPx); INTERCARGO INSURANCE CO. V. BURLINGTON NORTHERN SANTA FE RAILROAD, ET AL.; In the U.S. District Court, Central District of California. Intercargo Insurance Company is suing multiple defendants because a load it insured was misdelivered at the railyard to persons who stole the merchandise. Defendant Burlington Northern & Santa Fe Railway has cross-claimed against multiple other defendants, including the Company, for indemnity. The Company never had custody or control of the stolen merchandise. The Company has answered both Intercargo's claim and Burlington's cross-claim. The case is in the discovery phase, after which the Company, seeking dismissal of the claims against it, will likely file a motion for summary judgment. The Company seeks its reasonable and necessary defense costs by asserting that the actions were not brought with reasonable cause and in the good faith belief that there is a justifiable controversy under the facts and law. The Company's management does not believe that this litigation will have any material impact on the Company's business. The Company had a formal motion cut off date of November 27, 2000, a pre-trial conference set for December 11, 2000 and a trial date of January 16, 2001. However, these dates are on hold since the case has been stayed pending resolution of the Company's Debtor-in-Possession bankruptcy filing. No. 98-0840-1; PACIFIC BUSINESS CAPITAL CORP. V. ESCO TRANSPORTATION CO. AND MICHAEL TILL, INDIVIDUALLY; In the Chancery Court of Shelby County, Tennessee Pacific Business sued the Company and Mike Till in an attempt to enforce a security interest it holds in some property of Intermodal Logistics Co. The Company took over the operations of Intermodal, which is more fully described in the 1997 10K previously filed with the SEC. The security interest granted Pacific Business by Intermodal concerns chattel paper, mainly receivables and right to receivables. The agreement between the Company and Intermodal specifically excludes receivables due and owing prior to the date of the agreement, and Intermodal retained all rights to those funds. It is the Company's position and Mike Till's position that they have not violated any security interest Pacific Business may have; the Company and Mike Till will seek dismissal as expeditiously as possible. Discovery has been served on the plaintiff in this matter and receipt of the responses is pending because of the stay that will be in place pending resolution of the Company's Debtor-in-Possession bankruptcy filing. Case No. USDC LR-C-99-807; JACKIE BROWN, INDIVIDUALLY AND AS ADMINISTRATOR OF THE ESTATE OF KATRINA BROWN, DECEASED, AND AS HUSBAND OF NANCY K. BROWN, INDIVIDUALLY AND CHRIS BROWN, INDIVIDUALLY V. ESCO TRANSPORTATION CO. AND JOE W. JONES This case was pending against the Company as a result of a motor vehicle accident, which occurred in 1999. The case resulted in injuries and a fatality. This incident was settled by mediation on March 30, 2001. It fell within the insurance coverage limits maintained by the Company. 17 Item 1. Recent Developments in Legal Proceedings (continued) Case No. A2401-200185; FIRST CONTINENTAL LEASING, A DIVISION OF BANCORP SOUTH VS. KISER, INC., ESCO TRANSPORTATION CO. AND ESCO TRANSPORTATION ACQUISITION CORP; In the Circuit Court of Harrison County, Mississippi, First Judicial District. First Continental Leasing is suing Kiser, Inc., the Company and ESCO Acquisition Corporation as a result of the management agreement executed in March, 2000. The Company's management does not anticipate any liability related to this litigation and expects a summary disposition in this matter after the bankruptcy court agrees to the retention of counsel that the Company has retained in this matter. This case will be stayed pending resolution of the Company's Debtor-in-Possession bankruptcy filing. Case No. RCV 27092; SEPULVEDA V. ESCO, ET AL., In the Superior Court of the State of California for the County of San Bernardino. Regina Sepulveda is a former cleaning person for the Company's leased premises in California; she was allegedly injured when she was leaving the property when a gate fell on her as she was closing the gate. Sepulveda has brought premises liability claims against the Company, the owner of the property, and the manufacturer/repairer of the gate in question. The Company has requested that its insurance carrier manage the case and take over the defense of same. The Company's management does not believe that this litigation will have any material impact on the Company's business. The case has lagged in development primarily because plaintiff's counsel has not prosecuted the case vigorously and there is not a great deal of activity pending. Texas counsel will consult with local counsel to determine whether a motion to dismiss the case for failure to prosecute is in order. Additionally, this case will be stayed pending resolution of the Company's Debtor-in-Possession bankruptcy filing. 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 The Registrant reports under this item information, not previously reported in a report on Form 8-KA, that effective May 15, 2000, Edwis Selph, Jr. officially resigned as the Registrant's Vice President, Secretary/Treasurer and as a Member of the Board of Directors. On July 15, 2000 the Board of Directors elected Edwis Selph, Sr. as President, Chief Executive Officer and Secretary. On March 14, 2001, the Board of Directors elected Ken Gregg, CPA to be the Registrant's Chief Financial Officer and Vice President, Finance. 18 Item 6. Exhibits and Reports of Form 8-K. (a) Notification of Late Filing filed with the Securities and Exchange Commission on November 15, 2000. (b) Reports on Form 8-K. Notice of resignation of officers and directors filed on July 6, 2000. Effective June 30, 2000, Robert F. Darilek officially resigned as the Registrant's Chief Financial Officer and Member of the Board of Directors of ESCO Transportation Co. Effective June 23, 2000, Robert J. Weaver officially resigned as President/COO and Member of the Board of Directors of ESCO Transportation Co. Effective July 6, 2000, Bernard Vlahakis officially resigned as a Member of the Board of Directors of ESCO Transportation Co. 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ESCO Transportation Co. /s/ Edwis L. Selph, Sr. April 17, 2001 ----------------------------------- ---------------------------- Edwis L. Selph, Sr. Date President and Chairman of the Board /s/ Ken Gregg April 17, 2001 ----------------------------------- ---------------------------- Ken Gregg, CPA Date CFO, VP of Finance 20

Description 6/30/00 12/31/99 ---------------------------------- ------------ ------------ Land $ 175,975 $ 175,975 Buildings and Improvements 13,554 13,554 Office Equipment 675,075 571,061 Communications Equipment 223,216 183,584 Furniture and Fixtures 46,216 32,699 Leasehold Improvements 38,853 0 Trucks, Tractors, and Trailers 9,683,594 9,827,467 Property Held Under Capital Leases 1,512,716 1,476,881 Yard Equipment 200,085 235,345 ------------ ------------ 12,568,094 12,516,566 Less Accumulated Depreciation (4,701,850) (3,980,000) ------------ ------------ $ 7,866,244 $ 8,536,566 ============ ============

June 30, 2000 December 31, 1999 =============== =================== Notes payable to various banks and finance companies; $ 4,377,406 $ 5,177,205 payable in monthly installments totaling $202,141 including principal and interest; bearing interest at rates ranging from 9.5% to 11.5%; secured by transportation equipment purchased in conjunction with the financing; guaranteed by a major stockholder. The notes mature at varying dates from 2001 through 2004; a mortgage note payable to a partnership; bearing interest at 8%; payable in monthly installments of $1,722 including principal and interest; secured by real estate; guaranteed by a major stockholder. The note matures in 2002. --------------- ------------------- Less: Current Maturities (2,280,161) (2,038,470) --------------- ------------------- Long Term Debt, Net of Current $ 2,097,245 $ 3,138,735 =============== ===================

6/30/00 12/31/99 ---------- ---------- Transportation Equipment/Trailers $1,383,532 $1,347,697 Communications Equipment 75,250 75,250 Office Equipment 53,934 53,934 ---------- ---------- $1,512,716 $1,476,881 ========== ==========

Three Months Ended June 30, 2000 -------------------------------------------------- Depreciation Cost of and Interest Sales Sales Amortization Expense ----------- ----------- ----------- ----------- Intermodal $ 7,718,032 $5,836,944 $ 95,679 $ 330,299 Over-the-Road 4,591,993 3,688,004 342,784 133,678 Storage 400,740 0 13,557 0 Other 1,388 0 0 0 ----------- ----------- ----------- ----------- $12,712,153 $9,524,948 $ 434,020 $ 463,977 =========== =========== =========== ===========

Three Months Ended June 30, 2000 ---------------- Earnings (Loss) ---------------- Intermodal $ (573,527) Over-the-Road (278,679) Storage 263,433 Other 1,388 ---------------- $ (587,385) ================

Six Months Ended June 30, 2000 -------------------------------------------------------- Depreciation Cost of And Interest Sales Sales Amortization Expense -------------- ----------- ------------- ------------ Intermodal $ 15,471,224 $11,531,099 $ 157,588 $ (580,536) Over-the-Road 8,271,751 6,418,167 698,223 (278,704) Storage 767,100 0 40,174 0 Other 2,720 0 0 0 -------------- ----------- ------------- ------------ $ 24,512,795 $17,949,266 $ 895,985 $ (859,240) ============== =========== ============= ============ Six Months Ended June 30, 2000 -------------------------------------------------------- Additions to Earnings Long-Term Long-Lived (Loss) Assets Assets Total Assets -------------- ----------- ------------- ------------ Intermodal $ (536,687) $ 1,178,154 $ 85,625 $ 8,306,185 Over-the-Road (538,827) 6,530,128 50,673 9,135,232 Storage 469,408 157,962 0 1,007,962 Other 2,720 0 0 0 -------------- ----------- ------------- ------------ $ (603,386) $ 7,866,244 $ 136,298 $18,449,379 ============== =========== ============= ============

Three Months Ended June 30, 1999 -------------------------------------------------- Depreciation Cost of And Interest Sales Sales Amortization Expense ------------- ---------- ------------- -------- Intermodal $ 4,990,782 $3,797,990 $ 53,246 $184,729 Over-the-Road 3,332,055 2,116,592 308,872 154,434 Storage 132,188 0 6,282 0 Other 963 0 0 0 ------------- ---------- ------------- -------- $ 8,455,988 $5,914,582 $ 368,400 $339,663 ============= ========== ============= ========

Three Months Ended June 30, 1999 ================ Earnings (Loss) ---------------- Intermodal $ 198,099 Over-the-Road (5,737) Storage 28,991 Other 963 ---------------- $ 222,316 ================

Six Months Ended June 30, 1999 --------------------------------------------------- Depreciation Cost of And Interest Sales Sales Amortization Expense ------------- ----------- ------------- -------- $ 9,252,201 $ 6,892,897 $ 103,025 $360,607 Intermodal Over-the-Road 6,063,047 3,883,123 617,724 308,251 Storage 262,618 0 12,564 0 Other 2,134 0 0 0 ------------- ----------- ------------- -------- $ 15,580,000 $10,776,020 $ 733,313 $668,858 ============= =========== ============= ========

Six Months Ended June 30, 1999 ------------------------------------------------------ Additions to Earnings Long-Term Long-Lived (Loss) Assets Assets Total Assets -------------- ---------- ----------- ------------- Intermodal $ 173,936 $ 827,615 $ 0 $ 4,669,221 Over-the-Road (149,725) 6,320,867 0 8,068,034 Storage 56,224 225,819 0 756,249 Other 2,134 0 0 0 -------------- ---------- ----------- ------------- $ 82,569 $7,374,302 $ 0 $ 13,493,505 ============== ========== =========== =============

Income before Net Income Revenue extraordinary items (Loss) Net Earnings per share ---------- -------------------- ------------------ ----------------------- 9,278,427 $ 251,619 $ 251,619 $ .017

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