10-Q 1 mc7sep1.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 2001, Commission File No. 0-30880 McCLENDON TRANSPORTATION GROUP, INC. ----------------------------------------------------- (Exact name of Registrant as specified in its charter) Nevada 22 - 3714235 ---------------------------- --------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 121 South LaFayette Street, Lafayette, Alabama 36362 ----------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number (334) 864-9311 Not Applicable (Former name, address or fiscal year if changed since last report) 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 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 _________________ The total number of common shares outstanding of the issuer's common shares, par value $ .001, as of the date of this report, follow: 18,532,000 PART I FINANCIAL INFORMATION Item 1. Financial Statements McCLENDON TRANSPORTATION GROUP, INC. LAFAYETTE, ALABAMA INTERIM BALANCE SHEET AS AT SEPTEMBER 30, 2001 (UNAUDITED) 2001 2000 ASSETS Cash and cash equivalents $ 230,502 $ 118,108 Restricted investments 76,335 101,548 Accounts receivable - trade 3,580,785 4,104,307 Accounts receivable - other 263,102 97,787 Inventories 167,028 196,467 Income taxes recoverable 30,599 - Prepaid expenses 2,377,442 1,733,662 --------- --------- 6,725,643 6,351,879 FIXED ASSETS(Net of accumulated depreciation and amortization) 7,019,826 6,093,021 OTHER ASSETS 190,146 219,515 --------- ---------- $13,935,615 $12,664,415 ========== ==========

See Notes to Interim Financial Statements McCLENDON TRANSPORTATION GROUP, INC. LAFAYETTE, ALABAMA INTERIM BALANCE SHEET AS AT SEPTEMBER 30, 2001 (UNAUDITED) 2001 2000 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Bank overdraft $ 2,693,937 $ 921,773 Short-term borrowings 3,958,383 8,297,599 Accounts payable 1,706,450 1,872,382 Accrued taxes 128,806 146,470 Other accrued charges 1,433,569 2,210,122 Income taxes payable -estimated - 204,388 Current portion of long-term debt 3,047,433 6,183 ---------- ---------- 12,968,578 13,658,917 LONG TERM DEBT(less: current portion) 9,921,897 7,369,150 DEFERRED INCOME TAXES 1,949,156 2,426,351 ---------- ---------- 24,839,631 23,454,418 ---------- ---------- STOCKHOLDERS' EQUITY Common stock, par value $ 1 each, authorized 35,000,000 issued and outstanding - 18,532,000(2000-16,100,000) 18,532 16,100 Additional paid-in capital 3,751,703 138,783 Deficit (14,674,251) (10,944,866) ----------- ---------- (10,904,016) (10,790,003) ----------- ---------- $13,935,615 $12,664,415 =========== ==========

See Notes to Interim Financial Statements McCLENDON TRANSPORTATION GROUP, INC. LAFAYETTE, ALABAMA INTERIM STATEMENT OF STOCKHOLDERS' EQUITY(DEFICIENCY) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED)

See Notes to Interim Financial Statements McCLENDON TRANSPORTATION GROUP, INC. LAFAYETTE, ALABAMA INTERIM STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED) 2001 2000 REVENUE Freight $28,502,879 $29,950,176 Other freight related 90,600 184,489 ---------- ---------- 28,593,479 30,134,665 ---------- ---------- OPERATING EXPENSES Rent and purchased transportation 14,034,554 14,563,557 Salaries, wages and benefits 7,632,920 8,512,185 Operations and maintenance 5,216,514 5,426,372 Insurance and claims 2,435,166 1,824,135 Taxes and licences 483,001 515,819 Communications and utilities 432,332 442,417 Depreciation and amortization 924,774 1,616,684 ---------- ---------- 31,159,261 32,901,169 ---------- ---------- OPERATING INCOME(LOSS) (2,565,782) (2,766,504) ---------- ---------- OTHER ITEMS Gain (loss) on sale of fixed assets and other (148,815) 213,606 Interest income 173,365 269,746 Interest expense (587,079) 1,494,896 Miscellaneous expenses (103,131) (119,630) ---------- ---------- (665,660) 1,858,618 ---------- ---------- INCOME BEFORE EXTRAORDINARY ITEMS (3,231,442) (907,886) EXTRAORDINARY ITEMS (614,514) - ---------- ---------- NET LOSS FOR THE PERIOD $(2,616,928) $ (907,886) ========== ========= Number of Shares Outstanding 18,532,000 16,100,000 ========== ========== Earnings per Share $ (0.14) $ (0.06) ========= =========

See Notes to Interim Financial Statements McCLENDON TRANSPORTATION GROUP, INC. LAFAYETTE, ALABAMA INTERIM STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED) 2001 2000 CASH FLOW FROM OPERATING ACTIVITIES Net loss for the period $(2,616,928) $ (907,886) ---------- ---------- Adjustments to reconcile net loss to net cash provided from operating activities: Depreciation and amortization 1,616,684 1,616,684 Deferred income taxes 20,351 20,351 Gain on sale of fixed assets 148,815 (213,606) Changes in current assets and liabilities Accounts receivable 490,112 490,112 Inventories 14,130 14,130 Refundable income taxes 28,000 - Prepaid expenses (376,909) 1,288,074 Accounts payable 74,187 (270,060) Other current liabilities (875,422) 187,892 ---------- ---------- 555,889 3,133,577 ---------- ---------- NET CASH PROVIDED BY(USED IN) OPERATING ACTIVITIES (2,061,039) 2,225,691 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of fixed assets (1,292,467) (15,132) Proceeds from sale of fixed assets 76,814 1,717,776 (Increase) Decrease in other assets (8,296) 12,225 ---------- ---------- NET CASH PROVIDED BY(USED IN) INVESTING ACTIVITIES (1,223,949) 1,714,869 ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Bank overdraft - net 84,676 (341,112) Restricted investments - net 25,213 100,000 Short-term borrowings - net (1,094,492) 2,495,737 Increase(Reduction) in long-term debt - net 875,589 (6,203,097) Issuance of common stock 3,499,853 50,000 --------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 3,390,839 (3,898,472) --------- --------- NET CHANGE IN CASH 105,851 42,088 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 124,501 76,020 --------- --------- CASH AND CASH EQUIVALENTS - END OF PERIOD $ 230,532 $ 118,108 ========= =========

See Notes to Interim Financial Statements. McCLENDON TRANSPORTATION GROUP, INC. LAFAYETTE, ALABAMA NOTES TO INTERIM FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2001 (UNAUDITED) NOTE 1: Nature of Operations The Company is a medium-haul, irregular route, truckload carrier of general commodities which transports freight primarily throughout the Southeastern and Eastern United States. The Company's top five customers accounted for more than 40% of revenue for 2000. The top two customers accounted for more than 23% of revenue for 2000. On November 11, 1999, Glenn McClendon Trucking Company, Inc. (GMTC) merged into "RDA Services, Inc. (RDA). GMTC was treated as the acquirer and RDA as the acquiree. The resulting merged entity was them renamed McClendon Transportation Group, Inc. for accounting purposes, the acquisition has been treated as an acquisition with all costs in excess of any cash received charged to expense. NOTE 2: Summary of Significant Accounting Policies Accounts Receivable - Trade Trade receivables represent amounts due from various companies for shipment services. Bad debts are normally accounted for using the allowance method, based on the credit worthiness of its customers, as well as general economic conditions. Inventories Inventories consist of fuel, tires, and repair parts and are valued at the lower of cost or market, with cost being determined using the first- in, first-out method. Fixed Assets, Depreciation and Amortization All fixed assets are stated at cost and are depreciated on the straight- line method for financial statement purposes. For income tax reporting, the Company uses accelerated methods. The cost of revenue equipment includes items such as tires, air deflectors, and and communication equipment used in or on the tractors and trailers. Maintenance, repairs and minor renewals are expensed as incurred, while additions and major renewals are capitalized. Revenue equipment is depreciated to a 20% salvage value for trailers and a 15% salvage value for tractors. The useful lives employed for computing depreciation on principal classes of fixed assets for financial statement purposes are as follows: Buildings and land improvements 10 - 40 years Revenue equipment Tractors 6 years Trailers 8 years Furniture and fixtures 5 - 10 years Other fixed assets 5 - 20 years McCLENDON TRANSPORTATION GROUP, INC. LAFAYETTE, ALABAMA NOTES TO INTERIM FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2001 (UNAUDITED) NOTE 2: Summary of Significant Accounting Policies(continued) Revenue Recognition Revenue is recognized when the shipment is completed and bills of lading received. Income Taxes Deferred income taxes are provided for differences in the timing of reporting income for financial statement and tax purposes, and results primarily from differences in depreciation methods. Statement of Cash Flows For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Fair Value of Financial Instruments The carrying amounts reflected in the balance sheet for cash, receivables and short-term borrowings approximate their values due to the short maturities. Management is unable to estimate the fair value of its other financial instruments. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Loss per Share Basic loss per common share is calculated by dividing the net loss by the average number of common shares outstanding during the period. Diluted loss per common share is calculated by adjusting outstanding shares, assuming conversion of all potentially dilutive securities. The Company has a simple capital structure with no potentially dilutive securities. McCLENDON TRANSPORTATION GROUP, INC. LAFAYETTE, ALABAMA NOTES TO INTERIM FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2001 (UNAUDITED) NOTE 3: Accounts Receivable Trade accounts receivable are summarized as follows: 2001 2000 ---------- ---------- Trade accounts receivable $ 3,693,666 $ 4,217,188 Allowance for doubtful accounts (112,881) (112,881) ---------- ---------- $ 3,580,785 $ 4,104,307 ========== ========== Accounts receivable other than trade are summarized as follows: Officers and employees(Note 11) $ 182,060 $ 166,288 Insurance premium refunds 32,509 35,361 Miscellaneous 198,084 (103,862) ---------- ---------- $ 263,102 $ 97,787 ========== ========== NOTE 4: Prepaid Expenses Prepaid expenses are summarized as follows: 2001 2000 ---------- ---------- Insurance, including deposits $ 1,546,052 $ 1,076,120 Taxes, licences and permits 423,818 476,170 Other 407,572 181,372 ---------- ---------- $ 2,377,442 $ 1,733,662 ========== ========== McCLENDON TRANSPORTATION GROUP, INC. LAFAYETTE, ALABAMA NOTES TO INTERIM FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2001 (UNAUDITED) NOTE 5: Fixed Assets and Depreciation Major classes of fixed assets and accumulated depreciation are summarized as follows: 2001 2000 ---------- ---------- Land $ 295,944 $ 318,944 Building and land improvements 1,696,967 1,696,967 Revenue equipment 18,488,582 20,075,820 Furniture, fixtures and other 3,357,691 3,340,512 ---------- ---------- 23,744,684 25,432,243 Accumulated depreciation (16,724,858)(19,339,222) ---------- ---------- $ 7,019,826 $ 6,093,021 ========== ========== NOTE 6: Short-Term Borrowings Short-term borrowings consists of the following: 2001 2000 ---------- ---------- $5,000,000 line of credit from Systran Financial Services Corporation, with interest at prime plus 2%, accounts receivable as collateral. Borrowings on the line of credit are limited by various restrictions on the above collateral. $ 2,238,366 $ 2,978,730 Demand note from Columbus Bank & Trust with interest at prime plus 3%, accounts receivable, contract rights as collateral. 1,513,049 5,018,879 Unsecured note from stockholders, interest at 8.5%, due January 18, 2001. 200,000 250,000 Other notes payable - stockholders 6,968 49,990 ---------- ---------- $ 3,958,383 $ 8,297,599 ========== ========== McCLENDON TRANSPORTATION GROUP, INC. LAFAYETTE, ALABAMA NOTES TO INTERIM FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2001 (UNAUDITED) NOTE 7: Other Accrued Expenses Other accrued expenses are summarized as follows: 2001 2000 ---------- ---------- Accrued self-insured liability claims (see below) $ 710,413 $ 286,440 Accrued workers' compensation 552,478 1,989,503 Other accrued expenses 170,678 (65,821) ---------- ---------- $ 1,433,569 $ 2,210,122 ========== ========== During 1998, the Company negotiated with its previous liability insurance carrier for forgiveness of $ 1,106,951 of outstanding claims under its policy. The forgiveness was accepted, subject to certain contingencies which were not resolved until 1999. Accordingly, this debt foregiveness income is recognized in the 1999 statement of operations as an extraordinary item. McCLENDON TRANSPORTATION GROUP, INC. LAFAYETTE, ALABAMA NOTES TO INTERIM FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2001 (UNAUDITED) NOTE 8: Long-Term Debt Long-term debt consists of the following: 2001 2000 ---------- ---------- Notes payable - Columbus Bank & Trust Co., interest only through June 2001, thereafter monthly payments of approximately $ 180,000, including interest at prime, final payment due August 2005; equipment other assets and endorsements as collateral; $ 6,975,317 $ 3,900,000 Note payable - equipment: Navistar Financial Corporation (see below); 2,100,000 2,100,000 Note payable -equipment: Financial Federal Credit, Inc. monthly principal payments of $27,679 plus interest at prime plus 2%, due October 2005; 1,356,269 779,215 Note payable - equipment Financial Federal Credit, Inc. monthly principal payments of $43,083 plus interest at bank prime, due February 2004 1,249,384 - Note payable - real estate: Columbus Bank & Trust Co., interest only to June 2001,thereafter, monthly blended payments of $12,174 at prime plus 2%, due July 2005 480,000 480,000 Note payable - vehicles: Ford Credit, monthly payments total $ 2,314, including interest at prime plus 2.0%, due July 2005. 53,860 79,618 Notes payable - McClendon Enterprises 36,500 36,500 ---------- ---------- 12,969,330 7,375,333 Less: Current portion (3,047,433) (6,183) ---------- ---------- $ 9,921,897 $ 7,369,150 ========== ========== McCLENDON TRANSPORTATION GROUP, INC. LAFAYETTE, ALABAMA NOTES TO INTERIM FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2001 (UNAUDITED) NOTE 8: Long-Term Debt(continued) Aggregate maturities under these arrangements for years subsequent to September 30, 2001 are as follows: 2001 $ 3,047,433 2002 2,881,204 2003 2,694,432 2004 1,464,084 2005 2,882,177 ---------- $12,969,330 ========== NOTE 9: Operating Leases The Company has acquired trailers through operating leases with various leasing companies with options to purchase at fair market value at the end of such leases. The leases are for periods of 6 to 7 years; however, after 3 years the lease may be canceled by the Company upon meeting specified conditions in the contracts. Under a terminal rental adjustment clause, the Company guarantees a 15% residual value at the end of each lease. During the year the Company also acquired tractors through operating leases with options to purchase the equipment at their fair market value at the end of the leases. The leases are for periods of 18 months to 36 months. McCLENDON TRANSPORTATION GROUP, INC. LAFAYETTE, ALABAMA NOTES TO INTERIM FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2001 (UNAUDITED) NOTE 9: Operating Leases The Company also leases certain real estate properties from McClendon Enterprises (a related party). Below is a schedule of future minimum payments under the above operating leases: McClendon Total Tractor Trailer Enterprises Operating Leases Leases Leases Leases Amounts due during: 2001 $ 1,002,240 $760,357 $ 132,000 $ 1,894,597 2002 751,680 48,627 132,000 932,307 2003 288,144 - 132,000 420,144 2004 - - 132,000 132,000 2005 - - 132,000 132,000 ---------- ------- -------- ---------- $ 2,042,064 $808,984 $ 660,000 $ 3,511,048 ========== ======= ======== ========== Other rent expense is summarized as follows: 2001 2000 ---------- ---------- Tractor leases $ 828,918 $ 199,056 Trailer leases 273,703 629,502 McClendon Enterprises lease 99,000 99,000 Spotting service 205,182 213,263 Other rents 161,253 158,475 ---------- ---------- $ 1,568,055 $ 1,299,296 ========== ========== McCLENDON TRANSPORTATION GROUP, INC. LAFAYETTE, ALABAMA NOTES TO INTERIM FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2001 (UNAUDITED) NOTE 10: Income Taxes The Company's net carry basis of long-term assets exceeded its tax basis for such assets by approximately $ 3,786,453 at September 30, 2001. See Note 2. Net deferred tax liabilities in the accompanying balance sheet reflect the liabilities associated with temporary differences, principally depreciation of fixed assets. Provison for income tax benefit is summarized as follows: 2001 2000 ---------- ---------- Current tax expense Federal $ - $ - State - - Deferred tax benefit - - ---------- --------- $ - $ - ========== ========= The income tax benefit differs from the income tax benefit that would result from applying statutory rates to pretax income. This is due primarily to the payment of per diems to drivers, which are only partly tax deductible. As a result of the non- deductible per diems and other permanent differences, the Company has no net operating loss carryforward available at December 31, 2001. Reconciliation of the provision for income tax benefit to statutory rates are is as follows: 2001 2000 % % Federal provision for income taxes at statutory rates (34.0) (34.0) State provision for income taxes at statutory rates (5.0) (5.0) Federal tax benefit from state income tax deduction - 0.79 Per diems and other permanent differences 2.74 2.74 Other 7.69 7.69 ------ ------ Total (27.23) (27.23) ====== ====== McCLENDON TRANSPORTATION GROUP, INC. LAFAYETTE, ALABAMA NOTES TO INTERIM FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2001 (UNAUDITED) NOTE 11: Related Party Transactions McClendon Enterprises The Company leases under operating leases, its present operating facility and other real estate from McClendon Enterprises, a partnership comprised of two Company stockholders. Total rent expenses on these leases was $99,000 for 2001, $99,000 for 2000. Other The Company's two stockholders are obligated to a previously redeemed stockholder on notes executed to acquire the previous stockholder's stock. The balance of these notes as of September 30, 2000 was approximately $ 170,000 with quarterly principal and interest payments due through 2001. The Company has a note payable outstanding from two stockholders in the amount of $ 200,000. The Company also has a loan payable outstanding from a stockholder in the amount of $ 49,990 for September 2001 and $ 0 for September 2000 respectively. These amounts are included in short-term borrowings, as discussed in Note 6. The Company also has various loans and other receivables from certain officers and stockholders, summarized as follows: 2001 2000 ---------- ---------- Stockholder notes receivable, interest at 7% $ 126,400 $ 91,000 Other stockholder receivables 9,778 9,677 Other officer and employee receivables 45,882 65,611 ---------- ---------- $ 182,060 $ 166,288 ========== ========== McCLENDON TRANSPORTATION GROUP, INC. LAFAYETTE, ALABAMA NOTES TO INTERIM FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2001 (UNAUDITED) NOTE 12: Profit Sharing Plan The Company maintains a qualified defined contribution profit sharing plan with 401(k) provisions covering substantially all employees with over one year of service. Contributions based on a percentage of compensation are determined annually by the board of directors. The Company made contributions totaling $25,618 for the period ended September 30, 2001 and $ 25,007 for the period ended September 30, 2000. NOTE 13: Supplemental Disclosures of Cash Flow Information Cash paid during the period for: 2001 2000 ---------- ---------- Interest $ 569,579 $ 763,514 Taxes $ 8,461 $ 151,548 NOTE 14: Contingencies Self-Insurance Plans The Company is partially self-insured with respect to various risk areas as follows: Liability, Cargo and Physical Damage For automobile liability, the Company is responsible for any claims less than $100,000 and for claims in excess of the $ 1,000,000 policy limit. The Company also has a $4,000,000 umbrella policy per occurrence. McCLENDON TRANSPORTATION GROUP, INC. LAFAYETTE, ALABAMA NOTES TO INTERIM FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2001 (UNAUDITED) NOTE 14: Contingencies(continued) For general liability, the Company is responsible for any claims less than $10,000 and for claims in excess of $1,000,000 per occurrence. The policy has a $2,000,000 annual aggregate limit. The Company also has a $ 4,000,000 annual aggregate umbrella policy. For cargo damage, the Company is responsible for any claims less than $100,000 and for any claims in excess of the $300,000 policy limit. For physical damage to the revenue equipment, the Company is responsible for any claims less than $1,000. Workers' Compensation The Company is also self-insured with respect to workers' compensation. Claims in excess of $300,000 are covered by an insurance policy. The Company is responsible for any claims less than $300,000. As a result of state requirements, an actuarial valuation was obtained during the year which estimated the expected future claims. Accordingly, the Company accrued the estimated present value of claims outstanding and those incurred but not reported. Group Health The Company has elected to self-insure for its group health insurance coverage. Blue Cross-Blue Shield acts as administrator for the plan whereby the Company is responsible for all health claims, not to exceed $50,000 annually, per insured individual. The claims under this plan are accounted for on a cash basis. Credit Risks The Company extends credit across different industries and geographic areas and requires no collateral from its customers. McCLENDON TRANSPORTATION GROUP, INC. LAFAYETTE, ALABAMA NOTES TO INTERIM FINANCIAL STATEMENTS AS AT SEPTEMBER 30, 2001 (UNAUDITED) NOTE 15: Going Concern As shown in the accompanying financial statements, the Company has experienced significant operating losses and has deficits in working capital and net worth. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management is working with its primary lenders to monitor the status of its indebtedness and is currently evaluating methods to reduce costs and improve operating results. In addition, as reflected in Note 8, the Company has renegotiated certain debt obligations with Navistar Financial Corporation and "Columbus Bank & Trust Company, that are expected to further reduce its outstanding indebtedness through a combination of foregiveness and equity conversion. During 1999, the Company signed certain agreements to effect a reorganization plan as more fully described in Note 17. If the Company is unsuccessful in its efforts, it may be necessary to undertake such other actions as may be appropriate to preserve asset value. The financial statements do not include any adjustments, other than the classification of long-term debt as disclosed in Note 8, that might result from the outcome of this uncertainty. NOTE 16: Reorganization During June, 1999, the Company initiated a plan of reorganization. As a result the Company entered into a reverse merger transaction with RDA Services, Inc. in November, 1999 whereby RDA Services, Inc. purchased Glenn McClendon Trucking Company, Inc. ("GMTC") through issuance of its stock. RDA Services, Inc. then changed its name to McClendon Transportation Group, Inc. The principal shareholders of GMTC retained 90% of the stock of the newly merged Company. The transaction also included refinancing certain portions of the line-of-credit agreement, as well as other long-term debt obligations as discussed in Note 8. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Certain of the matters discussed under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" may constitute forward-looking statements for purposes of the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause the actual results, performance or achievement of the Company to differ materially from the Company's expectations include, without limitation, the following: 1) the Company is unable to reduce transportation costs or pass on the increased costs of fuel to its existing customers; 2) the Company is unable to attract new customers; 3) the Company is unable to retain existing personnel or hire additional personnel; 4) the industries the Company serves experience a downturn in business or have less rapid growth than anticipated; 5) new competitors enter the markets the Company serves or existing competitors increase their marketing efforts; and 6) the Company is unable to obtain additional debt or equity financing on favorable terms, if at all, to satisfy cash requirements. All written or oral forward-looking statements attributable to the Company are expressly qualified in their entirety by such factors. Working Capital and Cash Flow The Company's working capital deficiency decreased from a negative $7,944,886 as at December 31, 2000 to a negative $6,242,935 for the nine months ended September 30, 2001. The current ratio was .46 and .52 at December 31, 2000 and September 30, 2001 respectively. The change in working capital was due primarily to the restructuring of certain long-term debt and foregiveness of such debt. The Company continues to experience cash flow problems as current liabilities exceed current assets. Much of this is due to the current maturities of long- term debt which the Company is in the process of restructuring. The Company periodically seeks additional working capital through debt and equity financing from public and private sources when opportunities become available, but to date has been unable to obtain additional financing from any source although it is able to meet its current cash flow needs for operations. Item 6: Exhibits and Reports on Form 8-K Exhibit 11 - Computation of earnings per common share - See Statement of Operations Reports on Form 8-K - None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned thereunto duly authorized. McCLENDON TRANSPORTATION GROUP, INC. By: /s/ JAMES McCLENDON ---------------------- James McClendon President Dated: November 13, 2001

MCCLENDON TRANSPORTATION GROUP INC 10-Q