<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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 No. 000-22571
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-1915632
------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
475 Lovers Land Road, Calhoun, Georgia 30701
--------------------------------------------
(Address of principal executive offices)
(706)629-8682
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the registrant has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by court. Yes___ No___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common Stock, no par value per share, 3,867,850 shares issued and
outstanding as of August 13,1998.
Redeemable Common Stock Purchase Warrants, 1,437,500 issued and
outstanding as of August 13, 1998.
Transitional Small Business Disclosure Format (check one): YES NO X
-- --
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QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 1998
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
INDEX
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Page
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PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997....................................3
Consolidated Statements of Operations for the three months and six months
Ended June 30, 1998 and 1997.............................................................................4
Consolidated Statements of Cash Flows for the six months ended
June 30, 1998 and 1997 ..................................................................................5
Notes to the Consolidated Financial Statements...........................................................6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operation.....................8
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings.......................................................................................13
ITEM 2. Changes in Securities...................................................................................15
ITEM 3. Defaults Upon Senior Securities.........................................................................15
ITEM 4. Submission of Matters to a Vote of Security Holders.....................................................15
ITEM 5. Other Information.......................................................................................16
ITEM 6. Exhibits and Reports on Form 8-K........................................................................16
Signatures..............................................................................................17
</TABLE>
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements -
PROFESSIONAL TRANSPORTATION GROUP LTD., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
(Unaudited)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,815,289 $ 1,422,732
Trade accounts receivable, net of allowance for doubtful accounts of
$323,578 at June 30, 1998 and $267,578 at December 31, 1997 8,267,833 10,690,400
Due from affiliate 429,365 458,615
Due from shareholder 577,197 577,197
Note receivable 2,181,195 1,532,877
Other 1,704,175 1,389,213
------------ ------------
Total current assets 14,975,054 16,071,034
PROPERTY AND EQUIPMENT, net 7,237,202 4,984,987
OTHER ASSETS 971,363 393,786
------------ ------------
Total assets $ 23,183,619 $ 21,449,807
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,086,703 $ 3,543,051
Accrued liabilities 2,821,950 2,806,155
Line of credit 7,726,092 6,828,722
Current maturities of long-term debt and capital lease obligations 1,410,919 941,488
------------ ------------
Total current liabilities 16,045,664 14,119,416
------------ ------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, net of
current maturities 4,563,578 3,057,235
------------ ------------
DEFERRED INCOME TAXES 237,209 237,209
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock; 100,000 shares authorized, no shares issued and outstanding
Common stock; no par value, 20,000,000 shares authorized, 3,867,850 -- --
and 3,867,000 issued and outstanding at June 30, 1998 and
December 31, 1997, respectively -- --
Common stock purchase warrants; 1,437,500 issued and outstanding at June 30,
1998 and December 31, 1997, respectively 177,117 177,117
Additional paid-in capital 5,569,529 5,567,243
Retained earnings (deficit) (3,409,478) (1,708,413)
------------ ------------
Total shareholders' equity 2,337,168 4,035,947
------------ ------------
Total liabilities and shareholders' equity $ 23,183,619 $ 21,449,807
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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PROFESSIONAL TRANSPORTATION GROUP LTD., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Six Months Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
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OPERATING REVENUES $ 13,923,998 $ 8,444,551 $ 33,797,044 $ 15,858,424
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Salaries, wages and benefits 6,292,818 2,882,364 15,908,797 5,396,588
Purchased transportation 1,957,729 2,079,512 3,775,088 4,052,704
Operating supplies and expenses 2,458,060 1,517,324 7,181,862 2,847,923
Fuel and fuel taxes 1,745,290 944,274 4,495,949 1,906,793
Communications and utilities 350,511 105,650 776,489 202,373
Depreciation 301,253 77,286 528,808 153,473
Operating taxes and licenses 157,412 39,351 352,179 69,744
Bad debt expense 3,000 3,000 56,000 6,000
Other operating expenses 809,381 370,476 2,058,506 672,949
------------ ------------ ------------ ------------
Total operating expenses 14,075,454 8,019,237 35,133,678 15,308,547
INCOME (LOSS) FROM OPERATIONS (151,456) 425,314 (1,336,634) 549,877
OTHER INCOME (EXPENSE):
Interest expense (237,787) (75,441) (519,338) (150,037)
Other income, net 152,369 29,167 154,907 96,143
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE
INCOME TAXES (236,874) 379,040 (1,701,065) 495,983
PROVISION FOR INCOME TAXES -- (119,000) -- (187,000)
BENEFIT FOR INCOME TAXES -- (24,000) -- --
INCOME TAX PROVISION DUE TO
CHANGE IN TAX STATUS -- -- -- (246,000)
------------ ------------ ------------ ------------
TOTAL PROVISION FOR
INCOME TAXES -- (143,000) -- (433,000)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (236,874) $ 236,040 $ (1,701,065) $ 62,983
============ ============ ============ ============
NET LOSS PER COMMON SHARE - basic and
diluted $ (0.06) $ 0.06 $ (.44) $ .02
============ ============ ============ ============
Weighted average common and common
equivalent shares outstanding - basic
and diluted 3,867,850 3,706,043 3,867,625 3,624,080
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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PROFESSIONAL TRANSPORTATION GROUP LTD., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1998 and 1997
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<CAPTION>
Six Months
Ended June 30,
---------------------------
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited)
Net income (loss) $(1,701,065) $ 62,983
----------- -----------
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Deferred income taxes -- 149,705
Depreciation and amortization 528,808 153,473
Changes in operating assets and liabilities:
Trade accounts receivable, net 2,422,567 (53,051)
Due from affiliate 29,250 (160,534)
Other current assets (963,280) (338,393)
Accounts payable and accrued liabilities 559,447 1,266,662
----------- -----------
Total adjustments 2,576,792 1,017,862
----------- -----------
Net cash provided by operating activities 875,727 1,080,845
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,781,023) (422,298)
Increase (decrease) in other assets (577,577) 42,645
----------- -----------
Net cash used in investing activities (3,358,600) (379,653)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from line of credit 897,370 170,946
Repayments of long-term debt and capital lease obligations (673,619) (223,275)
Proceeds from long-term debt 2,649,393 324,544
Net proceeds from sale of common stock and common stock
purchase warrants 2,286 5,763,553
Due from underwriter -- (1,413,406)
Due from shareholder -- (25,000)
----------- -----------
Net cash provided by financing activities 2,875,430 4,597,362
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 392,557 5,298,554
CASH AND CASH EQUIVALENTS, beginning of period 1,422,732 248,454
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,815,289 $ 5,547,008
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
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PROFESSIONAL TRANSPORTATION GROUP LTD., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 and 1997
1. ORGANIZATION AND OPERATION
Professional Transportation Group Ltd., Inc. ("PTG, Ltd.") serves as a
holding company for its three operating subsidiaries: Timely Transportation,
Inc. ("Timely"), Truck-Net, Inc. ("Truck-Net"), and PTG, Inc. (collectively, the
"Subsidiaries"). PTG, Ltd. together with the Subsidiaries is hereafter referred
to as the "Company." The Company, through the Subsidiaries, provides
transportation and logistics services primarily for the air freight and
expedited delivery and floorcovering industries throughout the continental
United States. Timely operates a fleet of company-owned and leased vehicles to
provide time-definite truckload transportation services for companies in the air
freight and expedited delivery markets and in the floorcovering industry.
Truck-Net provides brokerage services to companies, mainly in the air freight
industry, that are in need of third-party transportation. PTG, Inc. operates a
courier service in the Atlanta, Georgia metropolitan region (d.b.a. Rapid
Transit) and provides third-party logistics services in recovering copiers, fax
machines, and telephone equipment that are in need of repair or under expired
leases.
Prior to January 1997, the Subsidiaries were owned and operated by the
majority shareholder of the Company as separate operating companies. On January
1, 1997, the respective shares of stock in the Subsidiaries were contributed to
PTG, Ltd. by their sole shareholder, whereupon each became a wholly owned
subsidiary of PTG, Ltd.; and PTG, Ltd., which had previously been an operating
company, transferred its operations to PTG, Inc.
As the companies were all under common control, the above transactions
were treated as a reorganization (the "Reorganization") and were accounted for
in a manner similar to a pooling of interests. All references to number of
shares and to per share information in the financial statements have been
adjusted to retroactively reflect the Reorganization as if it had occurred on
December 31, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of PTG, Ltd.
and the Subsidiaries. All significant intercompany balances and transactions
have been eliminated.
INCOME TAXES
Prior to the Reorganization, PTG, Ltd. and two of the Subsidiaries
elected to be treated as S corporations for federal and state income tax
purposes. Accordingly, all income or losses of these companies were recognized
by the shareholders on their individual tax returns. In connection with the
Reorganization, these companies converted from S corporation to C corporation
status and, accordingly, are subject to federal and state income taxes for all
periods after December 31, 1996.
As a result of this change in tax status, the Company recorded an
increase in its provision for income taxes of approximately $246,000 during the
first three months of 1997 to reflect the deferred income taxes attributable to
those entities which had previously been exempt from federal income taxation.
These deferred income taxes result from the use of accelerated depreciation and
cash basis tax reporting by these entities.
3. BASIS OF PRESENTATION
In the opinion of management, the unaudited consolidated financial
statements contain all normal and recurring adjustments necessary to present
fairly the consolidated financial position of the Company at June 30, 1998 and
the consolidated results of the Company's operations for the three and six month
periods ended June 30, 1998 and 1997 and its cash flows for the six month
periods ended June 30,1998 and 1997. Certain information and footnote
6
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disclosures usually found in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
Operating results for the interim periods are not necessarily indicative of the
results that may be expected for the year ended December 31, 1998.
4. INITIAL PUBLIC OFFERING
On June 19, 1997, the Company's initial public offering (the "Initial
Public Offering") was declared effective by the Securities and Exchange
Commission. In the Initial Public Offering, the Company sold 1,250,000 shares of
Common Stock at $6.00 per share and 1,437,500 redeemable common stock purchase
warrants at $0.125 per warrant.
5. PRO FORMA COMPENSATION EXPENSE
Operating expenses of the Company reflect compensation expense on a pro
forma basis of $60,000 for the six months ended June 30, 1997 to reflect the
fair value of services performed by the Company's Chief Executive Officer and
President. Such amounts are an assumed expense only and have never been paid.
Beginning on July 1, 1997, the actual compensation paid to such individual has
been recorded. A pro forma tax benefit of $24,000 related to this assumed
compensation has also been reflected in the accompanying consolidated statement
of operations for the six months ended June 30, 1997.
6. DEBT COMPLIANCE
Pursuant to the line of credit with its bank, the Company must satisfy
certain financial and other covenants. As of June 30, 1998, the Company was in
default under several non-monetary covenants. The Company has requested from the
bank waivers of compliance with these covenants for the quarter ended June 30,
1998.
7. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." Adoption of this
statement had no impact on the Company because comprehensive loss was the same
as net loss for the three and six months ended June 30, 1998.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following analysis of the Company's financial condition as of June 30,
1998 and the Company's results of operations for the three and six month periods
ended June 30, 1998 and 1997 should be read in conjunction with the Company's
Consolidated Financial Statements and notes thereto. The following discussion
contains statements which constitute forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended. These statements appear in a number
of places in this Quarterly Report and include all statements that are not
historical statements of fact regarding the intent, anticipation, belief or
current expectations of the Company, its directors or its officers with respect
to, among other things: (i) the Company's financing plans; (ii) trends affecting
the Company's financial condition or results of operations; (iii) the Company's
growth strategy and operating strategy (including, but not limited to, the
Company's consolidation of operations and issues related to Year 2000
compliance); and (iv) the declaration and payment of dividends. The words "may,"
"would," "could," "will," "expect," "estimate," "anticipate," "believe,"
"intends," "plans," and similar expressions and variations thereof are intended
to identify forward-looking statements. Investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, many of which are beyond the Company's ability to
control, and that actual results may differ materially from those projected in
the forward-looking statements. Actual results may differ materially from these
forward-looking statements as a result of many factors, including the inability
to obtain, continue and manage growth, growth in the Company's customers,
increased competition, and the other factors discussed in the Company's
registration statement of Form SB-2 as declared effective on June 19, 1997,
including the "Risk Factors" section contained therein and the other documents
filed thereafter by the Company pursuant to the Securities Exchanged Act of
1934, as amended. The financial information provided below has been rounded in
order to simplify its presentation. However, the percentages provided below are
calculated using the detailed financial information contained in the
Consolidated Financial Statements and the notes thereto.
OVERVIEW
Through December 31, 1996, the Company, Timely and Truck-Net operated as
three separate entities. At such time, Dennis A. Bakal, the Company's principal
shareholder owned all of the shares of Timely and Truck-Net. Effective January
1, 1997, Mr. Bakal contributed his ownership in Timely and Truck-Net to the
Company, along with his ownership of PTG Inc. ("PTG"), a previously inactive
company. On December 31, 1996, PTG acquired certain assets (subject to certain
liabilities), business, operating authorities, names and customer lists of Rapid
Transit ("Rapid"), the courier division of a company controlled by Mr. Bakal,
and certain fixed assets from another company owned by Mr. Bakal, all in
exchange for amounts due the Company, Timely and Truck-Net from the former
corporate owner of Rapid. On June 19, 1997, the Company completed the Initial
Public Offering, which resulted in net proceeds to the Company of approximately
$5.7 million.
Timely, organized in 1991, performs contract truckload ground
transportation services primarily for customers in the air freight and expedited
delivery markets. In November 1995, Timely entered into an agreement to perform
trucking services for Federal Express Corporation ("FedEx") and became one of
FedEx's eight core carriers. Under the core carrier concept, a limited number of
carriers are selected by a shipper to provide scheduled services between points
for a contractually determined period of time. Such agreements specify routes,
pricing (normally determined by route), equipment specifications and performance
standards. In addition, such agreements generally provide for pricing
adjustments based on fuel pricing or changes in cost structure at predetermined
times. For the six month periods ended June 30, 1998 and 1997, FedEx accounted
for approximately 26% and 38% respectively, of the consolidated operating
revenues of the Company. Since the inception of the agreement, the Company has
consistently exceeded the required performance standards under the agreement.
The agreement, originally due to expire in November 1998, has been extended for
a period of 18 months. There can be no assurance, however, that this agreement
will be renewed at the expiration of this extended term.
In developing its niche in the industry, Timely has concentrated, since
January 1994, on the contract carriage of truckload freight for the air freight
and expedited delivery markets. By concentrating in these markets, the Company
has eliminated the need for terminals and has been able to focus its efforts on
acquiring equipment and recruiting drivers and other personnel.
8
<PAGE> 9
Truck-Net, a licensed freight broker acquired by Mr. Bakal in 1991,
performs truckload brokerage services in the same air freight and expedited
delivery markets served by Timely. As a broker, Truck-Net matches a shipper with
a specific routing and/or equipment need with a carrier able to satisfy the
shipper's particular requirements. All carriers used by Truck-Net are required
to be properly certified and to have a current certificate of insurance. When
logistically feasible, Truck-Net utilizes Timely's equipment to complete the
brokerage contracts. During the six months ended June 30, 1998, Truck-Net was
able to utilize Timely's equipment for approximately 10% of its shipments. The
Company anticipates that this utilization will increase in the future as the
Company expands.
Truck-Net offers its services to customers on a contract basis. Some of
its services provide specific scheduled runs for a definite time period, and
others provide deliveries on an as needed basis by the shipper. Truck-Net's
largest customer, Panalpina Inc. ("Panalpina"), the U.S. subsidiary of a major
European air freight forwarder, accounted for approximately 5% and 16% of the
Company's consolidated operating revenues for the six month periods ended June
30, 1998 and 1997, respectively.
In October 1997, the Company organized Timely North and entered into a
marketing agreement (the "Marketing Agreement") with Continental American
Transportation, Inc. ("Continental"). Under that agreement, Timely North, on
November 1, 1997, leased or subleased from Continental and its two main
operating subsidiaries, Carpet Transport, Inc. and Blue Mack Transport, Inc.,
(collectively "CTI"), substantially all of their operating assets and terminals.
In addition, all of the employees of CTI were hired by Timely North effective
November 1, 1997. The Marketing Agreement expired on July 31, 1998.
The primary business of CTI was the truckload and less-than-truckload
("LTL") cartage of carpet from the manufacturing facilities located in north
Georgia to customers primarily located in the eastern and southern United
States. The movement of carpet is primarily a one direction movement with most
of the carpet movement being outbound from north Georgia, making it necessary to
find sufficient back-haul business to bring the trucks back to Georgia at the
lowest possible cost. In April 1998 as a result of the losses it had incurred in
its LTL operations, the Company ceased using the 17 remote LTL terminals located
in 10 states that it had assumed operational control from CTI, terminated
approximately 400 employees at these terminals, returned equipment to its
Calhoun location and transferred the truckload carpet business to Timely.
During the second quarter of 1998, the Company began consolidating
certain of its operations to eliminate duplicative functions. This consolidation
was accomplished to improve customer service, lower "deadhead" miles and lower
operating costs. On August 1, 1998 the Company moved all of its corporate and
administrative personnel from its offices in Atlanta to the facility in Calhoun,
Georgia.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1998 compared Six Months Ended June 30, 1997
Operating revenues increased 113% or $17.9 million to $33.8 million in
the first six months of 1998 over the same period last year. Timely's revenue
increased $7.7 million to $19.0 million primarily due to increases in business
from core accounts and revenues generated from the carpet industry during the
second quarter of 1998 which the Company did not operate during the comparable
period of 1997. Timely North revenues included in the six month period of 1998
were $10.6 million. Truck-Net and PTG, Inc. recorded revenues of $3.8 million
and $311,000, respectively, in the first six months of 1998 compared to $4.0
million and $551,000 in the same period of 1997.
Operating expenses increased $19.8 million to $35.1 million for the six
month period ended June 30, 1998 from $15.3 million for the same period of 1997.
Timely accounted for $7.9 million of this increase, primarily as a result of the
increased revenue discussed above, while the inclusion of Timely North accounted
for $11.8 million of the increase.
9
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On April 1, 1998 the Company ceased operating its LTL business operated
by Timely North. Second quarter results reflect efficiencies realized by this
change in operations, which include the reduction of equipment and personnel
costs outlined above. Operating expenses were reduced by $7.0 million in the
second quarter of 1998 compared to the first quarter of 1998 on decreased
revenues of $5.9 million.
During the first quarter of 1997, the Company recognized a tax
provision of $246,000 which is a one-time charge related to the termination of
the S corporation election of the Company and certain of its subsidiaries and
represents the recognition of deferred tax liabilities attributable to these
entities, which treatment is mandated by SFAS Statement No. 109, "Accounting for
Income Taxes".
The Company's net loss increased approximately $1.8 million from net
income of $63,000 for the first six months of 1997 compared to a net loss of
$1.7 million for the comparable period of 1998, primarily as a result of the
Timely North LTL operations.
Three Months Ended June 30, 1998 compared to Three Months Ended June 30, 1997
The Company's operating revenues increased approximately $5.5 million,
or 65%, to approximately $13.9 million for the three months ended June 30, 1998,
from approximately $8.4 million for the three months ended June 30, 1997.
Timely's revenues increased $5.7 million to $11.8 million from $6.1 million.
Truck-Net and PTG recorded revenues of $2.1 million and $166,000, respectively,
in the second quarter of 1998 compared to $2.1 million and $264,000,
respectively, for the same period in 1997. The increase in Timely's revenues was
primarily due to increases in business from core accounts and revenues generated
from the carpet industry during the second quarter of 1998, which the Company
did not operate during the comparable period of 1997.
The Company's operating expenses increased approximately $ 6.1 million,
or 76%, to approximately $14.1 million in the three months ended June 30, 1998
from approximately $8.0 million in the three months ended June 30, 1997. The
increase in the Company's operating expenses is primarily due to an increase in
Timely's operating expenses to $11.9 million from $5.9 million that resulted
from the increase in Timely's revenues. Timely's total revenue miles increased
77% to 10.1 million miles in the second quarter of 1998 from 5.7 million miles
in the second quarter of 1997. Truck-Net's operating expenses remained constant
at $2.0 million in each period.
The Company recorded a net loss of $237,000 for the three months ended
June 30, 1998 compared to net income of $236,000 in the second quarter of 1997.
Certain cost reductions were implemented in the second quarter of 1998 which the
Company expects to impact future quarters.
LIQUIDITY AND CAPITAL RESOURCES
On June 19, 1997, the Company's registration statement for the sale of
1,250,000 of common stock at a price of $6.00 per share and 1,437,500 redeemable
common stock purchase warrants (the "warrants") at a price of $.0125 per warrant
was declared effective (the " Initial Public Offering") by the Securities and
Exchange Commission. Proceeds to the Company, after underwriting discounts and
related offering expenses totaled approximately $ 5.7 million.
The Company had negative working capital of approximately $1.1 million
at June 30, 1998 compared to positive working capital of approximately $2
million at December 31, 1997. The reduction in working capital is primarily the
result of expenses incurred in the Timely North LTL operations. Since the
Initial Public Offering, the Company has been able to secure financing for new
equipment at substantially lower rates than were available to it in the past.
This has allowed the Company to return more expensive transportation equipment
as it came off of lease and replace it with new equipment under financing
leases.
10
<PAGE> 11
Net cash provided by operating activities totaled approximately $
876,000 for the six month period ended June 30, 1998, compared to net cash
provided of approximately $1.1 million in the comparable period ended June 30,
1997. This increase in usage arose mainly from losses incurred from the LTL
operations of Timely North in the first three months of 1998 offset by
collections of that division's trade accounts receivable. Cash used in investing
activities increased to approximately $3.4 million in 1998 primarily due to the
acquisition of approximately $ 2.8 million of property and equipment. The
Company installed $1.1 million of satellite communications equipment in its
trucks and acquired $1.2 million of trailers to replace more expensive leased
equipment. Proceeds from long-term debt, net of debt retirement, and net
proceeds from the Company's line of credit were approximately $2.9 million.
The Company has available a combined $9.0 million line of credit with a
lending institution to provide for the Company's working capital and letter of
credit requirements. The loan is guaranteed by the Company's principal
shareholder and bears interest at a rate equal to 0.75% above the bank's base
rate (as defined in the agreement). The Company has $7.7 million outstanding
under the line of credit with a nominal amount available for future use. This
facility, which was originally scheduled to mature on June 30, 1998, was
extended by the bank for a period of 75 days. The Company anticipates extending
the current facility or entering into new arrangements with the bank by the end
of the extended period. However, there can be no assurance that the Company will
be able to further extend or enter into new arrangements with the bank on terms
favorable to the Company, if at all, which might necessitate that the Company
raise additional funds through the issuance of equity or convertible debt
securities. Pursuant to the loan agreement with the bank, the Company must
satisfy certain financial and other covenants. As of June 30, 1998, the Company
was in default under several non-monetary covenants. The Company has requested
from the bank waivers of compliance with these covenants.
The Company believes that improved cash flows from operations, as a
result of the operating changes discussed above and from its existing lines of
credit, if extended or otherwise renewed or replaced, will be sufficient to
satisfy its contemplated cash requirements over the next 12 months. The
Company's financial requirements will depend upon, among other things, the
growth rate of the Company's business, the amount of cash generated by
operations and the Company's ability to borrow funds or enter into lease or
purchase financing arrangements for the acquisition of new equipment or for
working capital purposes. Should the Company require additional debt or equity
financing to support its operations or to make acquisitions, there can be no
assurance that such additional financing will be available to the Company on
commercially reasonable terms, or at all. At June 30, 1998, the Company had
approximately $1.8 million in cash and cash equivalents.
INFLATION
Inflation has not had a material effect on the Company's operations. If
inflation increases, the Company will attempt to increase its rates to offset
its increased expenses. No assurances can be given, however, that the Company
will be able to adequately increase its prices in response to inflation.
YEAR 2000 ISSUES
The Company's business and relationships with its customers depend
significantly on a number of computer software programs, internal operating
systems and connections to other networks. If any of these software programs,
systems or networks are not programmed to recognize and properly process dates
after December 31, 1999 (the "Year 2000" issue), significant system failures or
errors may result which could have a material adverse effect on the business,
financial condition, or results of operations of both the effected customers and
the Company. The Company has conducted a preliminary review of its internal
accounting and operating programs and systems and currently believes that these
programs and systems and the network connections it maintains are adequately
programmed to address the Year 2000 issue or can be modified or replaced to
address the Year 2000 issue without incurring costs or delays which would have a
material adverse effect on the Company's financial condition. However if the
Company and third parties upon which it relies are unable to address this issue
in a timely manner it could result in a material financial risks to the Company.
The Company plans to devote all resources required to resolve any significant
Year 2000 issues in a timely manner.
11
<PAGE> 12
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are meet. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. Adoption of SFAS 133 will not have a material
impact on the Company.
12
<PAGE> 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On or about February 26, 1997, an action was brought against two of the
Company's subsidiaries, Timely Transportation, Inc. ("Timely") and Truck-Net,
Inc. ("Truck-Net"), by the trustee in bankruptcy in the U.S. Bankruptcy Court
for the Central District of California in the matter of In re Right O Way
Transportation, Inc. (Case No. SA96-1174 JR), seeking to recover alleged
preferential transfers to and for the benefit of Timely and Truck-Net in the
aggregate of approximately $435,000 within the 90 days preceding the filing of
Right O Way's bankruptcy petition under Chapter 7 of the U.S. Bankruptcy Code. A
settlement has been reached with the Right O Way bankruptcy attorney and has
been approved by the bankruptcy court. The settlement calls for Timely and
Truck-Net collectively to pay the bankruptcy estate a total of $33,000.
Alexander B. Sadler, Jr. v. Timely North, Inc., et al, case number
GV98008739, General District Court for Chesterfield County, Virginia. The
plaintiff brought suit against Carpet Transport, Inc. for possession of certain
leased premises and breach of the associated commercial lease. The damages
sought by the plaintiff were approximately $100,000. The plaintiff sought to
hold Timely North liable with CTI as an alleged assignee of the lease. Timely
North retained counsel and defended the suit vigorously, denying all liability.
On the eve of trial, the plaintiff dismissed the suit without prejudice.
On or about December 31, 1997, an action was brought against the
Company, Timely, Timely North and other unrelated parties by Lance Enterprises,
Inc. in the Superior Court of Gordon County, Georgia seeking recovery against
the defendants for breach of contract, conspiracy to avoid a lawful obligation,
tortious interference with contractual obligations, attorney's fees and expenses
of litigation, quantum meruit, punitive damages and declaratory judgement. This
lawsuit stems from the plaintiff's agreement with Continental American
Transportation, Inc. under which plaintiff was to assist Continental American
with the sale of its business for a prescribed fee. The plaintiff alleges that
the Company's and Timely North's dealings with Continental American and its
subsidiaries, specifically the $1.5 million loan and marketing arrangement,
constitute a sale under the agreement. Continental American refused to pay the
plaintiff any fee under the agreement. The Company, Timely and Timely North were
not parties to the agreement, have filed an answer to the complaint denying all
of the material allegations and any liability on their part and intend to
vigorously defend this action. Discovery is proceeding in this action.
On or about May 26, 1998, an action was filed against Timely and Timely
North in the case styled Mellon U.S. Leasing v. Timely North, Inc. and Timely
Transportation, Inc., Case No. 4:97-CV277 HLM,U.S. District Court for the
Northern District of Georgia (Rome Division). This action was filed by a lessor
of rolling stock to CTI. The complaint alleges generally that Timely North and
Timely are indebted to Mellon in an amount to be determined at trial, but that
is currently in the approximate amount of $105,000. While neither Timely nor
Timely North have had any contractual relationship with Mellon, Mellon asserts
in its complaint that the use of the rolling stock during the period of time
that Timely and Timely North used the rolling stock. Timely and Timely North
have timely filed answers to Mellon's complaint, and intend to contest the case
vigorously.
An involuntary bankruptcy petition was filed on or about May 26, 1998
against Continental American Transportation, the parent corporation of CTI, in
the case styled In re: Continental American Transportation, Inc., Case No.
98-41900 HR, U.S. Bankruptcy Court for the Northern District of Georgia (Rome
Division). This action was filed by several parties purporting to be creditors
of Continental American. The involuntary bankruptcy petition resulted in the
appointment of a trustee. While the trustee has asserted no formal claims
against the Company or its affiliates, the trustee has verbally questioned the
receipt by the Company of a payment it received for a consulting and
non-competition agreement. The trustee also verbally questioned the
fully-secured status and priority of the Company's September 12, 1997 secured
loan to CTI and its affiliates of $1.5 million. The Company denies that its
first priority secured status should be challenged, but even if this challenge
would be successful, the Company has title insurance on the property and a
personal guarantee of one of the owners of the property. The trustee also
questioned whether the Company was entitled to the proceeds of the sale of
certain rolling stock formerly leased by CTI. In the event that the trustee
should pursue any of these claims against the Company or its affiliates, the
Company and/or its affiliates will file a timely response to any such claim
denying all of the material allegations and any liability on its part, and will
vigorously defend against any such claim.
On or about June 17, 1998, a lawsuit was filed against Timely North and
the Company in the case styled CIT Finance Group, Inc. v. Timely North, Inc. and
Professional Transportation Group Ltd., Inc., Case No. 98-CV2280-2, Superior
Court of Clayton County, Georgia. This action was filed by a lessor of rolling
stock to CTI. The complaint alleges generally that Timely North and the Company
are indebted to CIT in an amount to be determined at trial, but that CTI alleges
to be approximately $350,000, an amount disputed by the Company. While neither
Timely North nor the Company has had any contractual relationship with CIT, CIT
asserts in its complaint that the use of its rolling stock entitles
13
<PAGE> 14
CIT to receive from Timely North and PTG the fair rental value of the rolling
stock during the period of time that Timely North and PTG used the rolling
stock. Timely North and PTG have timely filed answers to CIT's complaint, and
intend to contest the case vigorously.
An involuntary bankruptcy petition was filed on or about June 17, 1998
against Carpet Transport, Inc. in the case styled In re: Carpet Transport, Inc.,
Case No. 98-42224 HR, U.S. Bankruptcy Court for the Northern District of Georgia
(Rome Division). This action was filed by several parties purporting to be
creditors of Carpet Transport and alleges among other things that Timely North
or its affiliates had collected a portion of CTI's receivables, that a
representative of Company had caused CTI's withholding tax payments to the IRS
to be diverted to Timely North's benefit (to pay Form 2290 taxes), and that
Timely North had sold portions of CTI's equipment without an accounting for the
sales proceeds. A trustee has been appointed, but neither the Company, Timely
nor Timely North has had any communication with the trustee. In the event that
the trustee pursues any of these claims against the Company or its affiliates,
the Company and/or its affiliates will file a timely response to any such claim
denying all of the material allegations and any liability on its part, and will
vigorously defend against any such claim.
On or about July 30, 1998, an action was brought against Timely and
other defendants in the case styled The CIT Group/Equipment Financing, Inc. v.
Timely Transportation, Inc. et al, Case No. 98-14395, Court of Common Pleas of
Montgomery County, Pennsylvania. The plaintiff as a secured creditor of various
defendants other than Timely alleges that those defendants defaulted in their
installment payments to the plaintiff, that the plaintiff sold the collateral in
a foreclosure sale, that the plaintiff has been damaged in the amount of
approximately $151,000, and that Timely is a "successor" to the other defendants
and therefore owes to CIT its damages. Timely was not a party to any of the
documents under which the plaintiff bases its cases, will file a timely answer
to the complaint denying all of the material allegations and any liability on
its part, and intends to vigorously defend this action.
Gainey Transportation Services, Inc. v. Timely Transportation, Inc. and
Timely North, Inc., case number 98-06917-CK, Circuit Court for the County of
Kent, Michigan. Gainey Transportation Services, Inc. seeks recovery of
approximately $65,000 in freight charges allegedly incurred by Timely North.
Timely and Timely North have retained local counsel in Michigan in order to
defend this matter. Timely's position is that only Timely North is responsible
for alleged debt, if at all.
Scott Logistics Corporation v. Timely North, Inc. and Timely
Transportation, Inc., case number 34324, Superior Court of Gordon County,
Georgia. The plaintiff filed suit in response to Timely North's efforts to
collect $9,709.23 due on account from the plaintiff. The plaintiff filed suit
against both Timely North and Timely seeking claims for $8,342.34 for alleged
damages to freight and approximately $60,000 based on allegations of tortious
interference with plaintiff's relationships with one or more of its customers.
Timely and Timely North have filed an answer to the suit and are vigorously
defending against plaintiff's claims. In addition, Timely North has filed a
counterclaim in the amount of $9,709.23 for sums due on account from the
plaintiff.
T.M.B. Inc. v. Timely Transportation Inc. and Timely North, Inc., case
number 98CV1931, U.S. District Court for the Northern District of Georgia,
Atlanta Division. The plaintiff seeks to recover $99,998.52 for services
rendered and goods supplied. Timely has filed an answer denying liability, and
intends to vigorously defend on the merits.
Trailer Leasing Company v. Timely Transportation, Inc., case number
98L05447, Circuit Court of Cook County, Illinois. The plaintiff seeks to recover
$137,970.53 for alleged equipment rental charges. Timely disputes the amount
claimed by the plaintiff, and has retained local counsel to file an answer and
defend Timely's position.
14
<PAGE> 15
Arrow Lines Services, Inc. v. Timely North, Inc. Arrow claims that it
is owed $71,053.89 for freight charges and repair bills incurred by Timely
North, Inc. Arrow has retained counsel, but has not filed suit. Arrow's counsel
has threatened to file suit not only against Timely North, but against other
affiliates of the Company, seeking to hold those entities liable for the alleged
debt of Timely North. In the event that Arrow pursues this matter through
litigation against the Company and/or its affiliates, the Company will file a
timely response to any such claim denying all of the material allegations and
any liability on its part, and will vigorously defend any such claim.
The Company is not a party to any other material legal proceedings
other than routine litigation arising in the normal course of business.
Item 2. Changes in Securities - Not applicable.
Item 3. Defaults Upon Senior Securities - Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders - The Annual
Meeting of the Shareholders of the Company was held on May 22, 1998
for the following purposes:
1. to elect five directors to serve for one-year terms
2. to consider and act upon the proposal to amend the Company's 1996
Stock Option Plan to increase the shares reserved for issuance
thereunder from 1,500,000 to 2,000,000
3. to consider and act upon the proposal to adopt the Company's 1998
Employee Stock Purchase Plan
Only shareholders of record at the close of business on April 10, 1998
were entitled to vote at the Annual Meeting. Proxies for the meeting
were solicited pursuant to the Georgia Business Corporation Code, and
there was no solicitation in opposition to management's solicitations.
Proxies and ballots were received from the holders of 2,792,522 shares
of the Company's common stock, representing 72.2% of the outstanding
shares of common stock. The results were as follows:
1. The five individuals nominated to serve as directors were elected
with the number of votes for and withheld as indicated below:
2.
Nominee For Withheld
------- --------- --------
Dennis A. Bakal 2,792,522 0
Linda K. Roberts 2,792,522 0
Peter C. Roth 2,792,422 0
Robert E. Altenbach 2,790,489 0
Gregory G. Hardwick 2,792,522 0
Also, the shareholders approved the following matters with the
number of votes for, against and abstaining as indicated below:
For Against Abstain
3. The proposal to amend the Company's
1996 Stock Option Plan 2,586,872 205,650 0
4. Proposal to adopt the Company's 1998
Employee Stock Purchase Plan 2,786,689 4,333 1,500
Item 5. Other Information
(a) Pursuant to Item 701(f) of Regulation S-B, the Company is obligated
to report on the use of proceeds from the Initial Public Offering. The
information provided below is given as of June 30, 1998.
(1) The Company's registration statement on Form SB-2 (File
No. 333-24619) was declared effective by the Securities and Exchange Commission
on June 19, 1997.
(2) The Initial Public Offering commenced on June 19, 1997.
15
<PAGE> 16
(3) The Initial Public Offering did not terminate before any
securities were sold.
(4) (i) The Initial Public Offering did not terminate before
the sale of all securities registered
(ii) The managing underwriter of the Initial Public Offering
was Argent Securities, Inc.
(iii) Common Stock and redeemable common stock purchase
warrants (the "Warrants") were registered in the
Initial Public Offering.
(iv) 1,250,000 shares ($7,500,000) of Common Stock were
registered and sold. 1,437,500 Warrants ($179,687.50)
were registered and sold.
(v) An estimate of the amount of expenses incurred by the
Company in connection with the issuance and
distribution of the Securities registered is
$1,995,494. Such expenses have been or will be paid
directly or indirectly to persons or entities other
than directors, officers, persons owning 10% or more of
the Company's securities and affiliates of the Company.
(vi) The net proceeds to the Company after deducting the
total expenses described above were $5,684,194.
(vii) Through June 30, 1998, $1,500,000 of the net proceeds
of the Initial Public Offering was loaned to an
unrelated party and the remainder was used in the
Company's operations. None of the net proceeds have
been paid directly or indirectly to directors,
officers, persons owning 10% or more of the Company's
securities and affiliates of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No. Description
3.1 Amended and Restated Articles of Incorporation of the Company (Incorporated
by reference to Exhibit 3.1 from the Company's Registration Statement on
Form SB-2, File No. 333-24619 (the "Registration Statement"))
3.2 Bylaws of the Company (Incorporated by reference to Exhibit 3.2 from the
Registration Statement)
4.1 Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1
from the Registration Statement)
4.2 Specimen Redeemable Warrant Certificate (Incorporated by reference to
Exhibit 4.2 from the Registration Statement)
27.1 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K. There were no reports filed on Form 8-K during
the three month period ended June 30, 1998.
16
<PAGE> 17
SIGNATURES
In accordance with 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.
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
Date: August 13, 1998 By: /s/ Dennis A. Bakal
--------------------- --------------------------------------
Dennis A. Bakal
President and Chief Executive Officer
(principal executive officer)
Date: August 13, 1998 By: /s/ Peter C. Roth
--------------- --------------------------------------
Peter C. Roth
Chief Financial Officer
(principal financial and accounting
officer)
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ISSUER'S
UNAUDITED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998,
SET FORTH IN THE ACCOMPANYING FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
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