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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Fiscal Year ended December 31, 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 NUMBER: 000-22571
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
(Exact Name of Registrant as Specified in Its Charter)
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Georgia 58-1915632
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
495 Lovers Lane Road, Calhoun, Georgia 30701
(Address of Principal Executive Offices) (Zip Code)
(Issuer's Telephone Number, Including Area Code): (888) 999-1964
Securities registered under to Section 12(b) of the Exchange Act:
None None
(Title of Each Class) (Name of Each Exchange on Which Registered)
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock, No Par Value Per Share
Redeemable Common Stock Purchase Warrants
(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 past 12 months (or for such shorter period that the registrant
was required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The estimated aggregate market value of the voting and nonvoting Common Stock
held by non-affiliates computed by reference to the closing sale price of Common
Stock on April 12, 1999, as reported on the Nasdaq Stock Market's SmallCap
Market, was approximately $2,934,320. As of April 12, 1999, the Registrant had
outstanding 3,968,160 shares of Common Stock and 1,437,500 Redeemable Common
Stock Purchase Warrants.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant's 1999 Annual Meeting of
Shareholders to be held on May 21, 1999 are incorporated by reference in Part
III of this Form 10-K.
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INDEX TO FORM 10-K
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PART I
Item 1. Business........................................................................................3
Item 2. Properties.....................................................................................14
Item 3. Legal Proceedings..............................................................................14
Item 4. Submission of Matters to a Vote of Security Holders............................................14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..........................14
Item 6. Selected Financial Data........................................................................16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..........17
Item 7a. Quantitative and Qualitative Disclosures About Market Risk.....................................22
Item 8. Financial Statements and Supplementary Data....................................................22
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........23
PART III
Item 10. Directors and Executive Officers of the Registrant.............................................24
Item 11. Executive Compensation.........................................................................26
Item 12. Security Ownership of Certain Beneficial Owners and Management.................................26
Item 13. Certain Relationships and Related Transactions.................................................26
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................27
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PART I
ITEM 1. BUSINESS
This Annual Report contains statements which constitute 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.
These statements appear in a number of places in this Report and include all
statements that are not statements of historical fact regarding the intent,
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; and (iv) the
declaration and payment of dividends. The words "may," "would," "could," "will,"
"expect," "estimate," "anticipate," "believe," "intend," "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. Actual results may differ
materially from those projected in the forward-looking statements as a result of
various factors. Among the key risks, assumptions and factors that may affect
operating results, performance and financial condition are the Company's
reliance on a small number of customers for a larger portion of its revenues,
fluctuations in its quarterly results, ability to continue and manage its
growth, Year 2000 risks and concerns, liquidity and other capital resources
issues, competition and the other factors discussed in detail in the Company's
filings with the Securities and Exchange Commission, including the "Risk
Factors" section of the Company's Registration Statement on Form S-3
(Registration Number 333-70985), as declared effective by the Securities and
Exchange Commission on February 5, 1999.
OVERVIEW
Professional Transportation Group Ltd., Inc., a Georgia corporation
(the "Company"), is a transportation services company that provides ground
transportation and logistics services for the air freight and floorcovering
industries throughout the continental United States. The Company was founded by
Dennis A. Bakal in October 1990, and he is the Company's majority shareholder
and its Chairman, Chief Executive Officer and President. The Company serves as a
holding company for its three operating subsidiaries: Timely Transportation,
Inc. ("Timely"), Truck-Net, Inc. ("Truck-Net") and PTG, Inc. ("PTG"). Effective
January 1, 1997, Mr. Bakal contributed his shares of Timely, Truck-Net and PTG
to the Company. On October 31, 1997, the Company, through its subsidiary Timely
North, Inc. ("Timely North"), entered into a marketing agreement with
Continental American Transportation, Inc. and its subsidiaries ("Continental
American") whereby Timely North employed such entities' employees and leased and
subleased their rolling stock. On March 27, 1998, the Company, through Timely
North, entered into a Consulting and Non-Competition Agreement with CSI/Crown,
Inc., a subsidiary of U.S. Xpress Enterprises, Inc. ("CSI/Crown"). Under this
agreement, the Company ceased its less-than-truckload ("LTL") motor carrier
operations in the floorcovering and carpet markets on April 1, 1998 and agreed
not to compete in such LTL business for a period of five years. For the year
ended December 31, 1998, Timely accounted for approximately $36.5 million or 66%
of the Company's revenues, Truck-Net accounted for approximately $7.9 million or
14% of the Company's revenues, PTG accounted for approximately $600,000 or 2% of
the Company's revenues and Timely North accounted for approximately $10.1
million or 18% of the Company's revenues.
The Company's consolidated revenues increased by 28% from 1997 to 1998.
The Company attributes its growth to management's knowledge and experience in
the air freight industry, the
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marketing arrangement with Continental American, consistent, on-time deliveries,
and superior customer service. Management believes that revenues will continue
to increase, as trends toward an expansion of core carrier relationships and a
trend toward reductions of private fleets and greater outsourcing by shippers
favor more efficient and cost-effective providers of transportation services.
INDUSTRY
The Company's main businesses, Timely and Truck-Net, operate in the
non-local segment of the trucking industry, which segment had revenues of $330
billion in 1995. A further refinement of the industry segment would place these
operations in the $60 billion (1996) for-hire truckload carrier segment.
Truckload carriers typically transport full trailer loads directly from origin
to destination without enroute handling. The for-hire truckload segment is
highly fragmented with the ten largest for-hire truckload carriers accounting
for less than 13% of total for-hire truckload revenues in 1996.
The air freight industry has changed dramatically over the last two
decades. Prior to 1980, shippers of air freight used both freighter aircraft
operated by passenger and freight airlines and passenger aircraft, with the
limited capacity of their cargo compartments, for the movement of goods. In the
late 1970s and the early 1980s, fundamental changes in the air freight industry
began to constrain freight activity. The passenger airlines gradually eliminated
their freighter aircraft, coinciding with the consolidation of the major U.S.
based all-freight airlines and the emergence and growth of the integrated
carriers, such as Federal Express Corporation ("FedEx"), United Parcel Service
("UPS"), Emery Worldwide ("Emery"), Burlington Air Express ("Burlington") and
Airborne Freight. Although these integrated carriers operate their own dedicated
fleets of aircraft, trucks and delivery vans, they focus on the shipment of
size- and weight-restricted packages and freight. Freighters and "combi"
(combination passenger/freight) aircraft continue to carry international
freight, but domestic packages and freight not meeting the restrictions of the
integrated carriers were relegated to available space in the limited-capacity
cargo holds of passenger aircraft. Passenger aircraft operate predominantly
during the daytime, although freight had historically moved at night. The
imposition of curfews at major airports to reduce noise during early morning
hours and the elimination of freighter aircraft operated by passenger airlines
limited freight activity even more.
All of these changes resulted in the development of the concept of
"deferred freight," which is freight that generally is time sensitive (two or
three day delivery), but does not have the immediacy of next day or overnight
delivery. The additional time available for completion of a deferred freight
shipment makes overland transportation by truck a viable alternative to
transportation by air. Time definite trucking of air freight has developed as
the answer to the overland movement of deferred freight. While many in the
industry have focused on regional business, Timely's and Truck-Net's emphasis
has been on servicing the "deferred freight" needs of the air freight industry
nationally. This service meets the required delivery parameters of the
customers, but in a much more cost sensitive environment than overnight freight.
The overnight delivery so common in today's business environment is primarily
limited to package (letter and document) freight and the movement of heavier
freight (up to 150 pounds per piece or 300 pounds per shipment). The deferred
freight market has developed to primarily handle shipments of greater than 300
pounds. The Company, through the operations of Timely and Truck-Net, has
positioned itself to serve the needs of this market.
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STRATEGY
The Company's business strategy is to establish itself as a preferred
provider of high-quality, cost-effective transportation and logistics services
to the air freight and floorcovering industries. Key elements of the Company's
strategy include the following:
Deliver Superior Customer Service and Add Value. Expedited
on-time delivery is the mission of the Company's customers, and in
order to meet their needs, the Company provides time-definite pickup
and delivery. Compared with deferred air freight services, the Company
offers comparable transit times at much lower prices for its customers
in the air freight industry. The Company uses experienced driver teams
and modern technology to ensure that customers receive quality service.
The Company does not always strive to be the lowest-cost carrier for
its customers, but instead focuses on providing value (such as real
time tracking of a shipment) beyond any marginally higher price its
customers might pay.
Utilize Available Technology and Modern Equipment. Due to
customer demands for real time information on their shipments and
on-time deliveries, the Company utilizes modern satellite technology to
track its vehicles. The Company's use of the Qualcomm tracking system
allows the Company to provide customers with precise information on the
status of their shipments and notify them of any potential delays. In
addition, the system provides valuable information on a truck's speed,
mileage, fuel consumption, and other factors that enable the Company to
increase efficiency and reduce costs. The Company also has developed a
proprietary route optimization software program to assist management in
analyzing the most cost-effective route system for the Company's fleet.
Attract and Retain Highly-Skilled and Motivated Employees. To
provide superior customer service, the Company relies on a dedicated
team of professional drivers, administrators and managers committed to
serving customers. Through a recruitment and hiring program, the
Company hires only professional drivers who are selected based on
experience, safety record, and a personal evaluation. The competition
for experienced drivers is intense, but by providing modern equipment
and offering competitive salaries and dedicated routes, the Company is
successful in recruiting and retaining productive, satisfied drivers.
The Company's success in reducing driver turnover rate has contributed
to an overall increase in its efficiency and reduction of the expenses
associated with hiring, training and integrating new employees.
The Company intends to continue to invest in modern equipment, to
expand its marketing capabilities and to improve its operating and distribution
efficiencies through acquisitions, strategic alliances and capital expenditures.
In implementing this plan, the Company believes it will increase its market
share, obtain greater control over the quality, availability and cost of its
services, and improve operating margins.
TRANSPORTATION SERVICES
Through its Timely subsidiary, which was formed in 1991, the Company
provides time-definite truckload transportation services for companies in the
air freight and expedited delivery and floor covering markets. Operating both
common carrier and dedicated fleet services for its customers, Timely moves
freight across long and short distances with very precise schedules for pickups
and deliveries. The Company's "Almost as Fast as Air"(SM) service has transit
times comparable to those of deferred air freight services. The Company focuses
on the marketing of its services to the large carpet
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manufacturers located in the southeastern U.S. The Company's services to these
customers include multiple drops; appointment pick-ups and deliveries;
assistance in loading and unloading; dedicated equipment with extra trailers
that can be located for the convenience of customers; and the assignment of
particular drivers and equipment to prescribed routes, providing better service
to customers while maintaining a high equipment utilization.
As of December 31, 1998, Timely operated approximately 236
Company-owned or leased tractors and used 29 owner-operators that may provide
one or more pieces of operating equipment. Timely operates in all of the 48
contiguous states, but its primary activity is in the eastern half of the U.S.
As of December 31, 1998, approximately 41% of the tractors operated by Timely
served dedicated lane segments.
LOGISTICS-MANAGEMENT SERVICES
Through its Truck-Net subsidiary, which was acquired by Mr. Bakal in
July 1991, the Company operates as a broker of truckload services to the air
freight industry. Since many air cargo carriers and air freight forwarders do
not own trucks, they rely upon third party carriers for ground transportation
services. Through logistics companies like Truck-Net, a shipper can place a
single call to arrange truckload services anywhere in the United States, without
having to contact numerous individual carriers who may or may not have a truck
available for a particular shipment to a particular destination.
Truck-Net maintains a network of over 350 truckload carriers. Upon
receiving a call from a customer, a Truck-Net representative contacts various
truckload carriers until locating one that has the time and the proper equipment
to transfer the freight. The Truck-Net representative will make all of the
arrangements to have the freight picked up and delivered. In addition, Truck-Net
tracks the vehicles and monitors the shipment from pickup through delivery,
enabling customers to contact Truck-Net rather than the individual carrier to
get information on their shipment. Truck-Net's customers are sent a single
invoice for all shipments and payments for those shipments are made directly to
Truck-Net. Truck-Net then pays the hired carrier, retaining a portion of the fee
paid by the customer. Thus, customers avoid having to pay multiple invoices from
carriers.
COURIER/DELIVERY SERVICES
PTG operates a courier/delivery service known as "Rapid Transit" in the
Atlanta, Georgia metropolitan area. As of December 31, 1998, PTG had 10 drivers.
In addition to providing general courier services, PTG has entered into
agreements with several major manufacturers of office equipment. Under these
agreements, PTG retrieves copiers, fax machines, and telephone equipment that
are in need of repair or coming off lease and returns such items to the
manufacturer.
CUSTOMERS
The Company's customers are primarily businesses in the air freight and
floorcovering industries. The Company's customers include traditional air
freight forwarders and integrated carriers such as FedEx, UPS, Emery, and
Burlington, all of whom operate fleets of their own dedicated aircraft, trucks
and delivery vans. The Company's customers in the floorcovering industry include
Aladdin Mills and Mohawk Industries.
Major customers of the Company, such as FedEx, have developed the
concept of "core carriers" for the contract movement of their freight by
independent trucking companies. Under this
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concept, a limited number of carriers are selected to perform the line haul
(point to point, or terminal to terminal) carriage of the shipper's freight.
Core carrier relationships offer steady revenues from dedicated lane segments,
which allows the Company to offer its drivers regular routes. As a means of
diversifying its customer base, the Company may seek to establish core carrier
relationships with businesses in industries outside the air freight or
floorcovering industries.
FedEx is the Company's largest customer, and the Company serves as one
of eight core carriers for FedEx. The Company has entered into an agreement to
provide services for FedEx over certain lane segments. The lane segments are
awarded based on competitive bids solicited among the group of core carriers. As
new lane segments become available, the Company bids for such segments, and any
new segments awarded will terminate at the termination of the agreement which
will expire on in May 2000. FedEx is not precluded from performing the services
itself or through its subsidiaries or affiliates. In addition, FedEx may
terminate its agreement with the company upon 30 days notice and the payment of
a termination charge. The Company is required under the agreement to maintain a
minimum service level, and its performance to date has exceeded the minimum
operating performance requirements of the agreement. It is currently anticipated
that, provided the Company maintains its level of performance, the agreement
will be renewed upon expiration. There can be no assurance, however, that this
agreement will be renewed.
For the year ended December 31, 1998, the Company's five largest
customers accounted for approximately 52% of the Company's consolidated
revenues. Of these five customers, FedEx and Panalpina, Inc. ("Panalpina"), the
U.S. subsidiary of a major European air freight forwarder, accounted for
approximately 33% and 10%, respectively, of the revenues generated during the
year ended December 31, 1998. No other customer accounted for more than 10% of
the Company's consolidated revenues during the year ended December 31, 1998. The
loss of either FedEx or Panalpina would have a material adverse effect on the
results of operations for the Company.
EQUIPMENT AND TECHNOLOGY
Most of the Company's equipment is utilized by Timely. As of December
31, 1998, the Company operated a modern fleet of approximately 265 tractors with
an average age of less than three years. The Company leases its tractors from
large national leasing companies or through the leasing programs of the
manufacturer. This leasing strategy gives the Company the availability of
nationwide maintenance facilities to ensure minimal down time in case of
mechanical failure, as well as a nationwide system for the performance of
scheduled preventative maintenance, no matter where the individual unit is
located. The Company launched a program in 1996 to purchase or lease, on more
favorable terms, its operating equipment. Prior to 1996, most of the Company's
operating equipment was leased under terms which included a 15% premium for
rented tractors, and a mileage charge for maintenance on the vehicles. During
1998, the Company acquired 130 new tractors under operating leases from various
financing sources. These tractors are covered by manufacturer warranties during
most of their lease term, which the Company believes will lead to additional
maintenance savings.
In the early years of Timely's operations, it also leased its trailer
fleet. In 1995 and 1996 the Company began purchasing its trailers through either
direct bank borrowings or capitalized leases. In coming to the decision to own
rather than lease trailers, the Company considered the longer life, relatively
higher salvage value, simplified maintenance costs of trailers as compared with
tractors, and the need to install required cargo handling systems in certain
trailers. While it has been necessary to install cargo handling systems in
certain leased trailers in the past, it is the Company's intention to install
the required equipment only in Company-owned vehicles in the future. Any cargo
handling equipment will be removed from leased trailers at the termination of
the lease agreement. The current
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trailer fleet mostly contains modern, 53-foot long, high cubic capacity units,
many equipped with roller systems to facilitate cargo loading and unloading. The
average age of the trailer fleet is less than four years. As of December 31,
1998, the Company operated a fleet of approximately 548 trailers, of which
approximately 36% were leased.
The Company has invested heavily in modern computer and communications
technology, and considers itself a leader in the industry in this aspect. The
modern tractor fleet operated by Timely (and most of the equipment operated by
companies utilized by Truck-Net) utilizes onboard computers with satellite
communications capabilities. Each tractor in the Timely fleet is equipped with a
Qualcomm satellite communications system, which allows the dispatchers to follow
the progress of a vehicle, its speed, fuel consumption, and most importantly,
its adherence to schedule, while allowing the timely and efficient communication
of operating data, such as pickup and delivery instructions, directions to
customer facilities, loading instructions, routing, fuel, taxes, mileage,
payroll, safety, weather advisories, and traffic and maintenance information.
The satellite tracking of the movement of the vehicles, the constant monitoring
of schedule, speed, and fuel consumption, and the availability of two-way
communication has allowed the Company to fine-tune its operation and deliver its
customers a high level of on-time service.
In order to maintain the highest level of quality control and maintain
the Company's and its customers' strict performance standards, the Company's
central dispatching/customer service units operate 24 hours a day, seven days a
week. If any problem should develop, managers and supervisors are either on hand
or readily available to the dispatch center.
DRIVERS AND EMPLOYEES
Beginning in 1995, the Company faced increasing costs of workers'
compensation insurance and related items. To address this problem, pursuant to a
written agreement, in May 1995, the Company transferred all of its drivers (and
certain of its other employees) to an employee leasing company owned by an
unrelated third party. New drivers are located through a recruitment and hiring
program managed by the Company and, after completing the required testing and
orientation, are hired by the leasing company. The Company reimburses the
leasing company for all of the direct costs associated with the driver payroll,
plus a percentage fee of the total amount of the payroll. The leasing company is
able to obtain lower rates for certain expenses, such as workers' compensation
insurance and employee benefits, due to the large size of its employee pool.
Thus, even after payment of the percentage fee, the Company believes it has
reduced its driver costs per mile by utilizing the third party leasing company.
The agreement with the leasing company is open-ended in that it covers all of
the individuals designated by the Company to be enrolled thereunder. Employees
are enrolled for the duration of their employment (which is at the Company's
will) and not solely for a specific one-time delivery. The Company may terminate
the agreement at any time upon notice to the leasing company.
The recruitment, training and retention of qualified drivers is
essential to support the Company's continued growth and to meet the service
requirements of the Company's customers. Drivers are selected in accordance with
Company-specific quality guidelines relating primarily to safety history,
driving experience, road test evaluations and other personal evaluations,
including physical examinations and mandatory drug and alcohol testing. Drivers
are trained in all phases of the Company's policies and procedures, including
customer service requirements, general operations, fuel conservation and
equipment maintenance, operation and safety.
The Company seeks to maintain a qualified driver force by providing
attractive and comfortable equipment, direct communication with senior
management, competitive wages and benefits and other
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incentives designed to encourage driver retention and long-term employment. Many
drivers are assigned to dedicated or semi-dedicated routes, thereby enhancing
job predictability. Drivers are recognized for providing superior service and
developing good safety records and must successfully complete driver reviews
administered by the Company's safety department.
As of December 31, 1998, the Company employed 445 persons, 331 of whom
were drivers; 21 were in sales and customer service; 40 were in operations; 13
were in maintenance and security and 40 were in administration and management.
As described above, all of the Company's employees, other than its executive
officers, are leased from a third-party leasing company. The Company also had
contracted with 29 independent contractors as of December 31, 1998, to provide
tractors. None of the Company's employees are represented by a labor union. The
Company believes its relationship with its employees is good.
INDEPENDENT CONTRACTORS
Because independent contractors provide their own tractors, they
provide the Company an alternative method of obtaining additional revenue
equipment. The Company intends to continue to increase its use of independent
contractors. As of December 31, 1998, the Company utilized 29 independent
contractors. Each independent contractor enters into a contract with the Company
pursuant to which it is required to furnish a tractor and a driver or team of
drivers exclusively to transport, load and unload goods carried by the Company.
Independent contractors are paid a fixed level of compensation based on a fee
per mile. Independent contractors are obligated to maintain their own equipment
and pay for their own fuel. The Company provides trailers for each independent
contractor.
SAFETY AND RISK MANAGEMENT
The Company is committed to ensuring that it has safe drivers and
independent contractors. The Company regularly communicates with drivers to
promote safety and to instill safe work habits through Company media and safety
review sessions. These programs reinforce the importance of driving safety,
abiding by all laws and regulations, regarding such matters as speed and driving
hours, and performing equipment inspections. The Company conducts quarterly
safety training meetings for its drivers and independent contractors. In
addition, the Company has a recognition program for driver safety performance.
The Company's Safety Director reviews all accidents, takes appropriate
action related to drivers, examines trends and implements changes in procedures
or communications to address any safety issues. Management's emphasis on safety
also is demonstrated through its equipment specifications and maintenance
programs.
The Company requires prospective drivers to meet or exceed the
qualification standards required by the U.S. Department of Transportation
("DOT"). The DOT requires the Company's drivers and independent contractors to
obtain national commercial drivers' licenses pursuant to regulations promulgated
by the DOT. The DOT also requires that the Company implement a drug testing
program in accordance with DOT regulations. The Company's program includes
pre-employment, random, post-accident and post-injury drug testing.
The principal claims arising in the Company's business consist of cargo
loss and damage, and auto liability (personal injury and property damage). The
Company's insurance policies provide for general liability coverage up to
$1,000,000 per occurrence and
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automobile liability coverage up to $1,000,000 per occurrence. The Company
carefully monitors claims and participates actively in claims estimates and
adjustments.
REGULATION
Historically, the Interstate Commerce Commission ("ICC") and various
state agencies regulated truckload carriers' rights, accounting systems, rates
and charges, safety, mergers and acquisitions, periodic financial reporting and
other matters. In 1995, the passage of federal legislation preempted, in many
respects, state regulation of prices, rates, and services of motor carriers and
eliminated the ICC. Several ICC functions were transferred to the DOT, and will
be administered by the Surface Transportation Board, but a lack of implementing
regulations to date currently prevents the Company from assessing the full
impact of this action. Generally, the trucking industry is subject to regulatory
and legislative changes that can have a material effect on operations.
Interstate motor carrier operations are subject to safety requirements
prescribed by the DOT. Such matters as weight and dimensions of equipment are
also subject to federal and state regulation. In 1988, the DOT began requiring
national commercial drivers' licenses for interstate truck drivers.
The Company's motor carrier operations are also subject to federal and
state environmental laws and regulations, including laws and regulations dealing
with the transportation of hazardous materials and other environmental matters.
Specifically, the U.S. Environmental Protection Agency ("EPA") requires motor
carrier operators to obtain a Certificate of Registration in order to transport
hazardous materials. The Company has initiated programs to comply with all
applicable environmental regulations. For example, the Company requires each of
its drivers to participate in training regarding the handling of hazardous
materials, including tests given to the drivers after such training to ensure
that the basic skills have been achieved. As part of its safety and risk
management program, the Company periodically performs an internal environmental
review to assist in environmental compliance and avoid environmental risk. The
Company has operating authority (in the form of the EPA-required Certificate of
Registration) to ship environmentally hazardous substances and, to date, has
experienced no claims for hazardous substance shipments. The shipment of
hazardous materials has not been a material part of the Company's business, to
date. In addition, the Company has underground storage tanks for diesel fuel at
its terminals in Calhoun, Georgia. As a result, the Company is subject to
regulations promulgated by the EPA governing the design, construction and
operation of underground fuel storage tanks from installation to closure. The
Company believes that all of these tanks are in substantial compliance with EPA
regulations. The Company terminated its use of these tanks during 1998. In the
event the Company should fail to comply with applicable regulations, the Company
could be subject to substantial fines or penalties and to civil or criminal
liability (which are determined on a case-by-case basis).
The Company believes it is currently in material compliance with
applicable laws and regulations and that the cost of compliance has not
materially affected results of operations.
FUEL
The Company purchases fuel from numerous suppliers and is not
materially dependent on any one or a group of suppliers for its fuel
requirements, however, the Company has and will continue to make arrangements
with fuel suppliers to achieve the best possible pricing. Derivatives are not
used by the Company to hedge against increased fuel prices. Although fuel price
increases may be passed through to the Company's customers, increases in fuel
taxes or fuel prices would have a direct effect on the Company's operating
results if the Company is unable to pass on such increase. Similarly, any
increases in fuel taxes or fuel prices could also adversely affect the
profitability of independent
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contractors and the Company's cost of retaining such contractors, to the extent
such increases could not be passed along to the Company's customers. As of the
date of this report, the Company believes that there is a stable market for
fuel.
COMPETITION
The truckload transportation industry is heavily fragmented and
intensely competitive. The Company has numerous competitors that vary in size,
ranging from small operators who can compete on certain lane segments due to
lower overhead, to significantly larger companies with greater financial
resources, more equipment, and larger volume capacities than the Company's. The
main competitive factors in the truckload industry are service, pricing,
efficiency and availability of equipment.
Within the logistics services industry, key competitive factors include
information technology and carrier relationships. There are a number of other
companies in the logistics services business that have more employees and a
greater number of branch offices than the Company. Management believes that
Truck-Net is one of the largest logistics companies exclusively serving the air
freight industry in the United States.
PROPERTIES
The Company's principal offices and corporate headquarters are located
on approximately 30 acres facility at 495 Lovers Lane, Calhoun, Georgia, 30701.
This property contains approximately 33,000 square feet of office space,
approximately 27,800 square feet of shop, tire and maintenance facilities,
approximately 1,900 square feet for employee-driver's training and lounge
facilities, a 129-bay loading dock facility and a four-lane fuel center. The
Company has given notice to the lessors of this facility of the Company's
intention to terminate the lease for these premises after May 5, 1999. The
Company intends to locate comparable facilities closer to the Atlanta
metropolitan area, where it believes it will be less difficult to locate and
hire personnel. In this regard, the Company has recently executed a lease for a
facility in northwest Atlanta, Georgia commencing on May 1, 1999 for a term of
seven years. The new space contains 12,579 square feet of office space. The
Company intends to outsource its maintenance after the move. The Company
believes that its new facilities will be adequate for its present needs.
LITIGATION
On or about December 31, 1997, an action was brought against the
Company, Timely, Timely North and other unrelated parties in the case styled
Lance Enterprises, Inc. v. Continental American Transportation, Inc., Carpet
Transport, Inc., Professional Transportation Group Ltd., Inc., Timely North,
Inc. and Timely Transportation, Inc., Case No. 33670, 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 judgment. This
lawsuit stems from the plaintiff's agreement with Continental American
Transportation, Inc. ("Continental American") under which plaintiff was to
assist Continental American with the sale of its business for a prescribed fee.
The plaintiff alleged 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, filed an answer to
the complaint denying all of the material allegations and any liability on their
part and vigorously defended this action. After the Company filed a motion for
summary judgment with respect to this matter in
11
<PAGE> 12
January 1999, the matter was recently settled with the Company agreeing to pay
the plaintiff $5,000. The case has been dismissed with prejudice.
An involuntary bankruptcy petition was filed on or about May 26, 1998
against Continental American, the parent corporation of Carpet Transport, Inc.
("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 initiated by several parties purporting to be
creditors of Continental American. The involuntary bankruptcy petition resulted
in the appointment of a trustee. The trustee has pursued all bankruptcy claims
against the Company under the CTI Properties, Inc. bankruptcy. See below.
An involuntary bankruptcy petition was filed on or about August 7, 1998
by CTI Properties, Inc. a wholly-owned subsidiary of Continental American, in
the case styled In re: CTI Properties, Inc., Case No. R98-42886-HR, U.S.
Bankruptcy Court for the Northern District of Georgia (Rome Division). The same
trustee has been appointed for both Continental American and CTI Properties. The
trustee has filed an adversary proceeding against the Company asserting that the
Company's first priority security deed may be avoided as a preference. The
Company intends to deny that its first priority security interest may be
avoided, but even if the trustee's argument is accepted by the court, the
Company has title insurance on the property as well as the personal guarantee of
one of the owners of the property.
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 CIT 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 CIT to
receive from Timely North and the Company the fair rental value of the rolling
stock during the period of time that Timely North used the rolling stock. Timely
North and the Company have timely filed answers to CIT's complaint, and intend
to contest the case vigorously. Discovery in the case is progressing.
An involuntary bankruptcy petition was filed on or about June 17, 1998
against CTI 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 CTI and
alleges among other things that Timely North or its affiliates had collected a
portion of CTI's receivables, that a representative of the 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 and is investigating these potential claims. The trustee has also
questioned the receipt by the Company of a payment it received for a consulting
and non-competition agreement. The trustee also 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 is 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.
12
<PAGE> 13
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 Group its damages. Timely was not a party to any of
the documents under which the plaintiff bases its cases, has filed 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.
On or about September 4, 1998, an action was filed against the Company,
Timely and Timely North in the case styled U.S. Bancorp Leasing & Financial v.
Timely North, Inc., Timely Transportation, Inc. and Professional Transportation
Group Ltd., Inc., Case No. 34611, Superior Court of Gordon County, Georgia. This
action was filed by a lessor of rolling stock to CTI. The complaint alleges
generally that the Company, Timely and Timely North are indebted to U.S. Bancorp
in an amount to be determined at trial. U.S. Bancorp is seeking $290,534.50, an
amount disputed by the Company. While neither Timely, Timely North nor the
Company has had any contractual relationship with U.S. Bancorp, U.S. Bancorp
asserts in its complaint that the use of its rolling stock entitles it to
receive from Timely, Timely North and the Company the fair rental value of the
rolling stock during the period of time that Timely North used the rolling
stock. Timely, Timely North and the Company have filed answers to U.S.
Bancorp's complaint, and intend to contest the case vigorously.
Gainey Transportation Services, Inc. v. Timely Transportation, Inc. and
Timely North, Inc., Case No. 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. This action was dismissed for lack of jurisdiction and has not yet been
re-filed in Georgia.
Scott Logistics Corporation v. Timely North, Inc. and Timely
Transportation, Inc., Civil Action File No. 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
No. 98-CV-1931, 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 No.
98-L-05447, Circuit Court of Cook County, Illinois. The plaintiff seeks to
recover $137,970.53 for alleged equipment rental charges. Timely disputed the
amount claimed by the plaintiff. In April 1999, this matter was settled. The
Company has agreed to pay the plaintiff a total of $108,000 in 18 equal monthly
installments.
L.T.D. Logistics, Inc. and Arrow Lines Services, Inc. v. Timely
Transportation, Inc., Timely North, Inc. and Professional Transportation Group
Ltd., Inc., Civil Action File No. 981-6827-99,
13
<PAGE> 14
Superior Court of Cobb County, Georgia. The plaintiffs claim that they are owed
$71,328.30 for services allegedly rendered. The Company filed an answer denying
liability and asserting that the liability, if any, is solely that of Timely
North, Inc. In addition, Timely North, Inc. has asserted setoffs to the
plaintiff's claims..
USF&G v. Timely Transportation, et al, Civil Action No. 98A5879-4,
State Court of Cobb County, Georgia. USF&G is seeking recovery in the amount of
$52,229.66 for alleged workers' compensation insurance audit premiums, dating
back to 1994. Timely has filed an answer denying responsibility for such
premiums and intends to vigorously defend this matter.
The Company is not a party to any other material legal proceedings.
ITEM 2. PROPERTIES
See the information provided in Item 1 above entitled "Business --
Properties" for information with respect to the Company's facilities.
ITEM 3 LEGAL PROCEEDINGS
See the information provided in Item 1 above entitled "Business -
Litigation" for information with respect to the Company's material legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders
during the fourth quarter of the year ended December 31, 1998.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) The Company's Common Stock and Redeemable Common Stock
Purchase Warrants (the "Warrants") are traded on the Nasdaq Small Cap Market
under the symbols "TRUC" and "TRUCW," respectively. The reported high- and
low-bid and ask prices for the Common Stock and the Warrants are shown below for
the period from June 19, 1997 (the date of the Company's initial public
offering):
14
<PAGE> 15
<TABLE>
<CAPTION>
Common Stock
------------
High Low
---- ---
<S> <C> <C>
1998
- ----
First Quarter.................................. $4.09 $2.50
Second Quarter................................. 3.31 2.75
Third Quarter.................................. 2.44 1.06
Fourth Quarter................................. 3.25 1.53
1997
- ----
Second Quarter (from June 20, 1997).............. $6.25 $5.25
Third Quarter ................................... 5.16 1.88
Fourth Quarter .................................. 5.00 3.69
</TABLE>
<TABLE>
<CAPTION>
Warrants
--------
High Low
---- ---
<S> <C> <C>
1998
- ----
First Quarter.................................. $0.70 $0.38
Second Quarter................................. 0.69 0.38
Third Quarter.................................. 0.50 0.16
Fourth Quarter................................. 0.41 0.22
1997
- ----
Second Quarter (from June 20, 1997)............. $1.50 $0.63
Third Quarter.................................... 0.88 0.31
Fourth Quarter................................... 0.94 0.56
</TABLE>
The last reported sale price of the Company's Common Stock and Warrants
as of April 12, 1999 was $2.00 per share and $0.1875 per Warrant, as reported by
Nasdaq. The prices represented above are bid and ask prices which represent
prices between broker-dealers, do not include retail mark-ups, mark-downs or any
commissions to broker-dealers and do not reflect prices in actual transactions.
As of March 29, 1999, there were approximately 20 record owners (for over 475
beneficial owners) of Common Stock and seven record owners of Warrants.
The Company intends to retain any future earnings for the operation and
expansion of its business and does not anticipate paying any cash dividends in
the foreseeable future. Any future determination as to the payment of cash
dividends will depend upon a number of factors, including the Company's
earnings, capital requirements, financial condition and other factors considered
relevant by the Company's Board of Directors. In addition, the terms of the
Company's Amended and Restated Commercial Loan Agreement with SouthTrust Bank,
N.A. and other agreements restricts the Company's ability to declare or pay
dividends.
15
<PAGE> 16
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are qualified by
reference to, and should be read in conjunction with the Consolidated Financial
Statements and the related Notes thereto and other financial information
included elsewhere in this Annual Report, as well as "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in Item 7 below.
The selected consolidated financial data of the Company for the years ended
December 31, 1995, 1996, 1997 and 1998 were derived from the Company's
Consolidated Financial Statements, which have been audited by Arthur Andersen
LLP, independent public accountants. These results may not be indicative of
future results.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1995 1996 1997 1998
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Operating revenues ...................... $ 17,485 $ 21,172 $ 43,065 $ 55,067
Total operating expenses ................ 17,705 20,630 44,587 55,879
Operating income (loss) ................. (220) 542 (1,523) (812)
Other income (expense), net ............. (30) (221) (1) (2,686)
Income (loss) before provision for income
taxes ................................ (250) 321 (1,524) (3,498)
Provision (benefit) for income taxes .... (95) 137 246 --
Net income (loss) ....................... (155) 184 (1,770) (3,498)
Basic and diluted net income (loss) per
common share(5) ...................... (0.06) 0.06 (0.54) (0.90)
Weighted average common shares
outstanding .......................... 2,500,000 3,281,862 3,273,932 3,867,883
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------
1995 1996 1997 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .... $ 17 $ 248 $ 1,423 $ 1,004
Working capital (deficit) .... (385) 354 (388) (4,565)
Total assets ................. 4,016 5,346 21,450 19,819
Long-term debt ............... 1,523 1,187 3,057 4,269
Shareholders' (deficit) equity (305) (1) 4,036 859
</TABLE>
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following analysis of the Company's financial condition as of
December 31, 1998, and the Company's results of operations for the years ended
December 31, 1996, 1997 and 1998, should be read in conjunction with the
Company's Consolidated Financial Statements and notes thereto included elsewhere
in this Annual Report. The following discussion contains forward-looking
statements that involve risk and uncertainties. The Company's actual results may
differ significantly from the results discussed in the forward-looking
statements. The financial information listed 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, the notes thereto and the other financial
data included elsewhere in this Annual Report.
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 majority
stockholder and then sole director 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, 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 its 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 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 years ended December
31, 1998, 1997 and 1996, FedEx accounted for approximately 32.7%, 41.2% and
35.7%, 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, and management anticipates
the renewal of the agreement when it expires in May 2000. There can be no
assurance, however, that this agreement will be renewed.
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.
17
<PAGE> 18
In October 1997, the Company organized Timely North in order to enter
into a marketing agreement (the "Marketing Agreement") with Continental American
Transportation, Inc. ("Continental"). Under that agreement, Timely North, on
November 1, 1997, leased or sub-leased 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.
Under the Marketing Agreement, Timely North would service the former
customers of CTI, pay fair market value rent for the equipment and facilities of
CTI and pay to CTI a commission on all retained business for the period from
November 1, 1997 to July 31, 1998. The Marketing Agreement also granted Timely
North the exclusive option to acquire substantially all of CTI's assets for a
period which expired on July 31, 1998. The Marketing Agreement terminated 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 business was headquartered in Calhoun, Georgia, the
heart of the carpet manufacturing industry in the United States, and served most
of the major carpet mills. 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. CTI operated 17 remote terminals to
handle the LTL freight it received from the mills. These terminals were located
in 10 states. On November 1, 1997 Timely North began operating these terminals
and began an analysis of the LTL business. In January 1998, Timely North
announced a substantial rate increase to its LTL customers in an attempt to
bring this part of the operation to a profitable level. On March 27, 1998,
Timely North entered into an agreement with CSI/Crown, Inc. ("CSI/Crown"), an
industry competitor and subsidiary of US Xpress Enterprises, Inc., under which
Timely North terminated its LTL operations as of April 1, 1998 and used its
reasonable best efforts to persuade the LTL customers to transfer their business
to CSI/Crown. At the time of termination, all LTL terminals were closed,
employees terminated and equipment and records prepared for return to the
Calhoun location. All terminal location leases were either leased by CTI or are
owned by a former subsidiary of Continental. Neither the Company nor Timely
North is a party to any of the leases or finance contracts entered into by CTI
or Continental.
During the second quarter of 1998, the Company consolidated the
operations of Timely and Timely North which allowed it to eliminate duplicative
functions and permitted the free interchange of drivers and equipment between
fleets. The Company believes that this consolidation has improved customer
service, lowered "deadhead" miles and lowered its operating costs.
Truck-Net, a licensed freight broker, 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
certificated and to have a current certificate of insurance. When logistically
feasible, Truck-Net utilizes Timely's equipment to complete the brokerage
contracts. During the year ended December 31, 1998, Truck-Net was able to
utilize Timely's equipment for approximately 21% of its shipments. The Company
anticipates that this utilization will increase in the future. In the first
quarter of 1998 the Company began dedicating a portion of the Timely fleet to
servicing Truck-Net customers.
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, the U.S. subsidiary of a major European air freight
forwarder, accounted for approximately 10%, 13% and 16% of the Company's
consolidated
18
<PAGE> 19
operating revenues for the years ended December 31, 1998, 1997 and 1996,
respectively.
RESULTS OF OPERATIONS
Year Ended December 31, 1998 compared to Year Ended December 31, 1997
The Company's operating revenues increased 27.9%, or $12.0 million, to
$55.1 million for the year ended December 31, 1998 from $43.1 million for the
same period last year, primarily due to increases in business from Timely's core
accounts and revenues generated from an expanded customer base. Timely accounted
for approximately $36.5 million, or 66.2%, of the Company's revenues ($25.3
million, or 58.8%, in 1997), Truck-Net accounted for approximately $7.9 million,
or 14.4%, of the Company's revenues ($8.7 million, or 20.1%, in 1997), Timely
North accounted for approximately $10.1 million, or 18.3%, of the Company's
revenues ($8.2 million, or 19.0%, in 1997), and PTG accounted for approximately
$584,000, or 1.1%, of the Company's revenues ($902,000, or 2.1%, in 1997). The
Company terminated the operations of Timely North in April 1998.
The Company's operating expenses increased 25.3%, or $11.3 million, to
$55.9 million for the year ended December 31, 1998 from $44.6 million for the
same period of 1997, primarily as the result of costs associated with increased
revenues discussed above. The Company's operating expenses consist primarily of
the direct costs attributable to operation of the Company's equipment including
driver payroll and related costs, fuel, equipment rental, etc., and in the case
of Truck-Net, the cost of purchased transportation. Timely accounted for
approximately $35.4 million, or 63.4%, of the Company's operating expenses
($24.8 million, or 55.6%, in 1997), Truck-Net accounted for approximately $7.5
million, or 13.5%, of the Company's operating expenses ($8.2 million, or 18.6%,
in 1997), Timely North accounted for approximately $11.4 million or 20.3 % of
the Company's operating expenses ($10.1 million, or 22.5%, in 1997), and PTG
accounted for approximately $1.6 million, or 2.8%, of the Company's operating
expenses ($1.5 million, or 3.3%, in 1997).
Net non-operating expense increased $2.7 million for the calendar year
of 1998 compared to the same period in 1997. During 1998, the Company recorded
approximately $1.8 million in nonrecurring charges related to its terminated
marketing agreement with CTI. Interest expense increased approximately $1.0
million in the year ended December 31, 1998 compared to the same period in 1997.
This increase was the result of (i) borrowings under the Company's lines of
credit during the last quarter of 1997, (ii) new financing related to the
purchase of equipment in lieu of leasing and (iii) the recognition of $141,000
of nonrecurring interest expense related to the issuance in December 1998 of
convertible debentures. The above expenses were partially offset by a $100,000
increase in other income
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". No tax benefit was recognized for consolidated losses incurred
during 1997 and 1998 as it is not probable that such benefits will be realized
by the Company. The losses will be carried forward to offset taxable income in
future periods.
The Company's net loss increased approximately $1.7 million to $3.5
million for the year ended December 31, 1998 compared to $1.8 million for the
comparable period of 1997. Losses from the operations of Timely North combined
with costs incurred to discontinue those operations and costs related to the
termination of the marketing agreement with CTI amounted to approximately $3.3
million in 1998.
19
<PAGE> 20
Year Ended December 31,1997 compared to Year Ended December 31, 1996.
The Company's operating revenues increased approximately $21.9 million,
or 103.3%, to approximately $43.1 million during the year ended December 31,
1997, from approximately $21.2 million for the year ended December 31, 1996.
This increase is attributable to (i) the growth of the contract business
performed by Timely for FedEx, (ii) the inclusion for the entire year of the
expanded services performed for Panalpina, which expansion began in August 1996,
and (iii) the inclusion of the operations of Timely North for the period from
November 1, 1997 to December 31, 1997. For the year ended December 31, 1997,
Timely accounted for approximately $25.3 million or 58.8% of the Company's
revenues ($13.6 million or 64.1% in 1996), Truck-Net accounted for approximately
$8.7 million or 20.1% of the Company's revenues ($6.5 million or 30.7% in 1996),
Timely North accounted for approximately $8.2 million or 19.0% of the Company's
revenues (none in 1996) and PTG accounted for approximately $902,000 or 2.1% of
the Company's revenues ($1.1 million or 5.2% in 1996).
The Company's operating expenses increased approximately $24.0 million,
or 116.1%, to approximately $44.6 million for the year ended December 31, 1997
from approximately $20.6 million for the year ended December 31, 1996. The
increase is primarily due to the increase in revenues of Timely and Truck-Net
and the costs related thereto (which includes additional support staff and
office space and increased investment in support equipment and systems), the
inclusion of the operations of Timely North for the period from November 1, 1997
to December 31, 1997 and increased administrative costs resulting from the
Company's status as a public company. For the year ended December 31, 1997,
Timely accounted for approximately $24.8 million or 55.6% of the Company's
operating expenses ($13.4 million or 64.8% in 1996), Truck-Net accounted for
approximately $8.2 million or 18.5% of the Company's operating expenses ($6.3
million or 30.2% in 1996), Timely North accounted for $10.1 million or 22.5% of
the Company's operating expenses (none in 1996) and PTG accounted for
approximately $1.3 million or 3.0% of the Company's operating expenses ($932,000
or 4.5% in 1996).
Other expense decreased approximately $220,000 to approximately $1,000
in 1997 from approximately $221,000 in 1996 primarily due to increased interest
costs in 1997 over 1996, offset by increases in interest and other income. The
increase in interest expense was due to increased financing activity related to
the purchase of equipment in lieu of leasing and increased borrowings under the
Company's lines of credit. Interest income increased due to the investment of
the proceeds of the Initial Public Offering.
Prior to January 1, 1997, the Company and all of its then subsidiaries
except Truck-Net had 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 of the companies on their individual tax
returns. The statement of operations for the year ended December 31, 1996,
reflect income tax provisions or benefits on a pro forma basis as if the Company
and all of its subsidiaries were liable for federal and state income taxes as
taxable corporate entities for that year.
After including the loss from operations attributable to the Timely
North operation for the period from November 1, 1997 to December 31, 1997, the
Company experienced a consolidated loss for income tax purposes in 1997. Due to
the cessation of S Corporation status effective January 1, 1997, no portion of
the consolidated loss incurred in 1997 is recoverable from prior years and will
be carried forward. Accordingly, no tax benefit arising from operations was
recorded in 1997. The $246,000 tax expense recorded in the first quarter of 1997
was attributable to timing differences existing at the time of the change in tax
status of the Company.
20
<PAGE> 21
Net income decreased approximately $2.0 million to a loss of
approximately $1.8 million in 1997 from pro forma net income of $184,000 in 1996
primarily as a result of the operations of Timely North for the period of its
inclusion in the 1997 financial statements. The loss attributable to the
operations of Timely North for the year ended December 31, 1997 was
approximately $1.8 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company had negative working capital of approximately $4.6 million
at December 31,1998 compared to a working capital deficit of approximately
$388,000 at December 31, 1997. Cash and cash equivalents decreased by
approximately $419,000 and accounts receivable decreased $3.3 million. Cash
generated from the collection of accounts receivable was used to support
operating losses incurred by the LTL operations of Timely North. The current
portion of long-term debt, net of repayment of the Company's lines of credit,
increased approximately $384,000.
Net cash provided by operating activities totaled approximately
$925,000 for the year ended December 31, 1998, compared to net cash used of
approximately $6.0 million for the year ended December 31,1997. This increase in
cash flow from operations arose primarily from a $3.3 million reduction in trade
accounts receivable compared to an increase in accounts receivable of $7.1
million in 1997. Cash used in investing activities decreased to approximately
$3.1 million in 1998 primarily due to the acquisition of approximately $2.9
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. Cash provided by financing
activities was $1.8 million in 1998. Proceeds from long-term debt, net of the
repayments under the line of credit and other debt agreements were approximately
$1.8 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). At December 31, 1998, the Company had $6.7
million outstanding under the line of credit with no availability remaining
pursuant to the terms of the agreement. This facility, which was originally
scheduled to mature on December 31, 1998, has been extended by the bank until
May 31, 1999. The Company anticipates extending the current facility or entering
into new arrangements with the bank or another lending institution 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 or another
lending institution 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
December 31, 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 the continued improvement in 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
21
<PAGE> 22
additional financing will be available to the Company on commercially reasonable
terms, or at all. As a result of these factors, the Company's independent public
accountants have added an explanatory paragraph to their report on the Company's
December 31, 1998 financial statements which makes reference to the
uncertainties regarding the Company's ability to continue as a going concern.
These statements are "forward-looking" statements which are subject to the risks
and uncertainties discussed above.
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 depends
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK NOT APPLICABLE
The Company does not use derivative financial instruments in its
operations or investments. The Company is exposed to market risk from changes in
interest rates. At December 31, 1998, the fair value of the Company's total
variable rate debt was estimated to be $6.7 million. At this borrowing level, a
hypothetical 10% adverse change in interest rates on the debt would increase
interest expense and decrease income before income taxes by approximately
$57,000.
The above market risk discussion and the estimated amounts presented
are "forward-looking" statements of market risk based on the assumed occurrence
of certain adverse market conditions. Actual results in the future may differ
materially from those projected due to actual developments in the market.
22
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company as of December 31,
1998 and for the three years in the period ending December 31, 1998, together
with the report of Arthur Andersen LLP, dated March 26, 1999, appear on pages
F-1 to F-24 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
The Company had no disagreements on accounting or financial disclosure
matters with its accountants, nor did it change accountants, during the two
fiscal years ended December 31, 1998.
23
<PAGE> 24
PART III
Certain information required by Part III is omitted from this Annual
Report in that the Registrant will file a definitive Proxy Statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934 (the "Proxy Statement")
not later than 120 days after the end of the financial year covered by this
Annual Report, and certain information included therein is incorporated herein
by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as
of March 31, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dennis A. Bakal (1) ....... 54 Chairman of the Board, Chief Executive Officer and President
Linda K. Roberts .......... 51 Vice President/Administration, Secretary and Director
Susan P. Dial ............. 53 Chief Financial Officer
William M. Kelly .......... 51 Vice President/Transportation
Stanley E. Laiken ......... 57 Vice President/Sales
Robert E. Altenbach (1)(2). 52 Director
Gregory G. Hardwick(1)(2).. 51 Director
</TABLE>
- --------------
(1) Member of Compensation Committee. Mr. Bakal is a non-voting member of
the Compensation Committee.
(2) Member of Audit Committee.
Mr. Bakal is President and Chief Executive Officer of the Company. His
career in the airfreight industry began over 30 years ago and includes all
operational, marketing and sales aspects associated with the business.
Immediately prior to founding the Company in 1990, he was the President and
Chief Executive Officer of LEP Profit, responsible for its North and South
American marketing and operations.
Mr. Bakal joined Profit Freight Systems ("Profit") in 1973 and
progressed from District Manager to Regional Manager, Regional Vice President,
Vice President of Operations and Senior Vice President. During this period, he
was a leader in the development, implementation and selling of the company's
successful pharmaceutical distribution program between Puerto Rico and the
United States. In 1983, Mr. Bakal was promoted to Chief Operating Officer of
Profit. In 1984, he was named President and in 1988 he was named Chief Executive
Officer. He directed the company's successful merger with the British-based LEP
Group, one of the world's largest international freight forwarding companies.
Mr. Bakal served on the LIM (LEP International Management) Board of Directors
and was responsible for all LEP Group companies in North and South America.
24
<PAGE> 25
In 1978, Mr. Bakal received the Air Cargo News Achievement of the Year
Award for his outstanding industry contribution. He has served as an Air Cargo
World Magazine advisory board member and Vice President of the Air Freight
Association since July 1987 and was appointed to their Board of Directors in
July 1988. Mr. Bakal graduated from the New York Institute of Technology with a
degree in Business Science in 1966.
Ms. Roberts co-founded the Company with Mr. Bakal and is currently Vice
President/Administration and Secretary of the Company. Her career in the
airfreight industry began over 16 years ago and includes all administrative,
operations and marketing aspects associated with the business. Immediately prior
to joining the Company, she was Assistant to the Chief Executive Officer of
Profit. She joined Profit in June 1980 and progressed from various
administrative and staff jobs to become Assistant to the Chief Executive
Officer. During this period, Ms. Roberts was involved in the implementation of
various sales, as well as internal, programs for the company.
Ms. Dial is Chief Financial Officer of the Company. Ms. Dial joined the
Company as Controller in 1997. Ms. Dial has more than 25 years of accounting and
finance experience in the transportation industry. From 1984 to 1994, Ms. Dial
served as Assistant Vice President and Controller for Atlantic Southeast
Airlines, Inc. Ms Dial is a former board member and President of the Atlanta
Chapter of the Institute of Management Accountants. Ms. Dial is a graduate of
Georgia State University.
Mr. Kelly is Vice President/Transportation of the Company and is in
charge of the day-to-day operations of the Company and is also responsible for
federal and state regulatory compliance, safety and maintenance programs,
equipment acquisition and logistics planning. Immediately prior to joining the
Company in November 1991, he was Vice President of Wayne Systems, in charge of
operations. Prior to joining Wayne Systems, he was General Manager for Pinto
Trucking, where he was responsible for regulatory compliance and the complete
operations of a fleet in excess of 200 tractors.
Mr. Laiken, a 1963 graduate of Pratt Institute with a Bachelor of
Engineering degree, is Vice President/ Sales of the Company. Immediately prior
to joining the Company in February 1993, Mr. Laiken was Vice President/National
Accounts with Profit and had also served Profit as Operations Manager, Regional
Vice President and Vice President/Agent Development. Prior to joining Profit in
1974, Mr. Laiken was employed by Johns-Manville Corporation in various
capacities including Traffic Manager and Physical Distribution Manager.
Mr. Altenbach is a partner in the Atlanta office of the law firm Kutak
Rock. He is the former General Counsel, Secretary and a member of the Senior
Management Team of Vista 2000, Inc., a publicly-traded consumer products
company. He is a former partner of the Johnson & Montgomery law firm, which
merged with Chamberlain, Hrdlicka, White, Williams & Martin. Mr. Altenbach's law
practice is primarily in the areas of corporate, finance and securities, having
represented a number of public and private service and investment firms in
financings, work-outs and restructurings and underwriters that concentrate on
private placements and initial public offerings. Mr. Altenbach has practiced law
in Atlanta since 1972 after receiving undergraduate and law degrees from the
University of Tennessee. Mr. Altenbach was a founding partner of the law firm of
Somers & Altenbach, organized in 1974 and which dissolved in 1990.
Mr. Hardwick has been a Certified Public Accountant in public practice
since 1974. Mr. Hardwick has been a director of the Company since 1997. Mr.
Hardwick received a Bachelor of Science degree in Accounting from Miami (Ohio)
University in 1970.
25
<PAGE> 26
Mr. Bakal and Mr. Laiken are brothers-in-law.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's executive
officers and directors and persons who beneficially own more than 10% of a
registered class of the Company's equity securities to file reports of
securities ownership and changes in such ownership with the SEC and Nasdaq.
Officers, directors and greater than 10% beneficial owners also are required by
rules promulgated by the SEC to furnish the Company with copies of all Section
16(a) forms they file. Based solely on review of the copies of such reports
furnished to the Company and written representations that no other reports were
required, the Company believes that, during the year ended December 31, 1998,
its executive officers, directors and greater than 10% beneficial owners
complied with all applicable Section 16(a) filing requirements.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference from
the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference from
the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference from
the Proxy Statement.
26
<PAGE> 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
3.1 Amended and Restated Articles of Incorporation of the Company
(incorporated by references to Exhibit 3.1 of the Company's
Registration Statement on Form SB-2, No. 333-24619 (the "Registration
Statement"))
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the
Registration Statement)
4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit
4.1 of the Registration Statement
4.2 Specimen Redeemable Warrant Certificate (incorporated by reference to
Exhibit 4.2 of the Registration Statement)
10.1 Professional Transportation Group Ltd., Inc. 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.1 of the Registration
Statement)*
10.2 Employment Agreement by and between the Company and Dennis A. Bakal,
dated April 1, 1997 (incorporated by reference to Exhibit 10.2 of the
Registration Statement)*
10.3 Employment Agreement by and between the Company and Linda K. Roberts,
dated April 1, 1997 (incorporated by reference to Exhibit 10.3 of the
Registration Statement)*
10.4 Employment Agreement by and between the Company and William M. Kelly,
dated April 1, 1997 (incorporated by reference to Exhibit 10.4 of the
Registration Statement)*
10.5 Employment Agreement by and between the Company and Stanley E. Laiken,
dated April 1, 1997 (incorporated by reference to Exhibit 10.5 of the
Registration Statement)*
10.6 Form of Director's Indemnification Agreement entered into by and
between the Company and each of its directors (incorporated by
reference to Exhibit 10.6 of the Registration Statement)*
10.7 Transportation Agreement, dated November 19, 1995, between Timely
Transportation, Inc. and Federal Express Corporation (incorporated by
reference to Exhibit 10.7 of the Registration Statement)+
10.8 OmniTRACS Contract, dated May 8, 1995, by and between Timely
Transportation, Inc. and QUALCOMM Inc. (incorporated by reference to
Exhibit 10.8 of the Registration Statement)
10.9 Amendment No. 1 to OmniTRACS Contract, dated June 23, 1995, by and
between Timely Transportation, Inc. and QUALCOMM Inc. (incorporated by
reference to Exhibit 10.9 of the Registration Statement)
</TABLE>
27
<PAGE> 28
<TABLE>
<S> <C>
10.10 OmniTRACS Finance Lease, dated June 23, 1995, by and between Timely
Transportation, Inc. and QUALCOMM Inc. (incorporated by reference to
Exhibit 10.10 of the Registration Statement)
10.11 Sublease, dated January 1, 1997, by and between the Company and
Professional Sales Group, Ltd. (incorporated by reference to Exhibit
10.11 of the Registration Statement)
10.12 Amended and Restated Commercial Loan Agreement, dated March 2,1998, by
and between the Company, Timely Transportation, Inc., Truck-Net, Inc.,
PTG, Inc., Timely North, Inc. and SouthTrust Bank, N.A. (incorporated
by reference to Exhibit 10.1 of the Company's current report on Form
8-K, date of report March 2, 1998 (the "March 8-K"))
10.13 Amended, Restated and Consolidated Commercial Revolving Note, dated
March 2, 1998, by and between the Company, Timely North, Inc., and
SouthTrust Bank, N.A. (incorporated by reference to Exhibit 10.2 of the
March 8-K)
10.14 Commercial Revolving Note, dated November 19, 1997, by and between the
Company and SouthTrust Bank, N.A., in the original principal amount of
$3.7 million (incorporated by reference to Exhibit 10.3 of the
Company's current report on Form 8-K, date of report November 19, 1997
(the "November 8-K"))
10.15 Amended and Restated General Security Agreement, dated November 19,
1997, by and among the Company, Truck-Net, Inc., Timely Transportation,
Inc., PTG, Inc., Timely North, Inc. and SouthTrust Bank, N.A.
(incorporated by reference to Exhibit 10.5 of the November 8-K)
10.16 Reaffirmation of Guaranty, dated March 2, 1998, by and among the
Company, Truck-Net,, Inc., Timely Transportation, Inc., PTG, Inc.,
Dennis A. Bakal and SouthTrust Bank, N.A. (incorporated by reference to
Exhibit 10.3 of the March 8-K)
10.17 Reaffirmation of Guaranty, dated March 2, 1998, by and among Truck-Net,
Inc., Timely Transportation, Inc., PTG, Inc., Timely North, Inc.,
Dennis A. Bakal and SouthTrust Bank, N.A. (incorporated by reference to
Exhibit 10.4 of the March 8-K)
10.18 Transportation Service Agreement, dated February 6, 1997, between the
Company and Panalpina, Inc. (incorporated by reference to Exhibit 10.16
of the Registration Statement)
10.19 Service Agreement, dated February 1, 1997, between the Company and
T.T.C. Illinois, Inc. (incorporated by reference to Exhibit 10.17 of
the Registration Statement)
10.20 Consulting and Non-Competition Agreement, dated March 27, 1998, between
Timely North, Inc. and CSI/Crown, Inc. (incorporated by reference to
Exhibit 10.20 of the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1997, File No. 000-22571 (the "1997 10-K")+
10.21 First Amendment to the Professional Transportation Group Ltd., Inc.
1996 Stock Option Plan (incorporated by reference to Exhibit A of the
Company's proxy statement on Schedule 14A for its 1998 annual meeting
of shareholders (the "1998 Proxy Statement"), File No. 000-22571)*
</TABLE>
28
<PAGE> 29
<TABLE>
<S> <C>
10.22 Professional Transportation Group Ltd., Inc. 1998 Director Stock Option
Plan (incorporated by reference to Exhibit 4.3 of the Company's
registration statement on Form S-8, File No. 333-57937)*
10.23 Professional Transportation Group Ltd., Inc. 1998 Employee Stock
Purchase Plan (incorporated by reference to Exhibit B of the 1998 Proxy
Statement)*
10.24 First Amendment to the Professional Transportation Group Ltd., Inc.
1998 Employee Stock Purchase Plan*
10.25 Debenture and Warrant Purchase Agreement (incorporated by reference to
the Company's current report on Form 8-K, dated of report January 4,
1999)
10.26 Loan Documents Modification Agreement, dated as of December 31, 1998,
by and between the Company, Timely North, Inc. and SouthTrust Bank,
N.A.
13.1 Portions of the Company's 1998 Annual Report to Shareholders
21.1 Subsidiaries of the Company (incorporated by reference to Exhibit 21.1
of the 1997 10-K)
23.1 Consent of Arthur Andersen LLP
24.1 Power of Attorney (contained on the signature page of this filing)
27.1 Financial Data Schedule (for Commission purposes only)
</TABLE>
- ---------------
+ Confidential treatment previously granted for portions of this exhibit.
* This agreement is a compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c).
(b) Financial Statement Schedules
Report of Independent Public Accountants
Schedule II - Valuation and Qualifying Accounts for the years ended
December 31, 1998, 1997 and 1996
(c) Reports on Form 8-K
The Company filed no current reports on Form 8-K during the fourth
quarter of the year ended December 31, 1998.
29
<PAGE> 30
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Exchange Act, the registrant caused this report to be signed on its behalf by
the undersigned, thereto duly authorized.
Professional Transportation Group, Ltd., Inc.
April 14, 1999 By: /s/ Dennis A. Bakal
- --------------------------- ---------------------------------------------
Date Dennis A. Bakal
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, Dennis A. Bakal
and Linda K. Roberts, and each one of them, his attorneys-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any and all
amendments to this Annual Report (Form 10-K) and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ Dennis A. Bakal Chairman of the Board and Chief April 14, 1999
- ------------------------------------ Executive Officer (principal
Dennis A. Bakal executive officer)
/s/ Susan P. Dial Chief Financial Officer (principal April 14, 1999
- ------------------------------------ financial and accounting officer)
Susan P. Dial
/s/ Linda K. Roberts Vice President/Administration, April 14, 1999
- ------------------------------------ Secretary and Director
Linda K. Roberts
/s/ Robert E. Altenbach Director April 14, 1999
- ------------------------------------
Robert E. Altenbach
/s/ Gregory G. Hardwick Director April 14, 1999
- ------------------------------------
Gregory G. Hardwick
</TABLE>
30
<PAGE> 31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Professional Transportation Group Ltd., Inc.
and Subsidiaries:
We have audited the accompanying consolidated balance sheets of PROFESSIONAL
TRANSPORTATION GROUP LTD., INC. (a Georgia corporation) AND SUBSIDIARIES as of
December 31, 1998 and 1997 and the related consolidated statements of
operations, changes in shareholders' equity (deficit), and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Professional Transportation
Group Ltd., Inc. and subsidiaries as of December 31, 1998 and 1997 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred net losses in 1997 and 1998 and
has a net working capital deficiency of approximately $4.6 million at December
31, 1998. In addition, the Company's line of credit is due in full on May 31,
1999. If the line of credit is not extended or alternative financing cannot be
found, the Company may be unable to pay its obligations. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
/s/ Arthur Andersen LLP
Atlanta, Georgia
March 26, 1999
F-1
<PAGE> 32
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,003,783 $ 1,422,732
Trade accounts receivable, net of allowance for doubtful accounts of
$757,765 and $267,578 in 1998 and 1997, respectively 6,633,732 9,910,621
Due from Affiliate (Note 4) 429,365 458,615
Due from shareholder (Note 4) 577,197 577,197
Prepaid expenses 662,176 1,040,542
Other current assets 583,311 321,980
----------- -----------
Total current assets 9,889,564 13,731,687
PROPERTY AND EQUIPMENT, NET 6,940,060 4,984,987
NONCURRENT NOTE AND OTHER RECEIVABLES (NOTE 5) 2,831,248 2,339,347
OTHER ASSETS 157,847 393,786
$19,818,719 $21,449,807
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,226,222 $ 3,543,051
Accrued liabilities 3,074,145 2,806,155
Line of credit 6,666,722 6,828,722
Current maturities of long-term debt and capital lease obligations 1,487,025 941,488
----------- -----------
Total current liabilities 14,454,114 14,119,416
----------- -----------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, NET OF CURRENT MATURITIES AND
DEBT DISCOUNTS 4,268,887 3,057,235
----------- -----------
DEFERRED INCOME TAXES 237,209 237,209
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 10)
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock, 100,000 shares authorized; no shares issued and outstanding 0 0
Common stock, no par value; 20,000,000 shares authorized, 3,868,160 and
3,867,000 shares issued and outstanding in 1998 and 1997, respectively 0 0
Warrants 353,867 177,117
Additional paid-in capital 5,711,466 5,567,243
Accumulated deficit (5,206,824) (1,708,413)
----------- -----------
Total shareholders' equity 858,509 4,035,947
----------- -----------
Total liabilities and shareholders' equity $19,818,719 $21,449,807
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-2
<PAGE> 33
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING REVENUES $55,066,949 $43,064,743 $21,172,201
----------- ----------- -----------
OPERATING EXPENSES:
Salaries, wages, and benefits 25,684,226 17,126,177 6,997,620
Purchased transportation 5,719,410 8,337,627 5,517,481
Operating supplies and expenses 11,275,455 9,480,467 3,787,670
Fuel and fuel taxes 6,890,210 5,733,829 2,567,319
Communications and utilities 1,192,990 668,990 243,582
Depreciation 908,386 383,654 242,041
Operating taxes and licenses 359,602 148,793 73,840
Bad debt expense 512,000 242,829 16,485
Other operating expenses 3,336,394 2,464,980 1,183,797
----------- ----------- -----------
Total operating expenses 55,878,673 44,587,346 20,629,835
----------- ----------- -----------
(LOSS) INCOME FROM OPERATIONS (811,724) (1,522,603) 542,366
OTHER (EXPENSE) INCOME:
Interest expense (1,300,341) (341,982) (272,347)
Other (expense) income, net (1,386,346) 340,285 51,059
----------- ----------- -----------
(LOSS) INCOME BEFORE INCOME TAXES (3,498,411) (1,524,300) 321,078
----------- ----------- -----------
PROVISION FOR INCOME TAXES (NOTES 2 AND 8) 0 0 (137,000)
INCOME TAX PROVISION DUE TO CHANGE IN TAX STATUS (NOTE 8) 0 (246,000) 0
----------- ----------- -----------
Total provision for income taxes 0 (246,000) (137,000)
----------- ----------- -----------
NET (LOSS) INCOME $(3,498,411) $(1,770,300) $ 184,078
=========== =========== ===========
NET (LOSS) INCOME PER COMMON SHARE:
Basic $ (0.90) $ (0.54) $ 0.06
=========== =========== ===========
Diluted (0.90) $ (0.54) $ 0.06
=========== =========== ===========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING--BASIC AND DILUTED 3,867,883 3,273,932 3,281,862
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE> 34
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS ADDITIONAL ACCUMULATED
------------ -------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 2,500,000 $0 0 $ 0 $ 5,166 $ (310,464) $ (305,298)
Pro forma net income 0 0 0 0 0 184,078 184,078
Pro forma tax adjustment 0 0 0 0 0 42,000 42,000
Pretax income of Rapid (Note 4) 0 0 0 0 0 (37,309) (37,309)
Issuance of common stock 100,000 0 0 0 10,000 0 10,000
Distributions 0 0 0 0 0 (56,418) (56,418)
Contribution to capital by
related party (Note 4) 0 0 0 0 42,000 0 42,000
Pro forma compensation
expense (Note 4) 0 0 0 0 0 120,000 120,000
--------- -- --------- -------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1996 2,600,000 0 0 0 57,166 (58,113) (947)
Pro forma net loss 0 0 0 0 0 (1,770,300) (1,770,300)
Initial public offering,
net of issuance costs 1,250,000 0 0 0 5,507,077 0 5,507,077
Warrants outstanding 0 0 1,437,500 177,117 0 0 177,117
Issuance of stock 20,000 0 0 0 3,000 0 3,000
Retirement of stock (3,000) 0 0 0 0 0 0
Pro forma compensation
expense (Note 4) 0 0 0 0 0 120,000 120,000
--------- -- --------- -------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1997 3,867,000 0 1,437,500 177,117 5,567,243 (1,708,413) 4,035,947
Net loss 0 0 0 0 0 (3,498,411) (3,498,411)
Issuance of convertible
debentures and warrants (Note 7) 0 0 1,100,000 176,750 141,103 0 317,853
Issuance of stock 1,160 0 0 0 3,120 0 3,120
--------- -- --------- -------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1998 3,868,160 $0 2,537,500 $353,867 $5,711,466 $(5,206,824) $ 858,509
========= == ========= ======== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 35
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ------------ ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Pro forma net (loss) income $(3,498,411) $ (1,770,300) $ 184,078
----------- ------------ ---------
Adjustments to reconcile pro forma net (loss)
income to net cash provided by
(used in) operating activities:
Pro forma income tax adjustment 0 0 42,000
Pro forma compensation expense 0 120,000 120,000
Loss on investments 0 0 42,000
Deferred income taxes 0 124,939 25,000
Pretax income of Rapid (Note 4) 0 0 (37,309)
Interest expense on convertible debentures (Note 6) 141,103 0 0
Depreciation 908,386 383,654 242,041
Changes in operating assets and liabilities:
Trade accounts receivable, net 3,276,889 (7,090,596) (746,849)
Due from affiliate 29,250 (229,722) (155,586)
Prepaid expenses and other current assets 117,035 (1,186,157) (136,899)
Accounts payable and accrued liabilities (48,839) 3,627,538 642,575
----------- ------------ ---------
Total adjustments 4,423,824 (4,250,344) 36,973
----------- ------------ ---------
Net cash provided by (used in) operating activities 925,413 (6,020,644) 221,051
----------- ------------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,863,459) (3,689,631) (187,402)
Note receivable (491,901) (2,339,346) 0
Other 235,939 (201,654) (48,608)
----------- ------------ ---------
Net cash used in investing activities (3,119,421) (6,230,631) (236,010)
----------- ------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayment) proceeds from line of credit (162,000) 5,950,343 520,368
Repayments of long-term debt and capital lease obligations (1,399,825) (500,701) (414,188)
Proceeds from long-term debt 2,828,764 2,914,383 128,760
Issuance of convertible debentures and warrants 505,000 0 0
Due (from) to shareholder 0 (625,666) 37,070
Proceeds from issuance of common stock and warrants 3,120 5,687,194 0
Cash distributions to shareholders 0 0 (25,362)
----------- ------------ ---------
Net cash provided by financing activities 1,775,059 13,425,553 246,648
----------- ------------ ---------
NET (DECREASE) INCREASE IN CASH (418,949) 1,174,278 231,689
CASH, BEGINNING OF YEAR 1,422,732 248,454 16,765
----------- ------------ ---------
CASH, END OF YEAR $ 1,003,783 $ 1,422,732 $ 248,454
=========== ============ =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 36
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, AND 1996
1. ORGANIZATION AND OPERATIONS
Professional Transportation Group Ltd., Inc. ("PTG, Ltd.") serves as a
holding company for its four operating subsidiaries: Timely
Transportation, Inc. ("Timely"), Truck-Net, Inc. ("Truck-Net"), Timely
North, Inc. ("Timely North"), 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 carpet 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. Truck-Net provides brokerage
services to companies, mainly in the air freight industry, that are in
need of third-party transportation. Timely North provides time-definite
truckload transportation services for companies in the floorcovering
industry. The Company terminated the operations of Timely North in April
1998. 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. PTG, Ltd., which had previously
been an operating company, then 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 per share information in the financial statements
have been adjusted to retroactively reflect the Reorganization as if it
had occurred on December 31, 1995.
In July 1997, the Company completed an initial public offering (the
"Offering") of its common stock and redeemable common stock purchase
warrants (Note 3).
F-6
<PAGE> 37
FINANCIAL CONDITION
The Company incurred net losses of $3.5 million in 1998 and $1.8 million
in 1997. At December 31, 1998, it has a net working capital deficiency of
$4.6 million. Included in this working capital deficiency is a liability
of $6.7 million under the Company's line of credit agreement. As discussed
in Note 6, this amount is currently due in full on May 31, 1999.
Management is currently negotiating an extension of its line of credit
agreement with its primary lender. Management expects that if it is unable
to extend the line of credit, it will seek additional third-party
financing to satisfy its anticipated cash requirements through 1999. There
can be no assurance that the Company will be successful in obtaining an
extension of its credit agreement or in arranging alternative financing
under commercially reasonable terms or at all.
Management has also taken steps to improve the operating performance of
the Company. The Company terminated its unprofitable marketing agreement
with Carpet Transport, Inc. (see Note 5) and has discontinued service in
unprofitable lines of business and on routes where margins were
unacceptable. Although management believes that its actions have had a
positive impact on the Company's operations, there can be no assurance
that the Company will be able to operate profitably.
As a result of the above factors, there is substantial doubt about the
Company's ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
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.
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.
RECOGNITION OF REVENUE
For financial reporting purposes, the Company recognizes revenue when a
shipment is loaded and dispatched. Significant related costs associated
with earning this revenue are accrued at that time. In 1991, the Emerging
Issues Task Force ("EITF") released Issue 91-9, "Revenue and Expense
Recognition for Freight Services in Process." The EITF reached a consensus
that the preferable method of recognizing revenue and expenses was either
(1) the recognition of both revenue and direct cost when the shipment is
completed or
F-7
<PAGE> 38
(2) the allocation of revenue between reporting periods based on relative
transit time in each reporting period and the recognition of expenses as
incurred. The difference between the Company's method of revenue
recognition and the preferable methods described above is not material to
the accompanying consolidated financial statements.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. At December 31,
1998, $250,000 of the Company's cash and cash equivalents were restricted
for use as collateral for certain lines of credit (Note 6).
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major property additions,
replacements, and betterments are capitalized, while maintenance and
repairs which do not extend the useful lives of these assets are expensed
as incurred. Depreciation is provided over the estimated useful lives of
the assets using the straight-line method for financial reporting purposes
and accelerated methods for income tax purposes. Upon retirement or
disposal of assets, the cost and related accumulated depreciation are
removed from the balance sheet, and any gain or loss is reflected in
earnings.
The detail of property and equipment at December 31, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Transportation equipment and improvements $ 5,952,852 $4,563,317
Furniture, fixtures, and equipment 2,491,538 1,205,792
Leasehold improvements 242,584 54,406
----------- ----------
8,686,974 5,823,515
Less accumulated depreciation (1,746,914) (838,528)
----------- ----------
$ 6,940,060 $4,984,987
=========== ==========
</TABLE>
The estimated useful lives of the various classes of physical assets were
as follows during 1998:
<TABLE>
<S> <C>
Transportation equipment and improvements 7-10 years
Furniture, fixtures, and equipment 5 years
Leasehold improvements 5 years
</TABLE>
During 1998, the Company extended the useful lives of its trailers from
seven to ten years, while the useful lives of trailer improvements and
tractors remains seven years. As a result, depreciation expense for the
year ended December 31, 1998 decreased by approximately $180,000.
F-8
<PAGE> 39
LONG-LIVED ASSETS
The Company reviews the carrying values assigned to long-lived assets
based on expectations of undiscounted future cash flows and operating
income generated by the long-lived assets in determining whether the
carrying amount of such assets is recoverable. As of December 31, 1998, no
impairment exists on the Company's long-lived assets.
ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Salaries, wages, and benefits $ 788,919 $1,460,755
Other 2,285,226 1,345,400
---------- ----------
$3,074,145 $2,806,155
========== ==========
</TABLE>
SALARIES, WAGES, AND BENEFITS
Prior to 1997, the Company leased drivers and certain office personnel
from an independent personnel leasing company. Effective February 1997,
the Company transferred all of its employees to the personnel leasing
company. Under the lease agreement, the Company pays a fixed amount per
leased employee (in addition to compensation costs) to the personnel
leasing company to cover payroll processing, unemployment insurance, and
workers' compensation. Salaries, wages, and benefits on the accompanying
statements of operations include fees paid to the personnel leasing
company for processing of payroll of approximately $2,381,000 and
$1,836,000 for the years ended December 31, 1998 and 1997, respectively.
In management's opinion, fees paid to the leasing company represent a
substantial cost savings to the Company due to the leasing company's
ability to negotiate better workers' compensation and employee benefits
rates.
EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share," effective December 31, 1997. Earnings per
share have been computed based on the weighted average shares and dilutive
potential common shares outstanding during the year. All prior period
earnings per share amounts have been restated to comply with SFAS No. 128.
PRO FORMA ADJUSTMENTS
Certain pro forma adjustments have been made in the accompanying
consolidated statements of operations for the years ended December 31,
1997 and 1996 in order to present the results of operations on a
comparable basis between years. Amounts shown as pro forma net income are
net of pro forma adjustments as follows: (1) to reflect income tax expense
as if all of the Subsidiaries had been taxable for all periods presented
(1996
F-9
<PAGE> 40
only--see Note 8) and (2) to reflect compensation expense for the fair
value of services provided by the majority shareholder prior to July 1,
1997 (1997 and 1996--see Note 4).
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
Offering (Note 3), these companies converted from S corporation to C
corporation status and, accordingly, are subject to future federal and
state income taxes. The Company follows the practice of providing for
income taxes based on SFAS No. 109, "Accounting for Income Taxes." Under
SFAS No. 109, deferred tax assets or liabilities at the end of each period
are determined using the tax rate expected to apply to taxable income in
the period in which the deferred tax asset or liability is expected to be
settled or realized (Note 8).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments classified as current assets or
liabilities, including cash and cash equivalents, accounts receivable, and
accounts payable, approximate carrying value due to the short-term
maturity of the instruments. The carrying amount of long-term debt
approximates fair value based on the borrowing rates currently available
to the Company for loans with similar terms and average maturities.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Cash paid for interest $1,262,277 $341,982
Cash paid for income taxes 0 94,766
</TABLE>
ACCOUNTING STANDARDS TO BE ADOPTED
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," effective for fiscal years beginning after June 15, 1999.
SFAS No. 133 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 and that changes in the
derivative's fair value be recognized in earnings in the current period
unless specific hedge accounting criteria are met. The Company plans to
adopt SFAS No. 133 in the first quarter of fiscal year 2000. Management
does not believe the adoption of this statement will have a material
impact on the Company's financial statements.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation.
F-10
<PAGE> 41
3. THE OFFERING
Effective June 19, 1997, the Company completed an offering of 1,250,000
shares of its common stock that raised approximately $6,657,000 in
aggregate proceeds for the Company. A portion of the approximate
$5,507,000 net proceeds were used to purchase equipment for the Company's
operations.
In connection with the Offering, the Company sold 1,437,500 redeemable
common stock purchase warrants for $177,117. Each warrant is transferable
immediately upon issuance and entitles the holder to purchase one share of
the Company's common stock at a price of $6.90 per share during the
four-year period beginning as of the effective date of the Offering. The
warrants are redeemable by the Company at a redemption price of $.125 per
warrant upon the occurrence of certain specified conditions.
4. RELATED-PARTY TRANSACTIONS
The Company's majority shareholder also owns a controlling interest in
several other related affiliate companies. Significant related-party
transactions are detailed hereafter.
In December 1996, PTG, Inc. was involved in a nonmonetary exchange with
certain affiliated companies (the "Sellers"), whereby PTG, Inc. assumed
certain liabilities of the Sellers (including amounts due to the
Subsidiaries of $181,562) in exchange for certain assets, valued at
$266,386, and the operations of Rapid Transit Delivery Services ("Rapid"),
a division of the Sellers. Such assets and liabilities were included in
the Company's balance sheet as of December 31, 1996. In addition, the
operations of Rapid for the year ended December 31, 1996 are included in
the accompanying statement of operations as if the transaction occurred on
January 1, 1996.
PTG, Inc. is obligated to a related party to pay 5% of the gross sales of
Rapid for a period of five years. No payments were made by the Company
during 1998 or 1997. At December 31, 1998, the obligation under this
agreement is approximately $51,000.
In January 1997, the Company signed a noncancelable sublease agreement
with Professional Sales Group, Ltd. ("PSG") which expires in April 2005.
Prior to 1997, this arrangement was not formalized. Rent expense paid by
the Company under this arrangement was approximately $120,000 in 1997 and
$180,000 in 1998. Under the previous arrangement, rent expense paid by the
Company during 1996 was approximately $95,000.
During 1996, PSG provided certain management services to Truck-Net for
$120,000. The purpose of such payments was to furnish compensation to the
majority shareholder of the Company. Therefore, such amounts are included
in salaries, wages, and benefits on the accompanying statements of
operations. Effective June 30, 1996, the payment of management fees to PSG
was discontinued. In the accompanying 1996 consolidated statement of
operations, the Company has recorded $120,000 in compensation expense on a
pro forma basis to reflect the fair value of services provided by the
majority shareholder for the period July 1, 1996 through December 31, 1996
(i.e., the period after payment of management fees to PSG was
discontinued). A similar adjustment of $120,000 has been
F-11
<PAGE> 42
made in the 1997 consolidated statement of operations for the period
January 1, 1997 through June 30, 1997 to reflect the fair value of
services provided during that period. The shareholder began receiving
compensation on July 1, 1997.
During 1996, salaries and benefits of the Company's nondriver personnel
were paid by PSG and allocated to the Company at actual cost based on time
incurred for the Company's operations. Compensation expense recognized
under this arrangement totaled approximately $1,222,000 for the year ended
December 31, 1996. On February 1, 1997, the Company's nondriver personnel
were transferred to an unrelated third-party personnel leasing company,
and all salaries and benefits have been paid through the leasing company
since that date. Compensation expense is included in salaries, wages, and
benefits on the accompanying statements of operations.
In December 1996, Truck-Net transferred 14,570 shares of common stock of
Amertranz Worldwide Holding Corp. ("Amertranz") to PSG. The shares had
been received by Truck-Net in July 1996 in exchange for $100,000 due to
Truck-Net from Amertranz. At the date the shares were transferred
(December 17, 1996), they had a market value of approximately $58,000.
Consequently, the Company recorded a $42,000 investment loss to write down
this investment to its fair value prior to the transfer. A $42,000 capital
contribution has been recorded in the accompanying consolidated statements
of changes in shareholders' equity to reflect the excess of consideration
paid by PSG over the market value of the stock on the date of transfer.
The majority shareholder has both borrowed and advanced amounts to the
Company, both personally and through affiliated companies, on an informal
basis. The Company had a net receivable from the majority shareholder of
the Company of $577,197 at December 31, 1998 and 1997 resulting from such
transactions.
At December 31, 1998 and 1997, the Company had a total receivable of
$429,365 and $458,615, respectively, due from affiliates on the
accompanying balance sheets. This receivable has been guaranteed by the
Company's majority shareholder.
5. NOTE RECEIVABLE AND MARKETING AGREEMENT
In September 1997, the Company advanced $1,500,000 to CTI Properties, Inc.
("CTI Properties"), Carpet Transport, Inc. ("CTI"), and Blue Mack
Transport, Inc., each a subsidiary of Continental American Transportation,
Inc. The note is secured by four parcels of real estate currently owned by
CTI Properties, and is guaranteed by Continental American Transportation,
Inc. ("Continental American") and the former owner of CTI. The note is due
on demand, and interest is due monthly at 16%.
In October 1997, Timely North entered into a marketing agreement with CTI
and Continental American whereby Timely North agreed to employ all of
CTI's employees and to lease and/or sublease all the rolling stock and
terminal facilities from CTI. The marketing agreement was terminated on
July 31, 1998.
F-12
<PAGE> 43
At December 31, 1998 and 1997, the Company has recorded advances to and
receivables from CTI of $1,331,248 and $839,347, respectively, including
accrued interest, in addition to the $1.5 million loan.
Total losses attributable to Timely North and to the termination of the
marketing agreement with CTI for the years ended December 31, 1998 and
1997 were approximately $3.3 million and $1.8 million, respectively.
6. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
LINE OF CREDIT
During 1997, the Company obtained a line of credit agreement (the "New
Agreement") with a bank and retired all amounts outstanding under previous
line of credit agreements. The New Agreement provides for a $9 million
line of credit subject to certain restrictions. Amounts outstanding under
the New Agreement bear interest at .75% above the bank base rate, as
defined (8.75% at December 31, 1998). Interest is payable monthly and the
line matures May 1999. The majority shareholder is a guarantor of the New
Agreement. As of December 31, 1998, the Company has borrowed $6,666,722
under the New Agreement and there was no remaining availability under the
line. The New Agreement provides the bank with a security interest in
substantially all assets of the Company.
Pursuant to the terms of the New Agreement, the Company must satisfy
certain financial covenants therein. As of December 31, 1998, the Company
was in default under several of the nonmonetary covenants. As discussed in
Note 1, the Company has requested waivers from the bank for the
noncompliance and is currently negotiating an extension of the new
agreement.
In December 1998, the maturity date of borrowings under the New Agreement
was extended to May 31, 1999.
LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Notes payable for transportation equipment, bearing interest at 14.5%, with
monthly principal and interest payments totaling $6,623, maturing October
1998 through May 1999 $ 7,750 $ 83,068
Note payable to a bank, bearing interest at 10.85%, with monthly principal
and interest payments of $4,150 through November 2000, secured by
transportation equipment 155,915 186,766
</TABLE>
F-13
<PAGE> 44
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Note payable to a bank, bearing interest at 10.85%, with monthly principal
and interest payments of $10,844, secured by transportation equipment, paid
in full November 1998 $ 0 $ 96,055
Note payable for transportation equipment, bearing interest at 10.43%, with
monthly principal and interest payments of $8,176 through September 2000,
secured by related transportation equipment 154,305 232,207
Note payable for transportation equipment, bearing interest at 11.25%, with
monthly principal and interest payments of $6,662 through February 2001,
secured by related transportation equipment 147,853 207,465
Note payable for transportation equipment, bearing interest at 8.5%, with
monthly principal and interest payments of $1,962 through July 2002,
secured by related transportation equipment 72,518 95,643
Note payable for transportation equipment, bearing interest at 8.32%, with
monthly principal and interest payments of $45,394 through November 2002,
secured by related transportation equipment 1,831,317 2,211,238
Note payable to former shareholder, bearing interest at 8.45%, with weekly
principal and interest payments of $500 through March 2003 93,469 110,814
Note payable to former shareholder, bearing interest at 17.98%, with weekly
principal and interest payments of $500 through December 2004 95,356 103,451
Note payable to a bank, bearing interest at 8.2%, with monthly principal
and interest payments of $22,898 through March 2003, secured by related
transportation equipment 983,718 0
Note payable to a bank, bearing interest at 8.13%, with monthly principal
and interest payments of $11,051 through March 2001, secured by related
transportation equipment 271,851 0
</TABLE>
F-14
<PAGE> 45
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Note payable to a bank, bearing interest at 8.25%, with monthly principal
and interest payments of $5,641 through October 2001, secured by related
transportation equipment $ 162,821 $ 0
9% convertible debentures due December 31, 2000 500,000 0
4,476,873 3,326,707
Less current maturities (1,023,923) (762,822)
Less debt discount (171,750) 0
----------- ----------
$ 3,281,200 $2,563,885
=========== ==========
</TABLE>
Future maturities of long-term debt at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999 $1,023,923
2000 1,664,320
2001 875,204
2002 802,391
2003 111,035
Thereafter 0
----------
Total $4,476,873
==========
</TABLE>
Substantially all of the Company's assets are pledged as security for its
long-term borrowings. The notes payable to the former shareholders are
secured by the shares of Truck-Net previously owned by such shareholders.
CONVERTIBLE DEBENTURES
In December 1998, the Company completed a private placement of $500,000 of
9% convertible debentures (the "Debentures") and warrants for the purchase
of up to 1.1 million shares of the Company's common stock. One million of
the warrants are exercisable at a discount to the market price, as
defined, at the time of exercise and 100,000 are exercisable at $3.50 per
share. The value of the warrants was $176,750 based on the relative value
of the warrants on the date of issue. Of this amount, $171,750 has been
recorded as a discount to the Debentures.
The Debentures contain a feature which allows their conversion into common
stock of the Company at a discount from its market price. As this
conversion feature was "in the money" at the date of issuance, a one-time
charge of $141,403 was made to interest expense to reflect the value of
the conversion feature.
F-15
<PAGE> 46
CAPITAL LEASES
The Company leases transportation and other equipment under capital
leases. Future minimum lease payments for assets under capital leases at
December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999 $ 608,297
2000 551,268
2001 332,781
2002 207,439
2003 14,804
Total minimum lease payments 1,714,589
Less amount representing interest (263,800)
Present value of minimum lease payments 1,450,789
Less current maturities (463,102)
$ 987,687
</TABLE>
At December 31, 1998, the Company had net assets under capital leases of
approximately $1,622,925 included in property and equipment on the
accompanying balance sheet.
7. STOCK-BASED COMPENSATION PLAN
In February 1996, the Company adopted the Professional Transportation
Group Ltd., Inc. 1996 Stock Option Plan for certain employees (the
"Plan"). At December 31, 1998, the Company had reserved 2,000,000 shares
of the Company's common stock for issuance under the Plan. A summary of
options granted under the Plan during 1998, 1997, and 1996 is as follows:
F-16
<PAGE> 47
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS
NUMBER OF PER SHARE VESTED AT
OPTIONS EXERCISE EXPIRATION DECEMBER 31,
GRANTED GRANT DATE VESTING PRICE DATE 1998
------- ---------- ------- ----- ---- ----
<S> <C> <C> <C> <C> <C>
100% in 2001, subject to acceleration upon
750,000 February 1996 the achievement of certain financial goals $0.50 2001 400,000
100% on August 18, 1997 (60 days after
250,000 February 1996 consummation of the Offering) 0.15 2001 250,000
50% on August 18, 1997 (60 days after
consummation of the Offering); 50% on
August 18, 1998 (60 days after the one-year
50,000 February 1996 anniversary of the Offering) 4.00 2001 50,000
250,000 April 1997 20% in 2000 and 80% in 2001 6.00 2007 0
46,177 July 1997 100% on January 3, 1998 2.69 2002 46,117
50,000 November 1997 100% on November 13, 1998 3.69 2002 50,000
4,000 March 1998 100% on September 13, 1998 2.58 2008 4,000
</TABLE>
The following is a summary of stock option information for the Plan:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Options outstanding, beginning of year 1,368,467 1,050,000
Options granted 4,000 346,247
Options exercised (1,160) (20,000)
Options terminated (111,077) (7,780)
--------- ---------
Options outstanding, end of year 1,260,230 1,368,467
========= =========
Options available for grant 599,753 103,753
========= =========
</TABLE>
SFAS NO. 123
During 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which defines a fair value-based method of accounting for
an employee stock option or similar equity instrument and encourages all
entities to adopt that method of accounting for all of their employee
stock compensation plans. However, it also allows an entity to continue to
measure compensation cost for these plans using the method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." Entities electing to remain
with the accounting in APB No. 25 must make pro forma disclosures of net
income and, if presented, earnings per share, as if the fair value-based
method of accounting defined in SFAS No. 123 had been applied.
The Company has elected to account for its stock-based compensation plans
under APB No. 25; however, the Company has computed for pro forma
disclosure purposes the value of all options granted for the years ended
December 31, 1998, 1997, and 1996 using the Black-Scholes option pricing
model as prescribed by SFAS No. 123 using the following weighted average
assumptions:
F-17
<PAGE> 48
<TABLE>
<CAPTION>
Year of Grant/Option Price
------------------------------------------------------------------------
1996
1998 1997 1997 1997 1996 $.15 to
$ 2.58 $ 6.00 $ 3.69 $ 2.69 $ 4.00 $ .50
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Risk-free interest rate 5.54% 6.99% 5.77% 5.95% 6.48% 6.48%
Expected dividend yield 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Expected lives (in years) 1.00 8.00 3.00 2.00 5.00 5.00
Expected volatility 71.00% 42.00% 42.00% 42.00% 35.36% 39.15%
</TABLE>
The total value of options granted for the years ended December 31, 1998,
1997, and 1996 was computed as approximately $7,000, $988,000, and $7,000,
respectively, which would be amortized on a pro forma basis over the
vesting period of the options.
Had compensation cost been determined under SFAS No. 123 utilizing the
assumptions detailed above, the effect on the Company's net income and net
income per common share would have been as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ---------
<S> <C> <C> <C>
Net (loss) income as reported $(3,498,411) $(1,770,300) $184,078
Net (loss) income, including compensation (3,798,934) (1,986,342) 182,678
Net EPS as reported $ (0.90) $ (0.54) $ 0.06
Net EPS, including compensation (0.98) (0.61) 0.06
</TABLE>
8. 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 and losses of these companies were recognized by
the shareholders on their individual tax returns. Truck-Net was a C
corporation for federal and state income tax purposes.
For all periods presented, the accompanying financial statements reflect
provisions for income taxes computed in accordance with the requirements
of SFAS No. 109, "Accounting for Income Taxes." For periods prior to the
Reorganization for those companies with S corporation status, the
provisions have been presented on a pro forma basis as if the Company had
been liable for federal and state income taxes during those periods. The
offsetting amounts to such pro forma income tax provisions are reflected
in shareholders' equity (deficit).
F-18
<PAGE> 49
The significant components of the provision for income taxes are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- -------- --------
<S> <C> <C> <C>
Current provision $0 $121,061 $ 20,000
Deferred provision 0 124,939 117,000
-- -------- --------
Total provision $0 $246,000 $137,000
== ======== ========
</TABLE>
A reconciliation of the (benefit) provision for income taxes at the
statutory federal income tax rate to the Company's tax provision as
reported in the accompanying statements of operations is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- --------- --------
<S> <C> <C> <C>
Federal statutory income tax rate $(1,189,460) $(492,000) $109,200
State income taxes, net of federal benefit (139,936) (56,800) 12,800
Change in tax status 0 246,000 0
Change in valuation allowance 1,281,082 500,807 0
Other 48,314 47,993 15,000
----------- --------- --------
Total provision $ 0 $ 246,000 $137,000
=========== ========= ========
</TABLE>
In connection with the Reorganization, PTG, Ltd. and the Subsidiaries,
which had previously been treated as S corporations for tax purposes, were
converted to C corporations. As a result of this change in tax status, the
Company recorded an increase in its provision for income taxes of
approximately $246,000 for the year ended December 31, 1997 to reflect the
income taxes attributable to those entities which had previously been
exempt from federal income taxation.
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 287,951 $ 74,143
Accrued liabilities 603,226 533,452
Net operating loss carryforwards 1,533,640 383,660
----------- ---------
2,424,817 991,255
Less valuation allowance (1,954,180) (673,098)
----------- ---------
Net deferred tax assets 470,637 318,157
----------- ---------
Deferred tax liabilities:
Depreciation (707,846) (383,660)
Change in tax status 0 (171,706)
----------- ---------
(707,846) (555,366)
----------- ---------
Net deferred tax liability $ (237,209) $(237,209)
=========== =========
</TABLE>
A valuation allowance has been established to offset those deferred tax
assets for which a benefit is not likely to be realized. At December 31,
1998, the Company has approximately
F-19
<PAGE> 50
$4 million of net operating loss carryforwards which will expire beginning
2012 if not utilized.
9. MAJOR CUSTOMERS
The Company's five largest customers accounted for approximately 52%, 65%,
and 66% of revenues for the years ended December 31, 1998, 1997, and 1996,
respectively. Of these customers, two companies accounted for a total of
approximately 42% of net revenues for the year ended December 31, 1998.
The loss of one of these customers would have a material adverse effect on
the Company, its profitability, and its financial condition. The Company's
agreement with FedEx (the Company's largest customer, accounting for
approximately 33% of total revenues in 1998) expires in May 2000, and
there can be no assurance that the agreement will be renewed.
10. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES--UNRELATED PARTIES
The Company leases transportation and office equipment under noncancelable
operating leases with unrelated parties. The expense for noncancelable
operating leases was approximately $4,894,014, $5,814,000, and $2,033,000
for the years ended December 31, 1998, 1997, and 1996, respectively.
Future minimum rental commitments under all noncancelable operating lease
agreements, excluding lease agreements that expire within one year, are as
follows as of December 31, 1998:
<TABLE>
<S> <C>
1999 $ 4,182,493
2000 3,790,366
2001 3,002,007
2002 730,638
2003 13,471
Thereafter 0
-----------
Total $11,718,975
===========
</TABLE>
LEGAL
A lawsuit has been 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. This action was filed by a lessor of
rolling stock to CIT. The complaint alleges generally that Timely North
and the Company are indebted to CIT in an amount to be determined at
trial, but that CIT 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 CIT to receive from Timely
North and the Company the fair rental value of the rolling stock during
the period of that time that Timely
F-20
<PAGE> 51
North used the rolling stock. Timely North and the Company have timely
filed answers to CIT's complaint, and intend to contest the case
vigorously.
An action has been brought against Timely and other defendants in the case
styled The CIT Group/Equipment Financing, Inc. v. Timely Transportation,
Inc. et al. 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 Group its damages. Timely
was not a party to any of the documents under which the plaintiff bases
its cases, has filed 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.
An action was filed against the Company, Timely and Timely North in the
case styled U.S. Bancorp Leasing & Financial v. Timely North Inc., Timely
Transportation Inc. and Professional Transportation Group Ltd., Inc. This
action was filed by a lessor of rolling stock to CTI. The complaint
alleges generally that the Company, Timely and Timely North are indebted
to U.S. Bancorp in an amount to be determined at trial. U.S. Bancorp is
seeking $290,534.50, an amount disputed by the Company. While neither
Timely, Timely North nor the Company has had any contractual relationship
with U.S. Bancorp, U.S. Bancorp asserts in its complaint that the use of
its rolling stock entitles it to receive from Timely, Timely North, and
the Company the fair rental value of the rolling stock during the period
of time that Timely North used the rolling stock. Timely, Timely North,
and the Company have filed answers to U.S. Bancorp's complaint, and intend
to contest the case vigorously.
During 1998, involuntary bankruptcy petitions were filed against
Continental American (the parent Company of CTI) and CTI Properties. The
same trustee in bankruptcy has been appointed for Continental American and
CTI Properties. The trustee has filed an adversary proceeding against the
Company asserting that the Company's first priority security deed (Note 5)
may be avoided as a preference. The Company intends to deny that its first
priority security interest may be avoided as a preference, but even if the
trustee's argument is accepted by the court, the Company has title
insurance on the property as well as the personal guarantee of one of the
owners of the property.
An involuntary bankruptcy petition was also filed in 1998, against CTI.
This action was filed by several parties purporting to be creditors of CTI
and alleges among other things that Timely North or its affiliates had
collected a portion of CTI's receivables, that a representative of the
Company had caused CTI's withholding tax payments to the IRS to be
diverted to Timely North's benefit and that Timely North had sold portions
of CTI's equipment without an accounting for the sales proceeds. A trustee
has been appointed and is investigating these potential claims. The
trustee has also questioned the receipt by the Company of a payment it
received for a consulting and noncompetition agreement. The trustee has
also questioned the fully secured status and priority of the Company's
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 is successful, the Company has title insurance on the
property and a personal guarantee of one of the
F-21
<PAGE> 52
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.
The Company is also subject to various other claims and legal actions
arising in the normal course of business or through its terminated
marketing agreement with CTI.
Management is currently unable to determine the ultimate outcome of the
above legal contingencies.
11. BUSINESS SEGMENT INFORMATION
DESCRIPTION OF THE TYPES OF SERVICES FROM WHICH EACH SEGMENT DERIVES ITS
REVENUES
The Company, through the Subsidiaries, provides transportation and
logistics services primarily for the air freight and carpet industries
throughout the continental United States. Through its Timely subsidiary,
which was formed in 1991, the Company provides time-definite truckload
transportation services for companies in the air freight and expedited
delivery markets as well as the floorcovering industry. Operating both
common carrier and dedicated fleet services for its air freight customers,
Timely moves freight across long and short distances with very precise
schedules for pickups and delivery. The Company has transit times
comparable to those of deferred air freight services. The information
reported for Timely also includes the results of Timely North prior to the
termination of its operations in April 1998. Through its Truck-Net
subsidiary, which was acquired in 1991, the Company operates as a broker
of truckload services to the air freight industry. Since many air cargo
carriers and air freight forwarders do not own trucks, they rely upon
third-party carriers for ground transportation services. In addition, the
Company has a third segment, PTG, Inc., which mainly consists of a
courier/delivery service known as Rapid Transit that operates in the
Atlanta, Georgia metropolitan area. This service retrieves copiers, fax
machines, and telephone equipment that are in need of repair or coming off
lease and returns such items to the manufacturer.
MEASUREMENT OF SEGMENT PROFIT OF LOSS AND SEGMENT ASSETS
The Company evaluates the performance of each segment separately and
consolidates the individual results on a quarterly basis, eliminating
intercompany sales. The accounting policies of the reportable segments are
the same as described in the summary of significant accounting policies.
FACTORS MANAGEMENT USED TO IDENTIFY THE COMPANY'S REPORTABLE SEGMENTS
The reportable segments are subsidiaries of the Company that operate in
distinctly separate industries and are managed separately.
F-22
<PAGE> 53
The following table summarizes revenues, operating income, total assets,
and expenditures for long-lived assets by business segment for fiscal
years 1998, 1997, and 1996:
<TABLE>
<CAPTION>
TIMELY
AND TIMELY
NORTH TRUCK-NET PTG, INC. TOTAL
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1998:
Revenue $48,285,457 $8,067,800 $ 583,727 $56,936,984
Segment income (loss) (2,603,047) 353,855 (121,402) (2,370,594)
Depreciation 869,015 1,612 37,759 908,386
Segment assets 8,777,598 2,336,421 (204,578) 10,909,441
1997:
Revenue 34,270,824 8,959,413 902,476 44,132,713
Segment income (loss) (1,476,422) 407,491 (88,181) (1,157,112)
Depreciation 345,228 945 37,481 383,654
Segment assets 10,648,856 2,450,837 (62,171) 13,037,522
1996:
Revenue 14,533,258 6,639,382 1,097,831 22,270,471
Segment income 71,918 262,235 148,925 483,078
Depreciation 235,416 208 6,417 242,041
</TABLE>
The following table reconciles segment revenues to consolidated revenues
for the years ended December 31, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Total revenues for reportable segments $56,936,984 $44,132,713 $22,270,471
Intercompany eliminations (1,870,035) (1,067,970) (1,098,270)
Total consolidated revenues $55,066,949 $43,064,743 $21,172,201
</TABLE>
The following table reconciles segment profit to consolidated income for
the years ended December 31, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Total segment income (loss) for reportable segments $(2,370,594) $(1,157,112) $ 483,078
Unallocated interest, net (350,823) (55,711) 0
Unallocated salaries, wages, and benefits (507,319) (323,476) (137,000)
Provision for income taxes 0 (246,000) (120,000)
Other unallocated amounts (269,675) 11,999 (42,000)
----------- ----------- ---------
Total consolidated (loss) income $(3,498,411) $(1,770,300) $ 184,078
=========== =========== =========
</TABLE>
F-23
<PAGE> 54
The following table reconciles segment assets to consolidated total assets
for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Total assets for reportable segments $10,909,441 $13,037,522
Cash 1,003,783 1,422,732
Due from shareholder 577,197 577,197
Note receivable 2,831,248 2,339,347
Intercompany eliminations 3,971,951 3,370,608
Other unallocated assets 525,099 702,401
----------- -----------
Total consolidated assets $19,818,719 $21,449,807
=========== ===========
</TABLE>
F-24
<PAGE> 55
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Professional Transportation Group Ltd., Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in PROFESSIONAL TRANSPORTATION GROUP
LTD., INC.'S 1998 annual report to stockholders and this Form 10-K, and have
issued our report thereon dated March 26, 1999. Our report contains an
explanatory paragraph which makes reference to uncertainties regarding the
Company's ability to continue as a going concern. Our audit was made for the
purpose of forming an opinion on those financial statements taken as a whole.
The schedule listed in Item 14 of this Form 10-K is the responsibility of the
Company's management, is presented for purposes of complying with the Securities
and Exchange Commission's rules, and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Atlanta, Georgia
March 26, 1999
S-1
<PAGE> 56
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
CLASSIFICATION OF PERIOD EXPENSES DEDUCTIONS OF YEAR
- ------------------------------------------------------ -------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
FOR THE YEAR ENDED:
December 31, 1998 $267,578 $512,000 $ (21,813)(a) $757,765
December 31, 1997 63,629 242,829 (38,880)(a) 267,578
December 31, 1996 272,429 16,485 (225,285)(a) 63,629
</TABLE>
(a) Write-off of uncollectible accounts.
S-2
<PAGE> 57
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1 Amended and Restated Articles of Incorporation of the Company
(incorporated by references to Exhibit 3.1 of the Company's
Registration Statement on Form SB-2, No. 333-24619 (the "Registration
Statement"))
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the
Registration Statement)
4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit
4.1 of the Registration Statement
4.2 Specimen Redeemable Warrant Certificate (incorporated by reference to
Exhibit 4.2 of the Registration Statement)
10.1 Professional Transportation Group Ltd., Inc. 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.1 of the Registration
Statement)*
10.2 Employment Agreement by and between the Company and Dennis A. Bakal,
dated April 1, 1997 (incorporated by reference to Exhibit 10.2 of the
Registration Statement)*
10.3 Employment Agreement by and between the Company and Linda K. Roberts,
dated April 1, 1997 (incorporated by reference to Exhibit 10.3 of the
Registration Statement)*
10.4 Employment Agreement by and between the Company and William M. Kelly,
dated April 1, 1997 (incorporated by reference to Exhibit 10.4 of the
Registration Statement)*
10.5 Employment Agreement by and between the Company and Stanley E. Laiken,
dated April 1, 1997 (incorporated by reference to Exhibit 10.5 of the
Registration Statement)*
10.6 Form of Director's Indemnification Agreement entered into by and
between the Company and each of its directors (incorporated by
reference to Exhibit 10.6 of the Registration Statement)*
10.7 Transportation Agreement, dated November 19, 1995, between Timely
Transportation, Inc. and Federal Express Corporation (incorporated by
reference to Exhibit 10.7 of the Registration Statement)+
10.8 OmniTRACS Contract, dated May 8, 1995, by and between Timely
Transportation, Inc. and QUALCOMM Inc. (incorporated by reference to
Exhibit 10.8 of the Registration Statement)
10.9 Amendment No. 1 to OmniTRACS Contract, dated June 23, 1995, by and
between Timely Transportation, Inc. and QUALCOMM Inc. (incorporated by
reference to Exhibit 10.9 of the Registration Statement)
10.10 OmniTRACS Finance Lease, dated June 23, 1995, by and between Timely
Transportation, Inc. and QUALCOMM Inc. (incorporated by reference to
Exhibit 10.10 of the Registration Statement)
</TABLE>
<PAGE> 58
<TABLE>
<S> <C>
10.11 Sublease, dated January 1, 1997, by and between the Company and
Professional Sales Group, Ltd. (incorporated by reference to Exhibit
10.11 of the Registration Statement)
10.12 Amended and Restated Commercial Loan Agreement, dated March 2,1998, by
and between the Company, Timely Transportation, Inc., Truck-Net, Inc.,
PTG, Inc., Timely North, Inc. and SouthTrust Bank, N.A. (incorporated
by reference to Exhibit 10.1 of the Company's current report on Form
8-K, date of report March 2, 1998 (the "March 8-K"))
10.13 Amended, Restated and Consolidated Commercial Revolving Note, dated
March 2, 1998, by and between the Company, Timely North, Inc., and
SouthTrust Bank, N.A. (incorporated by reference to Exhibit 10.2 of the
March 8-K)
10.14 Commercial Revolving Note, dated November 19, 1997, by and between the
Company and SouthTrust Bank, N.A., in the original principal amount of
$3.7 million (incorporated by reference to Exhibit 10.3 of the
Company's current report on Form 8-K, date of report November 19, 1997
(the "November 8-K"))
10.15 Amended and Restated General Security Agreement, dated November 19,
1997, by and among the Company, Truck-Net, Inc., Timely Transportation,
Inc., PTG, Inc., Timely North, Inc. and SouthTrust Bank, N.A.
(incorporated by reference to Exhibit 10.5 of the November 8-K)
10.16 Reaffirmation of Guaranty, dated March 2, 1998, by and among the
Company, Truck-Net,, Inc., Timely Transportation, Inc., PTG, Inc.,
Dennis A. Bakal and SouthTrust Bank, N.A. (incorporated by reference to
Exhibit 10.3 of the March 8-K)
10.17 Reaffirmation of Guaranty, dated March 2, 1998, by and among Truck-Net,
Inc., Timely Transportation, Inc., PTG, Inc., Timely North, Inc.,
Dennis A. Bakal and SouthTrust Bank, N.A. (incorporated by reference to
Exhibit 10.4 of the March 8-K)
10.18 Transportation Service Agreement, dated February 6, 1997, between the
Company and Panalpina, Inc. (incorporated by reference to Exhibit 10.16
of the Registration Statement)
10.19 Service Agreement, dated February 1, 1997, between the Company and
T.T.C. Illinois, Inc. (incorporated by reference to Exhibit 10.17 of
the Registration Statement)
10.20 Consulting and Non-Competition Agreement, dated March 27, 1998, between
Timely North, Inc. and CSI/Crown, Inc. (incorporated by reference to
Exhibit 10.20 of the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1997, File No. 000-22571 (the "1997 10-K")+
10.21 First Amendment to the Professional Transportation Group Ltd., Inc.
1996 Stock Option Plan (incorporated by reference to Exhibit A of the
Company's proxy statement on Schedule 14A for its 1998 annual meeting
of shareholders (the "1998 Proxy Statement"), File No. 000-22571)*
10.22 Professional Transportation Group Ltd., Inc. 1998 Director Stock Option
Plan (incorporated by reference to Exhibit 4.3 of the Company's
registration statement on Form S-8, File No. 333-57937)*
10.23 Professional Transportation Group Ltd., Inc. 1998 Employee Stock
Purchase Plan (incorporated by reference to Exhibit B of the 1998 Proxy
Statement)*
</TABLE>
<PAGE> 59
<TABLE>
<S> <C>
10.24 First Amendment to the Professional Transportation Group Ltd., Inc.
1998 Employee Stock Purchase Plan*
10.25 Debenture and Warrant Purchase Agreement (incorporated by reference to
the Company's current report on Form 8-K, date of report January 4,
1999)
10.26 Loan Documents Modification Agreement, dated as of December 31, 1998,
by and between the Company, Timely North, Inc. and SouthTrust Bank,
N.A.
13.1 Portions of the Company's 1998 Annual Report to Shareholders
21.1 Subsidiaries of the Company (incorporated by reference to Exhibit 21.1
of the 1997 10-K)
23.1 Consent of Arthur Andersen LLP
24.1 Power of Attorney (contained on the signature page of this filing)
27.1 Financial Data Schedule (for Commission purposes only)
</TABLE>
- ---------------
+ Confidential treatment previously granted for portions of such exhibit.
* This agreement is a compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c).
<PAGE> 1
Exhibit 10.24
FIRST AMENDMENT TO THE
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
WHEREAS, the Board of Directors of Professional Transportation Group
Ltd., Inc., a Georgia corporation (the "Company"), adopted the Professional
Transportation Group Ltd., Inc. 1998 Employee Stock Purchase Plan (the "Purchase
Plan"), on March 13, 1998, and recommended that it be approved by the
shareholders; and
WHEREAS, the shareholders adopted the Purchase Plan at a meeting duly
called for such purpose on May 22, 1998; and
WHEREAS, the purpose of the Purchase Plan is to advance the interests
of the Company, its subsidiaries and its shareholders by affording the employee
of the Company an opportunity to acquire or increase their proprietary interests
in the Company; and
WHEREAS, on December 21, 1998, the Board of Directors approved the
following amendments to the Purchase Plan;
NOW, THEREFORE, the Purchase Plan is hereby amended as follows:
1. Defined Terms. Initially capitalized terms used in this
Amendment,
which are not otherwise defined by this Amendment, are used with the
same meaning ascribed to such terms in the Purchase Plan.
2. Amendments.
a. The first sentence of Section 2(q) of the Purchase
Plan is amended to read as follows:
"Offering Period" shall mean each three month period
commencing January 1, April 1, July 1 and October 1 and ending
on March 31, June 30, September 31, and December 31,
respectively, during the term of the Plan, and except that the
Committee shall have the period to change the duration of the
Offering Periods; however, no option granted under the Plan
shall be exercisable more than twenty-seven (27) months from
its date of grant.
3. Effectiveness. This Amendment shall become effective
on the date provided below.
4. Approval. Except as hereinabove amended and modified,
the Purchase Plan is approved, ratified and affirmed without further
modification or amendment.
IN WITNESS WHEREOF, the Company has caused this Amendment to be
executed as of December 21, 1998, in accordance with the authority provided by
the Board of Directors.
PROFESSIONAL TRANSPORTATION GROUP
LTD., INC.
By: /s/ Dennis A. Bakal
-----------------------------------------
Name: Dennis A. Bakal
Title: Chief Executive Officer
<PAGE> 1
Exhibit 10.26
LOAN DOCUMENTS MODIFICATION AGREEMENT
(December 31, 1998)
THIS LOAN DOCUMENTS MODIFICATION AGREEMENT (hereinafter referred to as
this "Amendment") is made and entered into as of the 31st day of December, 1998,
by and among PROFESSIONAL TRANSPORTATION GROUP LTD., INC., a Georgia
corporation, and TIMELY NORTH, INC., a Georgia corporation (hereinafter
collectively referred to as "Borrower"), TRUCK-NET, INC., a Georgia corporation,
TIMELY TRANSPORTATION, INC., a Georgia corporation, PTG, INC., a Georgia
corporation, and DENNIS A. BAKAL, a Georgia resident (hereinafter collectively
referred to as "Guarantors"), and SOUTHTRUST BANK, N.A., a national banking
association (hereinafter referred to as "Lender").
BACKGROUND STATEMENT
Borrower and Lender are parties to that certain Amended, Restated and
Consolidated Commercial Revolving Note dated March 2, 1998, in the original
principal amount of $9,000,000.00 (hereinafter referred to as the "Note", and
the loan evidenced thereby as the "Loan"). The Note is secured by (a) that
certain Amended and Restated General Security Agreement from Borrower and
Guarantors, as "Debtor" therein, to Lender, as "Secured Party" therein, dated
November 19, 1997 (hereinafter referred to as the "Security Agreement"), and (b)
all of the "Loan Documents," as that term is defined in that certain Amended and
Restated Commercial Loan Agreement dated March 2, 1998 (hereinafter referred to
as the "Loan Agreement"). Certain payment and performance obligations of
Borrower provided for in the Note, the Security Agreement, and the other Loan
Documents are guaranteed by Guarantors pursuant to separate Guaranty of Payment
and Performance, each dated November 19, 1997 (hereinafter each referred to as a
"Guaranty"). The Loan Documents have previously been amended pursuant to that
certain Loan Documents Modification Agreement dated June 30, 1998, that certain
Loan Documents Modification Agreement dated September 15, 1998, and that certain
Loan Documents Modification Agreement dated October 31, 1998. Borrower and
Lender have agreed to amend the Note and all of the other Loan Documents,
Guarantors have each agreed to reaffirm their Guaranty, and the parties hereto
are entering into this Amendment to evidence their agreements.
AGREEMENT
FOR AND IN CONSIDERATION of the sum of Ten and No/100 Dollars ($10.00),
the foregoing recitals, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Borrower, Guarantors and
Lender do hereby agree as follows:
1. LOAN BALANCE. The foregoing recitals are true and correct and
are incorporated herein by reference. Borrower and Lender acknowledge and agree
that as of December 31, 1998, the outstanding principal balance of the Note is
Six Million Six Hundred Seventy-Six Thousand Two Hundred Eighty-Eight and 93/100
Dollars ($6,676,288.93).
2. MODIFICATION OF NOTE. The terms of the Note are hereby
modified and amended, effective as December 31, 1998, by deleting the principal
and interest payment schedule set forth in the Note in the paragraph titled
"Payment Schedule" and replacing it with the following:
<PAGE> 2
"PAYMENT SCHEDULE. Principal and interest shall be due and
payable as follows: Interest only on the outstanding principal
amount shall be due and payable monthly, in arrears, beginning
on April 1, 1998, and continuing on the first day of each
month thereafter until maturity. On May 31, 1999, all unpaid
principal, plus accrued and unpaid interest, shall be due and
payable in full."
The purpose of this modification is to extend the maturity date of the Loan to
May 31, 1999.
3. RATIFICATION; EXPENSES. Except as herein expressly modified or
amended, all the terms and conditions of the Note are hereby ratified, affirmed,
and approved. In consideration of Lender agreeing to extend the maturity date of
the Note, Borrower agrees to pay all fees and expenses incurred in connection
with this Amendment.
4. MODIFICATION OF LOAN DOCUMENTS. (a) As of the date hereof,
Borrower and Guarantors hereby reaffirm and restate each and every warranty and
representation set forth in the Loan Documents. The terms of the Loan Documents
are hereby modified and amended, effective as of the date hereof, so that any
reference in any of the Loan Documents (including, without limitation, the Loan
Agreement) to the Note shall refer to the Note as herein amended.
(b) The Loan Agreement is further modified and amended, effective
as of the date hereof, as follows:
(i) The definition of "Eligible Accounts" set forth in
paragraph 1 of the Agreement is amended by adding to the end thereof
the following:
"Notwithstanding any other provision of this
Agreement to the contrary, Eligible Accounts shall
not include accounts shown on any Borrowing Base
Certificate delivered on or after February 2, 1999 as
"To Be Invoiced" where the account to be invoiced
results from a transaction occurring more than ninety
(90) days prior to the date of the Borrowing Base
Certificate on which it is shown."
(ii) Paragraph 9 of the Agreement is deleted in its
entirety and replaced with the following:
"9. FINANCIAL COVENANTS. Borrower covenants and
agrees that from and after the date hereof, and so
long as the Obligations remain unpaid or this
Agreement remains in effect, that:
(a) Borrower's Tangible Net Worth, as shown on
its financial statements for the period ended
September 30, 1998, shall equal or exceed One Million
Three Hundred Fifty Thousand and No/100 Dollars
($1,350,000.00) and shall increase by seventy-five
percent (75%) of net income and one hundred percent
(100%) of the amount of any Borrower-issued
debentures converted to stock measured at the end of
each fiscal quarter commencing December 31, 1998.
-2-
<PAGE> 3
(b) The ratio of Borrower's total liabilities to
its Tangible Net Worth shall be less than 14.0 : 1.0,
measured at the end of the fiscal quarters ending
September 30, 1998 and December 31, 1998, and shall
be less than 12.0 : 1.0, measured at the end of each
fiscal quarter commencing March 31, 1999.
(c) Borrower's Fixed Charge Coverage shall be
greater than 1.15 : 1.0, measured at the end of each
fiscal quarter commencing December 31, 1998 and
calculated for the four (4) fiscal quarters then
ended.
(d) Borrower shall have a fiscal year to date
cumulative net profit, measured at December 31, 1998
and at each fiscal quarter end thereafter.
(e) The ratio of Borrower's current assets to
its current liabilities shall not be less than
1.2:1.0, as of the end of any fiscal quarter of
Borrower commencing December 31, 1998.
(f) Borrower shall pay Lender a fee of $2,500.00
for each month that Borrower reports, on a
consolidated basis, a year-to-date loss."
(iii) Paragraph 6(a) of the Agreement is amended by adding
"(except Timely North, Inc.)" after the word "Obligor" on the first
line thereof. The purpose of this amendment is to acknowledge that as
of the date hereof Timely North, Inc. is not in good standing under the
laws of the State of Georgia.
(c) Paragraph 4(c) of the Security Agreement provides Lender with
the right to require Borrower to notify all account debtors or obligors on all
"Accounts" that all payments are to be made directly to Lender's "lockbox," as
therein defined. The Security Agreement further provides that "Upon request of
Secured Party, Debtor agrees immediately to notify any or all account debtors
and obligors to make payment directly to Secured Party or to such lockbox and to
place Secured Party's or such lockbox's address on Debtor's invoices and
statements as the address to which payment should be made." Lender hereby
exercises that right and requests that such notification be given to all account
debtors, so that effective as of February 28, 1999, all payments on Accounts
shall be made to Lender's designated lockbox.
(d) The notice address for Borrower in each Loan Document is
amended to read as follows:
495 Lovers Lane Road
Calhoun, Georgia 30701
5. DEPOSIT OF DEBENTURE PROCEEDS. Borrower acknowledges and agree
that all proceeds received by Borrower or any Guarantor from the sale of any
corporate debentures issued by Borrower or any Guarantor shall be deposited in
Federated Investors Account No. 581915632, by and through SouthTrust Securities,
Inc. Account No. 14636054 (collectively, the "Account"), which Account has
previously been assigned to Lender by Borrower pursuant to that certain
Assignment of Bank Account and Security Agreement dated September
-3-
<PAGE> 4
4, 1998. This includes, without limitation, any proceeds received from the sale
of Professional Transportation Group, Ltd., Inc. 9% Convertible Debenture Due
December 31, 2000, No. A-1, in the amount of $250,000.00, sold to John P.
O'Shea, and Professional Transportation Group, Ltd., Inc. 9% Convertible
Debenture Due December 31, 2000, No. A-2, in the amount of $250,000.00, sold to
AMRO International, S.A.
6. GUARANTOR'S REAFFIRMATION. The undersigned Guarantors hereby
ratify, confirm, reaffirm and covenant that the Guaranty which they have
executed is validly existing and binding against them under the terms of such
Guaranty. Guarantors hereby reaffirm and restate, as of the date hereof, all
covenants, representations and warranties set forth in the Guaranty.
7. NO DEFENSES; RELEASE. For purposes of this Paragraph 7, the
terms "Borrower Parties" and "Lender Parties" shall mean and include Borrower
and Guarantors, and Lender, respectively, and each of their respective
predecessors, successors and assigns, and each past and present, direct and
indirect, parent, subsidiary and affiliated entity of each of the foregoing, and
each past and present employee, agent, attorney-in-fact, attorney-at-law,
representative, officer, director, shareholder, partner and joint venturer of
each of the foregoing, and each heir, executor, administrator, successor and
assign of each of the foregoing; references in this paragraph to "any" of such
parties shall be deemed to mean "any one or more" of such parties; and
references in this sentence to "each of the foregoing" shall mean and refer
cumulatively to each party referred to in this sentence up to the point of such
reference. Borrower hereby acknowledges, represents and agrees: that Borrower
has no defenses, setoffs, claims, counterclaims or causes of action of any kind
or nature whatsoever with respect to the Note and the other Loan Documents or
the indebtedness evidenced and secured thereby, or with respect to any other
documents or instruments now or heretofore evidencing, securing or in any way
relating to the Loan, or with respect to the administration or funding of the
Loan, or with respect to any other transaction, matter or occurrence between any
of the Borrower Parties and any Lender Parties or with respect to any acts or
omissions of any Lender Parties (all of said defenses, setoffs, claims,
counterclaims or causes of action being hereinafter referred to as "Loan Related
Claims"); that, to the extent that Borrower may be deemed to have any Loan
Related Claims, Borrower does hereby expressly waive, release and relinquish any
and all such Loan Related Claims, whether or not known to or suspected by
Borrower; that Borrower shall not institute or cause to be instituted any legal
action or proceeding of any kind based upon any Loan Related Claims; and that
Borrower shall indemnify, hold harmless and defend all Lender Parties from and
against any and all Loan Related Claims and any and all losses, damages,
liabilities, costs and expenses suffered or incurred by any Lender Parties as a
result of any assertion or allegation by any Borrower Parties of any Loan
Related Claims or as a result of any legal action related thereto. Borrower
hereby reaffirms and restates, as of the date hereof, all covenants,
representations and warranties set forth in the Loan Documents.
8. NO NOVATION. Borrower and Lender hereby acknowledge and agree
that this Amendment shall not constitute a novation of the indebtedness
evidenced by the Loan Documents, and further that the terms and provisions of
the Loan Documents shall remain valid and in full force and effect except as may
be hereinabove modified and amended.
9. NO WAIVER OR IMPLICATION. Borrower hereby agrees that nothing
herein shall constitute a waiver by Lender of any default, whether known or
unknown, which may exist
-4-
<PAGE> 5
under the Note or any other Loan Document. Borrower hereby further agrees that
no action, inaction or agreement by Lender, including, without limitation, any
extension, indulgence, waiver, consent or agreement of modification which may
have occurred or have been granted or entered into (or which may be occurring or
be granted or entered into hereunder or otherwise) with respect to nonpayment of
the Loan or any portion thereof, or with respect to matters involving security
for the Loan, or with respect to any other matter relating to the Loan, shall
require or imply any future extension, indulgence, waiver, consent or agreement
by Lender. Borrower hereby acknowledges and agrees that Lender has made no
agreement, and is in no way obligated, to grant any future extension,
indulgence, waiver or consent with respect to the Loan or any matter relating to
the Loan.
10. NO RELEASE OF COLLATERAL. Borrower further acknowledge and
agree that this Agreement shall in no way occasion a release of any collateral
held by Lender as security to or for the Loan, and that all collateral held by
Lender as security to or for the Loan shall continue to secure the Loan.
11. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon
and inure to the benefit of Borrower, Guarantors and Lender and their respective
heirs, successors and assigns, whether voluntary by act of the parties or
involuntary by operation of law.
12. AUTHORITY. By executing this Amendment as hereinafter
provided, Dennis A. Bakal hereby certifies that he is the President of each
Borrower and is duly authorized to execute this Amendment on behalf of each
Borrower.
IN WITNESS WHEREOF, this Amendment has been duly executed under seal by
Borrower, Guarantors and Lender, as of the day and year first above written.
BORROWER:
PROFESSIONAL TRANSPORTATION GROUP LTD.,
INC., a Georgia corporation
By: /s/ Dennis A. Bakal
-----------------------------------------
Dennis A. Bakal, President
[CORPORATE SEAL]
TIMELY NORTH, INC., a Georgia corporation
By: /s/ Dennis A. Bakal
-----------------------------------------
Dennis A. Bakal, President
[CORPORATE SEAL]
-5-
<PAGE> 6
GUARANTORS:
TRUCK-NET, INC., a Georgia corporation
By: /s/ Dennis A. Bakal
-----------------------------------------
Dennis A. Bakal, President
[CORPORATE SEAL]
TIMELY TRANSPORTATION, INC.,
a Georgia corporation
By: /s/ Dennis A. Bakal
-----------------------------------------
Dennis A. Bakal, President
[CORPORATE SEAL]
PTG, INC., a Georgia corporation
By: /s/ Dennis A. Bakal
-----------------------------------------
Dennis A. Bakal, President
[CORPORATE SEAL]
/s/ Dennis A. Bakal (SEAL)
--------------------------------------------
DENNIS A. BAKAL
LENDER:
SOUTHTRUST BANK, N.A.,
a national banking association
By: /s/ Barbara A. Gewert
-----------------------------------------
Barbara A. Gewert
Vice President
-6-
<PAGE> 1
Exhibit 13.1
<TABLE>
<CAPTION>
OFFICERS AND DIRECTORS CORPORATE INFORMATION
- ---------------------- ---------------------
<S> <C>
DENNIS A. BAKAL CORPORATE OFFICE
Chairman of the Board, 495 Lovers Lane Road
President and Chief Executive Officer Calhoun, Georgia 30701
888/999-1964
LINDA K. ROBERTS
Vice President/Administration, REGISTRAR AND TRANSFER AGENT
Secretary and Director Reliance Trust Company
3384 Peachtree Road, N.E.
SUSAN P. DIAL Suite 900
Chief Financial Officer Atlanta, Georgia 30326
WILLIAM M. KELLY INDEPENDENT AUDITORS
Vice President/Transportation Arthur Andersen LLP
Atlanta, Georgia
STANLEY E. LAIKEN
Vice President/Sales GENERAL COUNSEL
Nelson Mullins Riley & Scarborough, LLP
ROBERT E. ALTENBACH First Union Plaza
Director 999 Peachtree Street, N.E.
Suite 1400
GREGORY G. HARDWICK Atlanta, Georgia 30309
Director
ANNUAL SHAREHOLDERS' MEETING
The annual meeting of shareholders will be
held on Friday, May 21, 1999, at 10:00 a.m.
local time at the offices of Nelson Mullins
Riley & Scarborough, L.L.P., First Union
Plaza, 999 Peachtree Street, N.E., Suite
1400, Atlanta, Georgia 30309
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated March 26, 1999, included in this Form 10-K, into
the Company's previously filed Registration Statement File Nos. 333-70985,
333-57937, and 333-34821.
/s/ Arthur Andersen LLP
Atlanta, Georgia
April 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PROFESSIONAL
TRANSPORTATION GROUP LTD INC'S FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER
31, 1998, SET FORTH IN THE ACCOMPANYING FORM 10-K AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.0
<CASH> 1,003,783
<SECURITIES> 0
<RECEIVABLES> 7,391,497
<ALLOWANCES> 757,765
<INVENTORY> 0
<CURRENT-ASSETS> 9,889,564
<PP&E> 8,686,974
<DEPRECIATION> (1,746,914)
<TOTAL-ASSETS> 19,818,719
<CURRENT-LIABILITIES> 14,454,114
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 858,509
<TOTAL-LIABILITY-AND-EQUITY> 19,818,719
<SALES> 55,066,949
<TOTAL-REVENUES> 55,066,949
<CGS> 0
<TOTAL-COSTS> 55,878,673
<OTHER-EXPENSES> (1,386,346)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,300,341)
<INCOME-PRETAX> (3,498,411)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,498,411)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,498,411)
<EPS-PRIMARY> (.90)
<EPS-DILUTED> (.90)
</TABLE>
