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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, 1999 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.)
1950 Spectrum Circle, Suite B-100, Marietta, Georgia 30067
(Address of Principal Executive Offices) (Zip Code)
(Issuer's Telephone Number, Including Area Code): (678) 264-0400
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 [ ]
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, 2000, as reported on the Nasdaq Stock Market's SmallCap
Market, was approximately $17.6 million. As of April 12, 2000, the Registrant
had outstanding 6,930,626 shares of Common Stock and 1,437,500 Redeemable Common
Stock Purchase Warrants.
DOCUMENTS INCORPORATED BY REFERENCE
Certain exhibits have been incorporated by reference in Part IV of this Form
10-K.
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INDEX TO FORM 10-K
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Page
PART I
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Item 1. Business........................................................................................3
Item 2. Properties.....................................................................................15
Item 3. Legal Proceedings..............................................................................15
Item 4. Submission of Matters to a Vote of Security Holders............................................15
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..........................15
Item 6. Selected Consolidated Financial Data...........................................................17
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..........18
Item 7a. Quantitative and Qualitative Disclosures About Market Risk.....................................23
Item 8. Financial Statements and Supplementary Data....................................................23
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.........................................................................27
Item 12. Security Ownership of Certain Beneficial Owners and Management.................................29
Item 13. Certain Relationships and Related Transactions.................................................30
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................32
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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, 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 Chief Executive Officer
and President. The Company serves as a holding company for its two operating
subsidiaries: Timely Transportation, Inc. ("Timely") and Truck-Net, Inc.
("Truck-Net"). For the year ended December 31, 1999, Timely accounted for
approximately $34.5 million or 84% of the Company's revenues and Truck-Net
accounted for approximately $6.3 million or 15% of the Company's revenues.
The Company's consolidated revenues decreased by 25% from 1998 to 1999.
The Company attributes this decrease to a reduction in revenues generated from
the carpet industry in that the Company did not operate this portion of its
business in 1999 as well as the inclusion of revenues from the Company's Timely
North subsidiary during 1998 which were not included in 1999. Management
believes that revenues will increase in future periods, 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.
On December 3, 1999, the Company's majority shareholder, Chief
Executive Officer, President and director, Dennis A. Bakal, entered into an
agreement with Logistics Management, L.L.C., a Kentucky limited liability
company ("Logistics"), under which Mr. Bakal sold to Logistics all 2.5 million
shares of common stock owned by him. At the time, the purchase
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comprises approximately 56% of the outstanding voting shares of the Company. The
purchase price for the shares was $3 million and included a $500,000 loan to Mr.
Bakal, which by the terms of the agreement Mr. Bakal contributed to the Company
as a capital contribution. Logistics is a controlling shareholder in U.S.
Trucking, Inc. (OTC: USTK).
INDUSTRY
The Company's main businesses, Timely and Truck-Net, operate in the
expedited, time-definite truckload market and target a customer base in the air
cargo industry. The total U.S. expedited air cargo market is expected to
generate $82.4 billion in revenue in 2000, a 5.7% increase over 1999 levels.
This segment will lead the domestic air market. About 60% of all shipments will
move as deferred package shipments, an 8.6% gain from 1999. Carriers serving the
U.S. expedited air cargo market will carry approximately 223 billion pounds of
freight in 2000, a 2.4% increase from 1999.
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
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its services to the large carpet 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, 1999, Timely operated approximately 200
Company-owned or leased tractors and used 30 owner-operators that may provide
one or more pieces of operating equipment. Timely agents operated 45 tractors as
of December 31, 1999. 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, 1999,
approximately 65% 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 600 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.
AGENCY AND BUSINESS-TO-BUSINESS PROGRAMS
Since its inception in April 1999, the Company has operated an agency
program and expects to continue to develop this program through its wholly-owned
subsidiary, Timely Services, Inc., which was organized in January 2000. The
Company's agency program is essentially a cooperative for smaller,
time-definite, expedited truckload carriers whereby the Company permits these
carriers to operate under the Company's authority as agent. The agent provides
its customers and business. The Company bills the agent carrier's customers and
collects the revenues for these shipments. The Company in substance acts as an
application service provider ("ASP") for its agents by affording the agents
access to the Company's web-enabled application software and global positioning
technologies. In addition, the agents receive economies of scale by
participating in the purchase of certain overhead and other items, such as
maintenance and fuel. We also provide the agent with liability insurance
coverage and certain administrative services such as human resource
administration, safety and risk management, Department of Transportation
compliance, billing and collecting receivables. By freeing the agents from
administrative tasks, they are able to focus on growing their businesses. Since
its
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inception in April 1999, the Company has signed seven agents that have
approximately $14 million in annual revenue.
The Company intends to exploit its existing and developing technology
to enhance not only its agency program but also to develop a business-to
business ("B2B") load-booking, load sharing, and third-party logistics ("3PL")
enterprises. The Company announced on April 6, 2000 its TranzPartners.com
subsidiary, a B2B cost savings and load sharing Web site for the trucking and
3PL industries.
Long since web-enabled, the Company has implemented and offered to its
customers detailed load booking and truck position mapping programs; therefore
the centralized database is a perfect ingression for partner exchange of load
and truck availability. This database of information will allow partners
improved utilization and cost reductions. Unlike other co-ops, the Company is
encouraging asset as well as non-asset based partners as this will afford a full
complement of logistics and supply chain companies to come together for the
benefit of all. The TranzPartners.com site is expected to be complete on or
about May 15, 2000.
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 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 in May 2000. The Company is currently in negotiations with regarding
a renewal of this agreement. The Company expects to announce this renewal in the
very near future. 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. There can be no assurance, that the
Company's agreement with Fedex will be renewed.
For the year ended December 31, 1999, the Company's five largest
customers accounted for approximately 70% of the Company's consolidated
revenues. Of these five customers, FedEx accounted for approximately 41% of the
revenues generated during the year ended December 31,
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1999. No other customer accounted for more than 10% of the Company's
consolidated revenues during the year ended December 31, 1999. The loss of FedEx
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, 1999, the Company operated a modern fleet of approximately 230 tractors with
an average age of less than two 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.
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 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, 1999, the Company operated a fleet of
approximately 500 trailers, of which approximately 23% 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.
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DRIVERS AND EMPLOYEES
Beginning in 1995, the Company faced increasing costs of workers'
compensation insurance and related items. To address this problem the Company
has 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 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, 1999, the Company employed 304 persons, 228 of whom
were drivers; five were in sales and customer service; 42 were in operations;
one was in maintenance and 28 were in administration and management. The Company
also had contracted with 30 independent contractors as of December 31, 1999, 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, 1999, the Company utilized 30 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
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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 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.
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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.
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. With the rise in
fuel prices during the course of 1999, the Company instituted a fuel surcharge
to its customers in September 1999. The surcharge was determined weekly by the
ICC fuel survey as reported by the ICC and published at "www.EIA.DOE.gov."
Although fuel price increases were 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 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 has
received a favorable reaction from its customers regarding the surcharge and the
fuel index indicates fuel prices are stabilizing and coming down from the high
levels experienced during the fall of 1999.
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.
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PROPERTIES
The Company's principal offices and corporate headquarters are located
in approximately 12,580 square feet of office space in Marietta, Georgia. The
lease for this space commenced on May 1, 1999 for a term of seven years.
The Company leases a maintenance facility in Lake City, Georgia
strategically located in close proximity to Atlanta's Hartsfield International
Airport where the Company's customers have facilities. This facility performs
routine preventive and secondary maintenance on all Timely equipment, which
virtually eliminates the Company's need to outsource maintenance except for
breakdowns that occur in other locations.
The Company believes that these facilities are adequate for its present
needs.
LITIGATION
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 Carpet Transport 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 fraudulent conveyance
claiming that CTI Properties did not receive the benefit of the loans. The
Company has answered the trustee's complaint and intend to contest the case
vigorously. Discovery in this case has been conducted within the Carpet
Transport bankruptcy. See below.
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 proceeding.
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
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<PAGE> 13
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 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. The Trustee has also asserted that Timely North
and Timely Transportation are "successor" corporations of CTI and therefore
liable for the debts of CTI and responsible to account for the revenues of CTI
from September 1997 to date. The trustee questioned whether the Company was
entitled to the proceeds of the sale of certain rolling stock formerly leased by
CTI. The trustee has filed a Partial Motion for Summary Judgment against Timely
Transportation and the Company seeking an accounting based upon an alleged
fiduciary relationship between CTI and the Company or Timely Transportation or
Timely North. Timely North is not a party to the action. Timely Transportation
and the Company have responded to the Motion and deny the trustee's allegations
that Timely Transportation and the Company owe a fiduciary duty to 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 intend to vigorously defend
against any such claim. Discovery in this case is proceeding.
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 ClT Group its damages. The parties have reached
a settlement in this case and are in the process of reducing the settlement
terms to a consent judgment.
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.
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.
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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. The plaintiff has attempted to add
Professional Transportation Group Ltd., Inc. as a defendant and to bring
additional claims based on alleged breaches of certain equipment leases. The
amount of the plaintiff's additional claims has yet to be determined, but the
court has, thus far, denied the plaintiff's attempts to add such additional
claims. In any event, the Company was not the lessee under the equipment lease
in issue, and intends to vigorously defend against such claims in the event an
additional lawsuit is filed. The plaintiff has filed a motion for summary
judgment that the Company intends to respond to in a timely manner.
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, 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.
Gainey Transportation Services, Inc. v. Timely Transportation, Inc.,
Timely North, Inc. and Professional Transportation Group Ltd., Inc., Civil
Action File No. 99-1-5811-99, Superior Court of Cobb County, Georgia. The
plaintiff filed suit claiming that it is owed approximately $65,356.22 for
services rendered. The Company has filed an answer denying liability and
asserting that the liability, if any, is solely that of Timely North.
Client Server Solutions, Inc. v. Professional Transportation Group
Ltd., Inc., Case No. 99-CV-01909D, State Court of Clayton County, Georgia. The
plaintiff seeks to recover approximately $87,448.62 for services allegedly
rendered. The Company disputes the plaintiff's claim and filed an answer denying
liability. It appears that the Company may have counterclaims against the
plaintiff, and counsel is presently investigating such counterclaims, which will
likely be added to the lawsuit in the near future.
Michelin North America, Inc. v. Professional Transportation Group Ltd.,
Inc., Case No. 2000A854-5, State Court of Cobb County, Georgia. Plaintiff filed
suit in February 2000, seeking $56,373.19 allegedly past due on account for
goods sold, plus interest. The time for the Company to file an answer has not
yet run, and the Company is attempting to negotiate a settlement with Plaintiff.
International Container Express, Inc. v. Truck-Net, Inc., Case No.
99L14111, Circuit Court of Cook County, Illinois. Plaintiff filed suit in
December 1999, seeking recovery of $98,020.77
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<PAGE> 15
allegedly owed by the Company's subsidiary, Truck-Net, Inc. for services
rendered. Truck-Net, Inc. has retained counsel in Illinois to defend the matter.
The answer is not yet due. The amounts owed are disputed and the Company has
several counterclaims which it intends to assert. Settlement discussions are
ongoing.
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, 1999.
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):
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<PAGE> 16
<TABLE>
<CAPTION>
Common Stock
------------------------------
High Low
------ ------
<S> <C> <C>
1999
- ----
First Quarter ............................... $3.25 $1.00
Second Quarter .............................. 2.38 1.13
Third Quarter ............................... 1.75 0.88
Fourth Quarter .............................. 2.00 0.31
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
</TABLE>
<TABLE>
<CAPTION>
Warrants
------------------------------
High Low
------ ------
<S> <C> <C>
1999
- ----
First Quarter ............................... $0.47 $0.22
Second Quarter .............................. 0.47 0.13
Third Quarter ............................... 0.38 0.19
Fourth Quarter .............................. 0.38 0.19
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
</TABLE>
The last reported sale price of the Company's Common Stock and Warrants
as of April 12, 2000 was $4.00 per share and $1.00 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 April 12, 2000, there were approximately 40 record owners (for over 400
beneficial owners) of Common Stock and four 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,
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<PAGE> 17
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 restrict the Company's
ability to declare or pay dividends.
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 were audited by Arthur Andersen LLP,
independent public accountants. The selected consolidated financial data for the
year ended December 31, 1999 were derived from the Company's Consolidated
Financial Statements, which have been audited by Yohalem, Gillman & Company,
independent public accountants. These results may not be indicative of future
results.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Operating revenues .......................... $ 17,485 $ 21,172 $ 43,065 $ 55,067 $ 41,356
Total operating expenses .................... 17,705 20,630 44,587 55,879 42,492
Operating income (loss) ..................... (220) 542 (1,523) (812) (2,135)
Other income (expense), net ................. (30) (221) (1) (2,686) (759)
Income (loss) before provision for
income taxes ............................. (250) 321 (1,524) (3,498) (2,895)
Provision (benefit) for income taxes ........ (95) 137 246 -- --
Net income (loss) ........................... (155) 184 (1,770) (3,498) (2,895)
Basic and diluted net income (loss) per
common share(5) ............................. (0.06) 0.06 (0.54) (0.90) (0.67)
Weighted average common shares
outstanding .............................. 2,500,000 3,281,862 3,273,932 3,867,883 4,301,507
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ................... $ 17 $ 248 $ 1,423 $ 1,004 $ 199
Working capital (deficit) ................... (385) 354 (388) (4,565) (6,192)
Total assets ................................ 4,016 5,346 21,450 19,819 17,486
Long-term debt .............................. 1,523 1,187 3,057 4,269 3,841
Shareholders' (deficit) equity .............. (305) (1) 4,036 859 (418)
</TABLE>
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<PAGE> 18
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, 1999, and the Company's results of operations for the years ended
December 31, 1997, 1998 and 1999, 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 the
majority stockholder and 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 another entity,
a previously inactive company. On June 19, 1997, the Company completed its
initial public offering, which resulted in net proceeds to the Company of
approximately $5.7 million.
On December 3, 1999, the Company's majority shareholder, Chief
Executive Officer, President and director, Dennis A. Bakal, entered into an
agreement with Logistics Management, L.L.C., a Kentucky limited liability
company ("Logistics"), under which Mr. Bakal sold to Logistics all 2.5 million
shares of common stock owned by him. At the time, the purchase comprises
approximately 56% of the outstanding voting shares of the Company. The purchase
price for the shares was $3 million and included a $500,000 loan to Mr. Bakal,
which by the terms of the agreement Mr. Bakal contributed to the Company as a
capital contribution. Logistics is a controlling shareholder in U.S. Trucking,
Inc. (OTC: USTK).
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, 1999, 1998 and 1997, FedEx accounted for approximately 40.9%, 32.7% and
41.2%, 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. Although the Company
is currently in discussions with Fedex, 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.
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<PAGE> 19
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, 1999, Truck-Net was able to
utilize Timely's equipment for approximately 35% of its shipments.
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<PAGE> 20
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 8%, 10% and 13% of the Company's
consolidated operating revenues for the years ended December 31, 1999, 1998 and
1997, respectively. In August 1999, Panalpina began providing these services on
its own and the relationship with the Company was significantly reduced.
RESULTS OF OPERATIONS
Year Ended December 31, 1999 compared to year ended December 31, 1998
Associated with the change in control of the Company in December 1999
and an assessment of the Company's financial condition, management proposed that
the following transactions be recorded in the fourth quarter of 1999: to fully
reserve and write-off approximately $1.2 million of 1998 accounts receivable;
and of $2.1 million of sales that, upon review by management, were determined to
have been inappropriately recorded during the first nine months of 1999. This
aggressively conservative approach is consistent with management's current
policies. The Company is unable to determine the amount of any future recoveries
that may be made against these write-offs.
Consolidated operating revenues were $41.4 million for the year ended
December 31, 1999 compared to $55.1 million for the same period in 1998, a 24.9%
decrease. The operations of Timely North were discontinued in the second quarter
of 1998 and the Company continued to service Timely North's customers in the
carpet industry through Timely. During 1999 the Company discontinued service in
the carpet segment, except for a few select customers. The loss of carpet
revenue was partially offset by the introduction of the Company's agency program
which began in April 1999. Consolidated revenues were further reduced in 1999 by
the reduction in sales from Truck-Net's largest customer, Panalpina, and the
reversal of sales discussed above. Timely accounted for approximately $34.5
million, or 83.5% of the Company's revenues ($36.5 million, or 66.2%, in 1998).
Included in the 1999 revenue for Timely is approximately $2.3 million of sales
from the Company's agency program. Truck-Net accounted for approximately $6.3
million, or 15.1%, of the Company's revenues ($7.9 million, or 14.4%, in 1998),
PTG accounted for approximately $563,000, or 1.4%, of the Company's revenues
($584,000, or 1.1%, in 1998). In 1998 Timely North reported approximately $10.1
million in revenues, or 18.3% of the Company's consolidated revenue.
The Company's operating expenses were $43.5 million for the year ended
December 31, 1999 compared to $55.9 million in 1998, a 28.5% decrease, primarily
as the result of the decrease in revenues and the increased provision for
uncollectible accounts described 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
recorded approximately $35.8 million, or 82.3% of the Company's operating
expenses ($35.4 million, or 63.4%, in 1998), Truck-Net recorded approximately
$5.7 million, or 13.0% of operating expenses ($7.5 million, or 13.5% in 1998),
PTG recorded approximately $954,000, or 2.0% of operating expenses ($1.6
million, or 2.8%, in 1998) and Timely North reported approximately $1.1 million,
or 2.5%, of the Company's operating expenses ($11.4 million, or 20.3% in 1998).
Net non-operating expenses were approximately $759,000 in 1999 compared
to $2.7 million in 1998 due to a $1.8 million charge related to the termination
of Timely North operations in 1998. Interest expense declined 18.0% to
approximately $1.1 million for the year ended December 31, 1999 from $1.3
million in the previous year, primarily as the result of retirement of long-term
debt in 1999 and a $141,000 charge related to the issuance of convertible
debentures in 1998.
No income tax expense has been recognized for the years ended December
31, 1999 or 1998 due to available net operating loss carryforwards.
The Company's net loss was $2.9 million, or (0.67 cents per share) and
$3.5 million, or (0.90 cents per share) for the years ended December 31, 1999
and 1998 respectively.
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<PAGE> 21
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. 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company had negative working capital of approximately $6.2 million
at December 31,1999 compared to a working capital deficit of approximately $4.6
million at December 31, 1998. Cash and cash equivalents decreased by
approximately $1.1 million, accounts receivable decreased $1.2 million and
21
<PAGE> 22
other current assets declined $485,000. A $262,000 reduction in current
liabilities was the result of a $929,000 reduction in accounts payable and
accrued liabilities, a $201,000 repayment of the Company's line of credit and a
$75,000 decrease in current maturities of long-term debt.
Net cash used in operating activities was approximately $1.3 million
for the year ended December 31, 1999, compared to net cash provided of
approximately $925,000 for the year ended December 31, 1998. This decrease in
cash flow from operations arose primarily from a $1.2 million reduction in trade
accounts receivable compared to a decrease in accounts receivable of $3.3
million in 1998. Cash used in investing activities was approximately $920,000 in
1999 compared to $3.1 million in 1998. This decrease was primarily due to the
acquisition of approximately $2.9 million of property and equipment in 1998.
Cash provided by financing activities was $1.1 million in 1999 compared to $1.8
million in 1998.
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, 1999, the Company had $6.5
million outstanding under the line of credit with no availability remaining
pursuant to the terms of the agreement. The Company is currently renegotiating
the renewal terms of this facility, which matured on March 31, 2000. The Company
anticipates extending the current facility or entering into new arrangements
with the bank or another lending institution. 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, 1999, 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 operating changes instituted since April
1998 will assist in improving its cash flow from operations. The Company
believes that this along with (1) funds from its existing lines of credit, if
extended or otherwise renewed or replaced, (2) funds received from the sale of
equity securities or from the exercise of outstanding options and/or warrants
during December 1999 and to date during 2000, and (3) funds which the Company
expects to receive from the exercise of its publicly-traded warrants resulting
from the anticipated formal call of these warrants (which the Company hopes to
send by April 30, 2000) 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, any acquisitions the Company might make
and the Company's ability to borrow funds or enter into lease or purchase
financing arrangements for the acquisition of new equipment or for working
capital purposes. Should the Company require additional debt or equity financing
to support its operations or to make acquisitions, there can be no assurance
that such additional financing will be available to the Company on commercially
reasonable terms, or at all. 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, 1999 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.
22
<PAGE> 23
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.
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, 1999, the fair value of the Company's total
variable rate debt was estimated to be $10.8 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
$102,000.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company as of December 31,
1999 and for the three years in the period ending December 31, 1999, together
with the report of Yohalem, Gillman & Company, dated April 11, 2000, appear on
pages F-1 to F-32 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
As reported in its current report on Form 8-K dated March 3, 2000, the
Company and Arthur Andersen LLP mutually agreed to terminate the engagement of
Arthur Andersen to audit the Company's 1999 financial statements. As reported in
the report, the Company had no disagreements on accounting or financial
disclosure matters with Arthur Andersen.
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 April 12, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- ----- --------
<S> <C> <C>
W. Anthony Huff 38 Chairman and Director
Dennis A. Bakal ............. 55 Chief Executive Officer and President, Director
Linda K. Roberts............. 52 Vice President/Administration and Secretary
Susan P. Dial................ 54 Chief Financial Officer
William M. Kelly............. 52 Vice President/Transportation
Stanley E. Laiken............ 58 Vice President/Sales
William R. Asbell, Jr. 47 Vice President and General Counsel
Robert E. Altenbach (1)(2)... 53 Director
Gregory G. Hardwick(1)(2).... 52 Director
Danny L. Pixler 51 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Mr. Huff has been a director and Chairman of the Company since December
3, 1999. Mr. Huff has served as Executive Vice President and Chairman of the
Board of U.S. Trucking, Inc. since September 8, 1998. He has provided various
administrative services to U.S. Trucking-Nevada since February 1997 and has
served as Executive Vice President and a director since May 1998. He has also
provided various services to Gulf Northern since March 1995 and he has served as
a director since February 1996 and as Vice President since June 1998. Mr. Huff
has also served as Vice President and Assistant Secretary of Mencor since June
1998. From approximately November 1995 until January 1997, he served as
President and a director of United Acquisition Corp. II, a company formed to
acquire companies in the trucking business. From February 1992 until December
1996, Mr. Huff served as President of the North American Trucking Association,
an association of independent truckers engaged in the business of providing
administrative and financial services to its members. Mr. Huff spends
approximately 50% of his time on the Company's business and the remainder of his
time consulting with various other companies.
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<PAGE> 25
Due to a large judgment awarded against Mr. Huff in 1994 resulting from
Mr. Huff's guaranty of a defaulted bank loan for a company of which he was a
shareholder, Mr. Huff filed for personal bankruptcy under Chapter 7 of the U.S.
Bankruptcy Code in 1994 (discharge granted in 1995). Corporate Insurance
Services, a company of which Mr. Huff was President and an owner, was also a
guarantor of this debt and filed for bankruptcy at this time (Chapter 11
converted to Chapter 7). Mr. Huff was a minority shareholder and provided
services to the company (KHW Foods, Inc.) relating to store location and
development, but was not otherwise involved in management of the company.
Mr. Bakal is President and Chief Executive Officer of the Company. From
1990 until December 3, 1999, Mr. Bakal served as a director of the Company. On
April 10, 2000, Mr. Bakal was reappointed to the Board of Directors. 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.
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. Ms. Roberts served as a
director of the Company from July 1997 until December 1999. 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 served as
a director of the Company from February 1999 until December 1999. 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
25
<PAGE> 26
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. Asbell has served as Vice President and General Counsel for the
Company since March 2000. Mr. Asbell had been in the private practice of law
from his graduation in June 1980 until March 2000. From April 1996 until
February 2000, Mr. Asbell was a partner in the Atlanta office of the law firm of
Nelson Mullins Riley & Scarborough, L.L.P. From February 1994 until April 1996,
Mr. Asbell was a partner in the law firm of Swift, Currie, McGhee & Hiers. Mr.
Asbell graduated from the University of Georgia School of Law in 1980.
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.
Mr. Pixler has been a director of the Company since December 3, 1999.
Mr. Pixler has served as the President, CEO and a director of U.S.Trucking, Inc.
since September 8, 1998, when it completed the acquisition of U.S.
Trucking-Nevada. He has served as President, Secretary and Treasurer of U.S.
Trucking-Nevada since February 1997, and as a director since May 1998. He served
as Vice President and a director of Mencor from March 1994 until July 1998 when
he became President. He has served as President, CEO and director of Gulf
Northern since March 1995. From January 1993 until March1994, he served as
President of Joseph Land Group (a transportation company with annual sales of
approximately $130 million). From 1989 until 1993, he served as President of
Apple Lines, Inc., a truckload refrigerated carrier with $16 million in
revenues. From 1983 until 1989, he was employed by D.F.C. Transportation, the
transportation division of Dean Foods, Inc., where his final position was
Executive Vice President and General Manager responsible for the company's
truckload division with annual sales of $80 million.
Mr. Bakal and Mr. Laiken are brothers-in-law.
26
<PAGE> 27
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, 1999,
its executive officers, directors and greater than 10% beneficial owners
complied with all applicable Section 16(a) filing requirements.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued by the
Company for services rendered during the years indicated to the Company's Chief
Executive Officer. No other executive officer's total salary and bonus exceeded
$100,000 during the year ended December 31, 1999. The Company did not grant any
stock appreciation rights or make any long-term incentive plan payouts during
the periods shown.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------- ----------------
OTHER SECURITIES ALL
ANNUAL UNDERLYING OTHER
YEAR SALARY($) BONUS($)(1) COMPENSATION OPTIONS/SARS (2) COMPENSATION ($)
---- --------- ----------- ------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Dennis A. Bakal
Chairman of the Board and
Chief Executive Officer.... 1999 300,000 --- 23,101(3) --- ---
1998 300,000 --- 16,488(4) --- ---
1997 150,000 --- 25,231(5) 250,000 ---
</TABLE>
- --------------------
(1) Bonuses for each year include amounts earned for that year, even if paid in
the subsequent year, and exclude bonuses paid during that year but earned
for a prior year.
(2) All figures in this column reflect options to purchase shares of Common
Stock.
(3) Consists solely of payments made on Mr. Bakal's automobile.
(4) Includes $14,568 for payments made on Mr. Bakal's automobile and $1,920 for
country club dues.
(5) Includes $9,811 for payments made on Mr. Bakal's automobile, $13,500 for a
country club membership and $1,920 for country club dues.
OPTION GRANTS IN LAST FISCAL YEAR
There were no grants of options to the Company's Chief Executive
Officer during 1999.
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth the number of options and the value of
options held by the named executive officer as of December 31, 1999.
27
<PAGE> 28
AGGREGATE OPTION/SAR EXERCISE IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS AT
END (#) FISCAL YEAR END ($)(1)
-------------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Dennis A. Bakal......................... 1,000,000 - $937,500 -
</TABLE>
- -------------------
(1) The closing price of the Common Stock on the Nasdaq SmallCap Market on
December 31, 1999 was $1.75 per share.
EMPLOYMENT AGREEMENTS
Bakal Agreement. On April 1, 1997, Mr. Bakal and the Company entered
into an employment agreement (the "Bakal Agreement") pursuant to which he will
serve as the Chief Executive Officer and President of the Company. The Bakal
Agreement provides that Mr. Bakal will receive a base salary of not less than
$300,000 per year and an annual bonus as determined by the Compensation
Committee based upon achievement of targeted levels of performance and such
other criteria as the Compensation Committee shall establish from time to time.
In addition, he may participate in the Company's 1996 Stock Option Plan (the
"Plan"), and will receive health insurance for himself and his dependents,
long-term disability insurance, civic and social club dues, use of an automobile
owned or leased by the Company and other benefits of similarly situated
employees. Mr. Bakal's base salary may be increased upon a periodic review by
the Board of Directors or the Compensation Committee. The Bakal Agreement has a
term of three years and renews daily until either party fixes the remaining term
at three years by giving written notice. The Company can terminate Mr. Bakal's
employment upon his death or disability or for cause, and Mr. Bakal can
terminate his employment for any reason within a 90-day period beginning on the
30th day after any occurrence of any change in control or within a 90-day period
beginning on the one-year anniversary of the occurrence of any change of
control. If Mr. Bakal's employment is terminated by the Company in breach of the
Bakal Agreement or if Mr. Bakal terminates the Bakal Agreement for any reason
after a change in control, the Company must pay Mr. Bakal one-twelfth of his
annual base salary and bonus for each of 36 consecutive 30-day periods following
the termination and must continue Mr. Bakal's life and health insurance until he
reaches 65, and Mr. Bakal's outstanding options to purchase Common Stock would
vest and become immediately exercisable.
In the Bakal Agreement, the Company also granted Mr. Bakal, with
respect to his shares of Common stock, piggyback and, after any termination of
employment or if he is no longer a director of the Company, demand registration
rights . Under the Bakal Agreement, Mr. Bakal agrees to maintain the
confidentiality of the Company's trade secrets. Mr. Bakal agrees that for a
period of two years, if he is terminated for cause, not to compete with or
solicit employees or customers of the Company within the United States.
Other Employment Agreements. On April 1, 1997, the Company entered into
employment agreements with each of Messrs. Kelly and Laiken and Ms. Roberts
(collectively, the "Other Agreements"). The Other Agreements provide for a
minimum base salary per year of $100,000, $88,650 and $100,000, respectively,
and an annual bonus as determined by the Chief Executive Officer and President
based upon achievement of targeted levels of performance and such other criteria
as he shall
28
<PAGE> 29
establish from time to time. In addition, each employee may participate in the
Plan and will receive insurance and other benefits of similarly situated
employees. Each of the Other Agreements has a term of three years and renews
daily until either party fixes the remaining term at three years by giving
written notice. The Company can terminate each of the agreements upon death or
disability or for cause, and the employee can terminate employment for any
reason within one year of a change in control with adequate justification. If
the employee's employment is terminated by the Company for any reason within one
year after a change in control or if the employee terminates the agreement with
adequate justification, the Company must pay the employee one-twelfth of his or
her base salary and bonus for each of 36 consecutive 30-day periods following
the termination and must continue the employee's life and health insurance until
age 65, and the employee's outstanding options to purchase Common Stock would
vest and become immediately exercisable. Under the Other Agreements, each
employee agrees to maintain the confidentiality of the Company's trade secrets.
The employee also agrees for a period of one year, if he or she is terminated
for cause or resigns without adequate justification, not to compete with or
solicit employees or customers of the Company within the United States.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information, as of April 12,
2000 with respect to the beneficial ownership of the Common Stock by: (i) each
director; (ii) each executive officer named in the Summary Compensation Table;
(iii) each shareholder known by the Company to be a beneficial owner of more
than 5% of the Common Stock; and (iv) all executive officers and directors as a
group. Unless otherwise indicated, each of the shareholders listed below
exercises sole voting and dispositive power over the shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED (1)
-----------------------------
NUMBER PERCENT
---------- ----------
<S> <C> <C>
Dennis A. Bakal(2)................................................... 1,300,000 15.8%
Robert E. Altenbach(3)............................................... 6,000 *
Gregory G. Hardwick(4)............................................... 27,400 *
Danny L. Pixler(5)................................................... 2,500,000 36.1%
W. Anthony Huff(5)................................................... 2,500,000 36.1%
Logistics Management LLC(6).......................................... 2,500,000 36.1%
All directors and executive officers as a group (10 persons)......... 4,307,800 49.4%
</TABLE>
- ---------------------------
* Represents less than 1%.
(1) Unless otherwise noted, the Company believes that all persons named in
the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them. Under the rules of
the Securities and Exchange Commission, a person is deemed to be a
"beneficial" owner of securities if he or she has or shares the power
to vote or direct the voting of such securities or the power to dispose
or direct the disposition of such securities. A person is also deemed
to be a beneficial owner of any securities which that person has the
right to acquire beneficial ownership within 60 days. More than one
person may be deemed to be a beneficial owner of the same securities.
(2) Consists solely of options to acquire 1,300,000 shares of Common Stock,
which are currently exercisable at an exercise price of $1.75 per
share.
(3) Consists of options to acquire 2,000 and 4,000 shares of Common Stock,
which are currently
29
<PAGE> 30
exercisable at exercise prices of $2.58 and $1.50 per share,
respectively.
(4) Consists of (1) 20,100 shares held directly; (2) 1,300 shares held for
the benefit of Mr. Hardwick's grandson; and (3) options to acquire
2,000 and 4,000 shares of Common Stock, which are currently exercisable
at exercise prices of $2.58 and $1.44 per share, respectively.
(5) Represents shares owned by Logistics Management LLC. Messrs. Huff and
Pixler are the principals of Logistics Management LLC.
(6) Based solely on the Schedule 13D, dated January 11, 2000, filed by
Logistics Management LLC. The address of this shareholder is 10602
Timberwood Circle, Suite 9, Louisville, Kentucky 40223.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Dennis A. Bakal and Affiliates. In May 1996, the
Company moved its operations to a facility leased to Professional Sales Group
Ltd. ("PSG"), a company wholly-owned by Dennis A. Bakal. Under the terms of the
sublease with PSG, the Company subleases certain portions of the facility from
PSG at a competitive market rate and is committed to the facility for a period
of seven years (the remaining term of PSG's lease with the owner, an unrelated
third party). Rent expense paid by the Company under this arrangement was
approximately $286,000 in 1999 and $180,000 in 1998. The sublease provides for
escalations for items such as taxes and common area maintenance, with a
scheduled rent increase for the last five years of the term. If Mr. Bakal finds
suitable tenants to take the entire premises currently leased by PSG, it is his
intention to terminate the sublease with the Company and move to other
facilities. Currently, more than 40% of the space leased by PSG has been
subleased to unrelated third parties.
Certain credit facilities available to the Company have been guaranteed
personally by Mr. Bakal. Pursuant to the employment agreement entered into by
the Company and Mr. Bakal, the Company will use its best efforts to remove and
cause to be terminated all guarantees provided by Mr. Bakal. Because the Company
was unable to do so prior to December 31, 1997, the Company is obligated to
compensate Mr. Bakal for providing such guarantees. Mr. Bakal waived any such
payment in 1999.
Mr. Bakal has personally guaranteed a portion of the PSG facilities
lease and many of the equipment operating leases and other liabilities of the
Company and its subsidiaries. In the past, Mr. Bakal has personally provided
loans and advances to and has borrowed funds from the Company on an informal
basis. Certain of the loans and advances have been repaid, converted to equity
or remain unpaid at the present time. As of December 31, 1999, the Company had a
net receivable from Mr. Bakal of $231,799.
On December 31, 1996, PTG, Inc. (a wholly owned subsidiary of the
Company) purchased, in a nonmonetary exchange, the assets of Rapid Transit,
("Rapid") and certain other physical assets from a group of companies owned by
Mr. Bakal. As consideration for the purchase, PTG assumed accounts payable
associated with Rapid from these entities. In addition, PTG agreed to pay to a
related party 5% of the gross sales of Rapid for a period of five years. At
December 31, 1999, the obligation under this agreement was approximately
$51,000. Certain assets of Rapid were sold during 1999 and no additional
obligation was accrued for 1999.
Mr. Bakal, as the majority owner of the Company (until December 3,
1999) and other entities, directs the operations of the various entities and the
transactions between them. All long-term financial commitments of the Company
and its subsidiaries with Mr. Bakal and/or other companies controlled by him are
subject to written agreements at terms, in the opinion of management, comparable
to arms-length, third-party transactions of a similar nature.
30
<PAGE> 31
The Company believes that all the foregoing related-party transactions
were on terms no less favorable to the Company than could reasonably be obtained
from unaffiliated third parties. The Company has adopted a policy whereby all
future transactions with affiliates must be approved by a majority of
disinterested directors of the Company and on the terms no less favorable to the
Company than those that are generally available from unaffiliated third parties.
31
<PAGE> 32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 of the Company's Registration
Statement on Form SB-2, No. 333-24619 (the "Registration Statement")
and the Company's Registration Statement on Form S-3 filed on November
15, 1999, No. 333-90955 (the "1999 S-3"))
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)
4.3 Form of Purchase Agreement for Series A Preferred Stock (incorporated
by reference to Exhibit 4.1 of the 1999 S-3)
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)
32
<PAGE> 33
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)
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 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")+
10.19 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)*
10.20 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)*
33
<PAGE> 34
10.21 Professional Transportation Group Ltd., Inc. 1998 Employee Stock
Purchase Plan (incorporated by reference to Exhibit B of the 1998 Proxy
Statement)*
10.22 First Amendment to the Professional Transportation Group Ltd., Inc.
1998 Employee Stock Purchase Plan (incorporated by reference to Exhibit
10.24 of the Company's Annual Report on Form 10-K for the year ended
December 31, 1998, File No.
000-22571)*
10.23 Debenture and Warrant Purchase Agreement (incorporated by reference to
the Company's current report on Form 8-K, dated of report January 4,
1999)
10.24 Loan Documents Modification Agreement, dated as of January 15, 2000, by
and between the Company and SouthTrust Bank, N.A.
10.25 Securities Purchase Agreement, dated as of December 31, 1999, between
Logistics Management, L.L.C., Dennis A. Bakal and the Company
(incorporated by reference to the Company's current report on Form 8-K,
date of report December 6, 1999)
10.26 Letter Agreement, dated as of December 31, 1999, by and between Thomson
Kernaghan & Co. Ltd. and the Company (incorporated by reference to the
Company's current report on Form 8-K, date of report December 31, 1999)
13.1 Portions of the Company's 1999 Annual Report to Shareholders
21.1 Subsidiaries of the Company
23.1 Consent of Yohalem, Gillman & Company
23.2 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)
- ---------------
+ 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, 1999, 1998 and 1997.
(c) Reports on Form 8-K.
34
<PAGE> 35
The Company filed one current report on Form 8-K during the fourth
quarter of the year ended December 31, 1999: Date of report, December
6, 1999, regarding change of control of the Company.
35
<PAGE> 36
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.
Date: April 13, 2000 By: /s/ Dennis A. Bakal
-----------------------------------------
Dennis A. Bakal
Chief Executive Officer and President
POWER OF ATTORNEY
KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, Danny L. Pixler
and W. Anthony Huff, 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/ W. Anthony Huff Chairman and Director April 13, 2000
- ------------------------------------
W. Anthony Huff
/s/ Dennis A. Bakal President and Chief Executive April 13, 2000
- ------------------------------------- Officer, Director (principal
Dennis A. Bakal executive officer)
/s/ Susan P. Dial Chief Financial Officer (principal April 13, 2000
- ------------------------------------ financial and accounting officer)
Susan P. Dial
/s/ Robert E. Altenbach Director April 13, 2000
- ------------------------------------
Robert E. Altenbach
/s/ Gregory G. Hardwick Director April 13, 2000
- ------------------------------------
Gregory G. Hardwick
/s/ Danny L. Pixler Director April 13, 2000
- ------------------------------------
Danny L. Pixler
</TABLE>
36
<PAGE> 37
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, 1999 and the related consolidated statements of operations,
changes in shareholders' equity (deficit), and cash flows for the year then
ended. 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 audit.
We conducted our audit 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 audit provides 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, 1999 and the results of
their operations and their cash flows for the year then ended 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 1998 and 1999 and
has a net working capital deficiency of approximately $6.2 million at December
31, 1999. In addition, the Company's line of credit was due as of March 31,
2000 and the Company is currently in the process of negotiating an extension.
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/ Yohalem Gillman & Company LLP
New York, New York
April 11, 2000
F-1
<PAGE> 38
ARTHUR ANDERSEN LLP
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 the related consolidated statements of operations, changes
in shareholders' equity (deficit), and cash flows for the years ended December
31, 1998 and 1997. 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 the results of
their operations and their cash flows for the years ended December 31, 1998 and
1997 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. 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-2
<PAGE> 39
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31.
1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 199,803 $ 1,003,783
Certificate of deposit 268,734 --
Trade accounts receivable, net of allowance for doubtful accounts of
$634,765 and $757,765 in 1999 and 1998, respectively 5,398,210 6,633,732
Due from affiliate 429,365 429,365
Due from related parties 402,503 577,197
Prepaid expenses 401,169 662,176
Other current assets 534,275 583,311
------------ ------------
Total current assets 7,634,059 9,889,564
PROPERTY AND EQUIPMENT, NET 6,308,225 6,940,060
NONCURRENT NOTE AND OTHER RECEIVABLES 3,313,831 2,831,248
OTHER ASSETS 229,801 157,847
------------ ------------
$ 17,485,916 $ 19,818,719
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Cash overdraft $ 544,610 $ --
------------ ------------
Line of credit 6,465,742 6,666,722
Current maturities of long-term debt and capital lease obligations 1,444,167 1,487,025
Accounts payable 2,674,258 3,226,222
Accrued liabilities 2,697,036 3,074,145
------------ ------------
Total current liabilities 13,825,813 14,454,114
------------ ------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, NET OF CURRENT
MATURITIES AND DEBT DISCOUNTS 3,840,833 4,268,887
------------ ------------
DEFERRED INCOME TAXES 237,209 237,209
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Series A Convertible Preferred stock, no par value,
3,000 shares authorized, 325 shares issued and outstanding 325,000 --
Common stock, no par value, 20,000,000 shares authorized,
5,163,422 and 3,868,160 shares issued and outstanding in 1999
and 1998, respectively -- --
Warrants 353,867 353,867
Additional paid-in capital 7,004,655 5,711,466
Accumulated deficit (8,101,461) (5,206,824)
------------ ------------
Total shareholders' equity (deficit) (417,939) 858,509
------------ ------------
$ 17,485,916 $ 19,818,719
============ ============
</TABLE>
See accompanying notes and reports of independent public accountants.
F-3
<PAGE> 40
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING REVENUES $ 41,356,478 $ 55,066,949 $ 43,064,743
------------ ------------ ------------
OPERATING EXPENSES
Salaries, wages, and benefits 19,218,676 25,684,226 17,126,177
Purchased transportation 5,043,994 5,719,410 8,337,627
Operating supplies and expenses 8,009,052 11,275,455 9,480,467
Fuel and fuel taxes 5,260,447 6,890,210 5,733,829
Communications and utilities 760,822 1,192,990 668,990
Depreciation 997,683 908,386 383,654
Operating taxes and licenses 427,703 359,602 148,793
Bad debt expense 1,677,715 512,000 242,829
Other operating expenses 2,095,753 3,336,394 2,464,980
------------ ------------ ------------
Total operating expenses 43,491,845 55,878,673 44,587,346
------------ ------------ ------------
LOSS FROM OPERATIONS (2,135,367) (811,724) (1,522,603)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (1,066,708) (1,300,341) (341,982)
Other income (expense), net 307,438 (1,386,346) 340,285
------------ ------------ ------------
LOSS BEFORE INCOME TAXES (2,894,637) (3,498,411) (1,524,300)
------------ ------------ ------------
INCOME TAX PROVISION DUE TO CHANGE IN TAX STATUS -- -- (246,000)
------------ ------------ ------------
NET LOSS $ (2,894,637) $ (3,498,411) $ (1,770,300)
============ ============ ============
NET LOSS PER COMMON SHARE:
Basic $ (0.67) $ (0.90) $ (0.54)
============ ============ ============
Diluted $ (0.67) $ (0.90) $ (0.54)
============ ============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -
BASIC AND DILUTED 4,301,551 3,867,883 3,273,932
============ ============ ============
</TABLE>
See accompanying notes and reports of independent public accountants.
F-4
<PAGE> 41
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Common Stock Preferred Stock Warrants
--------------------- ------------------ -----------------------
Shares Amount Shares Amount Shares Amount
--------- ------ ------ -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 2,600,000 $ -- -- $ -- -- $ --
Pro-forma net loss -- -- -- -- -- --
Initial public offering, net of
issuance costs 1,250,000 -- -- -- -- --
Warrants outstanding -- -- -- -- 1,437,500 177,117
Issuance of stock 20,000 -- -- -- -- --
Retirement of stock (3,000) -- -- -- -- --
Pro forma compensation expense -- -- -- -- -- --
---------- ---- --- -------- --------- --------
BALANCE, DECEMBER 31, 1997 3,867,000 -- -- -- 1,437,500 177,117
Net loss -- -- -- -- -- --
Issuance of convertible debentures
and warrants -- -- -- -- 1,100,000 176,750
Issuance of stock 1,160 -- -- -- -- --
---------- ---- --- -------- --------- --------
BALANCE, DECEMBER 31, 1998 3,868,160 -- -- -- 2,537,500 353,867
Net loss -- -- -- -- -- --
Issuance of preferred stock -- -- 325 325,000 -- --
Issuance of common stock 735,444 -- -- -- -- --
Conversion of debentures 499,188 -- -- -- -- --
Stock purchase plan 10,630 -- -- -- -- --
Exercise of non-publicly
held warrants 50,000 -- -- -- -- --
---------- ---- --- -------- --------- --------
BALANCE, DECEMBER 31, 1999 5,163,422 -- 325 325,000 2,537,500 $353,867
========== ==== === ======== ========= ========
<CAPTION>
Additional
Paid-In Accumulated
Capital Deficit Total
---------- ------------ -----------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 $ 57,166 $ (58,113) $ (947)
Pro-forma net loss -- (1,770,300) (1,770,300)
Initial public offering, net of
issuance costs 5,507,077 -- 5,507,077
Warrants outstanding -- -- 177,117
Issuance of stock 3,000 -- 3,000
Retirement of stock -- -- --
Pro forma compensation expense -- 120,000 120,000
---------- ----------- -----------
BALANCE, DECEMBER 31, 1997 5,567,243 (1,708,413) 4,035,947
Net loss -- (3,498,411) (3,498,411)
Issuance of convertible debentures
and warrants 141,103 -- 317,853
Issuance of stock 3,120 -- 3,120
---------- ----------- -----------
BALANCE, DECEMBER 31, 1998 5,711,466 (5,206,824) 858,509
Net loss -- (2,894,637) (2,894,637)
Issuance of preferred stock -- -- 325,000
Issuance of common stock 950,000 -- 950,000
Conversion of debentures 328,250 -- 328,250
Stock purchase plan 14,439 -- 14,439
Exercise of non-publicly
held warrants 500 -- 500
---------- ----------- -----------
BALANCE, DECEMBER 31, 1999 $7,004,655 $(8,101,461) $ (417,939)
========== =========== ===========
</TABLE>
See accompanying notes and reports of independent accountants.
F-5
<PAGE> 42
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,894,637) $(3,498,411) $ (1,770,300)
----------- ----------- ------------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Pro forma compensation expense -- -- 120,000
Interest expense on convertible debentures -- 141,103 --
Deferred income taxes -- -- 124,939
Depreciation 997,683 908,386 383,654
Provision for doubtful accounts 1,677,715 512,000 242,839
Changes in operating assets and liabilities:
Trade accounts receivable, net (442,193) 2,764,889 (7,333,435)
Due from affiliate -- 29,250 (229,722)
Prepaid expenses and other current assets 310,043 117,035 (1,186,157)
Accounts payable and accrued liabilities (929,073) (48,839) 3,627,538
----------- ----------- ------------
Total adjustments 1,614,175 (4,423,824) (4,250,344)
----------- ----------- ------------
Net cash provided by (used in) operating
activities (1,280,462) 925,413 (6,020,644)
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (365,848) (2,863,459) (3,689,631)
Purchase of certificate of deposit (268,734) -- --
Note receivable (482,583) (491,901) (2,339,346)
(Increase) decrease in other assets (71,954) 235,939 (201,654)
----------- ----------- ------------
Net cash provided by (used in) investing
activities (1,189,119) (3,119,421) (6,230,631)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayments) proceeds from line of credit (200,980) (162,000) 5,950,343
Cash overdraft 544,610 -- --
Repayments of long-term debt and capital lease
obligations (4,492,662) (1,399,825) (500,701)
Proceeds from long-term debt 4,350,000 2,828,764 2,914,383
Issuance of convertible debentures and warrants -- 505,000 --
Due (from) to shareholder 174,694 -- (625,666)
Proceeds from sale of common stock and common
stock purchase warrants 964,939 3,120 5,687,194
Issuance of convertible preferred stock 325,000 -- --
----------- ----------- ------------
Net cash provided by financing activities 1,665,601 1,775,059 13,425,553
----------- ----------- ------------
NET (DECREASE) INCREASE IN CASH (803,980) (418,949) 1,174,278
Cash, beginning of year 1,003,783 1,422,732 248,454
----------- ----------- ------------
CASH, END OF YEAR $ 199,803 $ 1,003,783 $ 1,422,732
=========== =========== ============
</TABLE>
See accompanying notes and reports of independent public accountants.
F-6
<PAGE> 43
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
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 industry 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 provided
time-definite truckload transportation services for companies in the
floorcovering industry (1998 and 1997). PTG, Inc. operated 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. The Company terminated the operations
of both Timely North and Rapid Transit in April 1998 and September
1999, respectively.
Prior to January 1997, the Subsidiaries were owned and operated by the
(then) majority shareholder of the Company as separate operating
companies. On January l, 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 and redeemable common stock purchase warrants (Note 3).
FINANCIAL CONDITION
The Company incurred net losses of $2.9 million in 1999, $3.5 million
in 1998 and $1.8 million in 1997. At December 31, 1999, it has a net
working capital deficiency of $6.2 million. Included in this working
capital deficiency is a liability of $6.5 million under the Company's
line of credit agreement. As discussed in Note 6, the maturity date of
the line was extended to March 31, 2000, however the Company was in
default under several covenants at December 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 2000. 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.
F-7
<PAGE> 44
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
1. ORGANIZATION AND OPERATIONS (CONTINUED)
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-B, "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 (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.
F-8
<PAGE> 45
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH, CASH EQUIVALENTS, AND CERTIFICATES OF DEPOSIT
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
At December 31, 1999, approximately $190,000 of cash and a certificate
of deposit amounting to $268,734 (maturing on June 30, 2000) 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, 1999 and 1998 is
as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Transportation equipment and improvements $ 6,398,552 $ 5,952,852
Furniture, fixtures and equipment 2,597,936 2,491,538
Leasehold improvements 15,840 242,584
----------- -----------
9,012,328 8,686,974
Less accumulated depreciation (2,704,103) (1,746,914)
----------- -----------
$ 6,308,225 $ 6,940,060
=========== ===========
</TABLE>
The estimated useful lives of the various classes of physical assets
were as follows during 1999:
<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 improvement and
tractors remains seven years. As a result, depreciation expense for the
year ended December 31, 1998, decreased by approximately $180,000.
F-9
<PAGE> 46
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Salaries, wages and benefits $ 745,547 $ 788,919
Professional fees 317,484 --
Interest 71,490 --
Fuel 80,838 --
Other 1,481,677 2,285,226
---------- ----------
$2,697,036 $3,074,145
========== ==========
</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
$1,615,000 and $2,381,000 for the years ended December 31, 1999 and
1998, respectively.
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. The assumed exercise of outstanding warrants and stock options
for diluted loss per common share was not applicable because their
effect was antidilutive.
F-10
<PAGE> 47
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRO FORMA ADJUSTMENTS
A pro forma adjustment has been made in the accompanying consolidated
statement of operations for the year ended December 31, 1997 to reflect
compensation expenses for the fair value of services provided by the
majority shareholder prior to July 1, 1997.
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 from 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 DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1999 1998
---------------- ----------
<S> <C> <C>
Cash paid for interest $ 995,218 $1,262,277
Cash paid for income taxes -- --
</TABLE>
Significant noncash investing and financing activities that are excluded
from the consolidated cash flow statement for 1999 include conversion of
$375,000 of debentures to common stock.
F-11
<PAGE> 48
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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". In June 1999, the FASB issued SFAS 137 deferring the
effective date of SFAS 133 to fiscal years beginning after June 15,
2000. 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 2001. Management does not believe the adoption
of this statement and will have a material impact on the Company's
financial statements.
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 (see Note 14 for subsequent change of exercise and
redemption price).
4. RELATED-PARTY TRANSACTIONS
The Company's former majority shareholder (who sold all of his shares
on December 7, 1999 to an unrelated third party) also owns a
controlling interest in several other related affiliate companies.
Significant related-party transactions are detailed hereafter.
F-12
<PAGE> 49
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
4. RELATED-PARTY TRANSACTIONS (CONTINUED)
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. 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 was
approximately $51,000. Certain assets of Rapid were sold during 1999
and no additional obligation was accrued for 1999 (see Note 13).
In January 1997, the Company signed a noncancelable sublease agreement
with Professional Sales Group, Ltd. ("PSG") (a company partly owned by
the former majority shareholder) which expires in April 2005. Prior to
1997, this arrangement was not formalized. Rent expense paid by the
Company under this arrangement was approximately $286,000 in 1999,
$180,000 in 1998 and $120,000 in 1997.
The former 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 a former
shareholder of the Company of $231,799 and receivables due from other
current shareholders of $188,704 at December 31, 1999 and $577,197
at December 31, 1998 resulting from such transactions.
The Company had a total receivable of $429,365 at both December 31,
1999 and 1998 due from affiliates on the accompanying balance sheets.
This receivable has been guaranteed by the Company's former majority
shareholder.
Effective December 1999, the Company has secured insurance coverage
through a captive insurance company controlled indirectly by the new
Chairman of the Company.
5. NOTE RECEIVABLE AND MARKETING AGREEMENT
In September 1997, the Company advanced $1,500,000 to CTI Properties,
Inc. ("CTI Properties"), Carpet Transport, Inc. ("CTT") 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.
At December 31, 1999 and 1998, the Company has recorded advances to and
receivables from CTI of $1,813,832 and $1,331,248, respectively,
including accrued interest, in addition to the $1.5 million loan.
F-13
<PAGE> 50
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
5. NOTE RECEIVABLE AND MARKETING AGREEMENT (CONTINUED)
Although CTI is in bankruptcy and has asserted that the Company's first
priority security deed may be avoided as a preference (see Note 10) the
current management intends to vigorously pursue and expects to collect
these notes and advances. There can be no assurance, however, that such
receivables will be fully collected.
Total operating 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 subject to certain restrictions. Amounts
outstanding under the New Agreement bear interest at .75% above the
bank base rate, as defined (9.50% at December 31, 1999). Interest is
payable monthly and the line had a maturity date of January 15, 2000.
In January 2000, the maturity date of borrowings under the New
Agreement was extended to March 31, 2000. The former majority
shareholder is a guarantor of the New Agreement. As of December 31,
1999, the Company borrowed $6,465,742 under the New Agreement and there
was no remaining availability under the line. The New Agreement
provides the bank with a security interest in accounts receivable and
cash of the Company.
Pursuant to the terms of the New Agreement, the Company must satisfy
certain financial covenants therein. As of December 31, 1999, the
Company was in default under several of the covenants.
LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<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
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 127,201 155,915
</TABLE>
F-14
<PAGE> 51
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
6. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
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
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
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 55,566 72,518
Note payable for transportation
equipment, bearing interest at
8.32%, with monthly principal
and interest payments of $45,394
through July 2002, secured by
related transportation equipment -- 1,831,317
Note payable to former
shareholder, bearing interest at
8.45%, with weekly principal and
interest payments of $500
through December 2004 85,672 93,469
Note payable to former
shareholder, bearing interest at
17.98%, with weekly principal
and interest payments of $500
through December 2004 74,596 95,356
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 283,601 983,718
Note payable to a bank, bearing
interest at 8.13%, with monthly
principal and interest payments
of $11,051 through March 2003,
secured by related
transportation equipment -- 271,851
</TABLE>
F-15
<PAGE> 52
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
6. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
<TABLE>
<CAPTION>
1999 1998
----------- ------------
<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 $ 105,347 $ 162,821
Note payable to Transamerica
Equipment Financial Services
Corporation bearing interest at
prime plus 1.75% (10.50% at
December 31, 1999) with monthly
principal and interest payments
ranging from $50,707 to $101,978
through March 15, 2004 secured
by transportation equipment.
This note provides for the
Company to maintain certain
financial covenants and includes
a subjective acceleration clause. 4,299,292 --
9% convertible debentures due
December 31, 2000 -- 500,000
----------- ------------
5,031,275 4,476,873
Less current maturities (1,318,187) (1,023,923)
Less debt discount -- (171,750)
$ 3,713,088 $ 3,281,200
=========== ============
</TABLE>
Future maturities of long-term debt at December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000 $ 1,318,187
2001 1,096,115
2002 1,142,838
2003 1,177,696
2004 296,439
Thereafter --
-----------
$ 5,031,275
===========
</TABLE>
F-16
<PAGE> 53
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
6. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
CONVERTIBLE DEBENTURES
In December 1998, the Company completed a private placement of $500,000
of 9% convertible 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. These 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. During the year ended December 31, 1999, the debentures were
converted into 499,188 shares of common stock.
In December 1999, the Company arranged for a private placement of up to
$2,500,000 of 10% convertible debentures. The Company has initially
sold $600,000 of these debentures in January 2000. As part of the
transaction, the Company granted the investors a warrant to purchase up
to 214,285 shares of common stock and to the placement agent a warrant
to purchase 142,857 shares of common stock. Both warrants carry an
exercise price of $1.75 which was the closing price of the shares on
the date of grant. The warrants expire on January 31, 2003.
CAPITAL LEASES
The Company leases transportation and other equipment under capital
leases. During 1999, the company refinanced a majority of their capital
lease obligations with Transamerica Equipment Financial Services
Corporation with a term loan. Future minimum lease payments for assets
under capital leases at December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000 $ 149,378
2001 109,283
2002 29,790
----------
Total minimum lease payments 288,451
Less amount representing interest (34,726)
----------
Present value of minimum lease payments 253,725
Less current maturities (125,980)
----------
$ 127,745
==========
</TABLE>
At December 31, 1999, the Company had net assets under capital leases
of approximately $1,047,560 included in property and equipment on the
accompanying balance sheet.
F-17
<PAGE> 54
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
7. STOCK-BASED COMPENSATION PLANS
In February 1996, the Company adopted the Professional Transportation
Group Ltd., Inc. 1996 Stock Option Plan for certain employees (the "Plan"). At
December 31, 1999, the Company reserved 2,270,948 shares of the Company's
common stock for issuance under the Plan. A summary of options granted under
the Plan as well as other options granted pursuant to other agreements during
1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Number of
Per Options
Number of Share Vested at
Options Exercise Expiration December 31,
Granted Grant Date Vesting Price Date 1999
- ---------- -------------- ----------------------------------------- -------- ----------- ------------
<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 600,000
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
195,000 February 1999 100% on February 11, 19999 2.97 2009 195,000
8,000 May 1999 100% on May 21, 1999 1.50 2004 8,000
285,630 June 1999 25% a year beginning June 3, 1999 1.44 2004 68,125
50,000 June 1999 100% on June 3, 1999 1.44 2004 50,000
75,000 September 1999 100% on September 24, 1999 1.25 2004 75,000
2,000 December 1999 100% on June 30, 2000 .75 2004 --
60,000 December 1999 100% on December 3, 1999 .75 2004 60,000
50,000 December 1999 100% on December 31, 1999 1.00 2004 50,000
</TABLE>
F-18
<PAGE> 55
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
7. STOCK-BASED COMPENSATION PLANS (CONTINUED)
The following is a summary of stock option information for the Plans:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Options outstanding, beginning of year 1,260,230 1,368,467
Options granted 725,630 4,000
Options exercised -- (1,160)
Options terminated -- (111,077)
---------- ----------
Options outstanding, end of year 1,985,860 1,260,230
========== ==========
Options available for grant 310,700 599,753
========== ==========
</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 employer 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, 1999, 1998 and 1997 using the Black-Scholes option
pricing model as prescribed by SFAS No. 123 using the following
weighted average assumptions:
<TABLE>
<CAPTION>
Year of Grant/Option Price
----------------------------------------------
1999 1998 1997 1997 1997
$1.75 $2.58 $6.00 $3.69 $2.69
------- ------- ----- ------ -----
<S> <C> <C> <C> <C> <C>
Risk-free interest rate 5.28% 5.54% 6.99% 5.77% 5.95%
Expected dividend yield 0.00% 0.00% 0.00% 0.00% 0.00%
Expected lives (in years) 1 1 8 3 2
Expected volatility 112.00% 71.00% 42.00% 42.00% 42.00%
</TABLE>
F-19
<PAGE> 56
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
7. STOCK-BASED COMPENSATION PLANS (CONTINUED)
The total value of options granted for the years ended December 31,
1999, 1998 and 1997, was computed as approximately $1,200,000, $7,000
and $988,000, 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>
1999 1998 1997
------------- ------------- ------------
<S> <C> <C> <C>
Net loss as reported $ (2,894,637) $(3,498,411) $(1,770,300)
Net loss including compensation (3,744,637) (3,798,934) (1,986,342)
Net EPS as reported $ (0.67) $ (0.90) $ (0.54)
Net EPS including compensation $ (0.87) (0.98) (0.61)
</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."
The significant components of the provision for income taxes are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- ----------------
<S> <C> <C> <C>
Current provision $ -- $ -- $ 121,061
Deferred provision -- -- 124,939
----------------- ----------------- ----------------
Total provision $ -- $ -- $ 246,000
================= ================= ================
</TABLE>
F-20
<PAGE> 57
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
8. INCOME TAXES (CONTINUED)
A reconciliation of the provision (benefit) 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>
1999 1998 1997
--------- ----------- ---------
<S> <C> <C> <C>
Federal statutory income tax rate $(984,000) $(1,189,460) $(492,000)
State income taxes, net of federal benefit (116,000) (139,936) (56,800)
Change in tax status -- -- 246,000
Change in valuation allowance 731,126 1,281,082 500,807
Other 368,874 48,314 47,993
--------- ----------- ---------
Total provision $ -- $ -- $ 246,000
========= =========== =========
</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>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 241,211 $ 287,951
Accrued liabilities 423,559 603,226
Net operating loss carryforwards 2,799,737 1,533,640
----------- -----------
3,464,507 2,424,817
Less valuation allowance (2,685,306) (1,954,180)
----------- -----------
Net deferred tax assets 779,201 470,637
----------- -----------
Deferred tax liabilities:
Depreciation (1,016,410) (707,846)
----------- -----------
Net deferred tax liability $ (237,209) $ (237,209)
=========== ===========
</TABLE>
F-21
<PAGE> 58
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
8. INCOME TAXES (CONTINUED)
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, 1999, the Company has approximately $6 million of net operating
loss carryforwards which will expire beginning 2013 if not utilized.
9. MAJOR CUSTOMERS
The Company's five largest customers accounted for approximately 70%,
52% and 65% of revenues for the years ended December 31, 1999, 1998 and
1997, respectively. Of these customers, one company accounted for a
total of approximately 41% of net revenues for the year ended December
31, 1999. The loss of this customer 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)
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 $3,818,000,
$4,894,000, and $5,814,000 for the years ended December 31, 1999, 1998
and 1997, 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, 1999:
<TABLE>
<S> <C>
2000 $ 3,740,796
2001 3,093,069
2002 1,981,124
-----------
$ 8,814,989
===========
</TABLE>
F-22
<PAGE> 59
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEGAL
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. Discovery
in this case is proceeding. The Company intends to vigorously defend
this action. Counsel believes the likelihood of success is neither
probable nor remote.
On or about June 17, 1998, a lawsuit was filed against Timely North and
the Company in the case styled CIT Finance Group 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 for 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. Counsel believes the likelihood
of success is neither probable nor remote.
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 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
F-23
<PAGE> 60
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
its affiliates. The Trustee has also asserted that Timely North and
Timely Transportation are "successor" corporations of CTI and therefore
liable for the debts of CTI and responsible to account for the revenues
of CTI from September of 1997 to date. The trustee also questioned
whether the Company was entitled to the proceeds of the sale of certain
rolling stock formerly leased by CTI. The trustee has filed a Partial
Motion for Summary Judgment against Timely Transportation and the
Company seeking an accounting. Timely Transportation and the Company
have responded to the Motion and vigorously deny the trustee's
allegations that Timely Transportation and the Company owe a fiduciary
duty to 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. Discovery is progressing.
Counsel believes the likelihood of success is neither probable nor
remote.
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. The parties
have reached a settlement in this litigation and are in the process of
reducing the settlement to a Consent Order.
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. Discovery in the case is progressing.
Counsel believes the likelihood of success is neither probable nor
remote.
F-24
<PAGE> 61
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Client Service Solutions, Inc., Professional Transportation Group Ltd.,
Inc., Case No. 1999 CV 01909 D, State Court of Clayton County, Georgia.
Plaintiff filed suit on May 12, 1999, seeking recovery of $87,448.62,
plus interest and attorney's fees, allegedly owed for computer
consulting services. The Company filed an answer denying liability and
is vigorously defending against Plaintiff's claims, as well as
exploring possible counterclaims for breach of contract and fraud
against the Plaintiff.
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 is vigorously defending against
the suit. The case is awaiting trial.
Scott Logistics Corp. v. Timely North, Inc. and Timely Transportation,
Inc., Civil Action File No. 34324, Superior Court of Gordon County,
Georgia. Scott Logistics Corporation is suing the named subsidiaries of
the Company for $8,342.34 in alleged damages to freight, plus
$60,000.00 for alleged damages for tortious interference with business
relations. Timely North, Inc. is countersuing Scott Logistics Corp. for
$9,709.23 in unpaid freight charges. Both of the named subsidiaries
have filed an answer denying liability as alleged by the Plaintiff, and
is vigorously defending against Plaintiff's claims. The Company intends
to file a motion for summary judgment in the near future, requesting
the court deny Plaintiff's claims as a matter of law.
T.M.B., Inc. v. Timely Transportation, Inc. and Timely North, Inc.,
Case No. 98-CV-1931, United States District Court for the Northern
District of Georgia. T.M.B., Inc. seeks recovery from the named
subsidiaries in the amount of $103,157.46 allegedly owed for truck
parts. Timely North, Inc. did not contest liability, and a default
judgment was entered in 1998 against Timely North, Inc. for the full
amount sought by T.M.B., Inc. Timely Transportation, Inc. has filed an
answer denying liability, and is vigorously defending against T.M.B.,
Inc.'s claims. Cross motions for summary judgment are pending in the
case.
Gainey Transportation Services, Inc. v. Timely Transportation, Inc.
Timely North, Inc. and Professional Transportation Group Ltd., Inc.,
Case No. 98-1-5811-99, Superior Court of Cobb County, Georgia. Gainey
Transportation Services, Inc. seeks recovery of $65,356.20 allegedly
due from the named subsidiaries for transportation services rendered.
Timely Transportation, Inc. and Professional Transportation Group Ltd.,
Inc. take the position that they are not liable to Gainey, and such
charges are owed, if at all, by Timely North, Inc. The Company has
filed an answer and is vigorously defending against the suit.
Ampace Dedicated Services, Inc. v. Timely Transportation, Inc. and
Carpet Transport, Inc., Civil Action No. 34248, Superior Court of
Gordon County, Georgia. Ampace seeks recovery of $9,100.00 for
transportation services rendered. Timely Transportation, Inc. has filed
an answer denying liability and is vigorously defending against the
suit.
F-25
<PAGE> 62
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Gilbert Express, Inc. v. Timely North, Inc., Civil Action No.
98VS145119E, State Court of Fulton County, Georgia. Gilbert Express,
Inc. seeks recovery of $15,750.00 in principal, plus interest for
transportation services allegedly rendered, and has obtained a default
judgment against Timely North, Inc. No further significant action has
taken place since late 1998.
Olsten Corporation v. Timely North, Inc., Case No. 98VS144672, State
Court of Fulton County, Georgia. The Plaintiff is seeking recovery of
$49,926.94, plus interest for services rendered, and has obtained a
default judgment against Timely North, Inc., but no further significant
action has taken place since late 1998.
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,
Superior Court of Cobb County, Georgia. The Plaintiffs seek recovery of
$71,328.30 for services allegedly rendered. The Company has 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 set-off's to the Plaintiff's claims.
Michelin North America, Inc. v. Professional Transportation, Ltd.,
Inc., Case No. 2000A854-5, State Court of Cobb County, Georgia.
Plaintiff filed suit in February 2000, seeking $56,373.19 allegedly
past due on account for goods sold, plus interest. The time for the
Company to file an answer has not yet run, and the Company is
attempting to negotiate a settlement with Plaintiff.
International Container Express, Inc. v. Truck-Net, Inc., Case No.
99L14111, Circuit Court of Cook County, Illinois. Plaintiff filed suit
in December 1999, seeking recovery of $98,020.77 allegedly owed by the
Company's subsidiary, Truck-Net, Inc. for services rendered. Truck-Net,
Inc. has retained counsel in Illinois to defend the matter. The answer
is not yet due. The amounts owed are disputed and the Company has
several counterclaims which it intends to assert. Settlement
discussions are ongoing.
Pottstown Memorial Medical Center v. Timely Transportation, Inc., Case
No. 99-05093, Court of Common Pleas, Montgomery County, Pennsylvania.
Plaintiff seeks recovery of $7,995.84 for services rendered. The
Company retained Pennsylvania counsel and filed an answer denying
liability based on the fact that the services in issue were not
rendered to the Company, but to an unrelated third party, and
therefore, the Company has no liability to Plaintiff.
F-26
<PAGE> 63
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Jefferson-Randolph Company v. Timely North, Inc., Timely
Transportation, Inc. and Professional Transportation Group Ltd., Inc.,
Case No. 35084, Superior Court of Gordon County, Georgia. Plaintiff
filed suit on January 12, 1999, seeking recovery of $14,507.96 for
services rendered. The Company has filed answers denying liability on
the part of Timely Transportation, Inc. and Professional Transportation
Group Ltd., Inc., and disputing the amount claimed against Timely
North, Inc. No further proceedings have occurred in this action since
March 18, 1999.
In late 1999, Allied Carriers (Allied) served as a factor to the
Company. Allied asserts that because the Company discontinued its
relationship without notice, Allied is entitled to certain damages in
the approximate amount of $58,000. The Company disputes Allied's
assertions and believes that no notice of termination was required. As
of the date of this report, this claim has not been referred to outside
counsel. In the event that Allied should choose to litigate its claim,
the Company intends to defend against the claim vigorously.
US Xpress asserts that the Company is indebted to it for providing
transportation services to the Company in the approximate amount of
$112,000. The Company firmly believes that not only is it not indebted
to US Xpress, but that US Xpress and its affiliates are indebted to the
Company in the approximate amount of $10,000. In the event that US
Xpress should choose to litigate its claim, the Company intends to
defend against the claim vigorously and to pursue recovery of amounts
owned to the Company.
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. 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
F-27
<PAGE> 64
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
11. BUSINESS SEGMENT INFORMATION (CONTINUED)
as a broker of truckload services to the air freight industry. Since
many air cargo carriers and air freight forwarder do not own trucks,
they rely upon third party carriers for ground transportation services.
In addition, the Company had a third segment, PTG, Inc., which operated
in the Atlanta, Georgia metropolitan area of which was terminated in
November 1999. This service retrieved copiers, fax machines, and
telephone equipment that are in need repair or coming off lease and
returns such items to the manufacturer.
MEASUREMENT OF SEGMENT PROFIT OR 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.
The following table summarizes revenues, operating income, total
assets, and expenditures for long-lived assets by business segment for
fiscal years 1999, 1998 and 1997:
<TABLE>
<CAPTION>
TIMELY AND
TIMELY NORTH TRUCK-NET PTG, INC. TOTAL
------------ --------- --------- -----
<S> <C> <C> <C> <C>
1999:
Revenue $ 36,874,554 $6,656,770 $ 562,607 $ 44,093,931
Segment income (loss) (3,182,434) 582,196 (76,736) (2,676,974)
Depreciation 967,532 1,612 28,539 997,683
Segment assets 2,594,598 2,182,204 (238,082) 4,538,720
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
</TABLE>
F-28
<PAGE> 65
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
11. BUSINESS SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Timely and
Timely North Truck-Net PTG, Inc. Total
------------ --------- --------- ----------
<S> <C> <C> <C> <C>
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
</TABLE>
The following table reconciles segment revenues to consolidated
revenues for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Total revenues for reportable segments $ 44,093,931 $ 56,936,984 $ 44,132,713
Intercompany eliminations (2,737,453) (1,870,035) (1,067,970)
------------ ------------ ------------
Total consolidated revenues $ 41,356,478 $ 55,066,949 $ 43,064,743
============ ============ ============
</TABLE>
The following table reconciles segment profit to consolidated income
for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Total segment loss for reportable
segments $(2,676,974) $(2,370,594) $(1,157,112)
Unallocated interest, net (162,952) (350,823) (55,711)
Unallocated salaries, wages and benefits -- (507,319) (323,476)
Provision for income taxes -- -- (246,000)
Other unallocated amounts (54,711) (269,675) 11,999
----------- ----------- -----------
Total consolidated loss $(2,894,637) $(3,498,411) $(1,770,300)
=========== =========== ===========
</TABLE>
F-29
<PAGE> 66
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
11. BUSINESS SEGMENT INFORMATION (CONTINUED)
The following table reconciles segment assets to consolidated total
assets for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Total assets for reportable segments $ 4,538,720 $10,909,441
Cash and certificate of deposit 468,537 1,003,783
Due from former shareholder 402,503 577,197
Note receivable 3,313,831 2,831,248
Intercompany eliminations 8,480,018 3,971,951
Other unallocated assets 282,307 525,099
----------- -----------
Total consolidated assets $17,485,916 $19,818,719
=========== ===========
</TABLE>
12. FOURTH QUARTER ADJUSTMENTS
The Company recorded in the fourth quarter of 1999 the following
adjustments resulting from a review and assessment of the Company's
financial affairs following a change of ownership in December 1999:
A) Write-off of approximately $1,200,000 of accounts receivable.
B) Sales and receivables of $2,100,000, upon review of management,
were determined to have been inappropriately recorded during the
first three quarters of 1999.
C) Write-off of various liabilities amounting to approximately
$700,000.
D) Other items amounting to approximately $500,000.
13. SALE OF RAPID TRANSIT COURIER
During September 1999, Rapid Transit Courier ("Rapid"), a subsidiary of
the Company which owns all of the assets of a on-call and scheduled
courier business located in the Atlanta metro area, sold certain assets
(see below) to Central Delivery Service of Washington, Inc.
("Purchaser").
The sale includes the following assets of Rapid:
1) Customer list containing the names of customers for which Rapid
provided services.
2) An assignment, to the extent assignable, of all on-call and
scheduled courier customer contracts currently in effect.
3) Billing and accounts receivable information for the customer list.
4) All written route instructions related to Rapid's customers.
5) Transfer of Rapid's phone numbers to Purchaser.
The purchase price of the sale is three percent of the revenue
collected from the customers on the Customer List for a period of two
years from the Closing Date remitted to Rapid on a quarterly basis. The
amount due the Company for the three months ended December 31, 1999 was
not material.
F-30
<PAGE> 67
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
14. CAPITAL STOCK
REDUCTION IN CALL AND EXERCISE PRICE
On April 14, 1999, the Company announced that the Board of Directors
approved the reduction in the exercise price of its public warrants
from $6.90 to $3.00. The call price of these warrants was also lowered
from $10.50 to $5.00 per share. As a result of this declaration, the
Company can call the public warrants for redemption when the closing
price of its common stock has equaled or exceeded $5.00 per share for
the ten consecutive days ending three days prior to the date of the
redemption notice. At April 14, 1999, there were 1,437,500 warrants
outstanding and trading on the Nasdaq Small Cap Market
SERIES A PREFERRED STOCK ISSUANCE
On October 8, 1999, the Company's board of directors adopted a
resolution providing for an amendment to the Amended and Restated
Articles of Incorporation of the Corporation by incorporating the
Certificate of Designation of the Series A Preferred Stock. The number
of authorized shares of Series A Preferred Stock shall be 3,000 shares,
no par value. The Company is subject to penalties for late filings to
the SEC to register the stock. Outlined below is a summary of the more
significant rights associated with these shares:
- Dividend rights - the shareholders shall be entitled to
receive out of funds legally available, dividends at an annual
rate of $40 per share, payable quarterly in arrears.
- Voting rights - the holders of the Series A Preferred Stock
shall be entitled to no voting rights.
- Conversion rights - the holders of the Series A Preferred
Stock shall be convertible at any time after the dates
provided below until October 2001, into fully paid and
nonassessable shares of Common Stock. One-third of the shares
of Series A Preferred Stock shall be eligible for conversion
on or after January 1, 2000, one-third on or after February 1,
2000 and the final one-third on or after March 1, 2000. All
shares of Series A Preferred Stock will be immediately
eligible for conversion in the event that the average closing
sales price for the Company's common stock for any five
consecutive trading days exceeds $2.00 per share. The shares
of Series A Preferred Stock shall be convertible into the
number of shares of Common Stock that results from dividing
the Original Issue Price multiplied by the number of shares of
Series A Preferred Stock being converted by the Conversion
Price per share in effect at the time of conversion. The
conversion price per share for the Series A Preferred Stock
shall equal 77% of the lower of (i) $2.00 or (ii) the average
closing sales price for the Corporation's common stock for the
five trading days prior to the date of conversion.
F-31
<PAGE> 68
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
14. CAPITAL STOCK (CONTINUED)
- Dissolution rights - in the event of any liquidation,
dissolution or winding up of the Corporation, after paying
debts and distributions to holders of Priority Stock, but
before any payment or distribution of the assets of the
Company shall be made or set apart for the holders of any
Junior Stock of the Company, the holder of each share of the
Series A Preferred Stock shall be entitled to receive from the
assets of the Company available for distribution, an amount in
cash equal to their Original Issue Price per share plus all
accrued and unpaid dividends. If assets remain in the
Corporation, after such payments, these assets would be
allocated on a pro rata basis to all existing shareholders as
if the Series A Preferred Stock had converted each share of
Series A Preferred Stock into the Common Stock at the
applicable conversion price in effect at the time of the
liquidation price to the aforementioned payment.
STOCK REPURCHASE PROGRAM
On March 29, 2000, the Board of Directors authorized the Company to
purchase up to 600,000 shares of the Company's common stock over a
period of one year either on the open market or in privately negotiated
transactions.
F-32
<PAGE> 69
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
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 1999 annual report to stockholders and this Form 10-K, and have
issued our report thereon dated April 11, 2000. 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/ Yohalem Gillman & Company LLP
New York, New York
April 11, 2000
II-1
<PAGE> 70
PROFESSIONAL TRANSPORTATION GROUP LTD. , INC.
VALUATION AND QUALIFYING ACCOUNT
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF PERIOD EXPENSES DEDUCTIONS OF YEAR
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
FOR THE YEAR ENDED:
December 31, 1999 757,765 1,677,715 (1,800,715)(a) 634,765
December 31, 1998 267,578 512,000 (21,813)(a) 757,765
December 31, 1997 63,629 242,829 (38,880)(a) 267,578
</TABLE>
(a) Write-off of uncollectible accounts.
II-2
<PAGE> 71
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1 Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 of the Company's Registration
Statement on Form SB-2, No. 333-24619 (the "Registration Statement")
and the Company's Registration Statement on Form S-3 filed on November
15, 1999, No. 333-90955 (the "1999 S-3"))
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)
4.3 Form of Purchase Agreement for Series A Preferred Stock (incorporated
by reference to Exhibit 4.1 of the 1999 S-3)
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>
<PAGE> 72
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 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")+
10.19 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)*
10.20 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)*
10.21 Professional Transportation Group Ltd., Inc. 1998 Employee Stock
Purchase Plan (incorporated by reference to Exhibit B of the 1998 Proxy
Statement)*
10.22 First Amendment to the Professional Transportation Group Ltd., Inc.
1998 Employee Stock Purchase Plan (incorporated by reference to Exhibit
10.24 of the Company's Annual Report on Form 10-K for the year ended
December 31, 1998, File No. 000-22571)*
<PAGE> 73
<TABLE>
<S> <C>
10.23 Debenture and Warrant Purchase Agreement (incorporated by reference to
the Company's current report on Form 8-K, dated of report January 4,
1999)
10.24 Loan Documents Modification Agreement, dated as of January 15, 2000, by
and between the Company and SouthTrust Bank, N.A.
10.25 Securities Purchase Agreement, dated as of December 31, 1999, between
Logistics Management, L.L.C., Dennis A. Bakal and the Company
(incorporated by reference to the Company's current report on Form 8-K,
date of report December 6, 1999)
10.26 Letter Agreement, dated as of December 31, 1999, by and between Thomson
Kernaghan & Co. Ltd. and the Company (incorporated by reference to the
Company's current report on Form 8-K, date of report December 31, 1999)
13.1 Portions of the Company's 1999 Annual Report to Shareholders
21.1 Subsidiaries of the Company
23.1 Consent of Yohalem, Gillman & Company
23.2 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).
<PAGE> 1
EXHIBIT 10.24
LOAN DOCUMENTS MODIFICATION AGREEMENT
(January 15, 2000)
THIS LOAN DOCUMENTS MODIFICATION AGREEMENT (hereinafter referred to as
this "Amendment") is made and entered into as of the 15th day of January, 2000,
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 the "PTG Guarantors"), U.S. TRUCKING, INC., a
_________ corporation, and LOGISTICS MANAGEMENT, LLC, a ___________ limited
liability company (hereinafter collectively referred to as the "Logistics
Guarantors," and together with each PTG Guarantor, hereinafter collectively
referred to as the "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 PTG Guarantors pursuant to separate
Guaranty of Payment and Performance, each dated November 19, 1997 (hereinafter
each referred to as a "PTG Guaranty"). Certain payment and performance
obligations of Borrower provided for in the Note, the Security Agreement, and
the other Loan Documents are guaranteed by the Logistics Guarantors pursuant to
that certain Guaranty of Payment and Performance dated January 15, 2000
(hereinafter referred to as the "Logistics Guaranty," and together with each
PTG Guaranty, hereinafter collectively referred to as the "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, that certain Loan
Documents Modification Agreement dated October 31, 1998, that certain Loan
Documents Modification Agreement dated December 31, 1998, that certain Loan
Documents Modification Agreement dated May 31, 1999, that certain Loan
Documents Modification Agreement dated September 30, 1999, that certain Loan
Documents Modification Agreement dated October 31, 1999, and that certain Loan
Documents Modification Agreement dated November 30, 1999. 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:
<PAGE> 2
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 January 4, 2000, the outstanding principal balance of the Note is
Six Million Three Hundred Sixty-Five Thousand Seven Hundred Forty-Two and
30/100 Dollars ($6,365,742.30).
2. MODIFICATION OF NOTE. The terms of the Note are hereby modified and
amended, effective as January 15, 2000, 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:
"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 March 30, 2000, 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
March 30, 2000.
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 definition of "Borrowing Base" set forth in paragraph 1 of the
Loan Agreement is deleted in its entirety and replaced with the following:
"Borrowing Base" shall mean eighty percent (80%) of Eligible
Accounts; provided, however, if prior to February 15, 2000 Bank
provides Borrower with a written notice indicating that the
results of an audit of Borrower's Eligible Accounts being
performed by or on behalf of Bank require, in Bank's sole and
absolute discretion, the Borrowing Base to be a different percent
of Eligible Accounts (which may be greater than or less than
eighty percent [80%]), then as of the date of said notice to
Borrower, Borrowing Base shall mean that percent of Eligible
Accounts set forth in said notice to Borrower."
(c) Paragraph 7(c) of the Loan Agreement is modified by deleting the
second sentence thereof, which presently reads "In addition to the quarterly
Borrowing Base Certificate and aging of Borrower's accounts receivable,
Borrower shall also provide Lender a Borrowing Base Certificate on a weekly
basis and an aging of Borrower's accounts receivable dated the 2nd and the 16th
of each calendar month, together with acceptable supporting documentation
enabling Bank to determine the amount of Eligible Accounts" and replacing it
with the following:
"Borrower shall also provide Bank with a Notice of Revolving
Credit Advances on a daily basis, and a Borrowing Base Certificate
and an aging of Borrower's accounts receivable on a weekly basis
(said weekly Borrowing Base Certificate
-2-
<PAGE> 3
and aging of accounts receivable to be provided to Bank each
Monday and reflect all activities through the prior Wednesday),
which Borrowing Base Certificate and accounts receivable aging
shall also include acceptable supporting documentation enabling
Bank to determine the amount of Eligible Accounts."
5. 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.
6. NO DEFENSES; RELEASE. For purposes of this Paragraph 6, 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.
7. 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.
8. 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 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
-3-
<PAGE> 4
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.
9. 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.
10. 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.
11. 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]
-4-
<PAGE> 5
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]
/s/ Dennis A. Bakal
---------------------------------------(SEAL)
DENNIS A. BAKAL
PTG, INC., a Georgia corporation
By: /s/ Dennis A. Bakal
-----------------------------------
Dennis A. Bakal, President
[CORPORATE SEAL]
U.S. TRUCKING, INC., a _________ corporation
By: /s/ Anthony Huff
-----------------------------------
Anthony Huff, Chairman
By: /s/ Dan Pixler
-----------------------------------
Dan Pixler, President
[CORPORATE SEAL]
-5-
<PAGE> 6
LOGISTICS MANAGEMENT, LLC, a ___________
limited liability company
By: /s/ Anthony Huff
-----------------------------------(SEAL)
-------------------------, Manager
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>
W. ANTHONY HUFF Corporate Office
Chairman and Director 1950 Spectrum Circle, Suite B-100
Marietta, Georgia 30067
DENNIS A. BAKAL 678-264-0400
President and Chief Executive Officer
Registrar and Transfer Agent
LINDA K. ROBERTS Registrar & Transfer Company
Vice President/Administration and 10 Commerce Drive
Secretary Cranford, New Jersey 07016
SUSAN P. DIAL Independent Auditors
Chief Financial Officer Yohalem, Gillman & Company, LLP
New York, New York
WILLIAM M. KELLY
Vice President/Transportation General Counsel
Smith, Gambrell & Russell, LLP
STANLEY E. LAIKEN Suite 3100, Promenade II
Vice President/Sales 1230 Peachtree Street, N.E.
Atlanta, Georgia 30309-3592
WILLIAM R. ASBELL, JR.
Vice President and General Counsel Annual Shareholders' Meeting
The annual meeting of shareholders
ROBERT E. ALTENBACH will be held on Thursday, June 29,
Director 2000 at 10:00 a.m. local time at the
offices of the company, 1950
GREGORY G. HARDWICK Spectrum Circle, Suite B-100
Director Marietta, Georgia 30067
DANNY L. PIXLER
Director
</TABLE>
<PAGE> 1
EXHIBIT 21.1
COMPANY SUBSIDIARIES
Name State of Incorporation
Timely Transportation, Inc. Georgia
Truck-Net, Inc. Georgia
PTG, Inc. Georgia
Timely Services, Inc. Georgia
TranzPartners.com, Inc. Georgia
<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 April 11, 2000, included in this Form 10-K,
into the Company's previously filed Registration Statement File Nos. 333-90955,
333-70985, 333-57937, and 333-34821.
/s/ YOHALEM GILLMAN & COMPANY LLP
New York, New York
April 14, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report included in this Form 10-K into the Company's
previously filed Registration Statement File Nos. 333-34281, 333-57937,
333-70985, 333-90955.
/s/ Arthur Andersen LLP
- -----------------------
Atlanta, Georgia
April 12, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PROFESSIONAL
TRANSPORTATION GROUP LTD., INC. AUDITED FINANCIAL STATEMENTS FOR THE TWELVE
MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 199,803
<SECURITIES> 268,734
<RECEIVABLES> 6,032,975
<ALLOWANCES> (634,765)
<INVENTORY> 0
<CURRENT-ASSETS> 7,634,059
<PP&E> 9,012,327
<DEPRECIATION> (2,704,102)
<TOTAL-ASSETS> 17,485,916
<CURRENT-LIABILITIES> 13,825,813
<BONDS> 0
325,000
0
<COMMON> 0
<OTHER-SE> (742,939)
<TOTAL-LIABILITY-AND-EQUITY> 17,485,916
<SALES> 41,356,478
<TOTAL-REVENUES> 41,356,478
<CGS> 0
<TOTAL-COSTS> 43,491,845
<OTHER-EXPENSES> (307,438)
<LOSS-PROVISION> 1,677,715
<INTEREST-EXPENSE> 1,066,708
<INCOME-PRETAX> (2,894,637)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,894,637)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,894,637)
<EPS-BASIC> (0.67)
<EPS-DILUTED> (0.67)
</TABLE>
