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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission File No. 000-22571
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PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-1915632
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(State of Incorporation) (I.R.S. Employer Identification No.)
1950 Spectrum Circle, Suite B-100, Marietta, Georgia 30067
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(Address of principal executive offices)
(678) 264-0400
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the registrant has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common Stock, no par value per share, 10,064,064 shares issued and
outstanding as of August 17, 2000.
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
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QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2000
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
INDEX
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Page
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PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999........................... 3
Consolidated Statements of Operations for the three months and six months
ended June 30, 2000 and 1999.................................................................... 4
Consolidated Statements of Cash Flows for the six months ended
June 30, 2000 and June 30, 1999 ................................................................ 5
Notes to the Consolidated Financial Statements.................................................. 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 8
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings.............................................................................. 13
ITEM 4. Submission of Matters to a Vote of Security Holders............................................ 16
ITEM 6. Exhibits and Reports on Form 8-K............................................................... 17
Signatures..................................................................................... 18
</TABLE>
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements -
PROFESSIONAL TRANSPORTATION GROUP LTD., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2000 and December 31, 1999
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
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(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,104,365 $ 199,803
Certificate of deposit 268,734 268,734
Trade accounts receivable, net of allowance for doubtful accounts of
$810,765 at June 30, 2000 and $757,765 at December 31, 1999 20,495,751 5,398,210
Due from affiliate 2,628,347 429,365
Due from shareholder 626,796 402,503
Prepaid expenses 1,241,748 401,169
Other current assets 743,579 534,275
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Total current assets 27,109,320 7,634,059
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PROPERTY AND EQUIPMENT, net 6,012,930 6,308,225
NONCURRENT NOTES AND RECEIVABLES 8,001,613 3,313,831
OTHER ASSETS 1,261,843 229,801
GOODWILL 7,735,101 --
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Total assets $50,120,807 $ 17,485,916
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft $ -- $ 544,610
Accounts payable 6,661,349 2,674,258
Accrued liabilities 4,141,630 2,697,036
Line of credit 13,498,724 6,465,742
Current maturities of long-term debt and capital lease obligations 1,306,322 1,444,167
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Total current liabilities 25,608,025 13,825,813
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LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, net of current maturities
4,484,660 3,840,833
OTHER LIABILITIES 351,545 237,209
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Total liabilities 30,444,230 17,903,855
SHAREHOLDERS' EQUITY:
Series A Convertible Preferred stock; 3,000 shares authorized, 0 and 325 shares
issued and outstanding on June 30, 2000 and December 31, 1999, respectively -- 325,000
Series B Convertible Preferred stock; 4,300 shares authorized, 4,300 and 0 shares
issued and outstanding on June 30, 2000 and December 31, 1999, respectively 4,382,000 --
Common stock; no par value, 20,000,000 shares authorized, 9,607,675 and
5,163,422 issued and outstanding at June 30, 2000 and December 31, 1999,
respectively 9,412,197 --
Warrants -- 353,867
Additional paid-in capital 12,633,773 7,004,655
Accumulated earnings (deficit) (6,751,393) (8,101,461)
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Total shareholders' equity 19,676,577 (417,939)
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Total liabilities and shareholders' equity $ 50,120,807 $ 17,485,916
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
3
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PROFESSIONAL TRANSPORTATION GROUP LTD., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Six Months Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Operating revenues $ 16,781,554 $ 10,774,226 $ 25,896,879 $ 20,576,606
Agency revenues 6,608,088 -- 11,665,687 --
------------ ------------ ------------ ------------
Total revenues $ 23,389,642 $ 10,774,226 $ 37,562,566 $ 20,576,606
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Salaries, wages and benefits 6,145,594 5,177,298 10,617,202 9,647,129
Purchased transportation 9,878,274 1,468,041 13,581,739 2,427,753
Operating supplies and expenses 2,524,637 2,301,643 4,611,435 4,463,155
Fuel and fuel taxes 1,690,272 1,270,323 3,282,022 2,381,903
Communications and utilities 282,792 221,195 436,729 441,209
Depreciation and amortization 303,868 241,693 569,521 487,893
Operating taxes and licenses 104,279 86,597 177,752 233,581
Bad debt expense 130,083 33,000 193,083 36,000
Other operating expenses 1,299,039 544,805 2,160,157 1,041,637
------------ ------------ ------------ ------------
Total operating expenses $ 22,358,838 $ 11,344,595 $ 35,629,640 $ 21,160,260
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS $ 1,030,804 $ (570,369) $ 1,932,926 $ (583,654)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (351,001) (231,713) (657,339) (504,149)
Other income, net 68,568 94,130 74,481 166,175
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE (921,628)
INCOME TAXES $ 748,371 $ (707,952) $ 1,350,068 $ (921,628)
------------ ------------ ------------ ------------
PROVISION FOR INCOME TAXES -- -- -- --
NET INCOME (LOSS) $ 748,371 $ (707,952) $ 1,350,068 $ (921,628)
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON
SHARE - basic $ 0.10 $ (0.17) $ 0.23 $ (0.23)
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON
SHARE - diluted $ 0.08 $ (0.14) $ 0.19 $ (0.19)
============ ============ ============ ============
Weighted average common and common
equivalent shares outstanding - basic 7,817,937 4,236,950 5,971,218 4,065,728
============ ============ ============ ============
Weighted average common and common equivalent
shares outstanding - diluted 9,089,421 4,950,429 7,242,703 4,852,786
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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PROFESSIONAL TRANSPORTATION GROUP LTD., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
Six Months
Ended June 30,
------------------------------
2000 1999
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(Unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,350,068 $ (921,628)
-----------
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 569,522 487,893
Provision for doubtful accounts 193,083 --
Changes in operating assets and liabilities:
Trade accounts receivable, net (15,290,624) (3,101,226)
Other current assets (5,737,664) (498,097)
Increase in other liabilities 114,366 (112,330)
Increase in other assets (1,032,042) --
Accounts payable and accrued liabilities 5,431,635 2,526,099
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Total adjustments (15,751,674) (585,331)
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Net cash used in operating activities (14,401,606) (1,506,959)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (214,205) (21,530)
Advances to affiliate (2,198,912) --
Goodwill (7,795,165) --
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Net cash used in investing activities (10,208,352) (133,860)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayment of) line of credit 7,032,982 (180,433)
Cash overdraft (544,610) --
Repayments of long-term debt and capital lease obligations 505,982 (667,537)
Net proceeds from sale of preferred stock, common stock
and common stock purchase warrants 18,744,459 200,000
Advance to shareholder (224,293) 271,020
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Net cash provided by (used in) financing activities 25,514,520 (376,950)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 904,562 (2,017,769)
CASH AND CASH EQUIVALENTS, beginning of period 199,803 (1,003,783)
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CASH AND CASH EQUIVALENTS, end of period 1,104,365 $(3,021,552)
------------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
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PROFESSIONAL TRANSPORTATION GROUP LTD., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
1. ORGANIZATION AND OPERATION
Professional Transportation Group Ltd., Inc. ("PTG, Ltd.") serves as a
holding company for its operating subsidiaries, Timely Transportation, Inc.
("Timely"), Truck-Net, Inc. ("Truck-Net"), Timely North, Inc. ("Timely-North"),
PTG, Inc., Timely Services, Inc., DTSI Acquisition, Inc. ("DTSI") and
TranzPartners.com, Inc. ("TranzPartner") (collectively, the "Subsidiaries")
(PTG, Ltd. together with the Subsidiaries is hereafter referred to as the
"Company"). The Company, through the Subsidiaries, provides transportation and
logistics services primarily for the air freight and time-definite industries
throughout the continental United States. Timely operates a fleet of
company-owned and leased vehicles to provide time-definite truckload
transportation services for companies in the air freight and expedited delivery
markets. Timely also provides brokerage services to shippers and forwarders,
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 floor covering industry (1998 and 1997). PTG, Inc.
operated a courier service in the Atlanta, Georgia, metropolitan region (d/b/a
Rapid Transit) and continues to provide 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 Timely
North in April 1998 and Rapid Transit in the last quarter of 1999. The
operations of Truck-Net were discontinued in the first quarter of 2000, and the
Company's brokerage business is now conducted through its Timely subsidiary. The
Company acquired DTSI in May 2000. DTSI operates a less-than truckload ("LTL")
consolidation business in the continental United States, and has over 40 offices
operating in that area. TranzPartner is in its formative stages, and is
anticipated to furnish Internet-based services and products to transportation
providers, as well as to furnish application service provider ("ASP") services
to its clientele. For the quarter ended June 30, 2000, TranzPartner did not yet
have any revenue.
FINANCIAL CONDITION
The Company had working capital of $1,501,295 at June 30, 2000, which
includes a liability of $13,498,724 under the Company's line of credit
agreement. The Company had a working capital deficit of $6,191,754 at December
31, 1999. The line of credit was increased from a maximum of $10,000,000 to
$16,000,000 during the quarter ended June 30, 2000. This agreement is currently
due to expire on September 30, 2000. Management is negotiating an extension of
its line of credit agreement and 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. 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.
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INCOME TAXES
Net operating loss carryforwards will be utilized to fully offset
income generated in the second quarter of 2000. Therefore, no income tax
provision was recorded.
3. BASIS OF PRESENTATION
In the opinion of management, the unaudited consolidated financial
statements contain all normal and recurring adjustments necessary to present
fairly the consolidated financial position of the Company at June 30, 2000 and
the consolidated results of the Company's operations and its cash flows for the
three-month and six-month periods ended June 30, 2000 and 1999. Certain
information and footnote disclosures usually found in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. Operating results for the interim periods are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000.
4. BUSINESS SEGMENT INFORMATION
The following table summarizes revenues and operating income by
business segment for the six months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
TIMELY TRUCK-NET PTG, INC. DTSI TOTAL
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<S> <C> <C> <C> <C> <C>
2000:
Revenues from external customers $31,380,483 $ 68,532 $ 132,486 $5,981,065 $37,563,566
Intersegment revenues 655,851 1,700 -- -- 657,551
Operating profit 2,048,187 (86,047) (2,649) 57,144 2,016,635
1999:
Revenues from external customers $16,434,580 $3,750,159 $ 391,867 $ -- $20,576,606
Intersegment revenues 1,305,005 211,052 -- -- 1,516,057
Operating profit (787,771) 108,728 91,391 -- (587,652)
</TABLE>
The following table reconciles segment profit to consolidated income
for the six months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Total operating profit for reportable segments $ 2,016,635 $(587,652)
Interest expense (582,858) (504,149)
Salaries, wages and benefits -- --
Other unallocated amounts 83,709 170,173
----------- ---------
Total consolidated income (loss) $ 1,350,068 $(921,628)
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following analysis of the Company's financial condition as of June
30, 2000 and the Company's results of operations for the three and six month
periods ended June 30, 2000 and 1999 should be read in conjunction with the
Company's Consolidated Financial Statements and notes thereto. The following
discussion contains statements which constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These statements
appear in a number of places in this Quarterly Report and include all statements
that are not 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 (including, but not
limited to, its ability to extend its credit facility or enter into new
arrangements to replace such facility); (iii) the Company's growth strategy and
operating strategy (including, but not limited to, issues related to Year 2000
compliance); and (iv) the declaration and payment of dividends. The words "may,"
"would," "could," "will," "expect," "estimate," "anticipate," "believe,"
"intend," "plans," and similar expressions and variations thereof are intended
to identify forward-looking statements. Investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, many of which are beyond the Company's ability to
control. Actual results may differ materially from those projected in the
forward-looking statements as a result of various factors. Among the key risks,
assumptions and factors that may affect operating results, performance and
financial condition are the Company's reliance on a small number of customers
for a larger portion of its revenues, fluctuations in its quarterly results,
ability to continue and manage its growth, Year 2000 risks and concerns,
liquidity and other capital resources issues, competition and the other factors
discussed in detail in the Company's filings with the Securities and Exchange
Commission, including, but not limited to, the "Risk Factors" section of the
Company's Registration Statement on Form S-3 (Registration Number 333-90955), as
declared effective by the Securities and Exchange Commission on May 22, 2000.
The financial information provided below has been rounded in order to simplify
its presentation. However, the percentages provided below are calculated using
the detailed financial information contained in the Consolidated Financial
Statements and the notes thereto.
OVERVIEW
Through December 31, 1996 the Company, Timely and Truck-Net operated as
three separate entities. At that time, Dennis A. Bakal, the Company's then
majority stockholder and then sole director, owned all of the shares of Timely
and Truck-Net. Effective January 1, 1997, Mr. Bakal contributed his ownership in
Timely and Truck-Net to the Company, along with his ownership of PTG, a
previously inactive company. On December 31, 1996, PTG acquired certain assets
(subject to certain liabilities), operating authorities, names and customer
lists of Rapid Transit ("Rapid"), the courier division of a company controlled
by Mr. Bakal, and certain fixed assets from another company owned by Mr. Bakal,
all in exchange for amounts due the Company, Timely and Truck-Net from the
former corporate owner of Rapid. On June 19, 1997, the Company completed its
initial public offering, which resulted in net proceeds to the Company of
approximately $5.7 million.
On December 3, 1999, Mr. 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 comprised approximately 56% of the outstanding
voting shares of the Company. The purchase price for the shares was $3 million,
the bulk of which was represented by a promissory note to Mr. Bakal. Logistics
is a controlling shareholder in U.S. Trucking, Inc. (OTC: USTK). W. Anthony
Huff, the Company's Chairman and a director, and Danny L. Pixler, a director of
the Company, are the principals of Logistics.
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 six months ended June
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30, 2000 and 1999, FedEx accounted for approximately 26% and 51%, respectively,
of the Company's consolidated revenues. Since the inception of the agreement,
the Company has consistently exceeded the required performance standards under
the agreement. The term of the Company's agreement with FedEx has been extended
to May 2001.
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. In the second
quarter of 1999 Timely initiated its agency program which is a cooperative for
smaller, time-definite, expedited truckload carriers and brokers that operate
under the Company's authority as agent. The agents are provided access to the
Company's application software and global positioning technologies and receive
economies of scale through the Company's purchasing power and billing and
collection services.
Truck-Net, a licensed freight broker, performed truckload brokerage
services in the same air freight and expedited delivery markets served by Timely
until the second quarter of 2000. As a broker, Truck-Net matched a shipper with
a specific routing and/or equipment need with a carrier able to satisfy the
shipper's particular requirements. In September 1999 Truck-Net's largest
customer, Panalpina, the U.S. subsidiary of a major European air freight
forwarder, began servicing its needs in-house. As a result, Truck-Net recorded
significantly reduced revenues during the first quarter of 2000 and ceased
operations at that time. All carriers used by Truck-Net and Timely are required
to be properly certificated and to have a current certificate of insurance.
The Company on October 31, 1997 through its Timely North subsidiary
began managing the operations of Carpet Transport, Inc. ("CTI"). Timely North
discontinued its operations on March 31, 1998 after extensive analysis of losses
incurred as a result of managing the operations of CTI.
RESULTS OF OPERATIONS
Three Months and Six Months Ended June 30, 2000 compared to Three Months and Six
Months Ended June 30, 1999
GENERAL
The quarter ended June 30, 2000 encompassed an intense period of growth
activity for the Company. On May 17, 2000, the Company closed its acquisition of
DTSI from the then-DTSI shareholders through the issuance of 1,860,000 shares of
the Company's common stock and the provision of a secured loan to the DTSI
shareholders in the amount of $4,650,000. The transaction was effected as a
merger of DTSI into a wholly-owned subsidiary of the Company, DTSI Acquisition,
Inc. As a result of the transaction, the Company recorded goodwill of
$7,170,165, and is amortizing this goodwill over a 20-year period. The charge to
earnings in the quarter ended June 30, 2000 as a result of this transaction was
approximately $45,000. It is anticipated that the charge to earnings as a result
of this transaction will be approximately $30,000 per month over the next 20
years. DTSI continues to be operated by its former management, all of whom are
employed by the Company pursuant to written employment agreements providing for
non-competition and non-solicitation covenants by each former DTSI shareholder
and DTSI senior management. Upon the effective date of the merger, DTSI brought
to the Company unencumbered accounts receivable of over $6,000,000, which
substantially contributed to the Company's ability to assure sufficient cash
flow for its growing operations.
The Company believed at the time of the merger and currently believes
that DTSI is a substantial positive acquisition, both in terms of DTSI's
financial position, its position in the marketplace, its reputation, and its
management. DTSI had no debt other than trade payables, and its assets were not
encumbered in any way. As noted above, DTSI's accounts receivables became a part
of the Company's borrowing base with the Company's principal lender, and offer
the opportunity to provide substantial additional working capital for the
Company's operations.
As noted above, management of DTSI was unchanged after the acquisition,
and management continues as employees of the Company. The acquisition of DTSI
presents the opportunity for a synergy of operations and the
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acquisition of valuable management talent that would not have been available to
the Company in the absence of the acquisition. The Company is currently
negotiating additional acquisitions and strategic alliances to further enhance
DTSI's position in the transportation marketplace.
On June 8, 2000, the Company entered into its largest ever agency
agreement with Preferred Transportation, based in El Paso, Texas. Preferred
Transportation operates over 250 tractors and over 850 trailers coast-to-coast.
The inclusion of Preferred Transportation in the agency program is expected to
generate at least $25 million in annual revenues for the Company.
Under the terms of the agency agreement, the Company will provide
administrative, safety and communication services to Preferred Transportation.
Preferred Transportation will realize economies of scale by participating in the
purchase of certain overhead and other items, such as maintenance and fuel.
Preferred Transportation is a multi-faceted company focusing on expedited
truckload, and international truckload freight to/from Mexico. Preferred
Transportation was organized approximately 10 years ago to specialize in
transportation to and from the El Paso/Juarez gateway to/from Los Angeles and
the Southern California market. It now operates coast-to-coast. Since its
organization, Preferred Transportation has developed a strong working
relationship and network of carriers into the Mexican market. Preferred is an
ISO 9002 registered carrier.
Since its inception on April 12, 1999, the Company's agency program has
signed 16 agent carriers adding approximately $52 million in annual revenue.
During the quarter ended June 30, 2000, the Company successfully
negotiated an extension of time until September 30, 2000 for its line of credit
with its principal lender, and in addition, successfully increased its line of
credit from $10 million to $16 million.
FINANCIAL RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO
THE THREE MONTHS ENDED JUNE 30, 1999.
For the three months ended June 30, 2000, the Company had operating
revenues of $23,389,642, a 117% increase over the same period in 1999 when the
Company had operating revenues of $10,774,226 (as restated). The increase is due
in part to the acquisition of DTSI, which added $5,981,065 in revenues that were
not included in the 1999 period, and the agency program, which added $6,608,088
in revenues that were not included in the 1999 period. It should be noted,
however, that the Company enjoyed the revenue benefit of the DTSI merger only
commencing with the effective date of the merger on May 17, 2000. Similarly, the
Company enjoyed the benefit of the agreement with its largest agent, Preferred
Transportation, only commencing upon its effective date of June 8, 2000.
Operating expenses for the three months ended June 30, 2000 increased
to $22,358,838 from $11,344,595 for the same period in 1999, representing an
increase of 97%. This increase primarily results from direct costs related to
the increased revenues discussed above and the increase in average industry fuel
prices to $1.42 per gallon in the second quarter of 2000 from $1.08 per gallon
in the same period of 1999.
Operating income for the three months ended June 30, 2000 was
$1,030,804, as compared to an operating loss of $570,369 for the same period in
1999. The DTSI transaction and the growth in the agency program were primarily
responsible for the improved result.
Net non-operating expenses were $282,433 for the three months ended
June 30, 2000 compared to $137,583 in the comparable period of 1999 due to
increased borrowings under the Company's line of credit. Interest expense
increased 51% to $351,001 for the three months ended June 30, 2000 from $231,713
in the comparable period, primarily as the result of growth in the borrowing
base due to the growth in the Company's agency program and the acquisition of
DTSI.
No income tax expense has been recognized for the three months ended
June 30, 2000 or 1999 due to available net operating loss carryforwards.
10
<PAGE> 11
The Company's net income was $748,371, or $0.08 per diluted share, for
the three months ended June 30, 2000 as compared to a net loss of $707,952, or
$0.14 per diluted share, for the three months ended June 30, 1999.
FINANCIAL RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO
THE SIX MONTHS ENDED JUNE 30, 1999.
For the six months ended June 30, 2000, the Company had operating
revenues of $37,562,566, an 83% increase over the same period in 1999 when the
Company had operating revenues of $20,576,606. The increase is due in part to
the DTSI acquisition, which added $5,981,065 in revenues that were not included
in the 1999 period, and the agency program, which added $11,665,687 in revenues
that were not included in the 1999 period.
Operating expenses for the six months ended June 30, 2000 increased to
$35,629,640 from $21,160,260 for the same period in 1999, representing an
increase of 68%. This increase primarily results from direct costs related to
the increased revenues discussed above and the increase in average industry fuel
prices to $1.38 per gallon in the second quarter of 2000 from $0.96 per gallon
in the same period of 1999.
Operating income for the six months ended June 30, 2000 was $1,932,926,
as compared to an operating loss of $583,654 for the same period in 1999. The
DTSI transaction and the agency program were primarily responsible for the
improved result.
Net non-operating expenses were $582,858 for the six months ended June
30, 2000 compared to $337,974 in the comparable period of 1999 due to increased
borrowings under the Company's line of credit. Interest expense increased 30% to
$657,339 for the six months ended June 30, 2000 from $504,149 in the comparable
period, primarily as the result of growth in the borrowing base due to the
growth in the Company's agency program and the acquisition of DTSI.
No income tax expense has been recognized for the six months ended June
30, 2000 or 1999 due to available net operating loss carryforwards.
The Company's net income was $1,350,068, or $0.19 per diluted share,
for the six months ended June 30, 2000 as compared to a net loss of $921,688, or
$0.19 per diluted share, for the six months ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $1,501,795 at June 30, 2000, which
includes a liability of $13,498,724 under the Company's line of credit. The
Company had a working capital deficit of $6,191,754 at December 31, 1999. This
improvement in working capital is primarily due to the increase in accounts
receivable to $20,495,751 at June 30, 2000 compared to $5,398,210 at December
31, 1999. The increase in accounts receivable results primarily from the
inclusion of the accounts receivable of both DTSI and Preferred Transportation.
During the first quarter of 2000, the Company issued $1.2 million of
its 10% convertible debentures due on January 31, 2003 and increased
shareholders' equity an additional $3.4 million primarily through option and
warrant exercises and the sale of the Company's common stock in private
transactions. During the second quarter of 2000, the Company issued $4.3 million
of its Series B Convertible Preferred Stock.
The Company has available a combined $16 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 Chief Executive
Officer and bears interest at a rate equal to 0.75% above the bank's base rate
(as defined in the lending agreement). At June 30, 2000, the Company had
$13,498,724 outstanding under the line of credit. This facility is scheduled to
mature on September 30, 2000. The Company is currently negotiating a further
extension and other modified terms with the bank regarding the facility.
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. Pursuant to the loan
agreement with the bank, the Company must satisfy certain financial and other
covenants. As of June 30, 2000, the Company was in default under several
non-monetary covenants. The Company has received from the bank waivers of
compliance with these covenants.
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<PAGE> 12
While the Company continues to work with its bank to extend and/or
modify its credit facility, the Company has ongoing discussions with others in
order to determine a satisfactory path with respect to the Company's liquidity
issues. The Company believes that any new credit arrangements, if entered into,
along with the additional debt and equity transactions discussed above, and the
continued growth of the agency program will be sufficient to satisfy its
contemplated cash requirements over the next 12 months. The Company's financial
requirements will depend upon, among other things, the growth rate of the
Company's business, the amount of cash generated by operations and the Company's
ability to borrow funds or enter into lease or purchase financing arrangements
for the acquisition of new equipment or for working capital purposes. Should the
Company require additional debt or equity financing to support its operations or
to make acquisitions, there can be no assurance that such additional financing
will be available to the Company on commercially reasonable terms, or at all. If
the company is unable to replace its existing line of credit prior to any
extended maturity date, the Company's business, financial condition and results
of operations would be materially adversely affected. As a result of this
uncertainty, the Company's independent certified public accountants added an
explanatory paragraph to their report on the Company's financial statements for
the year ended December 31, 1999 which makes references to the substantial doubt
regarding the Company's ability to continue as a going concern. Certain of the
statements in this paragraph are "forward-looking" statements which are subject
to the risks and uncertainties discussed above.
INFLATION
Inflation has not had a material effect on the Company's operations. If
inflation increases, the Company will attempt to increase its rates to offset
its increased expenses. No assurances can be given, however, that the Company
will be able to adequately increase its prices in response to inflation.
12
<PAGE> 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
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 alleged 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. CIT dismissed
the case without prejudice in June 2000.
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
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 July 12, 2000, the Chapter 7 Trustee of the Carpet Transport
Bankruptcy filed an adversary proceeding entitled Phillip F. Woodward, Chapter 7
Trustee v. Professional Transportation Group Ltd., Inc., Timely Transportation,
Inc. and Timely North, Inc. in the above-captioned bankruptcy case. The Chapter
7 Trustee is seeking damages against the Company, Timely North and Timely for
breach of contract under the Marketing Agreement entered into by and between
Timely North and CTI. The Trustee has also filed claims against the
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<PAGE> 14
Company, Timely North and Timely for negligence and failing to protect, preserve
and maintain CTI's assets and operations, for failure to comply with Article IX
of the Official Code of Georgia Annotated in exercising reasonable care in the
preservation of CTI's property, for conversion of CTI's assets, for willfully
converting CTI's property to its own use, for negligence and for breach of
fiduciary duty. The Trustee also seeks avoidance of the Marketing Agreement,
avoidance of transfers of a lease refund from Paccar Financial, avoidance of and
turnover of proceeds from Timely's alleged disposition of CTI's LTL Division,
and avoidance of a corrective warranty deed executed in October 1997. In
addition, the Trustee claims that the Company, Timely and Timely North are
jointly and severally liable for any damages sought by the Trustee pursuant to
the tort claims and are jointly liable for the breach of contract claims under a
conspiracy theory. The Trustee's complaint also alleges that Timely North became
the alter ego of and successor to CTI and that Timely is the alter ego and
successor to Timely North. The Trustee seeks court approval to pierce the
corporate veils of Timely North, Timely and the Company under the doctrines of
alter ego and corporate continuity. The complaint also seeks general damages,
punitive damages, attorneys' fees and requests a declaratory judgment
determining the amount and status of the Company's alleged secured claim. The
Company, Timely North and Timely will answer, defend and counterclaim against
the Trustee's allegations and intend to vigorously defend against any such
claims. These claims of the Trustee have been asserted in the existing
litigation between the parties as discussed above. The Company, Timely North and
Timely intend to file counterclaims and indemnity claims against the Trustee and
the CTI bankruptcy estate. Discovery in this case is proceeding.
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.
An action was filed against Timely and Timely North entitled 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. Timely and
Timely North plan to file a motion for summary judgment in the near future.
An action was filed against Timely and Timely North entitled 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 $103,157.46 for truck parts. Timely North did not
content liability, and default judgment was entered in 1998 against Timely North
for the full amount sought by the plaintiff. Timely has filed an answer denying
liability, and is vigorously defending against plaintiff's claims. Cross motions
for summary judgment are pending in the case.
An action was filed against the Company, Timely and Timely North
entitled 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.
An action was filed against the Company entitled 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
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<PAGE> 15
alleged workers' compensation insurance audit premiums, dating back to 1994.
Timely has filed an answer denying responsibility for such premiums and intends
to vigorously defend this matter. The case is awaiting trial.
An action was filed against the Company, Timely and Timely North
entitled 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.
An action was filed against the Company entitled 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.
An action was filed against the Company entitled Michelin North
America, Inc. v. Professional Transportation Group Ltd., Inc., Case No.
2000A854-5, State Court of Cobb County, Georgia. The plaintiff filed suit in
February 2000, seeking $56,373.19 allegedly past due on account for goods sold,
plus interest. The Company has negotiated a settlement of this case, which calls
for the Company to pay the principal alleged to be due over a six-month period.
It is anticipated that the case will be dismissed upon satisfaction of the
settlement.
An action was filed against Truck-Net styled as International Container
Express, Inc. v. Truck-Net, Inc., Case No. 99L14111, Circuit Court of Cook
County, Illinois. The 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.
The Company is not a party to any other material legal proceedings.
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<PAGE> 16
Item 4. Submission of matters to a Vote of Security Holders - The Annual
Meeting of the Shareholders of the Company was held on June 29, 2000 for the
following purposes:
1. to elect five directors to serve for one-year terms;
2. to consider and act upon the proposal to amend the Company's
1996 Stock Option Plan to increase the shares reserved for
issuance thereunder from 2,000,000 to 3,000,000;
3. to approve the issuance of sufficient shares of the Company's
common stock to permit conversion of 100% of the Company's
Series B Convertible Preferred Stock into shares of common
stock; and
4. to approve the issuance of shares of the Company's common
stock to the stockholders of Dedicated Transportation
Services, Inc. in order to comply with the corporate
governance requirements of the Nasdaq Stock Market.
Only shareholders or record at the close of business on May 26, 2000
were entitled to vote at the Annual Meeting. Proxies for the meeting
were solicited pursuant to the Georgia Business Corporation Code, and
there was no solicitation in opposition to management's solicitations.
Proxies and ballots were received from the holders of 5,952,970 shares
of the Company's common stock, representing 72.8% of the outstanding
shares of common stock. The results were as follows:
1. The five individuals nominated to serve as directors were
elected with the number of votes for and withheld as indicated
below:
<TABLE>
<CAPTION>
Nominee For Withheld
--------------- --------- --------
<S> <C> <C>
Dennis A. Bakal 5,935,120 17,850
W. Anthony Huff 5,935,120 17,850
Danny L. Pixler 5,935,120 17,850
Robert E. Altenbach 5,935,120 17,850
Gregory G. Hardwick 5,935,120 17,850
2. For Against Abstain
--- ------- -------
4,002,473 97,310 10,200
3. For Against Abstain
--- ------- -------
4,079,583 20,400 10,000
4. For Against Abstain
--- ------- -------
4,089,583 20,200 200
</TABLE>
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<PAGE> 17
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<S> <C>
2.1 Agreement and Plan of Merger dated May 17, 2000 by and among the
Company, DTSI Acquisition, Inc., Dedicated Transportation Services,
Inc. and the stockholders of Dedicated (incorporated by reference from
the Company's Current Report on Form 8-K dated May 17, 2000 (the
"8-K"))*
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, amended, No. 333-24619 (the "Registration
Statement") and the Company's Registration Statement on Form S-3 filed
on November 15, 1999, No. 333-90955.
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.
10.1 Convertible Preferred Stock and Warrants Purchase Agreement for the
purchase of Convertible Series B Preferred Stock (incorporated by
reference from the 8-K)
10.2 Promissory Note dated May 17, 2000 by Serra/Martin Living Trust to the
Company (incorporated by reference from the 8-K)
10.3 Promissory Note dated May 17, 2000 by Mark Kapper to the Company
(incorporated by reference from the 8-K)
10.4 Stock Pledge Agreement dated May 17, 2000 by and between the Company
and Mark Kapper (incorporated by reference from the 8-K)
10.5 Stock Pledge Agreement dated May 17, 2000 by and between the Company
and Serra/Martin Living Trust (incorporated by reference from the 8-K)
10.6 Proceeds Agreement dated May 17, 2000 by and among the Company and the
stockholders of Dedicated (incorporated by reference from the 8-K)
99.1 Historical Financial Statements for Dedicated Transportation Services,
Inc. (incorporated by reference from the Company's Current Report on
Form 8-K/A dated July 31, 2000 (the "8-K/A"))
99.2 Pro Forma Combined Condensed Financial Statements for the Company and
Dedicated Transportation Services, Inc. (incorporated by reference from
the 8-K/A)
27.1 Financial Data Schedule (for SEC use only).
</TABLE>
* Pursuant to Item 601 (b)(2) of Regulation S-K, the Company agrees to furnish
supplementally a copy of any omitted schedule or exhibit to the Securities and
Exchange Commission upon request.
(b) Reports on Form 8-K.
The Company filed one current report on Form 8-K during the second
quarter of 2000:
(1) Current Report filed on May 23, 2000 with respect to the
Company's acquisition of Dedicated Transportation Services, Inc.
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<PAGE> 18
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
Date: August 17, 2000 By: /s/ Dennis A. Bakal
--------------- -----------------------------------------
Dennis A. Bakal
President and Chief Executive Officer
(principal executive officer)
Date: August 17, 2000 By: /s/ William R. Asbell, Jr.
--------------- -----------------------------------------
William R. Asbell, Jr.
Interim Chief Financial Officer, Vice President
and General Counsel
(principal financial and accounting officer)
18
