UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
(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 ___________________ to _____________________
Commission file Number 33-29985-NY
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THE FREIGHT CONNECTION, INC.
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(Exact name of registrant as specified in its charter)
Delaware 8980 11-2994672
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(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
9870 Highway 92, Suite 110, Woodstock, Georgia 30188
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(Address of principal executive offices)
Registrant's telephone number, including area code: (770) 517-7744
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to filing requirements for the
past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant 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]
As of March 22, 2000, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $482,163
As of March 22, 2000, the number of shares of Common Stock outstanding was
4,825,630
<PAGE>
THE FREIGHT CONNECTION, INC.
REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
PART I
Item 1. Business..............................................................3
Item 2. Properties............................................................9
Item 3. Legal Proceedings....................................................10
Item 4. Submission of Matters to a Vote of Security Holders..................10
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters..............................................................10
Item 6. Selected Financial Data..............................................12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 13
Item 8. Financial Statements and Supplementary Data..........................16
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................16
PART III
Item 10. Directors and Executive Officers of the Registrant; Compliance with
Section 16(a) of the Exchange Act....................................16
Item 11. Executive Compensation...............................................17
Item 12. Security Ownership of Certain Beneficial Owners and Management.......19
Item 13. Certain Relationships and Related Transactions.......................20
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.............................................................21
Signatures....................................................................23
2
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Item 1. BUSINESS
The Company: Organization and Changes of Control
The Company was organized under the laws of the State of Delaware on
December 16, 1987, under the name Taylor Equities, Inc. ("Taylor"). The Company
was formed as a "blank check" company, with its sole purpose being to offer its
stock to the public in a public offering and thereafter use the proceeds to find
an acquisition or merger candidate. On December 23, 1991, Taylor entered into an
Agreement and Plan of Merger (the "Merger Agreement") with The Freight
Connection, Inc., ("FCI") a Florida corporation organized in October 1983
("FCI") by Michael Jackson, former President of the Company, under the name
"Expert Freight of Tampa, Inc." FCI was organized as an intermodal marketing
company and carried on that business until its combination with Taylor, when FCI
was dissolved. The Company's name was changed from Taylor Equities, Inc., to The
Freight Connection, Inc., and the officers and directors of FCI became the
officers and directors of the Company.
On July 14, 1993, Vitran Corporation Inc. ("Vitran"), a corporation
organized under the laws of the Province of Ontario and having a principal place
of business at 70 University Avenue, Suite 350, Toronto, Canada, M5J 2M4,
acquired 3,218,030 shares of the Company's Common Stock. During 1997, Vitran
purchased an additional 700,000 shares of the Company's common stock, changing
its ownership to 3,918,030 shares, or 81.19% of the Company's outstanding common
stock. Vitran is a North American multi-divisional operating company providing
services to the freight and environmental industries with over 3,000 employees
and associates at over one hundred service centers and offices in Canada and the
United States. Vitran's Distribution Services Group, of which the Company is a
part, provides a complete range of services for the movement of freight
throughout the continent, utilizing both highway and rail modes. Services
include less than truckload, full load, dedicated contract carriage, warehousing
and inventory management. Vitran solicits business between the United States and
Canada as an agent for the Company through a Vitran sales office in Toronto.
Vitran and the Company have an agreement that all intermodal trans-border rail
shipments shall be written by the Company, with Vitran's receiving an agency
commission from the Company for such business. Trans-border over-the-road
shipments may be made by the Company or other Vitran subsidiaries, depending on
the type of service required by the shipper of such freight. Each shipper has
unique requirements for the movement of its freight, including time, shipment
size and volume, and the shipper's inventory carrying costs. Vitran's common
stock is traded on the Toronto Stock Exchange under the symbol VTN.A and on
NASDAQ under the symbol VTNA. See Item 13 of this Report.
In May, 1998, Vitran transferred its ownership in The Freight
Connection, Inc. to Vitran Corporation, a U.S. holding company organized in the
state of Nevada. The purpose of this transaction was to have common ownership
for Vitran's various U.S. subsidiaries, all of which are owned by the Nevada
corporation.
The Intermodal and Highway Brokerage Industry
The Company provides intermodal transportation services and operates as
an intermodal marketing company ("IMC"). Intermodal transportation involves the
movement of freight by more than one mode of transportation, principally by
truck or a combination of truck and rail. The Company also has a highway
brokerage division, which involves the movement of freight by truck.
3
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For freight moving in excess of 500 miles, intermodal shipping often
represents a cost-effective alternative to over-the-road trucking. The Company
includes as its target market freight which is currently being shipped via
intermodal transportation as well as freight moving in excess of 500 miles via
for-hire trucking companies and private trucking fleets. Intermodal freight is
divided equally into shipments generated domestically and those generated by the
import/export market, with international movements slightly exceeding domestic
traffic. Traditionally, the domestic shipments have been long-haul truck
movements, principally truckload. Intermodal has primarily attracted long-haul
freight of 700 miles to 1,000 miles or more; in some corridors, intermodal can
be cost effective for distances as short as 500 miles.
IMCs have created additional opportunities for intermodal shipping by
providing a full door-to-door service to their clients at a price and service
level that would not be available to the shipper on its own. IMCs assist the
railroads in balancing freight originating in or destined to specific geographic
regions, resulting in improved asset utilization. IMCs provide value to shippers
by passing on certain economies of scale by being volume purchasers of rail and
drayage service, providing access to a large equipment pool, consolidating each
carrier's invoice into one single invoice and handling the logistics of an
intermodal move.
During the latter part of 1997, continuing into 1998, there were
several service issues surrounding the railroads, which made highway brokerage
an increasingly viable alternative in order to ensure on-time delivery to
customers. During 1999, these service issues were somewhat resolved. One of the
barriers in 1999 was the consolidation of CONRAIL shipments and assets into the
CSX and Norfolk Southern railroads. This merger, along with other considerations
within the industry, provided an opportunity for the Company to continue its
expansion of its highway brokerage division. In 1999, this division represented
29.1% of the Company's revenues, compared to 18.3%, and 9.8% of the Company's
revenues in 1998 and 1997, respectively.
According to statistics reported by the Intermodal Association of North
America, ("IANA"), IMC rail intermodal traffic for the year ended December 31,
1999, rose by 6.3% over 1998. For the same period, the highway brokerage volume
grew by 9.4%. Revenue per unit for intermodal traffic was relatively flat during
1999, while the highway brokerage revenue per unit was up 15% compared to 1998
data (1).
Historically, establishing an IMC was easy because of the low capital
cost required to enter the carrier business. However, in the last few years the
railroads have restricted the number of IMCs with which they will enter into
wholesale contracts. They increasingly deal only with those that can deliver
certain volumes, and have in most cases required the posting of financial
guarantees before they will extend credit. In addition, market conditions
require that an IMC be able to demonstrate to carriers and shippers its ability
to interface with customers and carriers electronically. These requirements
limit the ability of start-up IMCs to enter the market and may force small IMCs
out of the market if they are unable to continue to meet these requirements. The
Company believes that this trend will be advantageous to the Company. The
Company believes that its financial resources, staff, and computer hardware and
software are sufficient to offer substantially the same or better services than
any of its competitors, and that the Company is able to compete effectively with
any other company engaged in its business.
- -------------------
(1) IANA IMC Market Activity Report, Intermodal Association of North America,
March 2000.
4
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Operations
The Company's services include the tracking of its customers' freight
in-transit, the daily reporting through electronic means of each load's status,
expediting each shipment to ensure it meets its schedule, and the consolidation
of all freight bills within a movement into a single door-to-door invoice,
regardless of how many carriers are utilized. The Company contracts with all
major North American railroads along with drayage carriers and independent stack
train operators. These contracts provide for volume discounts, the ability to
negotiate special commodity pricing and in some instances early payment
incentives in the form of rebates.
The Company believes that a primary component of its business strategy
is the continued improvement of its software and other technology to enhance its
information processing for its intermodal transportation services. The Company
believes that a significant portion of its future growth will depend on its
information technology and accordingly it continues to concentrate in this area.
The Company has several customers online with full electronic data interchange
of information from a shipment's original loading through delivery at
destination.
The Company is primarily a provider of intermodal and highway brokerage
transportation services, yet it continues to expand its service capabilities as
customers increasingly outsource their transportation needs. The Company now
performs logistics functions for a small number of its clients and intends to
expand its logistics capabilities and offer new or additional services to meet
or exceed customer demands.
The Company's Carrier Vendors
An important element of the Company's strategy is to continue to build
and strengthen its close working relationship with each of the major intermodal
railroads in the United States, Canada and Mexico. The Company has contracts
with each of the following Class 1 railroads:
BNSF Illinois Central
Norfolk Southern Union Pacific/Southern Pacific
CSX Transportation Canadian National
Canadian Pacific Wisconsin Central
Kansas City Southern
These contracts govern the terms of transportation with each railroad,
which include payment terms and the various services to be provided by each
rail. The Company negotiates with each railroad in an effort to provide the best
quality service at a favorable price to its client base. These contracts usually
have staggered renewal dates at which time the Company revisits its volume with
that rail and seeks to establish even more favorable contracts for the
continuing years, including rebates for volume shipments. The Company is also
able to negotiate special commodity pricing which provides price discounts on
certain commodities based on competitive factors. The special pricing quotations
are designed, in part, by the railroads to attract new business that the
railroads have not previously handled. In addition, certain of these railroads
offer rebates for fast payment of their invoices.
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The Company also sees its local cartage ("drayage") and over-the-road
carrier base as an integral part of its operations, since the Company's ability
to perform on-time pick up and delivery of product is partially based on the
level of service provided by these carriers. Accordingly, the Company has
programs in place which monitor the performance of each of its carriers. Service
reports are generated monthly and forwarded to each carrier, at which time, if
service failures have occurred, a corrective action is taken by both the Company
and the carrier to improve service levels. The Company's data base of carriers
is maintained and updated regularly to ensure that only approved carriers with
adequate insurance are available for use. The Company continues to seek out
quality carriers throughout North America to enhance its ability to provide
faster service and facilitate the Company's expansion.
The Company's Customers
The Company continued in its efforts to diversify and increase its
customer base in 1999. This was accomplished primarily through the soliciting of
new business by each of the offices (see "Sales and Marketing," below). The
Company performs credit checks on all potential customers to ensure that they
are credit worthy and are able to meet the payment terms established by the
Company.
The Company has transportation agreements with various companies to
perform substantial portions of their transportation needs on agreed-upon
pricing terms for specified routes. Many of these agreements are verbal and
non-binding. Others are binding and in written form, but are cancelable on short
notice. All of the Company's agreements are based upon the Company's price
quotes as accepted by its customers. The quotation document sets forth all of
the terms of the agreement between the parties and includes a liability
disclaimer (see "Liability Issues," below). Quotation documents establish
pricing and delivery terms of freight, and are often used by shippers on a
continuous basis. All agreements based on the Company's written quotations can
be cancelled by either party at any time prior to shipment without penalty.
Many of the Company's customers in the automotive, scrap metal, food
services, retail and spirit industries operate within a multi-divisional
environment. The Company does business with more than one division of several of
its principal customers, and is dependent on the various divisions of such
companies for a substantial portion of its business. As its agreements with
those customers are made on a divisional rather than a corporate basis,
management believes it is not likely that the Company would lose all of the
business of any of its principal customers if it were to lose the business of
any one of their divisions.
During the year ended December 31, 1999, the Company had sales to
various divisions of one major customer, an automobile manufacturer, which
amounted to 33% of total sales, down from 43% in the prior year. The Company
conducts its business with this customer on a multi-divisional basis and the
percentage provided in the preceding sentence is for the aggregate of all
divisions of this customer. The Company has separate agreements with each
division and the percentage of business represented by each division is
substantially less than the corporate aggregate. During June 1999, this customer
placed its business out for bid in a tender process. The result was that the
Company lost a substantial portion of the business, which had a negative impact
on revenues. Due to the fact that the customer evaluates each division
separately, however, the Company was able to retain agreements with certain
divisions. The maximum percentage of sales by any one division is approximately
5% of the Company's total sales.
6
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Sales and Marketing
The Company believes that developing long-term relationships with its
client base is crucial to its continued growth. By developing these long-term
relationships, the Company is able to better understand its customers' needs and
is then able to customize its services to each client. The Company has an
extensive database of existing and potential new clients to which it continually
markets its services.
The Company undertakes a variety of marketing initiatives, including
the use of direct surveys on a client-by-client basis to determine new or
additional customer needs and meet the demand. An approach to a new client
generally involves the assessment of that customer's transportation
requirements. In making its analysis, the Company reviews the customer's
business patterns and determines if the customer is maximizing its
transportation dollar. The Company also seeks to integrate itself into the
customer's environment to determine if there are additional logistic services
the Company can provide. The objective of the Company's analysis is to market
the Company's services by presenting to the customer a program of reducing the
customer's overall costs while offering the customer a superior level of
transportation service.
The Company regularly surveys its customers in order to continually
receive evaluations of the Company's performance, keep abreast of customer
needs, and develop leads for new business.
The Company has sales offices in Atlanta, Georgia, Los Angeles,
California and Chicago, Illinois. In addition, the Company utilizes a
combination of outside commissioned sales agents and internal marketing staff to
support its sales efforts. The Company's commissioned agents are located in
major geographic locations across North America. A unit of Vitran based in
Concord, Ontario, Canada represents the Company as its Canadian agent. Each
outside sales person receives a commission based on a percentage of the gross
profit generated on each movement. The Company is striving to develop commission
sales agreements in all major markets within North America.
In November 1996, the Company obtained its ISO-9000 certification,
which the Company believes will assist its national and international sales
efforts. ISO-9000 is a series of international standards for quality management
systems.
Computer Systems
The Company has invested in the purchase and development of computer
programs that provide pertinent tracking information to its customers on a daily
basis. The Company has also helped develop for its own use a program which
allows for the integration of scheduling, pricing and quotations, routing,
dispatch, tracing, billing and accounting systems for its internal operations.
With the Company's computer systems capability described in the
preceding paragraph, the Company can advise its customers on a regular basis of
the exact location of any shipment. Every customer receives a daily shipment
tracking report, which provides the location of each shipment in transit within
the United States, Mexico and Canada. This technology permits the Company to
solve problems with customers' shipments in many instances before they cause any
delay to the shipper.
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All of the Company's offices are networked into the system so that
up-to-date information is always available for the customers of each location.
The Company uses both in-house and external trained computer
technicians who support the system on an on-going basis. They make the necessary
modifications and enhancements to the system to ensure that the Company is
up-to-date on the latest technological advancements. In addition, they are able
to customize programs to meet specific customer reporting requirements.
Liability Issues
Brokers such as the Company do not generally assume liability for loss
or damage to freight. Since the Company operates as a transportation broker
(that is, a company that finds a carrier to haul a shipper's freight) of
property and a shipper's agent, it does not take possession of the freight and
is therefore not liable for the carrier's failure to perform or the carrier's
negligent performance. The Company has a liability disclaimer as a part of each
freight agreement signed with its customers. This liability disclaimer sets
forth the Company's legal responsibilities and states that since the Company is
acting as a transportation intermediary and not as a carrier, it will not be
liable for loss or damage resulting from the transportation of freight.
Although as a broker it is not responsible for loss of or damage to
freight, the Company will assist the shipper as its agent in the claim
collection process. The Federal Highway Administration does not require a broker
to carry cargo insurance, but it does require a broker's surety bond of $10,000,
the purpose of which is to show financial responsibility and provide surety for
arrangements with carriers and shippers.
Competition
The transportation services industry is highly competitive. The Company
competes against other IMCs, as well as brokers of freight, logistic service
companies and with railroads that attempt to market their own intermodal
services. The Company also competes with over the road carriers who have entered
the intermodal market by converting their long-haul traffic to intermodal.
Competition is based primarily on freight rates, quality of service, reliability
and transit times.
The Company competes with several other IMCs, such as The Hub Group,
Mark VII Transportation, AP Distribution, Alliance Shippers, GST Corporation,
and numerous small regional and local firms. Many of these firms have larger
gross revenues than the Company, however the Company believes that it is an
established IMC able to meet the requirements of railway carriers and shippers
and that it is competitive with the largest IMCs. With the trend towards further
consolidation in the industry, the Company believes that its financial stability
and its continual investment in information systems will uniquely position the
Company for continued growth both through external sales development and the
possible acquisition of other IMCs.
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Employees
At December 31, 1999, the Company had 30 full-time employees engaged in
performing executive, administrative, marketing and clerical duties. These
employees were located in each of the offices, with the majority of the
administrative duties being performed from the Tampa, Florida headquarters. As
of the date of this Report, the Company has 26 full-time employees. With the
relocation of the headquarters from Tampa, Florida, to Atlanta, Georgia, in
March 2000, the Company was able to consolidate some of the job functions,
thereby achieving greater efficiency of its staff. Management intends to add
employees throughout the coming year, as it deems necessary, in order to provide
continuous quality service.
Executive Officers of the Registrant
As of the date hereof, there are two executive officers of the Company.
Richard E. Gaetz serves as the Chief Executive Officer of the Company and has
served in that capacity since October 11, 1996. Geoff Duncan serves as the
President of the Company. He has served in that capacity since April 1, 1998,
replacing Richard Gaetz in that position. Prior to that date, Mr. Duncan served
as the Executive Vice President of the Company. For information as to Mr. Gaetz
and Mr. Duncan's prior business experience, see Item 10 of this Report.
Environmental Matters
The Company does not believe that compliance with federal, state and
local laws and regulations, which have been enacted or adopted regulating the
discharge of materials into the environment, will have any material adverse
impact upon the capital expenditures, earnings, or competitive position of the
Company.
Item 2. PROPERTIES
The Company's corporate headquarters were relocated from Tampa, Florida
to Atlanta, Georgia in March 2000. Prior to this date, the Company leased
approximately 5,000 square feet in Tampa, Florida in a lease, which expired
February 29, 2000. The annual rent for this space was $44,442 for the year ended
December 31, 1999.
The Company rented an office in Atlanta, Georgia under a lease expiring
June 30, 2001. Rent expense incurred under this lease was $25,332 for the year
ended December 31, 1999. In order to accommodate the relocation of the Company's
headquarters to Atlanta, Georgia in March 2000, additional space would be
needed. In December 1999, management of the Company entered into a lease
commitment with the landlords to replace the existing lease with a new agreement
for increased square footage. The new lease expires January 31, 2005.
The Company rented an executive suite for its Los Angeles, California
office until the expiration of the lease on November 30, 1999. At that time, the
Company determined that an executive suite no longer met its needs, so it
entered into a lease in an office building with additional space. This lease
expires November 30, 2004. Rent expense for the Los Angeles location for the
year ended December 31, 1999, was $33,690.
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The Company also leased space in San Francisco, California, Chicago,
Illinois and Minneapolis, Minnesota during 1999. Rent expense incurred for these
three leases for the year ended December 31, 1999, was $11,060, $2,750 and
$9,600, respectively. The expiration dates of these leases were January 31,
2000, May 31, 1999 and February 29, 2000, respectively. The Company made the
decision to close each of these offices and therefore did not renew any of the
leases upon expiration.
Item 3. LEGAL PROCEEDINGS
As of the date of this Report, and for the fiscal year covered by this
Report, the Company was not a party to any material legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fiscal
year covered by this Report.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is quoted on the NASD electronic
bulletin board and in the "pink sheets" under the symbol FTCN. There has never
been an active trading market for the Company's Common Stock, nor does one now
exist.
The National Quotation Bureau, Inc., has advised the Company that the
following bid quotations have been reported:
Bid Prices
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Period High Low
------ ---- ---
January 1 - March 31, 1998 .69 .56
April 1 - June 30, 1998 .75 .69
July 1 - September 30, 1998 .75 .63
October 1 - December 31, 1998 .63 .38
January 1 - March 31, 1999 .41 .38
April 1 - June 30, 1999 .56 .31
July 1 - September 30, 1999 .53 .53
October 1 - December 31, 1999 .53 .34
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Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission. Such quotes are not necessarily representative of
actual transactions, or of the value of the Company's securities, and are in all
likelihood not based upon any recognized criteria of securities valuation as
used in the investment banking community.
The Company has been advised that 8 member firms of the NASD are
currently acting as market makers for the Common Stock. However, there are no
meaningful trading transactions currently for the Company's stock, nor have
there ever been any such transactions. The Company believes that the absence of
such transactions is due in substantial part to its shares of Common Stock being
held by few individuals. There is no assurance that an active trading market
will develop which will provide liquidity for the Company's existing
shareholders.
Neither the Company's certificate of incorporation, its by-laws, nor
any agreement to which it is a party restricts the payment of dividends.
However, a loan agreement established between Republic Bank, St. Petersburg,
Florida, and the Company contains certain covenants concerning the Company's net
worth and ratio of debt to net worth. Payment of dividends could be restricted
if such payment would cause the Company to violate either of these covenants.
The Company has not paid any dividends on its Common Stock.
As of March 22, 2000, there were 29 holders of record of the Company's
Common Stock. Certain of the shares of Common Stock are held in "street" name
and may, therefore, be held by several beneficial owners.
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Item 6. SELECTED FINANCIAL DATA
The following data illustrates the results of operations for the five
years ended December 31, 1995, 1996, 1997, 1998 and 1999, respectively. The data
has been derived from and should be read in conjunction with, the Company's
Financial Statements and related notes included elsewhere in this Report. All
data has been derived from the Company's audited financial statements.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
December December December December December
(000's omitted) 31, 1995 31, 1996 31, 1997 31, 1998 31, 1999
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Freight income $20,014 $22,173 $26,333 $28,094 $26,873
Freight expense 18,044 20,184 23,947 25,480 24,443
------- ------- ------- ------- -------
Gross profit 1,970 1,989 2,386 2,614 2,430
Selling, general and
administrative expenses 1,142 1,486 1,673 2,299 2,348
Depreciation and
Amortization 99 62 69 73 82
------- ------- ------- ------- -------
Income (loss) from 729 441 644 242 0
Operations ------- ------- ------- ------- -------
Other income (expenses) 4 10 21 60 43
------- ------- ------- ------- -------
Income (loss) before 733 451 665 302 43
taxes ------- ------- ------- ------- -------
Income tax expense 285 180 200 125 22
------- ------- ------- ------- -------
Net income (loss) $ 448 $ 271 $ 465 $ 177 $ 21
======= ======= ======= ======= =======
Net income (loss) $ .09 $ .06 $ .10 $ .04 $ .00
======= ======= ======= ======= =======
per share
Financial Position
- ------------------
Working capital $ 1,233 $ 1,405 $ 1,899 $ 2,059 $ 2,127
Total assets $ 3,295 $ 3,759 $ 4,657 $ 5,128 $ 4,580
Stockholders' Equity $ 1,444 $ 1,698 $ 2,163 $ 2,340 $ 2,361
</TABLE>
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Financial Statements appearing elsewhere in this Report. The
information which follows includes results for the years ended December 31,
1997, 1998 and 1999, respectively.
Forward-Looking Statements
Except for the historical statements and discussions contained herein,
statements contained in this report constitute "forward-looking statements" as
defined in the Securities Act of 1933 and the Securities Exchange Act of 1934,
as amended. These forward-looking statements rely on a number of assumptions
concerning future events, and are subject to a number of risks and uncertainties
and other factors, many of which are outside the control of the Company, that
could cause actual results to differ materially from such statements.
Readers are cautioned not to put undue reliance on such forward-looking
statements, each of which speaks only as of the date hereof. Factors and
uncertainties that could affect the outcome of such forward-looking statements
include, among others, market and industry conditions, increased competition,
changes in governmental regulations, general economic conditions, pricing
pressures, and the Company's ability to continue its growth and expand
successfully into new markets and services. The Company disclaims any intention
or obligation to update publicly or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
Liquidity and Capital Resources
The Company has increased its working capital from $2,059,341 at
December 31, 1998, to $2,126,665 at December 31, 1999, an increase of 3.3%. The
Company will use working capital to open additional sales offices as it deems
necessary.
The cash position of the Company at December 31, 1999, was $746,353
compared to $515,125 at December 31, 1998. Many of the Company's customers
require supporting documentation before they will remit payment for an invoice.
At December 31, 1998, the Company was experiencing difficulty with collecting
this paperwork from its carrier vendors. Throughout 1999, the Company has
refined the procedure and this has enabled the Company to provide an invoice to
the customer in a timelier manner, resulting in improved cash flow.
The accounts receivable balance at December 31, 1999, was $3,490,511, a
decrease of $758,207, or 17.8% from December 31, 1998. The accounts payable
balance at December 31, 1999, was $2,219,125, a decrease of $569,097 or 20.4%,
from the prior year. The decrease in both the accounts receivable balance and
the accounts payable balance for December 31, 1999, as compared to the prior
year, is primarily due to the reduction in business that the Company experienced
during the fourth quarter of 1999, as compared to the 1998 fourth quarter.
The Company had a net increase in cash from operations of $296,651 and
$1,163,423 for the years ended December 31, 1999 and 1997, respectively. For the
year ended December 31, 1998, the Company had a net decrease in cash from
operations of $710,376. The net increase in cash from operations for the year
ended December 31, 1999, was primarily due to the reduction in the accounts
receivable balance offset by the reduction in the accounts payable balance. The
net reduction in cash from operations for the year ended December 31, 1998, was
primarily due to the
13
<PAGE>
significant increase in the accounts receivable balance from the prior year, as
well as the start-up costs associated with the opening of sales offices. The net
increase in cash from operations for the year ended December 31, 1997, was
primarily due to the net income of $464,671 for the year, combined with the
decrease in the accounts receivable balance and the increase in the accounts
payable balance.
The Company continues to purchase fixed assets as it deems necessary.
For the years ended December 31, 1999, 1998, and 1997, the Company purchased
fixed assets in the amounts of $65,423, $60,428 and $51,405, respectively, the
majority of which was computer software and equipment.
Stockholders' equity was $2,360,910 at December 31, 1999, compared to
$2,339,616 at December 31, 1998. Earnings per share for the year ended December
31, 1999, were $.00, compared to $.04 and $.10, for the years ended December 31,
1998 and 1997, respectively.
In compliance with provisions in the Company's contracts with certain
railroads, the Company has obtained an unsecured surety bond in the amount of
$150,000. In addition the Federal Highway Administration requires the Company to
maintain a surety bond in the amount of $10,000, which is secured by a
certificate of deposit. In March 1999, the Company obtained an unsecured surety
bond in the amount of $500,000 as a requirement of one of its major customers.
On September 1, 1999, the Company renewed its revolving line of credit
with Republic Bank, St. Petersburg, Florida, in the amount of $2,000,000. This
line is secured by the Company's accounts receivable. The Company intends to use
the line to provide cash required by the Company's acceptance of new business
and for the possible opening of new sales offices. The Company does not have any
outstanding bank debt as of the date of this Report, nor did it have any bank
debt at December 31, 1999.
At December 31, 1999 and 1998, the Company did not have any capital
lease obligations, nor did it have any long-term debt.
Results of Operations
Revenues for the year ended December 31, 1999, were $26,872,967,
compared to $28,094,511 and $26,333,344 for the years ended December 31, 1998
and 1997, respectively. In June 1999, the Company lost a substantial portion of
business from one of its major customers in a tender process. As a result,
revenues generated by this customer decreased by $3,504,553 for the year ended
December 31, 1999, as compared to the prior year. Although the Company obtained
new clients during 1999 and increased the volume from its existing customers, it
was not sufficient to replace the business that was lost. This is the primary
reason for the 4.3% reduction in revenues for the year ended December 31, 1999,
as compared to 1998. The Company also closed the Minneapolis, Minnesota and San
Francisco, California offices during November 1999, which impacted revenues. The
Company retained the majority of the business from the Minneapolis office;
however, most of the business generated by the San Francisco office was lost to
competition. The Company is targeting new customers through its marketing
efforts to replace the lost revenues. The Company is also continuing to expand
its highway brokerage division, and revenues from this division represented
29.1% of revenues for 1999, compared to 18.3% in the prior year. Revenues for
the years ended December 31, 1998 and 1997, included accounts receivable credit
balances in excess of 12 months less certain allowances resulting in a net
increase to revenues ("additional income") of $124,349, and $113,356,
respectively. For the year ended December 31, 1999, there was no increase to
revenues resulting from additional income.
14
<PAGE>
The gross profit margin was 9.0%, 8.9%, and 8.7%, (before additional
income), for the years ended December 31, 1999, 1998, and 1997, respectively.
The industry is extremely competitive; however, through better pricing and
tightly managed expenses, the Company continues to improve its margin. Through
the expansion of the Company's highway brokerage division, the gross profit
margin should improve further, as these moves generally offer higher profit
margins.
The Company's selling, general and administrative expenses ("SG&A")
were $2,347,904, or 8.7% of revenues for the year ended December 31, 1999,
compared to $2,299,108, or 8.2% of revenues for the year ended December 31,
1998, and $1,672,807, or 6.4% of revenues for the year ended December 31, 1997.
The Company's SG&A as a percentage of revenue for the year ended December 31,
1999, increased due to the decrease in revenues that the Company experienced
during 1999, as compared to 1998. Although the revenue reduction from one of the
Company's major customers was substantial, the corresponding reduction in
overhead was slight. The SG&A as a percentage of revenue for the year ended
December 31, 1998, rose significantly over 1997 due to the start-up costs
incurred in opening the new sales offices, and the lack of sufficient volume to
cover these costs. In February 1999, the Company merged its two Chicago offices,
which resulted in administrative efficiencies. Additionally, the closing of the
two offices in November 1999, will allow the Company to maximize the
productivity of its other offices, as the remaining customers from these two
locations will be serviced by the Company's other offices without adding
resources. The relocation of the headquarters from Tampa, Florida to Atlanta,
Georgia, will enable the Company to achieve further administrative efficiencies,
which management anticipates will lower the SG&A as a percentage of revenue in
the coming year.
The pre-tax income of the Company was $43,294, or 0.2% of revenues for
the year ended December 31, 1999, compared to $301,669, or 1.1% of revenues, and
$664,415, or 2.5% of revenues, for the years ended December 31, 1998 and 1997,
respectively. The pre-tax income for the Company for the year ended December 31,
1999, decreased compared to the prior year, due to the 4.3% reduction in
revenues from the prior year, without a corresponding reduction in the SG&A
expense.
Income tax expense for the years ended December 31, 1999, 1998, and
1997, was $22,000, $125,000, and $199,744, respectively. The tax expense for the
year ended December 31, 1997, was reduced by the Company's booking of a deferred
tax asset in the amount of $58,256.
Net income for the years ended December 31, 1999, 1998, and 1997, was
$21,294, $176,669, and $464,671, respectively. Although the Company improved its
gross profit margin, the revenue shortfall and the increased SG&A affected the
profitability of the Company. The Company will concentrate on generating new
business and using existing resources to service this business.
The Company will continue to market its services and promote its ISO
9002 registration. In addition, it will strive to open sales offices and obtain
sales representation in the major geographic areas of North America.
Outlook
The cost of fuel during the first quarter of 2000 has resulted in
sluggish results from the highway brokerage division. The Company has had to
impose a fuel surcharge on its customers to recoup the increased costs incurred
by the Company. Additionally, the rail providers are beginning to impose fuel
surcharges. As of the date of this Report, there has been no relief from these
price increases and no determination can be made as to when fuel prices will
lower.
15
<PAGE>
The Company is diligently working with its customers to provide the most
cost-effective means of transporting their goods, while still meeting their time
requirements. The Company will continue to evaluate the situation and will take
whatever actions it deems necessary. The Company will also strive to increase
its customer base and now, with its headquarters in Atlanta, Georgia, will be
able to handle new business in the most efficient manner possible.
Year 2000
The Company's transition into the Year 2000 was seamless to the
customer. The Company had systems in place that were Year 2000 compliant
enabling the Company to provide the same quality service to its customers in the
Year 2000 as it did in 1999. The Company's carrier vendors were also able to
meet expectations.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See accompanying Table of Contents to Financial Statements on F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There were no changes in or Disagreements with Accountants on
Accounting and Financial Disclosure to be reported for the year ended December
31, 1999.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH
SECTION 16 (A) OF THE EXCHANGE ACT.
The Directors and Executive Officers of the Company are as follows:
Name Age Position
- ---- --- --------
Richard E. Gaetz 42 Officer, Director
Geoff Duncan 51 Officer
Albert Gnat 61 Director
Richard D. McGraw 56 Director
Kevin A. Glass 42 Director
16
<PAGE>
Richard E. Gaetz has been the President of Vitran Distribution System
and Chief Operating Officer of Vitran since August 1989. From October 1987 to
August 1989, he was Vice-President, Clarke Transport Canada. Effective October
11, 1996, Mr.Gaetz began serving as the Company's President and Chief Executive
Officer. He continues in his role as Chief Executive Officer as of the date of
this Report.
Geoff Duncan was appointed President on April 1, 1998. From November
1996 through this date, he was Executive Vice President of the Company. From May
1996 through November 1996, he was Vice President of Sales and Marketing. Prior
to joining the Company, he was Vice-President of Sales and Marketing at APL.
Albert Gnat has been Vice-Chairman of the Board and a director of
Vitran since 1983. He is a partner in the law firm of Lang Michener, Toronto,
Ontario, Canada.
Richard D. McGraw has been the President, Chief Executive Officer and a
director of Vitran since 1983.
Kevin A.Glass has been the Vice President of Finance and Chief
Financial Officer of Vitran since October 1998. Prior to this he was the Chief
Financial Officer of Livingston Group Inc.
Messrs. Gaetz, Gnat and McGraw were elected directors of the Company on
December 1, 1993. Kevin Glass was appointed a director on November 16, 1998.
Vitran may be deemed a "parent" of the Company under Securities Act Rule 405.
See Item 13 of this Report.
Directors are elected to serve for one (1) year or until the next
annual meeting of shareholders and until their successors have been elected and
have qualified. Executive officers are elected to serve at the discretion of the
directors for one (1) year or until the first meeting of the Board of Directors
following the next annual meeting of shareholders and until their successors
have been elected and have qualified.
No compensation is paid to any director, as such, for his or her
services, but, by resolution of the Board of Directors, a fixed sum or expense
for actual attendance at each regular or special meeting by the Board may be
authorized.
Compliance with Section 16(a) of the Exchange Act
The Company does not have a class of equity security that is registered
pursuant to Section 12 of the Securities Exchange Act of 1934. Accordingly, no
compliance with Section 16(a) of the Exchange Act is required of any officer,
director, or principal shareholder.
Item 11. EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years ended December 31,
1997, 1998 and 1999, all compensation of the Company's President and its Chief
Executive Officer. No other executive officer or director of the Company
received total annual salary and bonus exceeding $100,000 in any of such fiscal
years. The information provided should be read in conjunction with the Company's
Financial Statements and related notes thereto.
17
<PAGE>
SUMMARY COMPENSATION TABLE
--------------------------
Name and Fiscal All Other
Principal Position Year Salary Bonus Compensation
------------------ ------ ------ ------ ------------
Geoff Duncan, President 1999 $128,045 $ 9,850 $ 8,880(1)
1998 $123,120 $11,400 $ 8,640(1)
1997 $114,400 $11,000 $ 8,400(1)
- ---------------------------------------------------------------------
(1) Automobile allowance of $740, $720 and $700 per month for 1999, 1998 and
1997, respectively.
OPTION GRANTS
-------------
The purpose of the following table is to report grants of stock options
to the named officers during the years ended December 31, 1997, 1998 and 1999.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
- --------------------------------------------------------------------------------------------------------
% of Total
Options Granted
Fiscal Options to Employees in Exercise Expiration
Year Name Granted Fiscal Year Price Date 5% ($) 10% ($)
- ---- ---- ------- ----------- ----- ---- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1999 Geoff Duncan 5,000 100.00% $1.00 1/01/05-09 (1) $ 18 $ 1,761
1998 Geoff Duncan 10,000 32.26% $1.00(2) 1/01/04-08 (1) $ 1,107 $ 6,223
- --------------------------
</TABLE>
(1) Mr. Duncan's options vest over a five-year period (20% per year) and expire
five years from the date that the options are vested. At December 31, 1999, Mr.
Duncan had 47,000 vested options.
(2) On May 14, 1998, the Board of Directors approved an option repricing program
to which essentially all current employee stock options with an exercise price
of $1.25 were reduced to $1.00.
- ----------------------------
During May 1996, the Company adopted a Stock Option Plan (the "Plan")
whereby employees of the Company may be granted incentive or non-qualified
options to purchase shares of the Company's common stock. The Board of Directors
has direct responsibility for the administration of the Plan. The exercise price
of the incentive options to employees must be equal to at least 100% of the fair
market value of the common stock at the date of grant. The exercise price of
incentive options to officers or affiliated persons must be at least 110% of the
fair market value as of the date of the grant. The fair market value of options
granted was determined using the exercise price of the Vitran stock purchase
warrant ($.650631 per share; the warrant expired July 31, 1997) as well as other
criteria that the Board deemed relevant. This value may not relate to the
trading value on the NASD Bulletin Board as there is not an active market for
the Company's stock and trades are sporadic. Upon termination of employment, all
options held by the grantee shall immediately terminate. The Board may waive any
conditions or rights under, or amend, alter, suspend, discontinue, or terminate,
any Option theretofore granted and any Stock Option Agreements relating thereto;
provided, however, that without the consent of an affected grantee, no such
action may materially impair the rights of such grantee under such option.
Michael Jackson, former president of the Company, held 80,000 options with an
exercise termination date of August 22, 1999. On that date, the options did
terminate without being exercised.
18
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to (i) any
person or "group" known to the Company to be the beneficial owner, as of March
22, 2000, of more than five percent of the Common Stock, and (ii) all Directors
and executive officers of the Company, individually and as a group. Amounts set
forth for shareholders, who are not members of management, are based on
shareholder records. The owner may hold additional shares in street name which
are not shown below. Each beneficial owner has advised the Company that he, she
or it has sole voting and investment power as to the shares of the Common Stock.
Amount and Nature Percentage of
of beneficial Class
Name of Beneficial Owner ownership (1)
- ------------------------------------------------------------------------------
Michael J. Jackson 600,000 12.43%
Clearwater, FL 34615
Vitran Corporation Inc. 3,918,030 81.19%
70 University Avenue Suite 350
Toronto, Canada M5J2M4
Richard E. Gaetz None --
70 University Avenue, Suite 350
Toronto, Canada M5J2M4 (2)
Geoff Duncan 10,000 .21%
12900 Dupont Circle
Tampa, FL 33626 (2)
Albert Gnat None --
70 University Avenue, Suite 350
Toronto, Canada M5J2M4 (2)
Richard M. McGraw None --
70 University Avenue, Suite 350
Toronto, Canada M5J2M4 (2)
Kevin A. Glass None --
70 University Avenue, Suite 350
Toronto, Canada M5J2M4 (2)
All Directors and Executive Officers as a Group 10,000 .21%
(5 persons) (2)
- -----
(1) The percentages in this column are computed on the basis of 4,825,630 shares
of Common Stock outstanding, as of the date of this Report.
(2) Four persons who are officers or directors of Vitran are directors of the
Company. See Item 10 of this Report.
19
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information as to changes in control of the Company see Item 1 of
this Report.
Vitran is a North American multi-divisional operating company
headquartered in Toronto, Ontario, Canada. Vitran provides services to the
freight and environmental industries and has over 3000 employees and associates
at over one hundred service centers and offices across Canada and the United
States. Vitran's Distribution Services Group, of which the Company is a part,
provides a complete range of services for the movement of freight throughout the
continent, utilizing both highway and rail modes. Services include less than
truckload, full load, intermodal, dedicated contract carriage, warehousing and
inventory management. The members of the Vitran Distribution Services Group are
Transwestern Express, a less than truckload ("LTL") company concentrating on
central and western markets of Canada, as well as the Northwest United States;
G&W Freightways, which has five facilities in Quebec and Ontario, Canada, and
specializes in next-day delivery in all of its service corridors; CAN-AM LTL,
which offers cross-border LTL service between the United States and Canada and
has facilities in Toronto and Chicago; CAN-AM Logistics, which provides logistic
services to its customers; Frontier, which performs truckload services; Vitran
Express, which performs LTL services, and the Company.
Vitran solicits business between the United States and Canada as an
agent for the Company through a Vitran sales office in Toronto. Vitran and the
Company have an agreement that all intermodal trans-border rail shipments shall
be written by the Company, with Vitran's receiving an agency commission from the
Company for such business. Trans-border over-the-road shipments may be made by
the Company or other Vitran subsidiaries, including the Overland Group,
depending on the type of service required by the shipper of such freight. The
Company does not believe that, given the different businesses of the Company and
the other Vitran subsidiaries, the Company will compete for any freight business
with another Vitran subsidiary, nor does the Company anticipate that the Company
and any other Vitran subsidiary will bid the same trans-border over-the-road
business. However, in the event that any such unanticipated conflict does occur,
the Company and Vitran intend to resolve any such conflict on a case-by-case
basis, with resolution depending solely on which entity can best serve the needs
of potential customers. For information concerning the Company's relationship
with Vitran and the other members of Vitran's Distribution Services Group, see
Item 1 of this Report.
For information with respect to the relationship between the Company's
directors and Vitran, see Item 10 of this Report.
20
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a) Exhibits and Financial Statement Schedules
Number Description
- ------ -----------
2.1 Agreement and Plan of Merger dated December 1, 1991 (2)
3.1 Certificate of Incorporation (1)
3.2 By-Laws (1)
3.2.1 Amended and Restated By-Laws (1)
3.3 Articles of Merger - Florida (1)
3.4 Certificate of Merger - Delaware (1)
4.1 Specimen Certificate of Common Stock (1)
4.2 Specimen Certificate of Class A Warrant (1)
4.2(a) Specimen Certificate of Class B Warrant (1)
4.3 Form of Four Year Common Stock Purchase Warrant (1)
4.4 (Intentionally left blank)
4.5 Form of Warrant Agency Agreement (1)
4.5(a) Amendment dated June 1, 1994, to Warrant Agency Agreement (1)
4.5(b) Amendment dated September 1, 1994, to Warrant Agency Agreement (1)
4.5(c) Amendment dated December 7, 1995, to Warrant Agency Agreement (1)
4.6 Warrant for the purchase of Common Stock issued to Vitran Corporation
Inc. and dated July 14, 1993 (3)
10.1 Subscription Agreement between Vitran Corporation Inc. and The Freight
Connection, Inc., dated July 14, 1993 (3)
21
<PAGE>
10.2 Employment Agreement between The Freight Connection, Inc., and Michael
J. Jackson dated July 14, 1993 (1)
10.3 Form of Lockup Agreement (1)
10.4 Agreement with Robert and Patricia Johnston dated June 14, 1993 (1)
10.5 Shareholders' Agreement between Vitran Corporation Inc. and Michael J.
Jackson (1)
10.6 Extended Lease Agreement dated February 4, 1997. (4)
10.7 Loan Agreement between Republic Bank, St. Petersburg, Florida, and The
Freight Connection, Inc., dated August 19, 1995, as amended to date
(1), (6)
(1) Incorporated by reference to post-effective amendments to the
Company's Registration Statement on Form SB-2.
(2) Incorporated by reference to Report on Form 8-K filed January 27,
1992.
(3) Incorporated by reference to Report on Form 8-K filed July 21,
1993.
(4) Incorporated by reference to Report on Form 10-K filed March 26,
1997.
(5) Incorporated by reference to Report on Form 8-K filed December 1,
1997.
(6) Fourth Addendum to the Loan Agreement, dated September 1, 1999
included herewith.
b) Reports on Form 8-K
During the year ended December 31, 1999, no reports were filed on Form 8-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report and any
subsequent amendments thereto to be signed on its behalf by the undersigned,
thereunto duly authorized.
THE FREIGHT CONNECTION, INC.
a Delaware corporation
Dated: March 27, 2000 By: /s/ Richard E. Gaetz
----------------- ---------------------
Richard E. Gaetz,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons in their respective
capacities with the Registrant and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Richard E. Gaetz Chief Executive Officer March 27, 2000
- ----------------------- and Director ---------------
Richard E. Gaetz
/s/ Geoff Duncan President March 27, 2000
- ----------------------- ---------------
Geoff Duncan
/s/ Albert Gnat Director March 27, 2000
- ----------------------- ---------------
Albert Gnat
/s/ Richard D. McGraw Director March 27, 2000
- ---------------------- ---------------
Richard D. McGraw
/s/ Kevin A. Glass Director March 27, 2000
- ------------------ ---------------
Kevin A. Glass
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORT
PURSUANT TO SECTION 15(d) OF THE ACT
During the year ended December 31, 1999, the Company provided each
shareholder with a copy of its Annual Report on Form 10-K for the year ended
December 31, 1998. The Company did not provide any other annual report or proxy
materials to its shareholders during 1999.
<PAGE>
THE FREIGHT CONNECTION, INC.
INDEX TO AUDITED FINANCIAL STATEMENTS
THE FREIGHT CONNECTION, INC. PAGE
----
Report of Independent Auditors - Margolies, Fink and Wichrowski F-2
Balance Sheets - December 31, 1999, and December 31, 1998 F-3
Statements of Income -
Years ended December 31, 1999, 1998 and 1997 F-4
Statements of Stockholders' Equity F-5
Statements of Cash Flows-
Years ended December 31, 1999, 1998 and 1997 F-6
Notes to Financial Statements F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and
Board of Directors
The Freight Connection, Inc.
We have audited the accompanying balance sheets of The Freight Connection, Inc.
as of December 31, 1999 and 1998, and the related statements of income,
stockholders' equity and cash flows for the years ended December 31, 1999, 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 audits 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 statements 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 The Freight Connection, Inc. as
of December 31, 1999 and 1998, and the results of its operations and its cash
flows for the years ended December 31, 1999, 1998 and 1997 in conformity with
generally accepted accounting principles.
/s/ Margolies, Fink and Wichrowski
January 20, 2000
Pompano Beach, FL
F-2
<PAGE>
THE FREIGHT CONNECTION, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
---- ----
Current assets:
Cash and cash equivalents (Note 1) $ 746,353 $ 515,125
Accounts receivable - trade, net of allowance
for doubtful accounts of $160,088 and $115,474,
respectively (Note 8, 10) 3,490,511 4,248,718
Accounts receivable - affiliates 38,933
Accounts receivable - income taxes 20,258 50,005
Deferred tax asset (Note 6) 40,956 20,456
Prepaid expenses and other receivables 8,779 13,259
---------- ----------
Total current assets 4,345,790 4,847,563
Property and equipment (net of accumulated
Depreciation) (Notes 1 and 2) 176,217 193,192
Deposits and other assets 58,028 87,083
---------- ----------
$4,580,035 $5,127,838
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses (Note 3) $2,219,125 $2,788,222
---------- ----------
Total current liabilities 2,219,125 2,788,222
---------- ----------
Stockholders' equity
Common stock, $.001 par value;
Authorized 20,000,000 shares; 4,825,630,
shares issued and outstanding 4,826 4,826
Additional paid-in capital 918,982 918,982
Retained earnings 1,437,102 1,415,808
---------- ----------
Total stockholders' equity 2,360,910 2,339,616
---------- ----------
$4,580,035 $5,127,838
========== ==========
The accompanying notes are an
integral part of these financial statements
F-3
<PAGE>
THE FREIGHT CONNECTION, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------------- ------------- -------------
<S> <C> <C> <C>
Freight income (Note 5) $26,872,967 $28,094,511 $26,333,344
Freight expense 24,442,949 25,480,324 23,947,680
-------------- ------------- -------------
Gross profit 2,430,018 2,614,187 2,385,664
Selling, general and administrative expenses 2,347,904 2,299,108 1,672,807
Depreciation and amortization 82,398 73,144 68,691
-------------- ------------- -------------
Income (loss) from operations (284) 241,935 644,166
-------------- ------------- -------------
Other income (expenses):
Interest and dividend income 43,578 59,734 28,598
Interest expense - - (8,349)
-------------- ------------- -------------
Total other income (expenses) 43,578 59,734 20,249
-------------- ------------- -------------
Income before income taxes 43,294 301,669 664,415
Income tax expense (Notes 1 & 6) 22,000 125,000 199,744
-------------- ------------- -------------
Net income $ 21,294 $ 176,669 $ 464,671
============= ============= =============
Net income per common share:
Basic
Net income per common share $ .00 $ .04 $ .10
============= ============= =============
Weighted average number of common shares 4,825,630 4,825,630 4,825,630
============= ============= =============
Net income per common share:
Diluted:
Net income per common share $ .00 $ .04 $ .10
============= ============= =============
Weighted average number of common shares 4,825,630 4,825,630 4,825,630
============= ============= =============
</TABLE>
The accompanying notes are an
integral part of these financial statements
F-4
<PAGE>
THE FREIGHT CONNECTION, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock Additional
Number of Par Paid-in Retained
Shares Value Capital Earnings Total
------------ -------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 4,825,630 $ 4,826 $ 918,982 $ 774,468 $ 1,698,276
Net income year ended,
December 31, 1997 - - - 464,671 464,671
------------ -------------- ------------ ----------- -----------
Balance, December 31, 1997 4,825,630 4,826 918,982 1,239,139 2,162,947
Net income year ended,
December 31, 1998 - - - 176,669 176,669
------------ -------------- ------------ ----------- -----------
Balance, December 31, 1998 4,825,630 $ 4,826 $ 918,982 $ 1,415,808 $ 2,339,616
Net income year ended,
December 31, 1999 - - - 21,294 21,294
------------ -------------- ------------ ----------- -----------
Balance, December 31, 1999 4,825,630 $ 4,826 $ 918,982 $ 1,437,102 $ 2,360,910
============ ============== ============ =========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements
F-5
<PAGE>
THE FREIGHT CONNECTION, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 21,294 $ 176,669 $ 464,671
------------ ------------- --------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 82,398 73,144 68,691
Deferred tax asset (net) (20,500) 37,800 (58,256)
Loss on disposal of fixed assets 1,540 6,064
Changes in assets and liabilities:
Accounts receivable 758,207 (1,222,780) 207,923
Accounts receivable - affiliates (38,933)
Accounts receivable - income taxes 29,747 (50,005)
Prepaid expenses and other receivables 4,480 10,297 33,929
Deposits and other assets 29,055 (30,900) 6,520
Accounts payable and accrued expenses (569,097) 362,705 407,458
Income taxes payable - (68,846) 26,423
------------ ------------- --------------
Total adjustments 275,357 (887,045) 698,752
------------ ------------- --------------
Net cash provided by (used in) operations 296,651 (710,376) 1,163,423
------------ ------------- -------------
Net cash used in investing activities:
Purchase of fixed assets (net) (65,423) (60,428) (51,405)
------------ ------------- -------------
Net increase (decrease) in cash and
cash equivalents 231,228 (770,804) 1,112,018
Cash and cash equivalents, beginning of period 515,125 1,285,929 173,911
-------------- ------------ -------------
Cash and cash equivalents, end of period $ 746,353 $ 515,125 $ 1,285,929
============= ============= ============
Supplemental disclosure:
Cash paid for interest $ - $ - $ 8,349
============= ============= ============
Cash paid for income taxes $ 9,147 $ 206,051 $ 229,800
============= ============= =============
</TABLE>
The accompanying notes are an
integral part of these financial statements
F-6
<PAGE>
THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION
The Company operates as a transportation freight broker and coordinates both
truck and rail shipments from point of origin to delivery at destination for its
clients' freight shipments. The Company is responsible for paying carriers for
hauling the freight and extends credit to its clients for the shipment. The
Company's primary office facilities are located in Tampa, Florida with
additional sales offices located in Atlanta, Ga., Los Angeles, Ca., Chicago,
Ill., and Toronto, Ontario.
CASH EQUIVALENTS
Cash equivalents are short-term, highly liquid investments readily convertible
to known amounts of cash and so near their maturity that they present
insignificant risk of changes in value because of changes in interest rates.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. The Company provides depreciation
for financial purposes over the estimated useful lives of fixed assets using the
straight-line method. Upon retirement or sale of fixed assets, their net book
value is removed from the accounts and the difference between such net book
value and proceeds received is recorded in income. Expenditures for maintenance
repairs are charged to expense; renewals and improvements are capitalized.
REVENUE RECOGNITION
The Company recognizes freight income, freight charges and expenses when the
shipment leaves its point of origin. Quick-pay rebates are recognized in the
month earned, and volume rebates are recorded annually per contract agreements.
Accounts receivable credit balances are taken into income after twelve months.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments such as accounts
receivable and accounts payable, approximate their carrying value.
ACCOUNTING ESTIMATES
The Management of the Company occasionally uses accounting estimates in
determining certain revenues and expenses. Estimates are based on subjective as
well as objective factors and, as a result, judgment is required to estimate
certain amounts at the date of the financial statements.
F-7
<PAGE>
THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company has adopted Statement of Financial Accounting Standard No. 109
"Accounting for Income Taxes" which requires an asset and liability approach to
financial accounting for income taxes. Deferred income tax assets and
liabilities are computed annually for the difference between the financial
statement and tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future, based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable or refundable for the period, plus or minus the change during the period
in deferred tax assets and liabilities. On May 29, 1998 the Company entered into
a tax allocation agreement with its parent company Vitran Corporation, and has
elected to file its future federal income tax returns on a consolidated basis.
NET INCOME PER SHARE
In 1998, the Company adopted SFAS No. 128, ("Earnings Per Share") which requires
the reporting of both basic and diluted earnings per share. Basic net income per
share is determined by dividing net income available to common shareholders by
the weighted average number of common shares outstanding for the period. Diluted
income per share reflects the potential dilution that could occur if options or
other contracts to issue common stock were exercised or converted into common
stock, as long as the effect of their inclusion is not anti dilutive. For the
years ended December 31, 1999, 1998, and 1997 outstanding options have not been
reflected in the computation of diluted earnings per share because the market
price of common stock outstanding has not been in excess of the option price. At
December 31, 1997 all outstanding warrants had expired.
F-8
<PAGE>
THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 and 1998 consist of the following:
1999 1998
------------- -------------
Computer software $ 76,413 $ 71,659
Leasehold improvements 2,650 2,650
Office furniture and equipment 360,430 336,432
------------- -------------
439,493 410,741
Less accumulated depreciation 263,276 217,549
------------- -------------
$ 176,217 $ 193,192
============ ============
Depreciation and amortization expense for the years ended December 31, 1999,
1998 and 1997, were $82,398, $ 73,144, and $68,691, respectively.
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31, 1999 and 1998 consist of
the following:
1999 1998
----------- ------------
Accounts payable - trade $ 2,042,728 $ 2,621,634
Accounts receivable credit balances 107,487 65,990
Accrued expenses 68,910 100,598
----------- ------------
$ 2,219,125 $ 2,788,222
=========== ===========
4. LEASES
The Company leases various office facilities under non-cancelable operating
leases which expire between years 1999 and 2005. The Company also leases office
equipment under non-cancelable operating leases which expire over the next three
years. Rent expense incurred under these leases was $155,283, $130,881, and
$89,081, for the years ended December 31, 1999, 1998 and 1997 respectively.
Future minimum lease payments for operating leases with initial terms in excess
of one year as of December 31, 1999 are as follows; 2000 - $124,292, 2001 -
$103,190, 2002 - 103,778, 2003 - $107,014, 2004 - $106,550, and, 2005 - $4,328.
F-9
<PAGE>
THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. FREIGHT INCOME
Freight income includes rebate income, late charge income, and accounts
receivable credit balances in excess of twelve months. These items totaled
$192,463, $327,398, and $504,513, for the years ended, December 31, 1999, 1998,
and 1997, respectively.
6. INCOME TAXES
The provision for income taxes consisted of the following:
December 31,
------------
1999 1998 1997
-------------- -------------- --------------
Current:
Federal $ 33,000 $ 70,800 $ 219,800
State 9,500 16,400 38,200
Deferred:
Federal (16,700) 32,300 (49,600)
State (3,800) 5,500 (8,656)
-------------- -------------- --------------
$ 22,000 $ 125,000 $ 199,744
============== ============ ============
Reconciliation of the Company's provision for income taxes to the federal
statutory rate is as follows:
<TABLE>
<CAPTION>
Year ended Year Ended Year Ended
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Statutory rate applied to income
before income taxes $ 14,750 34.0% $ 102,600 34.0% $225,900 34.0%
State income tax net of federal benefit 3,000 6.9% 22,000 7.3% 35,300 5.3%
Recognition of deferred tax asset (58,256) (8.8)%
Other 4,250 9.8% 400 0.1% (3,200) 0.5%
----------- ---- ---------- ---- -------- ----
$ 22,000 50.7% $ 125,000 41.4% $199,744 31.0%
=========== ===== ========== ===== ======== =====
</TABLE>
F-10
<PAGE>
THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES ( CONTINUED)
The components of deferred tax assets and liabilities were as follows:
December 31,
------------
1999 1998
---- ----
Deferred tax assets:
Accounts receivable reserve $ 63,875 $ 46,074
Deferred tax liability:
Depreciation (23,019) (25,618)
------------- -------------
40,956 20,456
Valuation allowance - -
------------- -------------
Total deferred tax asset $ 40,956 $ 20,456
============= =============
SFAS No. 109 requires a valuation allowance to be recorded when it is more
likely than not that some or all of the deferred tax asset will not be realized.
As a result of the Company's likelihood for future continuing profitability,
management has determined that more likely than not, future taxable income will
be sufficient to enable the Company to realize all of its deferred tax assets.
Accordingly, no valuation allowance has been recorded at December 31, 1999 and
1998.
7. RELATED PARTY TRANSACTIONS
The Company transacts business with various subsidiaries of its parent company,
Vitran Corporation Inc. Billings to these companies approximated $1,010,000,
$176,000, and $123,000, for the year ended December 31, 1999, 1998, and 1997,
respectively. Billings from these companies approximated $110,000, $93,000, and
$75,000, respectively. At December 31, 1999 and 1998 accounts receivable from
these companies approximated $126,700 and $62,700, respectively, and accounts
payable to these companies approximated $20,000 and $5,400, respectively.
8. ECONOMIC DEPENDENCY
During the years ended December 31, 1999, 1998 and 1997, sales to one major
customer exceeded 10% of the Company's total sales. This customer, an automobile
manufacturer, accounted for 33%, 43%, and 61% of total sales for the years ended
December 31, 1999, 1998 and 1997, respectively. In addition, the Company is
dependent upon its continuing business relationship with its freight carriers,
particularly the railroads.
F-11
<PAGE>
THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. PENSION PLAN
The Company sponsors a 401(k) profit sharing plan which covers all full time
employees of the Company who meet certain age and length of service
requirements. Plan contributions are based on participant voluntary payroll
deductions, subject to a maximum contribution per participant. Expense for
contributions to the plan was $24,670 and $18,120 for the years ended December
31, 1999 and 1998 respectively.
10. CONCENTRATION OF CREDIT RISK
The Company's financial instruments subject to credit risk are primarily trade
accounts receivable. The Company does not require collateral or other security
to support customer receivables. The Company's clients generally pay in thirty
days or less; however, occasionally payments are not received until invoices age
to 60 days. Other concentrations of credit risk with respect to trade
receivables are limited due to the dispersion of the majority of the Company's
customers across different industries throughout North America. The rail
carriers generally draft the Company's bank accounts for payment. The carrier is
responsible to the client for lost or damaged merchandise, therefore, the
Company does not assume liability for such loss, if any. During the year, the
Company has maintained cash balances in excess of the Federally insured limits.
The funds are with a major money center bank. Consequently, the Company does not
believe that there is a significant risk in having these balances in one
financial institution.
11. STOCK OPTIONS
During May 1996, the Company adopted a Stock Option Plan (the "Plan) whereby
employees of the Company may be granted incentive or non-qualified options to
purchase shares of the Company's common stock. The Board of Directors has direct
responsibility for the administration of the plan. The exercise price of the
incentive options to employees must be equal to at least 100% of the fair market
value of the common stock at the date of grant. The exercise price of incentive
options to officers, or affiliated persons, must be at least 110% of the fair
market value as of the date of the grant. Options are granted subject to terms
and conditions determined by the Board of Directors, and generally are
exercisable in increments of 20% for each year of employment beginning one year
from the date of grant and generally expire five years from date of grant.
On May 14, 1998 the Board of Directors approved an option repricing program to
which essentially all current employee stock options with an exercise price of
$1.25 were reduced to $1.00.
At December 31, 1999, the Company has granted 171,000 incentive stock options at
an exercise price ranging from $.75 to $1.00; of this total, 109,800 incentive
stock options were vested but not exercised. To date the Company has issued no
non-qualified stock options.
F-12
<PAGE>
THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. STOCK OPTIONS (CONTINUED)
Transactions and other information relating to the plans are summarized as
follows:
Incentive Stock Options
-----------------------
Weighted
Shares Ave. Price
------ ----------
Outstanding at December 31, 1996 260,000 .95
Granted during 1997 1,000 1.00
-----------
Outstanding at December 31, 1997 261,000 .95
Granted during 1998 31,000 1.00
Canceled during 1998 (1,000) .95
-----------
Outstanding at December 31, 1998 291,000 .95
Granted during 1999 9,000 1.00
Canceled during 1999 (129,000) .94
-----------
Outstanding at December 31, 1999 171,000 .95
===========
The following table summarizes information about all of the stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
------------------- -------------------
Weighted
Average Weighted Weighted
Range of remaining Average average
Exercised prices Shares life (years) Price Shares price
---------------- ------ ----------- ----- ------ -----
<S> <C> <C> <C> <C> <C>
$ .75 25,000 1.0 years $ .75 25,000 $ .75
$ 1.00 146,000 5.0 years 1.00 84,800 1.00
</TABLE>
F-13
<PAGE>
THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. STOCK OPTIONS (CONTINUED)
PRO FORMA DISCLOSURE
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" issued
in October 1995. Accordingly, no compensation cost has been recognized for its
fixed stock option plans with respect to its employees. Had compensation cost
for the Company's fixed-based compensation plan been determined based on the
fair value at the grant dates for awards under this plan consistent with the
method of SFAS 123, the Company's proforma net income, and proforma net income
per share would have been as indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income, as reported $ 21,294 $ 176,669 $ 464,671
============== ============= =============
Net income, proforma $ 23,388 $ 179,199 $ 493,441
============== ============= =============
Net income per common share:
Basic and dilutive
Net income, as reported $ .00 $ .04 $ .10
============= ============= =============
Net income, proforma $ .00 $ .04 $ .10
============= ============= =============
</TABLE>
For purposes of the preceding proforma disclosures, the weighed average fair
value of each option has been estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1999, 1998, and 1997, respectively: no dividend
yield, volatility approximating 50%, risk free interest rate of 6.0%, and an
expected term approximating 4.5 years.
12. COMMITMENTS AND CONTINGENCIES
On September 1, 1999, the Company renewed a line of credit agreement with a
commercial bank for $2,000,000 which expires on May 31, 2000. Interest is at the
lower of the London Interbank Offer Rate plus 250 basis points or the bank's
base rate. Any outstanding principal balance plus unpaid interest is due on
demand. The line is secured by the Company's accounts receivable, and fixed
assets. As of December 31, 1999, no amounts are outstanding on this credit line.
F-14
EXHIBIT 10.7
FOURTH
ADDENDUM TO LOAN AGREEMENT
This Fourth Addendum to Loan Agreement (the "Addendum") dated this 22nd
day of September 1999, effective as of September 1, 1999, amends and modifies
that certain Loan Agreement dated August 18, 1995 as previously amended by
Addendum to Loan Agreement dated effective August 18, 1996, as further amended
by Second Addendum to Loan Agreement dated effective August 18, 1997, and as
further amended by Third Addendum to Loan Agreement dated effective August 18,
1998 (collectively the "Loan Agreement") by and among REPUBLIC BANK, a Florida
banking corporation (the "Bank"), and THE FREIGHT CONNECTION, INC., a Delaware
corporation (the"Borrower"). All of the capitalized terms used herein shall have
the same identification and defined meanings as set forth in the Loan Agreement
unless otherwise specifically indicated or defined herein.
RECITALS:
A. Borrower has requested the Bank to extend and renew a Revolving Credit
Line Loan (the "Loan") in the amount of $2,000,000.00 under the terms of the
Loan Agreement and this Addendum.
B. The Bank has agreed to the renewal of the Loan pursuant to the terms of
this Addendum and the other loan documents herein referred.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties agree as follows:
1. Recitals. The above Recitals are true and correct and by this reference
are incorporated herein.
2. Renewal of Credit Line Loan. The Bank hereby renews the Loan effective
as of September 1, 1999 pursuant to the terms of a Renewal Revolving Line of
Credit Promissory Note of even date herewith (the "Renewal Note") which provides
for an extended maturity date of May 31, 2000.
3. Security. The Renewal Note shall continue to be secured by the Security
Interests as set forth in the Loan Agreement.
4. Covenants. The following subparagraph 7.02(k) is added to Paragraph 7
of the Loan Agreement:
7.02(k) Other Financing: Borrower is prohibited from obtaining other
financing, aside from normal trade payables and affiliated party transactions,
from third parties other than the Bank, without the prior written consent of the
Bank.
5. Events of Default. Paragraph 8.01 of the Loan Agreement is amended to
provide that upon the occurrence of an event of default, the Bank has the option
of requiring all accounts receivable to be lock-boxed on such terms and
conditions as the Bank may determine.
6. Warranties. Borrower hereby affirms and warrants that all of the
warranties made in the Loan Documents, and any other documents or instruments
recited herein or executed with respect thereto directly or indirectly, are true
and correct as of the date hereof and that Borrower is not in default of any of
<PAGE>
the foregoing nor aware of any default with respect thereto, and that Borrower
has no defenses or rights of offset with respect to any indebtedness to the
Bank. Borrower hereby releases the Bank from any cause of action against it
existing as of the date of execution hereof. The rights and defenses being
waived and released hereunder include without limitation any claim or defense
based on the Bank having charged or collected interest at a rate greater than
that allowed to be contracted for by applicable law as changed from time to
time, provided, however, in no event shall such waiver and release be deemed to
change or modify the terms of the Loan Documents which provide that sums paid or
received in excess of the maximum rate of interest allowed to be contracted for
by applicable law, as changed from time to time, reduce the principal sum due,
said provision to be in full force and effect.
7. State taxes. Borrower is liable for the full amount of any documentary
stamps, intangible tax, interest and penalties, if any, levied by the State of
Florida incident to the loan transactions and modifications described in this
Fourth Addendum. If the same be not promptly paid by Borrower when levied by the
State of Florida, the Bank may (without obligation to do so) pay the same.
8. Consent and waiver. Borrower hereby consents to the foregoing and
agrees that the execution of this Fourth Addendum shall in no manner or way
whatsoever impair or otherwise adversely affect Borrower's liability to the Bank
under the Loan Documents or any other instrument set forth in the Recitals or
herein, all as modified by this Fourth Addendum.
9. Cross Document Default. Any default under the terms and conditions of
this Fourth Addendum or of any instrument set forth herein or contemplated by
this Fourth Addendum shall be and is a default under every other instrument set
forth herein or contemplated by this Fourth Addendum.
10. Ratification. Except as modified by this Fourth Addendum, Borrower
hereby ratifies and confirms the continued validity and viability of all terms,
conditions and obligations set forth in the Loan Documents and all other
instruments executed in connection with this Fourth Addendum.
11. Severability. Whenever possible, each provision of this Fourth Addendum
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision hereof shall be prohibited or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity only, without invalidating the remainder of such
provision or of the remaining provisions of this Fourth Addendum.
12. Florida Contract. This Fourth Addendum shall be deemed a Florida
contract and shall be construed according to the laws of the State of Florida,
regardless of whether this Fourth Addendum is executed by certain of the parties
hereto in other states.
13. Binding effect. This Fourth Addendum shall bind the successors and
assigns to the parties hereto and constitutes the entire understanding of the
parties, which may not be modified except in writing.
14. Waiver of Jury Trial. The parties to this Fourth Addendum hereby
irrevocably waive their respective rights to trial by jury in any and all
actions arising out of the terms of this Fourth Addendum.
15. Conflict. As to any conflict between the terms of the Loan Agreement
or this Fourth Addendum, then the terms of this Fourth Addendum shall supersede
<PAGE>
and control over such other terms.
16. Other Terms. Except as specifically amended, modified and supplemented
by this Fourth Addendum, all of the other terms, covenants and conditions of the
Loan Agreement remain in full force and effect.
WITNESSES
As to Borrower "BORROWER"
THE FREIGHT CONNECTION, INC.,
/s/ Richard Lydic a Delaware corporation
By: /s/ Geoff Duncan
/s/ Ron Anderson Geoff Duncan, as its President
(CORPORATE SEAL)
WITNESSES:
As to Lender
"LENDER"
REPUBLIC BANK, a Florida
/s/ Betty L. Slack banking corporation
By: /s/ William S. Nye
/s/ Melanie L. Wetzel William S. Nye, as its Vice President
(CORPORATE SEAL)
STATE OF FLORIDA
COUNTY OF HILLSBOROUGH
The foregoing instrument was acknowledged before me this 22nd day of
September, 1999 by GEOFF DUNCAN, as President of THE FREIGHT CONNECTION, INC., a
Delaware corporation, on behalf of the corporation.
X Georgia Driver's License /s/ Julie M. Watkins
Notary Public
"Official Seal"
Notary Public, Cherokee County, Georgia
My commission expires
February 6, 2001
STATE OF FLORIDA
COUNTY OF PINELLAS
The foregoing instrument was acknowledged before me this 22nd day of
September, 1999 by WILLIAM S. NYE, as Vice President of REPUBLIC BANK, a Florida
banking corporation, on behalf of the Bank.
X Personally known /s/ Patricia A. Peck
Notary Public
"Official Seal"
Patricia A. Peck
My commission #CC797219 expires
January 4, 2003
Bonded thru Troy Fain Insurance, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 746,353
<SECURITIES> 0
<RECEIVABLES> 3,490,511
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,345,790
<PP&E> 439,493
<DEPRECIATION> 263,276
<TOTAL-ASSETS> 4,580,035
<CURRENT-LIABILITIES> 2,219,125
<BONDS> 0
0
0
<COMMON> 4,826
<OTHER-SE> 2,356,084
<TOTAL-LIABILITY-AND-EQUITY> 4,580,035
<SALES> 26,872,967
<TOTAL-REVENUES> 26,872,967
<CGS> 24,442,949
<TOTAL-COSTS> 24,442,949
<OTHER-EXPENSES> 2,430,302
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 43,294
<INCOME-TAX> 22,000
<INCOME-CONTINUING> 21,294
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,294
<EPS-BASIC> .00
<EPS-DILUTED> .00
</TABLE>
