U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period ended ____ to
Commission File Number: 33-30123-A
TRANSIT GROUP, INC.
(Exact name of small business issuer in its charter)
State of Florida 59-2576629
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2859 Paces Ferry, Suite 1740, Atlanta, Georgia 30039
(Address of principal executive offices)
(770) 444-0240
(Issuer's telephone number)
Check whether issuer (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
There were 22,967,267 shares of the Company's common stock outstanding as of
July 31, 1998.
Transitional Small Business Disclosure Format (Check One) Yes No X
<PAGE>
TRANSIT GROUP, INC.
FORM 10-QSB
INDEX
PART I. FINANCIAL INFORMATION Page Number
Item 1
Financial Statements
Consolidated Balance Sheets
as of June 30, 1998 and December 31, 1997 2
Consolidated Statements of Operations for the three
and six month periods ended June 30, 1998 and 1997 3
Consolidated Statement of Changes in Total Non Redeemable
Preferred Stock, Common Stock and other Shareholders' Equity 4
Consolidated Statements of Cash Flows for the six
months ended June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2
Management's Discussion and Analysis or Plan of Operation 9
PART II.OTHER INFORMATION
Item 1
Legal Proceedings 13
Item 2
Changes in Securities and Use of Proceeds 13
Item 3
Defaults Upon Senior Securities 13
Item 4
Submission of Matters to a Vote of Security Holders 13
Item 5
Other Information 13
Item 6
Exhibits and Reports on Form 8-K 14
<PAGE>
<TABLE>
<CAPTION>
TRANSIT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
1998 1997
---------------- ---------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 2,869,450 $ 789,791
Accounts receivable (net of allowance of $609,716 and $173,000) 22,729,646 11,314,417
Other current assets 4,226,178 1,429,181
---------------- ---------------
Total current assets 29,825,274 13,533,389
---------------- ---------------
Noncurrent assets:
Equipment, at net book value 51,243,773 30,045,866
Goodwill 41,444,760 30,706,028
Other assets 932,090 769,522
---------------- ---------------
Total noncurrent assets 93,620,623 61,521,416
---------------- ---------------
Total assets $ 123,445,897 $ 75,054,805
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations $ 20,247,108 $ 8,176,975
Accounts payable and accrued expenses 15,885,954 9,551,527
Current portion of deferred taxes 732,548 582,548
Net current liabilities of discontinued operations 499,073 565,886
---------------- ---------------
Total current liabilities 37,364,683 18,876,936
---------------- ---------------
<PAGE>
Noncurrent liabilities:
Long-term debt and capital lease obligations 37,686,583 23,651,763
Note payable to affiliate of Chairman 3,000,000 4,000,000
Other noncurrent liabilities 3,211,000 -----
Deferred taxes 3,921,981 2,357,425
---------------- ---------------
Total noncurrent liabilities 47,819,564 30,009,188
---------------- ---------------
Total liabilities 85,184,247 48,886,124
---------------- ---------------
Commitments and contingencies
Redeemable common stock 5,675,400 7,452,007
---------------- ---------------
Non redeemable preferred stock, common stock
and other shareholders' equity:
Preferred stock, $.01 par value, 800,000 shares authorized ----- -----
Common Stock, $.01 par value, 30,000,000 shares
authorized, 22,870,603 and 20,574,626 shares issued and outstanding 213,665 185,770
Additional paid-in capital 63,521,749 50,650,534
Notes receivable secured by stock (1,710,412) (675,000)
Accumulated deficit (29,438,752) (31,444,630)
---------------- ---------------
Total non redeemable preferred stock, common stock
and other shareholders' equity 32,586,250 18,716,674
---------------- ---------------
Total liabilities and shareholders' equity $ 123,445,897 $ 75,054,805
================ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
TRANSIT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------- ------------------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
----------------- ----------------- --------------- -----------------
Revenues and other income:
Freight and transportation revenue $ 34,307,604 $ ----- $ 60,240,344 $ -----
Other income 1,100,603 ----- 1,598,347 -----
----------------- ----------------- --------------- -----------------
Total revenues and other income 35,408,207 ----- 61,838,691 -----
----------------- ----------------- --------------- -----------------
Operating expenses:
Purchased transportation 16,281,096 ----- 28,659,668 -----
Salaries, wages and benefits 7,981,256 ----- 13,579,800 -----
Fuel 2,571,675 ----- 4,591,423 -----
Operating supplies and expenses 3,093,475 ----- 5,193,791 -----
Insurance 644,582 ----- 1,170,528 -----
Depreciation and amortization expense 1,642,968 ----- 2,992,085 -----
General and administrative expense 1,054,291 174,658 1,765,375 268,066
----------------- ----------------- --------------- -----------------
Total operating expenses 33,269,343 174,658 57,952,670 268,066
----------------- ----------------- --------------- -----------------
Operating income (loss) 2,138,864 (174,658) 3,886,021 (268,066)
Interest expense 866,475 ----- 1,671,134 -----
----------------- ----------------- --------------- -----------------
Continuing operations:
Income (loss) from continuing operations
before income taxes 1,272,389 (174,658) 2,214,887 (268,066)
Income taxes attributable to continuing
operations 108,752 ----- 209,009 -----
----------------- ----------------- --------------- -----------------
Income (loss) from continuing operations 1,163,637 (174,658) 2,005,878 (268,066)
Discontinued operations:
Loss from discontinued operations ----- (3,678,986) ----- (6,114,408)
Loss on disposal including provision for
operating losses through disposal date ----- (7,455,966) ----- (7,455,966)
----------------- ----------------- --------------- -----------------
Net income (loss) 1,163,637 (11,309,610) 2,005,878 (13,838,440)
Preferred stock dividend requirement ----- (192,500) ----- (385,000)
----------------- ----------------- --------------- -----------------
Income (loss) to common shareholders $ 1,163,637 $ (11,502,110) $ 2,005,878 $ (14,223,440)
================= ================= =============== =================
<PAGE>
Income (loss) per common share -- basic
and diluted
Continuing operations $ 0.05 $ (0.06) $ 0.09 $ (0.13)
Loss from discontinued operations ----- (1.84) ----- (2.77)
----------------- ----------------- --------------- -----------------
Net income (loss) per basic and diluted
common share $ 0.05 $ (1.90) $ 0.09 $ (2.90)
================= ================= =============== =================
Weighted average number of common shares
outstanding - basic 21,726,967 6,039,497 21,277,313 4,905,385
================= ================= =============== =================
Weighted average number of common shares
outstanding - diluted 23,267,346 6,039,497 22,666,801 4,905,385
================= ================= =============== =================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
TRANSIT GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN TOTAL
NON REDEEMABLE PREFERRED STOCK, COMMON STOCK
AND OTHER SHAREHOLDERS' EQUITY
Total
Common Additional Note receivable Accumulated shareholders'
stock paid-in capital secured by stock deficit equity
----- --------------- ---------------- ------- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $ 185,770 $ 50,650,534 $ (675,000) $ (31,444,630) $ 18,716,674
Stock issued for acquisitions 23,168 11,174,342 ----- ----- 11,197,510
Stock no longer subject
to redemption 4,935 1,771,665 ----- ----- 1,776,600
Accrued interest ----- ----- (32,383) ----- (32,383)
Note secured by stock ----- ----- (1,003,029) ----- (1,003,029)
Retirement of stock (208) (74,792) ----- ----- (75,000)
Net income ----- ----- ----- 2,005,878 2,005,878
=========== ================ ================= ================= =================
Balance June 30, 1998 $ 213,665 $ 63,521,749 $ (1,710,412) $ (29,438,752) $ 32,586,250
=========== ================ ================= ================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
TRANSIT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
----------------------------------------------
1998 1997
--------------------- ---------------------
<S> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations $ 2,005,878 $ (268,066)
--------------------- ---------------------
Adjustments to reconcile income (loss) to cash provided by (used in)
operating activities:
Depreciation and amortization 2,992,085 1,179
Gain on sale of equipment (135,608) -----
Changes in assets and liabilities
Increase in accounts receivable (670,545) -----
Decrease (increase) in other assets 136,056 (298,467)
(Decrease) increase in accounts payable and accrued expenses (1,061,514) 96,322
Other 20,950 -----
--------------------- ---------------------
Total adjustments 1,281,424 (200,966)
--------------------- ---------------------
Net cash provided by (used by) continuing operations 3,287,302 (469,032)
Net cash used by discontinued operations (66,813) (2,263,764)
--------------------- ---------------------
Net cash provided by (used by) operating activities 3,220,489 (2,732,796)
--------------------- ---------------------
Cash flows from investing activities:
Business combinations, net of cash acquired (3,243,751) -----
Proceeds from disposal of equipment 2,366,933 198,555
Purchase of equipment (2,498,084) (98,848)
--------------------- ---------------------
Net cash (used by)provided by investing activities (3,374,902) 99,707
--------------------- ---------------------
Cash flows from financing activities:
Repayment of capital lease obligations and long-term debt (8,495,888) (5,293,260)
Increase in borrowings 11,700,560 2,945,600
Proceeds from issuance of common stock ----- 6,375,014
Dividends paid on preferred stock ----- (666,750)
Conversion of debentures ----- (300,000)
Decrease in bank overdraft (970,600) (423,957)
--------------------- ---------------------
Net cash provided by financing activities 2,234,072 2,636,647
--------------------- ---------------------
Increase in cash 2,079,659 3,558
Cash, beginning of period 789,791 6,455
--------------------- ---------------------
Cash, end of period $ 2,869,450 $ 10,013
===================== =====================
<PAGE>
Supplemental cash flow data:
Cash paid for interest $ 1,682,826 $ 311,302
===================== =====================
Business combinations:
Fair value of assets acquired $ 46,544,421 $ -----
Fair value of liabilities assumed (30,743,911) -----
Common stock issued (11,197,510) -----
--------------------- ---------------------
Net cash payments $ 4,603,000 $ -----
===================== =====================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
TRANSIT GROUP, INC.
Notes to Consolidated Financial Statements
The information presented herein as of June 30, 1998, and for the three and six
month periods ended June 30, 1998 and 1997 is unaudited. The December 31, 1997
balance sheet was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
1. Basis of Presentation
The consolidated balance sheet of Transit Group, Inc. ("Transit Group" or the
"Company") as of June 30, 1998, its consolidated statements of operations, and
its consolidated statements of cash flows for the three and six month periods
ended June 30, 1998 and 1997 reflect the disposal of the parcel delivery and
courier operations and the acquisition of eight truckload carriers.
These financial statements include the consolidated balance sheets of the
Company and it's eight acquired subsidiaries, Carolina Pacific Distributors,
Inc. ("Carolina Pacific"), Capitol Warehouse, Inc. ("Capitol Warehouse"),
Service Express, Inc. ("Service Express"), Carroll Fulmer Group, Inc. ("Carroll
Fulmer"), Rainbow Trucking ("Rainbow"), Transportation Resource Management,
Inc. ("TRM"), Certified Transport, Inc. ("Certified"), and KJ Transportation,
Inc. ("KJ") at June 30, 1998 and the results of operations and cash flows for
the periods since acquisition:
Company Date Acquired
- ------------------------ -------------
Carolina Pacific July 12, 1997
Capitol Warehouse August 16, 1997
Service Express August 16, 1997
Carroll Fulmer August 30, 1997
Rainbow December 30, 1997
TRM January 31, 1998
Certified May 5, 1998
KJ June 17, 1998
The Company's consolidated statement of operations for the three and six month
period ended June 30, 1997 and it's consolidated statement of cash flows for
the six month period ended June 30, 1997 have been restated to reflect the
disposal of the company's parcel delivery and courier operations.
2. Summary of Significant Accounting Policies
Management's Representation
The accompanying interim consolidated financial statements have been prepared
by the Company in accordance and consistent with the accounting policies stated
in the Company's 1997 Annual Report on Form 10-KSB and should be read in
conjunction with the consolidated financial statements appearing therein. In
the opinion of management, all adjustments necessary for a fair presentation of
such consolidated financial statements are reflected in the interim periods
presented. The consolidated financial statements for the three and six month
periods ended June 30, 1997 have been restated in accordance with APB No. 30 to
reflect the Company's decision to dispose of the courier and package delivery
operations. Interim results are not necessarily indicative of results for a
full year.
The consolidated financial statements and notes are presented as permitted by
Form 10-QSB and do not contain certain information included in the annual
consolidated financial statements and notes of Transit Group.
<PAGE>
3. Business Combinations
The Company acquired five truckload carriers in 1997, one company in the first
quarter of 1998, and two companies in the second quarter of 1998. On May 5,
1998 the company acquired all of the outstanding shares of Certified, a dry van
carrier and its logistics affiliate Venture Logistics, Inc., based in
Indianapolis, Indiana. In connection with this acquisition the Company paid
$800,000 in cash and issued 1,072,165 of its common shares. On June 16, 1998
the Company acquired all of the outstanding shares of KJ Transportation (a
truckload carrier based in Rochester, New York) in exchange for $3.5 million in
cash and 878,688 shares of the Company's common stock.
All of the Company's acquisitions have been accounted for under the purchase
method of accounting. Accordingly, the operating results of the acquired
companies have been included in the Company's consolidated financial statements
since their respective dates of acquisition. The purchase price has been
preliminarily allocated to the assets acquired and liabilities assumed based on
their estimated fair market value at the date of acquisition. The purchase
price of the respective companies exceeded the fair value of net assets
acquired by approximately $42.4 million, which is being amortized on a
straight-line basis over 40 years. In connection with these acquisitions, the
company accrued $4.2 million for the consolidation and elimination of redundant
administrative functions. The accrual is intended to cover severance costs of
employees terminated in conjunction with the plan. The following unaudited pro
forma consolidated results of operations of the Company for the three and six
month periods ended June 30, 1998 and 1997 account for the eight acquisitions
and the disposal of the Company's parcel delivery and courier operations as if
they had occurred on January 1, 1998 and 1997, respectively. The pro forma
results give effect to the amortization of goodwill, the effects of additional
interest expense and certain other adjustments.
<TABLE>
<CAPTION>
Unaudited Pro Forma Combined Results of Operations
Three months ended June 30, Six months ended June 30,
1998 1997 1998 1997
------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenues $ 57,542,000 $ 56,904,000 $ 108,659,000 $ 107,726,000
============== ============== =============== ================
Income from continuing
operations available to $ 1,154,000 $ 847,000 $ 2,734,000 $ 1,354,000
common shareholders
============== ============== =============== ================
Income per basic common share $ .05 $ .06 $ .12 $ .09
============== ============== =============== ================
Income per diluted common share $ .05 $ .05 $ .11 $ .08
============== ============== =============== ================
Weighted average number of basic
common shares outstanding 22,870,604 15,346,327 22,881,021 15,346,327
============== ============== =============== ================
Weighted average number of diluted
common shares outstanding 24,410,983 15,890,128 24,270,509 16,040,712
============== ============== =============== ================
</TABLE>
<PAGE>
The above pro forma statements do not necessarily purport to be indicative of
the results of operations which would have occurred had the acquisition been
made on January 1, 1998 or 1997, nor are they indicative of future results.
4. Income Taxes
At June 30, 1998, the Company has approximately $28.4 million of net operating
loss carryforwards potentially available to offset taxable income which expire
during the years 2000 to 2012. The Company has not given recognition to tax
benefits of net operating loss carryforwards in the financial statements,
except for those net operating loss carryforwards which can be offset against
current income, because management believes the Company's history of operating
losses diminishes the Company's immediate ability to demonstrate that more
likely than not, the future benefits will be realized. Accordingly, the Company
has provided a valuation allowance of $12.2 million against those net operating
loss carryforwards. Additionally, these net operating loss carryforwards are
subject to limitation in any given year in the event of significant changes in
ownership as set forth in the Internal Revenue Code and related Treasury
Regulations.
The difference between the provision for income taxes attributable to
continuing operations and the amount that would be expected using the Federal
statutory income tax of 34% is related to the reduction in the valuation
allowance due to the generation of taxable income in the current period as well
as certain nondeductible expenses.
5. Subsequent Events
In July 1998 the Company acquired Network Transport, Inc. ("Network") a
Canadian trucking company with routes across Canada as well as cross-border
services to Northern markets in the U.S. The Company issued cash and 191,000 of
its shares valued at approximately $1.4 million in exchange for the shares of
Network.
In August 1998, Transit Group completed the acquisition of Diversified Trucking
Corporation a dry-van carrier based in Opelika, Alabama. The Company issued
178,519 shares of its common stock and cash, in exchange for the shares of
Diversified Trucking. The cash and stock transaction is valued at approximately
$1.3 million.
Also in August 1998, the Company completed the previously announced acquisition
of Northstar Transportation, Inc. Northstar Transportation focuses on the
paper, building materials, and food industries and is based in Dothan, Alabama.
In connection with the acquisition of Northstar, the Company issued 349,091
shares of its stock and cash valued at approximately $2.5 million.
The business combinations described above will be accounted for under the
purchase method of accounting. Assets acquired and liabilities assumed will be
recorded at fair market value. The purchase price of the respective companies
is expected to exceed the fair value of net assets acquired by approximately
$45 million, which will be amortized on a straight-line basis over 40 years.
<PAGE>
The following unaudited pro forma consolidated results of operations of the
Company for the three and six month periods ended June 30, 1998 and 1997
account for the Company's five 1997 acquisitions, the three acquisitions in the
first half of 1998 and the three acquisitions (Network, Diversified and
Northstar) which have taken place thus far in the third quarter, and the
disposal of the Company's parcel delivery and courier operations as if they had
occurred on January 1, 1998 and 1997, respectively. The pro forma results give
effect to the amortization of goodwill, the effects of additional interest
expense, and certain adjustments.
<TABLE>
<CAPTION>
Unaudited Pro Forma Combined Results of Operations
Three months ended June 30, Six months ended June 30,
1998 1997 1998 1997
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 64,624,000 $ 63,730,000 $ 122,381,000 $ 120,623,000
=============== ============== =============== ===============
Income from continuing
operations available to $ 1,529,000 $ 1,079,000 $ 3,622,000 $ 1,786,000
common shareholders
=============== ============== =============== ===============
Income per basic common share $ .06 $ .07 $ .15 $ .11
=============== ============== =============== ===============
Income per diluted common share $ .06 $ .07 $ .14 $ .11
=============== ============== =============== ===============
Weighted average number of basic
common shares outstanding 23,589,214 15,873,937 23,599,630 15,873,937
=============== ============== =============== ===============
Weighted average number of diluted
common shares outstanding
25,129,593 16,417,738 24,989,118 16,568,308
=============== ============== =============== ===============
</TABLE>
The above pro forma statements do not necessarily purport to be indicative of
the results of operations which would have occurred had the acquisition been
made on January 1, 1998 or 1997, nor are they indicative of future results.
6. Commitments and Contingencies
On February 20, 1997, Mark Iannello, an individual plaintiff, filed a Complaint
against Capitol Warehouse. The lawsuit against Capitol Warehouse is pending in
the U.S. District Court of the Western District of Pennsylvania (C.A. No.
97-45J) and is a personal injury action in connection with an accident
involving one of Capitol Warehouse's trucks. The Complaint alleges and seeks
damages of $3.5 million. Capitol Warehouse is insured in connection with such
claim for damages up to $1.0 million. In addition, a portion of the stock
consideration paid by the Company for Capitol Warehouse is held in escrow and
would be returned to the Company in the event that the Company is obligated to
pay any amounts in connection with this lawsuit. Management is unable to assess
at this time whether and to what extent the plaintiff will be successful on its
claim.
<PAGE>
TRANSIT GROUP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis or
Plan of Operation
The following discussion should be read in conjunction with the Consolidated
Financial Statements, including the footnotes, and is qualified in its entirety
by the foregoing and other more detailed financial information appearing
elsewhere herein. Historical results of operations and the percentage
relationships among any amounts included in the Consolidated Statements of
Operations, and any trends which may appear to be inferable therefrom, should
not be taken as being necessarily indicative of trends in operations or results
of operations for any future periods.
Comments in this Management's Discussion and Analysis or Plan of Operation
regarding the Company's business which are not historical facts are forward
looking statements that involve risks and uncertainties. Among these risks are
the Company is in a highly competitive business, has a history of operating
losses, and is pursuing a growth strategy that relies in part on the completion
of acquisitions of companies in the trucking industry. There can be no
assurance that in its highly competitive business environment, the Company will
successfully improve its operating profitability or consummate such
acquisitions.
The following discussion and analysis reflect the Company's financial position,
results of operations and cash flows as restated to reflect the disposal of the
parcel delivery and courier operations in accordance with APB No. 30.
Liquidity and Capital Resources
The Company has incurred substantial operating losses and cash flow deficits
since inception. From September 1985 through June 30, 1998, the Company had
accumulated a deficit from operating losses of $28.1 million and has paid
dividends on its preferred stock of approximately $1.3 million. As of June 30,
1998, the Company had raised $63.7 million, net of notes receivable secured by
stock in the amount of $1.7 million, from (i) private placements of preferred
stock (which has been converted to common stock), (ii) its initial public
offering of November 2, 1989, (iii) the sale of restricted and unrestricted
common shares and (iv) stock issued in connection with the acquisition of the
eight truckload carriers. As a result of equity placements, dividends on
preferred stock and cumulative losses, shareholders' equity as of June 30,
1998, was $32.6 million, and common stock issued subject to put arrangements
was $5.7 million.
Redemption Rights for Selling Shareholders in Acquisitions
In connection with the acquisitions of Capitol Warehouse, Service Express, and
Carroll Fulmer, the Company granted the selling shareholders the right to
require the Company to redeem a portion of the shares which they received in
exchange for selling their businesses to the Company. The dollar amount of
stock subject to mandatory redemption by the Company aggregated approximately
$8.1 million upon acquisition of those companies.
At June 30, holders of redemption rights with respect to $3.7 million of stock
may require either the Company to redeem the stock or a major shareholder of
the Company to acquire the stock at a price of $3.60 per share. Holders of
redemption rights with respect to $1.7 million of stock at $3.875 per share and
$0.3 million at $6.75 per share have the right to require the Company to redeem
their shares and are guaranteed by a major shareholder. Of this amount $0.3
million was purchased by third parties in the third quarter.
<PAGE>
To the extent such redemption rights are exercised, the Company will be
required to fund the cash required to meet its obligations under the redemption
rights by drawing on bank lines which may be available to its subsidiaries, or
to call upon a major shareholder to purchase the stock under such shareholder's
obligations and guarantees associated with the acquisition contracts.
Management believes, but can offer no assurances, that it can improve operating
performance and cash flows through the following measures:
Eliminating Parcel Delivery and Courier Operations. Management has sold its
unprofitable parcel delivery operations to a company controlled by its Chairman
and its courier operations to an unrelated third party.
Acquiring Profitable Trucking Operations. The Company has reorganized into a
"holding company" based in Atlanta, Georgia. This new corporate structure is
intended to increase the Company's flexibility to pursue the acquisition and
operation of profitable truckload motor carriers. The Company's intent is to
continue to identify and acquire additional mid-size trucking companies,
primarily with annual revenues between $5 million and $100 million, that
possess strong market positions, sound management and a commitment to a high
level of service and quality. The Company has completed the acquisition of
eight companies at June 30, 1998 and has acquired three companies in the third
quarter of 1998. In connection with these acquisitions, the company accrued
$4.2 million for the consolidation and elimination of redundant administrative
functions. The accrual is intended to cover severance costs of employees
terminated in conjunction with the plan.
Relying on Equity Sales to or Loans from Major Shareholders. In July 1997, an
affiliate of the Company's Chairman loaned the Company $4 million to consummate
the acquisition of Carolina Pacific Distributors, Inc. During August, September
and October of 1997, the affiliate loaned the Company an additional $2.6
million to fund the continuing operations of the parcel delivery and courier
operations and fund certain expenses associated with the acquisition of the
truckload companies. Of the $6.6 million borrowed, $2.6 million was assumed by
the purchaser of the parcel delivery and courier operations, leaving a balance
of $4 million at June 30, 1998. The loan amortizes at a rate of $1.0 million
per year commencing April 1999. Accordingly, $1.0 million of this loan is
included in the balance sheet under the heading Current portion of long-term
debt and capital leases.
Obtaining Bank Financing. Management has negotiated new lines of bank financing
to provide working capital financing and financing for acquisitions of
additional truckload motor carriers. The Company has entered into a $20 million
revolving credit facility from a bank to make available to Capitol Warehouse,
Carroll Fulmer, Service Express, Rainbow Trucking, Carolina Pacific, TRM ,
Certified Transport, and KJ Transportation an asset based line of credit
secured by accounts receivable.
Demand Notice
In connection with its acquisitions, the Company routinely requests waivers
and/or approvals from commercial lenders in regards to change of control
covenants included in subsidiary loan documents. Subsequent to the acquisition
of KJ Transportation, Transamerica Business Credit Corporation notified the
Company that it does not consent to the sale of KJ Transportation to the
Company and further, has demanded payment in full on approximately eleven Notes
aggregating $6.6 million. Concurrent with the demand notification, the lender
offered to re-finance the eleven obligations under new terms and conditions.
<PAGE>
The Company is reviewing the proposal and may refinance these obligations with
the existing lender or another commercial lender.
The Company is currently negotiating with other lenders to re-finance up to $30
million of existing obligations (including those discussed above) as well as
provide approximately $20 million for new equipment purchases. It is
anticipated that this refinancing will be completed in the fourth quarter of
1998.
Legal Proceedings
On February 20, 1997, Mark Iannello, an individual plaintiff, filed a Complaint
against Capitol Warehouse. The lawsuit against Capitol Warehouse is pending in
the U.S. District Court of the Western District of Pennsylvania (C.A. No.
97-45J) and is a personal injury action in connection with an accident
involving one of Capitol Warehouse's trucks. The Complaint alleges and seeks
damages of $3.5 million. Capitol Warehouse is insured in connection with such
claim for damages up to $1.0 million. In addition, a portion of the stock
consideration paid by the Company for Capitol Warehouse is held in escrow and
would be returned to the Company in the event that the Company is obligated to
pay any amounts in connection with this lawsuit. Management is unable to assess
at this time whether and to what extent the plaintiff will be successful on its
claim.
Financial Condition
As of June 30, 1997, the Company treated its parcel delivery and courier
business as discontinued operations. The Company's outstanding vehicle and
equipment indebtedness, $2.6 million of indebtedness to an affiliate of the
Company's Chairman, and certain operating leases were assumed by the companies
purchasing the operations. The Company remains contingently liable on certain
leases.
Results of Operations - Three and six months ended June 30, 1998
The Company discontinued its parcel delivery and courier business effective
June 30, 1997. Accordingly, the Company had no revenues from continuing
operations until July 11, 1997 with the purchase of Carolina Pacific and such
revenues continued to increase with the acquisitions of seven additional
companies.
The following table sets forth items in the Consolidated Statement of
Operations for the three and six months ended June 30, 1998 as a percentage of
operating revenue. Because all truckload operations were acquired during the
second half of 1997 and in the first half of 1998, the table is not comparative
to an earlier period.
<PAGE>
<TABLE>
<CAPTION>
Percentage of Operating Revenues
June 30,1998
------------
Three Months Ended Six Months Ended
---------------------- ---------------------
<S> <C> <C>
Revenues and other income 100.0% 100.0%
---------------------- ---------------------
Operating expenses:
Purchased transportation 46.0 46.3
Salaries, wages and benefits 22.5 22.0
Fuel 7.3 7.4
Operating supplies and expenses 8.7 8.4
Insurance 1.8 1.9
Depreciation and amortization expense 4.7 4.9
General and administrative expense 3.0 2.9
---------------------
----------------------
Total operating expenses 94.0 93.8
---------------------- ---------------------
Operating income 6.0 6.2
Interest expense 2.4 2.7
---------------------- ---------------------
Income from continuing
operations
before income taxes 3.6 3.5
Income taxes attributable to continuing
Operations 0.3 0.3
---------------------- ---------------------
Income from continuing operations 3.3% 3.2%
====================== =====================
</TABLE>
The operating margins for the three and six month periods ended June 30, 1998
reflect no unusual changes. The Company is continuing the process of
implementing its centralization policy on a regional basis, which will result
in three primary operating regions - the Southeast Region, the Northeast
Region, and the Midwest Region. It is anticipated that this structure will be
completed in the fourth quarter of 1998. This organization will facilitate the
growth and management of the Company and is expected to continue to identify
operating efficiencies and opportunities including:
Increased backhaul revenue
Purchasing efficiencies in the areas of equipment, tires
and maintenance costs
Reduction of deadhead miles
<PAGE>
The Company incurred corporate administration expenses for the six months ended
June 30, 1998 of approximately $1.8 million as compared to approximately
$268,000 for the six months ended June 30, 1997. These increases are
attributable to administrative costs of reorganizing into a holding company
structure, the opening of a new corporate office in Atlanta, the increased
costs associated with its acquisition activities, as well as the administrative
costs of the acquired companies.
Revenues attributable to the discontinued businesses were $9.8 million for the
six months ended June 30, 1997.
Year 2000
The Company operates two primary software applications: its accounting and
financial reporting systems and its integrated dispatch and billing systems.
The accounting and financial reporting systems were acquired from a third party
vendor in 1996 and were represented to be compliant with Year 2000 issues at
acquisition. The vendors of the Company's integrated dispatch and billing
systems have advised the Company that all Year 2000 software modifications will
be completed by the third quarter of 1998. The cost of these modifications will
be covered by the Company's existing software maintenance agreements.
Although the Company does not believe that it will incur any material costs or
experience material disruptions in its business associated with preparing its
internal systems for the Year 2000, there can be no assurances that the Company
will not experience unanticipated negative consequences and/or material costs
caused by undetected errors or defects in the technology used in its internal
systems. The Company is currently unable to estimate the most reasonably likely
worst-case effects of the Year 2000 and does not currently have a contingency
plan in place for any such unanticipated negative effects. The Company intends
to analyze the worst-case scenarios and the need for such contingency planning
once the measures described above have been completed and testing of the
company's systems for Year 2000 compliance has begun.
The Company is currently unable to estimate whether it is exposed to
significant risk of being adversely affected by Year 2000 noncompliance by
third parties. During the third and fourth quarters of 1998, the Company
intends to begin contacting third parties with which it has material
relationships, including its material customers, to attempt to determine their
preparedness with respect to Year 2000 issues and to analyze the risks to the
Company in the event any such third parties experience significant business
interruptions as result of Year 2000 noncompliance. The Company expects to
complete this review and analysis and to determine the need for contingency
planning in this regard by March 31, 1999.
<PAGE>
TRANSIT GROUP, INC.
Part II - Other Information
Item 1 - Legal Proceedings
The Company acquired Capitol Warehouse, Inc. in August, 1997 and Capitol
Warehouse, Inc. is currently a wholly-owned subsidiary of the Company. On
February 20, 1997, Mark Iannello, an individual plaintiff, filed a Complaint
against Capitol Warehouse, Inc. The lawsuit against Capitol Warehouse, Inc. is
pending in the U.S. District Court of the Western District of Pennsylvania
(C.A. No. 97-45J) and is a personal injury action in connection with an
accident involving one of Capitol Warehouse, Inc.'s trucks. The Complaint
alleges and seeks damages of $3.5 million. Capitol Warehouse, Inc. is insured
in connection with such claim for damages up to $1.0 million. In addition, a
portion of the stock consideration paid by the Company for Capitol Warehouse,
Inc. is held in escrow and would be returned to the Company in the event that
the Company is obligated to pay any amounts in connection with this lawsuit.
Management is unable to assess at this time whether and to what extent the
plaintiff will be successful on its claim.
Item 2 - Changes in Securities and Use of Proceeds
Not applicable
Item 3 - Defaults on Senior Securities
Not applicable
Item 4 - Submission of Matters to a Vote of Security Holders
At its Annual Meeting on June 25, 1998 the Company's shareholders:
1. Elected by a vote of 16,870,000 for and 1,300,000 against,
the following five Directors:
T. Wayne Davis Chairman of the Board of Directors
Philip A. Belyew Director,President and Chief Financial Officer
Derek E. Dewan Director
Carroll L. Fulmer Director
Ford G. Pearson Director
2. Approved the 1998 Stock Incentive Plan of Transit Group, Inc. by
a vote of 15,776,000 for and 127,914 against,
3. Approved the 1998 Stock Purchase Plan of Transit group, Inc. by a
vote of 15,900,857 for and 11,849 against, and
4. Ratified by a vote of 16,869,177 for and 2,300 against, the
appointment by the Board of Directors of Price Waterhouse LLP
independent accountants for the fiscal year ended December 31,
1999.
Item 5 - Other Information
Not applicable
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10 - Material Contracts
10.1 Purchase Agreement governing purchase by Transit of
the stock of Certified Transport and Venture
Logistics (incorporated by reference from Exhibit
2.1 to Registrant's Form 8-K dated May 5, 1998).
10.2 Purchase Agreement governing purchase by Transit of
the stock of KJ Transportation (incorporated by
reference from Exhibit 2.1 to Registrant's Form 8-K
dated June 17, 1998).
11.1 Statement Regarding Computation of Earnings per
Share.
27.1 Financial Data Schedules
(b) The Company filed the following Current Reports on Form 8-K during the
second quarter of 1998:
(i) A report on Form 8-K dated May 5, 1998, filed on May 18, 1998
reporting the acquisition of Certified Transport Ltd. and
Venture Logistics Inc.;
(ii) A report on Form 8-K dated June 17, 1998, filed on June 26,
1998 reporting the acquisition of KJ Transportation Inc. and
J&L Leasing Inc.
Signature
Pursuant to 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.
Transit Group, Inc.
Date: August 13, 1998
By: /s/Wayne N. Nellums
-------------------
Wayne N. Nellums
Vice President,
Chief Financial Officer
and Secretary
Exhibit 11.1 Statement regarding computation of earnings per share.
The Company computes earnings per share in accordance with FAS No. 128,
Earnings Per Share. For the three and six month periods ended June 30, 1997,
the Company was required to pay dividends on it's outstanding preferred
convertible stock. Such preferred stock was converted into common stock on June
30, 1997. The preferred dividend requirements for the periods in which the
preferred stock was outstanding have been added to the loss from continuing
operations to arrive at net loss available to common shareholders in
calculating basic earnings per share.
The Company has stock options and warrants outstanding which were not included
in the computation of diluted earnings per share for the three and six month
periods ended June 30, 1997 because to do so would have been anti-dilutive for
periods presented. Such options and warrants were included in the computation
of diluted earnings per share for the three and six month periods ended June
30, 1998.
Weighted-average shares for the three months ended June 30, 1997 is calculated
as follows:
<TABLE>
<CAPTION>
Dates Shares Fraction Weighted
Outstanding Outstanding of Period Average Shares
----------- ----------- --------- --------------
<S> <C> <C> <C>
April 1-May 2, 1997 3,758,671 31/91 1,280,426
Issuance of common stock on May 2 3,387,187
---------------------
May 3-June 29 7,145,858 59/91 4,633,029
Conversion of preferred stock on June 30 4,323,922
---------------------
June 30 11,469,780 1/91 126,042
--------------------- ---------------------
Weighted average shares 6,039,497
=====================
<PAGE>
</TABLE>
Weighted-average shares for the six months ended June 30, 1997 is calculated as
follows:
<TABLE>
<CAPTION>
Dates Shares Fraction Weighted
Outstanding Outstanding of Period Average Shares
----------- ----------- --------- --------------
<S> <C> <C> <C>
January 1-May 2, 1997 3,758,671 121/181 2,512,703
Issuance of common stock on May 2 3,387,187
---------------------
May 3-June 29 7,145,858 59/181 2,329,313
Conversion of preferred stock on June 30 4,323,922
---------------------
June 30 11,469,780 1/181 63,369
--------------------- ---------------------
Weighted average shares 4,905,385
=====================
</TABLE>
Weighted-average shares for the three months ended June 30, 1998 is calculated
as follows:
<TABLE>
<CAPTION>
Dates Shares Fraction Weighted
Outstanding Outstanding of Period Average Shares
----------- ----------- --------- --------------
<S> <C> <C> <C>
April 1 - April 2 20,940,583 2/91 460,233
Retirement of common stock on April 3 (20,833)
---------------------
April 3 - May 4 20,919,750 32/91 7,356,396
Issuance of common stock on May 5 1,072,165
---------------------
May 5 - June 16 21,991,915 43/91 10,391,784
Issuance of common stock on June 17 878,688
---------------------
June 17 - June 30 22,870,603 14/91 3,518,554
--------------------- ---------------------
Weighted average shares 21,726,967
=====================
<PAGE>
</TABLE>
Weighted-average shares for the six months ended June 30, 1998 is calculated as
follows:
<TABLE>
<CAPTION>
Dates Shares Fraction Weighted
Outstanding Outstanding of Period Average Shares
----------- ----------- --------- --------------
<S> <C> <C> <C>
January 1 - January 29 20,574,626 29/181 3,296,487
Issuance of common stock on January 30 365,957
---------------------
January 30 - April 2 20,940,583 63/181 7,288,711
Retirement of common stock on April 3 (20,833)
---------------------
April 3 - May 4 20,919,750 32/181 3,698,519
Issuance of common stock on May 5 1,072,165
---------------------
May 5 - June 16 21,991,915 43/181 5,224,599
Issuance of common stock on June 17 878,688
---------------------
June 17 - June 30 22,870,603 14/181 1,768,997
--------------------- ---------------------
Weighted average shares 21,277,313
=====================
</TABLE>
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted-average shares: 21,726,967 6,039,497 21,277,313 4,905,385
Plus: Incremental shares from assumed
conversions of warrants and 1,540,379 ----- 1,389,488 -----
options
-------------- -------------- -------------- --------------
Adjusted weighted average shares
23,267,346 6,039,497 22,666,801 4,905,385
============== ============== ============== ==============
<PAGE>
</TABLE>
Income for EPS Computation
<TABLE>
<CAPTION>
Three Months ended June 30, Six Months ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income (loss) from continuing operations $ 1,163,637 $ (174,658) $ 2,005,878 $ (268,066)
Preferred stock dividend requirement (192,500) (385,000)
----- -----
-------------- -------------- -------------- ---------------
Income (loss) available to common 1,163,637 (367,158) 2,005,878 (653,066)
shareholders
Loss from discontinued operations (11,134,952) (13,570,374)
----- -----
-------------- -------------- -------------- ---------------
Net income (loss) available to common
shareholders $ 1,163,637 $(11,502,110) $ 2,005,878 $ (14,223,440)
============== ============== ============== ===============
</TABLE>
The basic EPS computation is as follows:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income (loss) per common share - basic:
Continuing operations $ 0.05 $ (0.06) $ 0.09 $ (0.13)
Loss from discontinued operations ----- (1.84) ----- (2.77)
-------------- -------------- -------------- --------------
Total $ 0.05 $ (1.90) $ 0.09 $ (2.90)
============== ============== ============== ==============
Weighted average number of common
shares outstanding-basic 21,726,967 6,039,497 21,277,313 4,905,385
============== ============== ============== ==============
<PAGE>
</TABLE>
The diluted EPS computation is as follows:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
1998 1997 1997 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income (loss) per common share - diluted:
Continuing operations $ 0.05 $ (0.06) $ 0.09 $ (0.13)
Loss from discontinued operations ----- (1.84) ----- (2.77)
-------------- -------------- -------------- --------------
Total $ 0.05 $ (1.90) $ 0.09 $ (2.90)
============== ============== ============== ==============
Weighted average number of common
shares outstanding-diluted 23,267,346 6,039,497 22,666,801 4,905,385
============== ============== ============== ==============
</TABLE>
The equation for computing (basic and diluted) EPS is:
Income available to common stockholders
---------------------------------------------------
Weighted-average shares
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from the consolidated
Statements of Operations and Balance Sheets
and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-START> JAN-1-1998
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 2,869,450
<SECURITIES> 0
<RECEIVABLES> 22,729,646
<ALLOWANCES> 609,716
<INVENTORY> 0
<CURRENT-ASSETS> 29,825,274
<PP&E> 51,243,773
<DEPRECIATION> 5,679,959
<TOTAL-ASSETS> 123,445,897
<CURRENT-LIABILITIES> 37,364,683
<BONDS> 0
<COMMON> 213,665
0
0
<OTHER-SE> 32,372,585
<TOTAL-LIABILITY-AND-EQUITY> 123,445,897
<SALES> 61,838,691
<TOTAL-REVENUES> 61,838,691
<CGS> 0
<TOTAL-COSTS> 57,952,670
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,671,134
<INCOME-PRETAX> 2,214,887
<INCOME-TAX> 209,009
<INCOME-CONTINUING> 2,005,878
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,005,878
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
