<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of Earliest Event Reported): October 15, 1999
(July 30, 1999)
TRANSIT GROUP, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Florida
(State or other jurisdiction of 000-18601 59-2576629
incorporation or organization) (Commission File No.) (IRS Employer Identification No.)
</TABLE>
2859 Paces Ferry Road
Suite 1740
Atlanta, Georgia 30339
(Address of principal executive offices, including zip code)
(770) 444-0240
(Registrant's telephone number, including area code)
===============================================================================
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
-----------------------------------------
The Bestway Trucking, Inc. combined financial statements and Report of
Independent Accountants for the year ended December 31, 1998 and the six months
ended June 30, 1998 and 1999 (unaudited) are contained in Exhibit 99.1 hereto.
(b) Pro Forma Financial Information
-------------------------------
Such required pro forma financial information is contained in Exhibit
99.2 hereto.
(c) Exhibits
--------
23.1 Consent of PricewaterhouseCoopers, LLP.
99.1 The Bestway Trucking, Inc. combined financial statements and
Report of Independent Accountants for the year ended December 31, 1998 and the
six months ended June 30, 1998 and 1999 (unaudited).
99.2 Pro Forma financial statements for the year ended December 31,
1998 and the six months ended June 30, 1998 and 1999.
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 hereunto duly authorized.
TRANSIT GROUP, INC.
Date: October 13, 1999 /s/ Phillip A. Belyew
----------------------------------------
Philip A. Belyew
President and Chief Executive Officer
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
October 13, 1999
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Numbers 333-48939 and 333-6880) of Transit
Group, Inc. of our report dated September, 24, 1999 relating to the
combined financial statements of Bestway Trucking, Inc., Connection One
Trucking, LLP, and DLS Leasing, Inc., and our report dated October 12, 1999
relating to the combined financial statements of MDR Cartage, Inc. and BF
Transportation, Inc., which appear in the Current Reports on Form 8-K of
Transit Group, Inc. dated October 15, 1999.
PricewaterhouseCoopers LLP
Atlanta, Georgia
<PAGE>
EXHIBIT 99.1
BESTWAY TRUCKING, INC.,
CONNECTION ONE TRUCKING, LLP,
AND DLS LEASING, INC.
Combined Financial Statements
For the Year Ended December 31, 1998 and the
Six Months Ended June 30, 1998 and 1999 (Unaudited)
<PAGE>
BESTWAY TRUCKING, INC., CONNECTION ONE
TRUCKING, LLP, AND DLS LEASING, INC.
Table of Contents
Page
Report of Independent Accountants 1
Combined Balance Sheets 2
Combined Statements of Income 3
Combined Statements of Changes in Stockholder's Equity 4
Combined Statements of Cash Flows 5
Notes to the Combined Financial Statements 6-13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
September 24, 1999
To the Stockholder of Bestway Trucking, Inc.,
the Partners of Connection One Trucking, LLP
and the Stockholder of DLS Leasing, Inc.
In our opinion, the accompanying combined balance sheet and the related combined
statements of income, of changes in stockholder's equity, and of cash flows
present fairly, in all material respects, the combined financial position of
Bestway Trucking, Inc., Connection One Trucking, LLP, and DLS Leasing, Inc. at
December 31, 1998, and the combined results of their operations and their cash
flows for the year then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
<PAGE>
BESTWAY TRUCKING, INC., CONNECTION ONE
TRUCKING, LLP, AND DLS LEASING, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1998 AND JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1998 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 1,622,197 $ 1,125,770
Certificates of deposit 303,474 310,946
Investments held for trading, at market - 819,588
Accounts receivable, net of allowance for
doubtful accounts of $35,000 for 1998 and 1999 4,709,587 4,485,650
Related party receivables 1,223,710 1,542,792
Other receivables 50,632 78,687
Prepaid expenses 456,175 684,723
Other current assets 615,285 475,329
Deferred income taxes 668,330 479,667
----------- -----------
Total current assets 9,649,390 10,003,152
Noncurrent assets:
Property and equipment, net 32,910,914 32,419,525
Other assets, net 40,000 38,333
----------- -----------
Total noncurrent assets 32,950,914 32,457,858
----------- -----------
Total assets $42,600,304 $42,461,010
=========== ===========
LIABILITIES, STOCKHOLDER'S EQUITY, AND
PARTNERSHIP INTEREST
Current liabilities:
Line of credit $ 4,605,655 $ 5,434,373
Current maturities of long-term debt 7,745,201 7,491,320
Current employee obligations 29,391 29,391
Accounts payable 971,562 963,801
Accrued expenses and other current liabilities 1,790,563 1,296,735
Federal and state income taxes payable 1,227,307 1,230,057
---------- ----------
Total current liabilities 16,369,679 16,445,677
Noncurrent liabilities:
Long-term employee obligations 339,875 325,304
Long-term debt 20,645,389 20,391,309
Deferred income taxes 954,779 623,448
----------- -----------
Total noncurrent liabilities 21,940,043 21,340,061
----------- -----------
Total liabilities 38,309,722 37,785,738
----------- -----------
Commitments and contingencies - -
Stockholder's Equity and Partnership Interest:
Common Stock - Bestway Trucking, Inc., without par
value, 750 shares authorized; 750 shares issued
and outstanding; assigned value of $5.00 per share 3,750 3,750
Partnership Interest - Connection One Trucking LLC,
100 units of interest outstanding; assigned
value of $10.00 per unit 1,000 1,000
Common Stock - DLS Leasing, Inc., without par value,
1,000 shares authorized; 100 shares issued and
outstanding; assigned value of $2.50 per share 250 250
Retained Earnings 4,285,582 4,670,272
----------- -----------
Total Stockholder's Equity and Partnership
Interest 4,290,582 4,675,272
----------- -----------
Total Liabilities, Stockholder's Equity,
and Partnership Interest $42,600,304 $42,461,010
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
BESTWAY TRUCKING, INC., CONNECTION ONE TRUCKING, LLP, AND
DLS LEASING, INC.
COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 (unaudited)
<TABLE>
<CAPTION>
December 31, June 30, June 30,
1998 1998 1999
------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Revenues and other income:
Freight and transportation revenue $40,544,312 $19,638,471 $21,387,412
Other income 398,845 183,380 204,943
----------- ----------- -----------
Total revenues and other income 40,943,157 19,821,851 21,592,355
Operating expenses:
Purchased transportation 2,014,620 899,361 1,190,919
Salaries, wages and benefits 17,625,589 8,381,955 9,535,812
Fuel 5,984,624 2,953,056 3,087,186
Operating supplies and expenses 4,849,080 1,964,335 2,161,405
Insurance 962,441 459,549 506,749
Depreciation and amortization expense 5,817,685 3,421,307 3,046,106
General and administrative expense 342,206 146,744 246,133
----------- ----------- -----------
Total operating expenses 37,596,245 18,226,307 19,774,310
----------- ----------- -----------
Operating income 3,346,912 1,595,544 1,818,045
Miscellaneous income 3,000 3,622 52,713
Gain on sale of equipment 185,338 200,220 348,944
Unrealized loss on trading securities - - (677,288)
Gain on sale of securities 73,989 - 120,169
Interest income 74,358 41,634 26,765
Interest expense (2,515,342) (1,077,464) (1,321,481)
----------- ----------- -----------
Earnings before income taxes 1,168,255 763,556 367,867
Income tax expense (benefit)
attributable to operations (64,268) 120,618 (16,823)
----------- ----------- -----------
Net income $ 1,232,523 $ 642,938 $ 384,690
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
BESTWAY TRUCKING, INC., CONNECTION ONE TRUCKING, LLP, AND
DLS LEASING, INC.
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY AND
PARTNERSHIP INTEREST
DECEMBER 31, 1998 AND JUNE 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Bestway Connection One DLS Retained
Common Stock Partnership Common Stock Earnings Total
------------ -------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $3,750 $1,000 $250 $3,153,059 $3,158,059
Net Income - - - 1,232,523 1,232,523
Distribution - - - (100,000) (100,000)
------ ------ ---- ---------- ----------
Balance at December 31, 1998 3,750 1,000 250 4,285,582 4,290,582
Net Income (unaudited) - - - 384,690 384,690
------ ------ ---- ---------- ----------
Balance at June 30, 1999 (unaudited) $3,750 $1,000 $250 $4,670,272 $4,675,272
====== ====== ==== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
BESTWAY TRUCKING, INC., CONNECTION ONE TRUCKING, LLP, AND
DLS LEASING, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 (unaudited)
<TABLE>
<CAPTION>
December 31, June 30, June 30,
1998 1998 1999
------------ ----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income from operations $ 1,232,523 $ 642,938 $ 384,690
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 5,817,685 3,421,307 3,046,106
Gain on sale of equipment (185,338) (200,200) (348,944)
Unrealized loss on trading securities - - 677,288
Gain on sale of securities (73,989) - (120,169)
Deferred income taxes (399,429) (456,658) (142,668)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (753,199) (971,416) 223,937
(Increase) decrease in related parties receivable (664,955) (617,514) (319,082)
(Increase) decrease in other receivables 3,743 (15,645) (28,055)
(Increase) decrease in prepaid expenses 111,491 (511,869) (228,548)
(Increase) decrease in other current assets 65,243 (16,906) 139,956
Increase (decrease) in accounts payable 93,373 366,463 (7,761)
Increase (decrease) in accrued expenses and other current liabilities 554,428 42,521 (493,828)
Increase (decrease) in federal and state income taxes payable 327,307 577,276 2,750
------------ ------------ -------------
Total adjustments 4,896,360 1,617,359 2,400,982
Net cash provided by operating activities 6,128,883 2,260,297 2,785,672
Cash flows from investing activities:
(Increase) decrease in certificate of deposit 1,009,192 (36,941) (7,472)
Purchase of property and equipment (13,587,359) (8,315,343) (6,537,242)
Proceeds from sale of equipment 4,992,270 2,867,236 4,333,136
Purchase of securities (2,266,879) - (2,677,274)
Proceeds from sale of securities 2,340,868 - 1,300,567
------------ ------------ ------------
Net cash used in investing activities (7,511,908) (5,485,048) (3,588,285)
Cash flows from financing activities:
Proceeds from borrowings on line of credit 27,486,496 12,819,626 26,841,064
Payments on line of credit (26,880,215) (13,262,000) (26,012,346)
Net decrease in employee obligations (29,512) (13,472) (14,571)
Proceeds from the issuance of long-term debt 13,117,117 8,857,794 8,573,038
Repayment of long-term debt (11,399,789) (5,977,731) (9,080,999)
Distribution (100,000) - -
------------ ------------ ------------
Net cash provided by financing activities 2,194,097 2,424,217 306,186
Increase (decrease) in cash 811,072 (800,534) (496,427)
Cash beginning of period 811,125 811,125 1,622,197
------------ ------------ -------------
Cash end of period $ 1,622,197 $ 10,591 $ 1,125,770
============ ============ ============
Supplemental cash flow data:
Cash paid for interest $ 2,499,792 $ 1,040,207 $ 1,321,480
Cash paid for income taxes $ 7,830 $ - $ 123,094
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
BESTWAY TRUCKING, INC., CONNECTION ONE
TRUCKING, LLP, AND DLS LEASING, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 (unaudited)
- -------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
Bestway Trucking, Inc. is an Indiana corporation engaged in dry van
transportation and logistics services. Connection One Trucking, LLP, an
Indiana partnership, and DLS Leasing, Inc. an Indiana corporation, are both
primarily engaged in the leasing of tractors and trailers to Bestway
Trucking, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination:
The combined financial statements include the accounts of Bestway Trucking,
Inc. ("Bestway"), Connection One Trucking, LLP ("Connection One"), and DLS
Leasing, Inc. ("DLS"), (collectively referred to as the "Company"). The
companies are affiliated through common ownership. All significant
intercompany balances and transactions have been eliminated in combination.
Interim Statements:
The accompanying combined balance sheet, statement of changes in
stockholder's equity, and related footnotes as of June 30, 1999 and
statements of income and of cash flows and the related footnotes for the
six month periods ended June 30, 1998 and 1999 are unaudited. However,
these financial statements and the related footnotes reflect all
adjustments, consisting of only normal recurring adjustments, necessary for
the fair presentation of the results for the interim periods. The results
of operations for any interim period are not necessarily indicative of
results for the entire year.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Risks and Uncertainties and Concentration of Revenues:
Substantially all of the Company's historical revenues have been
attributable to dry van transportation services within the continental
United States of America, therefore, any material decline or prolonged lack
of growth in the demand for such services in general, or the Company's
services in particular, could have a material adverse effect on the Company
or its prospects. The market for truck transportation services is highly
competitive. In order to build or retain its market share, the Company
must continue to successfully compete in the areas that influence consumers
of such services.
The Company is dependent on being able to attract and retain qualified
drivers to operate its equipment. Unavailability of such drivers, or the
inability of the Company to attract such drivers, could have a material
adverse effect on the Company or its prospects. Competition between
trucking companies for drivers is significant.
Fuel represents a potentially volatile component of the Company's operating
expenses. Should the price of fuel increase substantially for a prolonged
period, it is uncertain whether these costs could be directly passed to the
customer.
The Company generally does not enter long-term contracts with any of its
customers, and therefore, derives a substantial portion of its revenues
from uncommitted customers.
Concentration of Credit Risks:
Financial instruments that potentially expose the Company to concentrations
of credit risk consist principally of trade accounts receivable. Bestway
grants uncollaterized trade credit to its customers in the ordinary course
of business, based on ongoing credit evaluations. Management believes its
credit acceptance, billing, and collecting policies and procedures are
adequate to minimize potential credit risk. The Company establishes an
allowance for doubtful accounts based upon factors surrounding the credit
risk of specific customers, historical trends, and other information. The
Company's historical
6
<PAGE>
BESTWAY TRUCKING, INC., CONNECTION ONE
TRUCKING, LLP, AND DLS LEASING, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 (unaudited)
- -------------------------------------------------------------------------------
experience in collection of accounts receivable is within the recorded
allowances. At December 31, 1998 and June 30, 1999, no individual customer
accounted for a significant amount of Bestway's accounts receivable.
Furthermore, for the year ended December 31, 1998 and the six month period
ended June 30, 1999, no individual customer represented a significant
amount of Bestway's revenues. Connection One and DLS grant credit solely to
Bestway.
Carrying Value of Financial Instruments:
The carrying amounts for cash and cash equivalents, accounts receivable,
accounts payable, accrued liabilities, futures contracts, and debt
instruments have been determined by the Company, using appropriate market
information and valuation methodologies. Considerable judgment is required
to develop the estimates of fair value. Therefore, the estimates provided
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange.
Cash and Cash Equivalents:
The Company considers all investments purchased with original or remaining
maturities of three months or less at the date of purchase to be cash
equivalents. Substantially all of the Company's cash balances are held in
financial institutions based in the United States. At times, balances of
these accounts exceed federal deposit insurance commission limits. The
Company's cash management program utilizes zero balance accounts.
Investments held for trading:
Investments held for trading consist of common stock and are stated at
market value as determined by the most recent traded price of each security
at the balance sheet date. Investments are defined as trading securities
under the provisions of Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities",
("SFAS 115"). Management determines the appropriate classification of its
investments at the time of purchase and reevaluates such determination at
each balance sheet date. Securities that are bought and held principally
for the purpose of selling them in the near term are classified as trading
securities and unrealized gains and losses are included in earnings.
Susequent to June 30, 1999, these securities were sold and a loss of
$631,875 was realized.
Parts Inventory and Supplies:
Inventories and supplies consist primarily of spare parts, new tires, fuel,
and supplies and are stated at cost. Cost is determined using actual cost.
Property and Equipment:
Property and equipment are recorded at cost and are depreciated over their
estimated useful lives using the straight-line method. The Company
utilizes a salvage value of twenty percent on all revenue equipment. Major
additions and betterments are capitalized, while replacements, maintenance,
and repairs that do not improve or extend the life of the assets are
charged to expense. Leasehold improvements are amortized over the lesser
of the length of the lease or their estimated useful life. In the period
assets are retired or otherwise disposed of, the costs and related
accumulated depreciation and amortization are removed from the accounts,
and any gain or loss on disposal is included in the results of operations.
The ranges of depreciable lives used for financial reporting purposes are:
<TABLE>
<CAPTION>
Years
-------
<S> <C>
Autos, trucks, trailers, and related major additions and betterments 5 to 7
Office equipment and furniture 5 to 10
Terminal equipment 5 to 10
</TABLE>
Long Lived Assets:
The Company periodically evaluates the recoverability of long-lived assets.
The Company recognizes an impairment charge when the future undiscounted
cash flows from each asset is estimated to be insufficient to recover its
related carrying value.
Revenue Recognition:
Operating revenues are recognized upon shipment while related direct costs
are recognized as incurred. The Company believes that alternate methods of
revenue recognition would not result in a material difference in annual
revenues or financial position.
7
<PAGE>
BESTWAY TRUCKING, INC., CONNECTION ONE
TRUCKING, LLP, AND DLS LEASING, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 (unaudited)
- -------------------------------------------------------------------------------
Advertising Costs:
Advertising costs are charged to operations as incurred. Advertising costs
were $21,670 for the year ended December 31, 1998 and were $6,069 and
$8,078 for the six month periods ended June 30, 1998 and 1999,
respectively.
Hedging Activities:
The Company utilizes a fuel futures contract to reduce its exposure to
certain risks inherent within its business. The contract is designated as
a hedge, has high correlation with the underlying exposure, and is highly
effective in offsetting underlying price movements. Accordingly, gains and
losses on unsettled portions of the contract are deferred. Amounts
deferred are classified in the same category as the item hedged for balance
sheet and cash flow presentation. Gains or losses on settled portions of
the contract are recognized in income in the same category as the item
hedged.
Income Taxes:
Bestway applies Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The measurement of
deferred taxes is reduced, if necessary, by the amount of any tax benefits
that, based on available evidence, are not expected to be realized. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Connection One is not a taxpaying entity for federal income tax purposes as
income from the Company is taxed to the Partners in their respective
returns. As such, no income tax expense has been recorded in these
financial statements.
DLS, with the consent of its sole Stockholder, has elected under the
Internal Revenue Code to receive S Corporation tax status. As such, in
lieu of corporate income tax, the Stockholder is taxed on the Company's
taxable income. Therefore, no income tax has been included in these
financial statements.
Comprehensive Income:
In fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). This
statement establishes standards for reporting and display of comprehensive
income and its components (revenue, expenses, and gains and losses) in a
full set of financial statements. There was no impact on the Company's
financial position, results of operations, or cash flows as a result of
adoption for the year ended December 31, 1998, and for the six month
periods ended June 30, 1998 and 1999, as comprehensive income and net
income are the same.
Earnings Per Share:
With respect to the historical organization and capital structure of the
Company, earnings per share information is not considered meaningful or
relevant and has not been presented in the accompanying combined financial
statements and notes thereto.
Recent Accounting Pronouncements:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which establishes
accounting and reporting standards for derivative instruments and hedging
activities. SFAS 133 requires that all derivatives be recognized at fair
value in the balance sheet, and that the corresponding gains or losses be
reported as a component of comprehensive income. SFAS 133 will be
effective for fiscal years beginning after June 15, 2000. Currently, the
Company engages in fuel hedges and is evaluating the requirements of SFAS
133 and the effects, if any, on current policies on accounting for hedging
activities.
In March 1998, the Accounting Standards Committee ("AcSEC") released
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires
companies to capitalize certain costs of computer software developed or
obtained for internal use, provided that these costs are not related to
research and development. Effective January 1, 1999, the Company adopted
SOP 98-1. The impact has not been significant on the Company's results from
operations or financial position.
8
<PAGE>
BESTWAY TRUCKING, INC., CONNECTION ONE
TRUCKING, LLP, AND DLS LEASING, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 (unaudited)
- -------------------------------------------------------------------------------
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ ------------
(unaudited)
<S> <C> <C>
Revenue Equipment $39,241,492 $38,711,414
Service and Garage Equipment 935,840 970,449
Furniture and Fixtures 1,206,436 1,230,061
Leasehold Improvements 1,402,711 1,486,964
Other 117,755 117,755
----------- -----------
Total historical cost $42,904,234 $42,516,643
Less: Accumulated depreciation and amortization 9,993,320 10,097,118
----------- -----------
Total net book value $32,910,914 $32,419,525
=========== ===========
</TABLE>
Depreciation and amortization expense on property and equipment for the
years ended December 31, 1998 was $5,814,352 and was $3,419,640 and
$3,044,439 for the six month periods ended June 30, 1998 and 1999,
respectively.
Certain of the Company's property and equipment is mortgaged or pledged as
collateral against debt facilities that include various current and non-
current commitments for interest and principal.
4. LINE OF CREDIT
On September 18, 1998, Bestway entered into a revolving line of credit
agreement with a bank providing for borrowings of up to $5.5 million and
letters of credit up to the aggregate amount of $250,000, provided that the
outstanding sum of the revolving line of credit and outstanding letters of
credit at no time exceed $5.5 million. The agreement, which includes
certain restrictions on borrowings, expires on June 30, 2001. Interest on
the outstanding borrowings are based on the banks prime rate (7.75% at
December 31, 1998 and June 30, 1999) or; at the borrowers discretion and
with certain restrictions, 2.25% plus LIBOR rates permitted under the
agreement and elected by the Company (permitted LIBOR rates ranged from
5.06% to 5.10% and 5.24% to 5.84% at December 31, 1998 and June 30, 1999,
respectively). Any outstanding amounts under the facility are
collateralized by the Company's accounts receivable, equipment and
inventory (motor vehicles, tractors, trailers, and rolling stock are
excluded), intellectual properties, and investments and deposits (up to $2
million in permitted securities and certain deposits of Connection One and
DLS are excluded). The President and sole Stockholder of Bestway and DLS
and the Partners of Connection One unconditionally guaranteed amounts
outstanding under the agreement. Borrowings outstanding under the agreement
at December 31, 1998 and June 30, 1999 were $4,605,655 and $5,434,373,
respectively. Upon acquisition of the Company by Transit Group, Inc. the
line of credit was terminated and the outstanding balance was paid-off.
At June 30, 1998, the Company had a line of credit with a bank for $4
million with interest at 8.5%. The agreement expired September 21, 1998.
9
<PAGE>
BESTWAY TRUCKING, INC., CONNECTION ONE
TRUCKING, LLP, AND DLS LEASING, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 (unaudited)
- -------------------------------------------------------------------------------
5. LONG-TERM DEBT
Notes payable and lines of credit are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
----------- ------------
(unaudited)
<S> <C> <C>
6.86% to 9.0% equipment purchase obligations; as of
December 31, 1998 and June 30, 1999
aggregate monthly principal and interest payments
approximated $813,348 and $777,709, respectively;
obligations expire at various dates through April 2009;
collateralized by certain property and equipment $28,235,629 $27,728,485
8% note payable to bank in monthly installments of $1,924,
including interest; secured by a mortgage on property
owned by Silver Creek, LLP 154,961 154,144
8% note payable to former Stockholder, principal and
interest payable in monthly installments of $4,842 369,266 354,695
----------- -----------
Total debt 28,759,856 28,237,324
Less: Current portion 7,774,592 7,520,711
----------- -----------
Non-current portion $20,985,264 $20,716,613
=========== ===========
</TABLE>
The Company's debt outstanding, excluding the line of credit, matures as
follows:
<TABLE>
<CAPTION>
December 31,
For the Year Ended 1998
------------------ ------------
<S> <C>
1999 $ 7,774,592
2000 8,434,121
2001 7,666,075
2002 3,693,117
2003 996,136
Thereafter 195,815
-----------
Total $28,759,856
===========
</TABLE>
10
<PAGE>
BESTWAY TRUCKING, INC., CONNECTION ONE
TRUCKING, LLP, AND DLS LEASING, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 (unaudited)
- -------------------------------------------------------------------------------
6. EMPLOYEE BENEFIT PLAN
Bestway has established a defined contribution retirement plan that is
intended to qualify under Section 401 of the Internal Revenue Code (the
"Plan"). The Plan covers all full time employees of the Company after one
year of continuous service. The Plan allows employees to contribute up to
fifteen percent of eligible pre-tax pay and matches twenty five percent of
the first five percent of eligible pay contributed. For the year ended
December 31, 1998 and the six month periods ended June 30, 1998 and 1999,
Company contributions amounted to approximately $25,770, $55,668 and
$35,268, respectively.
7. INCOME TAXES
The components of Bestway's provision for income taxes are as follows:
<TABLE>
<CAPTION>
For the Year For the Six For the Six
Ended Months Ended Months Ended
December 31, June 30, June 30,
1998 1998 1999
------------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Current:
State $ 36,584 $ 63,021 $ 3,667
Federal 298,553 514,255 122,177
--------- --------- ---------
335,137 577,276 125,844
Deferred:
State (42,042) (48,315) (15,018)
Federal (357,363) (408,343) (127,649)
--------- --------- ---------
(399,405) (456,658) (142,667)
--------- --------- ---------
Total $ (64,268) $ 120,618 $ (16,823)
========= ========= =========
</TABLE>
The principal items accounting for the difference between income taxes
computed at the U.S. statutory rate and the provisions for income taxes
reflected in the statements of operations are as follows:
<TABLE>
<CAPTION>
For the Year For the Six For the Six
Ended Months Ended Months Ended
December 31, June 30, June 30,
1998 1998 1999
------------- ------------- -------------
(unaudited)
<S> <C> <C> <C>
Tax at federal statutory rate 397,207 259,609 125,075
Income from nontaxable entities (787,235) (334,715) (243,099)
Nondeductible expenses 441,827 220,633 117,642
State taxes, net (103,629) (21,427) (5,091)
Other (12,438) (3,482) (11,350)
-------- -------- --------
(64,268) 120,618 (16,823)
======== ======== ========
</TABLE>
11
<PAGE>
BESTWAY TRUCKING, INC., CONNECTION ONE
TRUCKING, LLP, AND DLS LEASING, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 (unaudited)
- -------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
For the Year For the Six
Ended Months Ended
December 31, June 30,
1998 1999
------------- -------------
(unaudited)
<S> <C> <C>
Depreciation $(957,140) $(625,809)
Expenses deductible in future periods 643,045 479,666
Net operating loss carryforwards 530,976 -
--------- ---------
Total $ 216,881 $(146,143)
========= =========
</TABLE>
No valuation allowance has been recorded as management believes the net
deferred tax asset will be realized in future periods. Management
evaluates the recoverability of the deferred tax assets on an annual basis.
Connection One is not a taxpaying entity for federal income tax purposes,
therefore, no income tax expense has been recorded in these financial
statements. Income is taxable to the Company's partners.
DLS has elected to be taxed as an S Corporation under the Internal Revenue
Code, therefore, no income tax expense has been recorded in these financial
statements. Income is taxable to the Company's sole Stockholder.
8. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company engages in certain
transactions with entities that are related due to similar ownership and
control with the Company. Balances with these entities at December 31,
1998 and June 30, 1999, were as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ ------------
(unaudited)
<S> <C> <C>
Related Party Receivables
Cinci, LLC $ 103,781 $ 126,781
Silver Creek, LLC 220,942 339,636
Transport Refrigeration Sales & Service, LLC 3,411 -
Stockholder 895,576 1,076,375
---------- ----------
Total $1,223,710 $1,542,792
========== ==========
</TABLE>
Bestway leases its primary administrative and operational facilities from
the Company's President and sole Stockholder. An agreement formalizing the
terms of this lease does not exist. For the year ended December 31, 1998
and for the six month periods ended June 30, 1998 and 1999, Bestway paid
rent of $174,296, $60,000 and $120,000, respectively. Additionally,
Bestway leases its Nashville terminal from Silver Creek, LLC, a company
wholly-owned by Bestway's President and sole Stockholder. An agreement
formalizing the terms of this lease does not exist. Rent of $30,000,
$22,500 and $7,500 was paid for the year ended December 31, 1998 and the
six month periods ended June 30, 1998 and 1999, respectively.
12
<PAGE>
BESTWAY TRUCKING, INC., CONNECTION ONE
TRUCKING, LLP, AND DLS LEASING, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 (unaudited)
- -------------------------------------------------------------------------------
Bestway paid real estate taxes for its administrative and operational
facilities that are leased from the Company's President and sole
Stockholder. Real estate taxes of $112,330, $56,165 and $102,690,
respectively, were paid for the year ended December 31, 1998 and the six
month periods ended June 30, 1998 and 1999.
Bestway obtains certain paint and bodywork services for its revenue
equipment from a company that is wholly-owned by Bestway's President and
sole Stockholder. Amounts paid to this company for services rendered
during the year ended December 31, 1998 and the six month periods ended
June 30, 1998 and June 30, 1999 were $199,512, $65,241 and $67,834,
respectively.
9. BUSINESS SEGMENT AND GEOGRAPHICAL INFORMATION
The Company currently operates in one industry segment, the dry van
trucking industry, for financial reporting purposes, and uses one measure
of profitability for its business. The Company markets its services to
customers in the United States, where its long-lived assets are maintained.
10. COMMITMENTS AND CONTINGENCIES
During 1998, the Internal Revenue Service challenged Bestway's deduction of
per diem paid to drivers for the years 1995 through 1997. Management
estimated the liability resulting from this examination to be approximately
$900,000 and paid such an amount with Bestway's 1998 income tax return to
mitigate potential fines and penalties. Management has reflected such an
amount in the accounts at December 31, 1998 and June 30, 1999.
The Company is party to various legal actions which are ordinary and
incidental to its business. While the outcomes of legal actions cannot be
predicted with certainty, the Company believes the outcome of any of these
proceedings, or all of them combined, will not have a material adverse
effect on its financial position or results of operations.
11. SUBSEQUENT EVENTS
On July 30, 1999, Transit Group, Inc. ("TGI") acquired the Company for 1.5
million shares of TGI common stock and $6.8 million in cash. TGI is a
Florida corporation engaged, through subsidiaries, in short and long haul
transportation services. The acquisition of Bestway, Connection One, and
DLS by TGI will result in these companies becoming C corporations that will
merge with TGI. As a consequence of this merger, additional non-current
deferred tax liabilities of approximately $2,970,000 will be recognized.
13
<PAGE>
EXHIBIT 99.2
Transit Group, Inc.
Pro forma unaudited combined condensed balance sheet
As of June 30, 1999
<TABLE>
<CAPTION>
Transit R&M MDR
Group, Inc. Enterprises Cartage Bestway Unaudited Unaudited
June 30, 1999 June 30, 1999 June 30, 1999 June 30, 1999 Pro forma Pro forma
As reported As reported As reported As reported Adjustments Combined
<S> <C> <C> <C> <C> <C> <C>
Current assets $ 51,128,000 $ 2,065,599 $ 4,255,697 $10,003,152 19,126 (a) $ 63,518,244
(819,588)(l)
(2,876,373)(m)
(257,369)(l)
Property, equipment and
capitalized leases 62,986,000 10,960,022 14,265,836 32,419,525 3,804,213 (b) 124,435,596
Goodwill 55,226,000 21,297,804 (c) 76,523,804
Other assets 206,000 38,333 244,333
------------ ----------- ----------- ----------- ---------- -------------
Total assets $169,546,000 $13,025,621 $18,521,533 $42,461,010 21,167,813 $ 264,721,977
============ =========== =========== =========== ========== =============
Current liabilities $ 37,725,000 $ 3,236,138 $ 7,147,267 $16,445,677 $ 64,554,082
------------ ----------- ----------- ----------- -------------
Deferred tax liability -
non-current 3,069,676 623,448 7,701,687 (a) 11,394,811
------------ ----------- ----------- ----------- ---------- -------------
Long term debt 44,382,000 4,872,929 3,916,003 20,716,613 10,300,000 (d) 80,491,584
------------ ----------- ----------- ----------- (819,588)(l) -------------
(2,876,373)(m)
Stockholders' equity
Redeemable common
stock 3,675,000 3,675,000
Redeemable preferred
stock 24,912,000 24,912,000
Preferred stock - -
Partnership interest 1,000 (1,000) -
Common stock 250,000 2,000 7,281 4,000 38,794 (e) 302,075
Note receivable
secured by stock (756,000) (756,000)
Treasury stock (274,323) 274,323 (e) -
Additional paid-in
capital 76,868,000 300,000 20,490,425 (e) 97,658,425
Accumulated (deficit)
earnings (17,510,000) 4,614,554 4,655,629 4,670,272 (13,940,455)(e) (17,510,000)
------------ ----------- ----------- ----------- ----------- -------------
Total shareholders'
equity 87,439,000 4,916,554 4,388,587 4,675,272 6,862,087 108,281,500
------------ ----------- ----------- ----------- ----------- -------------
Total liabilities
and stockholders'
equity $169,546,000 $13,025,621 $18,521,533 $42,461,010 21,167,813 $ 264,721,977
============ =========== =========== =========== ========== =============
</TABLE>
<PAGE>
Transit Group, Inc.
Pro forma unaudited combined statement of income
For the six months ended June 30, 1999
<TABLE>
<CAPTION>
Transit R&M MDR
Group, Inc. Enterprises Cartage Bestway Unaudited Unaudited
June 30, 1999 June 30, 1999 June 30, 1999 June 30, 1999 Pro forma Pro forma
As reported As reported As reported As reported Adjustments Combined
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $140,011,000 $10,647,805 $12,552,986 $21,592,355 $184,804,146
------------ ----------- ----------- ----------- ------------
Operating expenses
Purchased transportation 52,433,000 4,982,138 1,190,919 58,606,057
Salaries, wages and benefits 34,756,000 2,023,605 4,365,623 9,535,812 21,000 (k) 50,702,040
Fuel 11,194,000 1,011,378 1,765,844 3,087,186 17,058,408
Operating supplies and expenses 14,460,000 886,472 2,689,174 2,161,405 20,197,051
Lease expense - revenue equipment 1,785,000 1,054,091 2,839,091
Insurance 8,611,000 463,600 356,838 506,749 9,938,187
Depreciation and amortization
expense 5,145,000 696,593 2,121,183 3,046,106 329,232 (f) 11,592,041
253,927 (g)
General and administrative expense 3,968,000 222,822 68,702 246,133 4,505,657
------------ ----------- ----------- ----------- ------------
Total operating expenses 132,352,000 10,286,608 12,421,455 19,774,310 175,438,532
------------ ----------- ----------- ----------- ------------
Operating income 7,659,000 361,197 131,531 1,818,045 9,365,614
Other (income) expense 128,697 (677,288)(l) (473,679)
74,912 (m)
Interest expense 2,519,000 115,701 291,079 1,321,481 412,000 (h) 4,459,495
(199,766)(m)
------------ ----------- ----------- ----------- ------------
Income before taxes 5,140,000 245,496 (159,548) 367,867 5,379,798
Income tax expense (benefit) 2,605,000 - (45,171) (16,823) 484,676 (i) 3,027,682
------------ ----------- ----------- ----------- ------------
Net income 2,535,000 245,496 (114,377) 384,690 2,352,116
Preferred stock dividends 296,000 296,000
------------ ----------- ----------- ----------- ------------
Income available to common
shareholders $ 2,239,000 $ 245,496 $ (114,377) $ 384,690 $ 2,056,116
============ =========== =========== =========== ============
Earnings per share - basic $ 0.09 $ 0.07
============ ============
Earnings per share - diluted $ 0.09 $ 0.07
============ ============
Weighted average shares
outstanding - basic 25,240,163 5,207,501 (j) 30,447,664
============ ============
Weighted average shares
outstanding - diluted 26,150,369 5,207,501 (j) 31,357,870
============ ============
</TABLE>
<PAGE>
Transit Group, Inc.
Pro forma unaudited combined statement of income
For the year ended December 31, 1998
<TABLE>
<CAPTION>
Transit R&M MDR
Group, Inc. Enterprises Cartage Bestway
December 31, December 31, December 31, December 31, Unaudited Unaudited
1998 1998 1998 1998 Pro forma Pro forma
As reported As reported As reported As reported Adjustments Combined
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $177,552,961 $19,385,368 $23,021,510 $40,943,157 $260,902,996
------------ ----------- ----------- ----------- ------------
Operating expenses
Purchased transportation 77,372,214 8,580,476 2,014,620 87,967,310
Salaries, wages and benefits 40,670,008 3,596,028 8,279,341 17,625,589 42,000 (k) 70,212,966
Fuel 12,931,732 1,753,569 3,490,558 5,984,624 24,160,483
Operating supplies and expenses 22,409,300 1,260,544 4,429,269 4,849,080 32,948,193
Lease expense revenue equipment 1,688,878 1,688,878
Insurance 2,844,739 803,679 522,926 962,441 5,133,785
Depreciation and amortization
expense 7,518,485 1,071,975 2,765,451 5,817,685 677,704 (f) 18,356,663
505,363 (g)
General and administrative expense 4,914,383 336,016 331,687 342,206 5,924,292
------------ ----------- ----------- ----------- ------------
Total operating expenses 168,660,861 17,402,287 21,508,110 37,596,245 246,392,570
------------ ----------- ----------- ----------- ------------
Operating income 8,892,100 1,983,081 1,513,400 3,346,912 14,510,426
Other (income) expense (336,685) 91,093 (m) (245,592)
Interest expense 4,310,359 377,267 572,613 2,515,342 824,000 (h) 8,356,667
(242,914)(m)
------------ ----------- ----------- ----------- ------------
Income before taxes 4,581,741 1,605,814 940,787 1,168,255 6,399,351
Income tax expense (benefit) (7,114,000) 338,303 (64,268) 1,250,657 (i) (5,589,308)
------------ ----------- ----------- ----------- ------------
Net income $ 11,695,741 $ 1,605,814 $ 602,484 $ 1,232,523 $ 11,988,659
============ =========== =========== =========== ============
Earnings per share -- basic $ 0.52 $ 0.42
============ ============
Earnings per share -- diluted $ 0.49 $ 0.41
============ ============
Weighted average shares
outstanding -- basic 22,391,142 5,207,501 (j) 27,598,643
============ ============
Weighted average shares
outstanding -- diluted 23,646,073 5,207,501 (j) 28,853,574
============ ============
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. ACQUISITIONS
On July 19, 1999 Transit Group, Inc. (the "Company") completed the
acquisition of R&M Enterprises, Inc. and Williams Truck Brokers, Inc.
(collectively "R&M Enterprises"). R&M Enterprises, Inc. is a Nebraska
corporation engaged in the short and long haul transportation services
business. Williams Truck Brokers, Inc. is a Nebraska corporation whose
business consists of arranging the shipment of goods for a variety of
shippers utilizing unrelated transportation companies. The R&M Enterprises
balances reported in the pro forma financial statements include R&M
Enterprises, Inc. and Williams Truck Brokers, Inc. The purchase agreement
provided for an aggregate cash consideration of $1.4 million and 1,215,000
shares of the Company's restricted common stock. The purchase price has been
preliminarily allocated to the assets and liabilities acquired based on
their estimated fair value. The excess of purchase price over the estimated
fair value of the net assets acquired will be recorded as goodwill and
amortized over a 40-year period.
On July 30, 1999 the Company completed the acquisitions of MDR Cartage, Inc
and BF Transportation, Inc.. (collectively "MDR"). MDR Cartage, Inc. is an
Arkansas corporation engaged in the short and long haul transportation
services business. BF Transportation, Inc. is an Arkansas corporation
engaged in the leasing of tractors to MDR Cartage, Inc. The MDR balances
reported in the pro forma financial statements include MDR Cartage, Inc. and
BF Transportation, Inc. The purchase agreement provided for an aggregate
cash consideration of $1.8 million and 2,450,000 shares of the Company's
restricted common stock. The purchase price has been preliminarily allocated
to the assets and liabilities acquired based on their estimated fair value.
The excess of purchase price over the estimated fair value of the net assets
acquired will be recorded as goodwill and amortized over a 40-year period.
On July 30, 1999 the Company completed the acquisitions of Bestway Trucking,
Inc., Connection One Trucking LLC and DLS Leasing, Inc. (collectively
"Bestway"). Bestway Trucking, Inc. is an Indiana corporation engaged in dry
van transportation and logistics services. Connection One Trucking LLC, an
Indiana partnership, and DLS Leasing, Inc., an Indiana corporation, are both
primarily engaged in the leasing of tractors and trailers to Bestway
Trucking, Inc. The Bestway balances reported in the pro forma financial
statements include Bestway Trucking, Inc., Connection One Trucking LLC and
DLS Leasing, Inc. The purchase agreement provided for an aggregate cash
consideration of $6.8 million and 1,500,000 shares of the Company's
restricted common stock. The purchase price has been preliminarily allocated
to the assets and liabilities acquired based on their estimated fair value.
The excess of purchase price over the estimated fair value of the net assets
acquired will be recorded as goodwill and amortized over a 40-year period.
2. EXPLANATIONS OF PRO FORMA FINANCIAL STATEMENTS AND RELATED ADJUSTMENTS
The pro forma combined statement of operations for the year ended December
31,1998 and six months ended June 30, 1999 gives effect to the acquisitions
of R&M Enterprises, MDR and Bestway as if such events had occurred at the
beginning of the period. The pro forma unaudited combined balance at June
30, 1999 reflects the acquisitions of R&M Enterprises, MDR and Bestway as if
such events had occurred on that date. The pro forma combined financial
data, based on facts and circumstances existing on July 19, 1999 for R&M
Enterprises and July 30, 1999 for MDR and Bestway may not be indicative of
the results that actually would have occurred if the transactions and
adjustments described in the following notes had occurred on the
<PAGE>
dates assumed and does not project the Company's financial position or results
of operations at any future date. The pro forma combined financial data should
be read in conjunction with the reports of independent accountants, the
Company's current report on Form 10-K and Form 10-Q dated March 31, 1999 and
August 16, 1999, respectively, related to the Company's consolidated financial
statements for the year ended December 31, 1998 and six months ended June 30,
1999, and the Company's current reports on Form 8-K dated as of July 30, 1999
and Form 8-K/A dated as of October 4, 1999 related to the acquisition of R&M
Enterprises and the current report on Form 8-K dated as of August 9, 1999
related to the acquisitions of MDR and Bestway.
a. R&M Enterprises, BF Transportation and DLS Leasing were organized as S-
corporations and were exempt from federal and state taxation. Connection
One is a partnership and its income is taxed to its partners. All were
converted to C-corporations upon acquisition by the Company. The pro forma
adjustments reflect the deferred taxes arising from differences between the
book and tax bases of R&M Enterprises, BF Transportation, DLS Leasing and
Connection One as if they were C-corporations on June 30, 1999.
b. Amount represents the adjustment to fair market value of fixed assets
acquired from R&M Enterprises, MDR and Bestway.
c. Amount reflects the increase in goodwill related to the acquisition of R&M
Enterprises, MDR and Bestway to be amortized over 40 years.
d. Amount represents the additional debt associated with cash consideration
paid plus professional fees associated with the acquisition of R&M
Enterprises, MDR and Bestway.
e. Amount represents the elimination of the historical pre-acquisition
stockholders' equity of R&M Enterprises, MDR and Bestway and the effect of
the stock consideration paid.
f. Amount represents the adjustments to depreciation expense for adoption of
the Company's depreciation policy related to property, equipment and
capitalized leases and the adjustment of fixed assets to fair value.
g. Amount represents additional goodwill amortization resulting from the
purchase of R&M Enterprises, MDR and Bestway by the Company.
h. Amount represents additional interest expense associated with the financing
of cash consideration paid to R&M Enterprises, MDR and Bestway
shareholders.
i. Amount reflects the estimated income tax effect of pro forma adjustments
and the conversion of R&M Enterprises, BF Transportation and DLS Leasing
from an S-corporation to a C-corporation and Connection One from a
partnership to a C-corporation.
j. Amount represents issuance of 5,207,501 shares of the Company's common
stock in conjunction with the purchase of R&M Enterprises, MDR and Bestway.
k. Amount represents changes in the former owners compensation as a result of
the sale of MDR and Bestway to the Company.
l. Amount represents the elimination of the unrealized loss on investments
held for trading. Additionally, an adjustment has been made to reflect the
sale of these investments and use of the proceeds to reduce acquisition
debt.
m. Amount represents the reduction of debt through the use of available cash
and cash equivalents. Furthermore, an adjustment was made to reduce the
associated interest income and interest expense.
