-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HpoZah4W6pzmx7b0NGxtDYa8+fgsvj7BmsmB8V5N8OFlXM0Zw9Bw4VV1aI/rBbQh XVhU+p3mWmq0kIGSli5h9w== 0000950168-00-000827.txt : 20000331 0000950168-00-000827.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950168-00-000827 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FREIGHT CONNECTION INC CENTRAL INDEX KEY: 0000853270 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 112994672 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 033-29985 FILM NUMBER: 585919 BUSINESS ADDRESS: STREET 1: 12900 DUPONT CIRCLE CITY: TAMPA STATE: FL ZIP: 33626 BUSINESS PHONE: 8138541500 MAIL ADDRESS: STREET 1: 12900 DUPONT CIRCLE CITY: TAMPA STATE: FL ZIP: 33626 FORMER COMPANY: FORMER CONFORMED NAME: TAYLOR EQUITIES INC DATE OF NAME CHANGE: 19920129 10-K405 1 FORM 10-K405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (MARK ONE) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period ___________________ to _____________________ Commission file Number 33-29985-NY ----------- THE FREIGHT CONNECTION, INC. --------------------------------------- (Exact name of registrant as specified in its charter) Delaware 8980 11-2994672 - ---------------------- ---------------------------- ---------------- (State or jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or Classification Code Number) Identification organization) No.) 9870 Highway 92, Suite 110, Woodstock, Georgia 30188 ------------------------------------------------------------ (Address of principal executive offices) Registrant's telephone number, including area code: (770) 517-7744 -------------- Securities registered pursuant to Section 12(b) of the Act: None ---- Securities registered pursuant to Section 12(g) of the Act: None ---- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of March 22, 2000, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $482,163 As of March 22, 2000, the number of shares of Common Stock outstanding was 4,825,630 THE FREIGHT CONNECTION, INC. REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 TABLE OF CONTENTS PART I Item 1. Business..............................................................3 Item 2. Properties............................................................9 Item 3. Legal Proceedings....................................................10 Item 4. Submission of Matters to a Vote of Security Holders..................10 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters..............................................................10 Item 6. Selected Financial Data..............................................12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................... 13 Item 8. Financial Statements and Supplementary Data..........................16 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................................16 PART III Item 10. Directors and Executive Officers of the Registrant; Compliance with Section 16(a) of the Exchange Act....................................16 Item 11. Executive Compensation...............................................17 Item 12. Security Ownership of Certain Beneficial Owners and Management.......19 Item 13. Certain Relationships and Related Transactions.......................20 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................................................21 Signatures....................................................................23 2 Item 1. BUSINESS The Company: Organization and Changes of Control The Company was organized under the laws of the State of Delaware on December 16, 1987, under the name Taylor Equities, Inc. ("Taylor"). The Company was formed as a "blank check" company, with its sole purpose being to offer its stock to the public in a public offering and thereafter use the proceeds to find an acquisition or merger candidate. On December 23, 1991, Taylor entered into an Agreement and Plan of Merger (the "Merger Agreement") with The Freight Connection, Inc., ("FCI") a Florida corporation organized in October 1983 ("FCI") by Michael Jackson, former President of the Company, under the name "Expert Freight of Tampa, Inc." FCI was organized as an intermodal marketing company and carried on that business until its combination with Taylor, when FCI was dissolved. The Company's name was changed from Taylor Equities, Inc., to The Freight Connection, Inc., and the officers and directors of FCI became the officers and directors of the Company. On July 14, 1993, Vitran Corporation Inc. ("Vitran"), a corporation organized under the laws of the Province of Ontario and having a principal place of business at 70 University Avenue, Suite 350, Toronto, Canada, M5J 2M4, acquired 3,218,030 shares of the Company's Common Stock. During 1997, Vitran purchased an additional 700,000 shares of the Company's common stock, changing its ownership to 3,918,030 shares, or 81.19% of the Company's outstanding common stock. Vitran is a North American multi-divisional operating company providing services to the freight and environmental industries with over 3,000 employees and associates at over one hundred service centers and offices in Canada and the United States. Vitran's Distribution Services Group, of which the Company is a part, provides a complete range of services for the movement of freight throughout the continent, utilizing both highway and rail modes. Services include less than truckload, full load, dedicated contract carriage, warehousing and inventory management. Vitran solicits business between the United States and Canada as an agent for the Company through a Vitran sales office in Toronto. Vitran and the Company have an agreement that all intermodal trans-border rail shipments shall be written by the Company, with Vitran's receiving an agency commission from the Company for such business. Trans-border over-the-road shipments may be made by the Company or other Vitran subsidiaries, depending on the type of service required by the shipper of such freight. Each shipper has unique requirements for the movement of its freight, including time, shipment size and volume, and the shipper's inventory carrying costs. Vitran's common stock is traded on the Toronto Stock Exchange under the symbol VTN.A and on NASDAQ under the symbol VTNA. See Item 13 of this Report. In May, 1998, Vitran transferred its ownership in The Freight Connection, Inc. to Vitran Corporation, a U.S. holding company organized in the state of Nevada. The purpose of this transaction was to have common ownership for Vitran's various U.S. subsidiaries, all of which are owned by the Nevada corporation. The Intermodal and Highway Brokerage Industry The Company provides intermodal transportation services and operates as an intermodal marketing company ("IMC"). Intermodal transportation involves the movement of freight by more than one mode of transportation, principally by truck or a combination of truck and rail. The Company also has a highway brokerage division, which involves the movement of freight by truck. 3 For freight moving in excess of 500 miles, intermodal shipping often represents a cost-effective alternative to over-the-road trucking. The Company includes as its target market freight which is currently being shipped via intermodal transportation as well as freight moving in excess of 500 miles via for-hire trucking companies and private trucking fleets. Intermodal freight is divided equally into shipments generated domestically and those generated by the import/export market, with international movements slightly exceeding domestic traffic. Traditionally, the domestic shipments have been long-haul truck movements, principally truckload. Intermodal has primarily attracted long-haul freight of 700 miles to 1,000 miles or more; in some corridors, intermodal can be cost effective for distances as short as 500 miles. IMCs have created additional opportunities for intermodal shipping by providing a full door-to-door service to their clients at a price and service level that would not be available to the shipper on its own. IMCs assist the railroads in balancing freight originating in or destined to specific geographic regions, resulting in improved asset utilization. IMCs provide value to shippers by passing on certain economies of scale by being volume purchasers of rail and drayage service, providing access to a large equipment pool, consolidating each carrier's invoice into one single invoice and handling the logistics of an intermodal move. During the latter part of 1997, continuing into 1998, there were several service issues surrounding the railroads, which made highway brokerage an increasingly viable alternative in order to ensure on-time delivery to customers. During 1999, these service issues were somewhat resolved. One of the barriers in 1999 was the consolidation of CONRAIL shipments and assets into the CSX and Norfolk Southern railroads. This merger, along with other considerations within the industry, provided an opportunity for the Company to continue its expansion of its highway brokerage division. In 1999, this division represented 29.1% of the Company's revenues, compared to 18.3%, and 9.8% of the Company's revenues in 1998 and 1997, respectively. According to statistics reported by the Intermodal Association of North America, ("IANA"), IMC rail intermodal traffic for the year ended December 31, 1999, rose by 6.3% over 1998. For the same period, the highway brokerage volume grew by 9.4%. Revenue per unit for intermodal traffic was relatively flat during 1999, while the highway brokerage revenue per unit was up 15% compared to 1998 data (1). Historically, establishing an IMC was easy because of the low capital cost required to enter the carrier business. However, in the last few years the railroads have restricted the number of IMCs with which they will enter into wholesale contracts. They increasingly deal only with those that can deliver certain volumes, and have in most cases required the posting of financial guarantees before they will extend credit. In addition, market conditions require that an IMC be able to demonstrate to carriers and shippers its ability to interface with customers and carriers electronically. These requirements limit the ability of start-up IMCs to enter the market and may force small IMCs out of the market if they are unable to continue to meet these requirements. The Company believes that this trend will be advantageous to the Company. The Company believes that its financial resources, staff, and computer hardware and software are sufficient to offer substantially the same or better services than any of its competitors, and that the Company is able to compete effectively with any other company engaged in its business. - ------------------- (1) IANA IMC Market Activity Report, Intermodal Association of North America, March 2000. 4 Operations The Company's services include the tracking of its customers' freight in-transit, the daily reporting through electronic means of each load's status, expediting each shipment to ensure it meets its schedule, and the consolidation of all freight bills within a movement into a single door-to-door invoice, regardless of how many carriers are utilized. The Company contracts with all major North American railroads along with drayage carriers and independent stack train operators. These contracts provide for volume discounts, the ability to negotiate special commodity pricing and in some instances early payment incentives in the form of rebates. The Company believes that a primary component of its business strategy is the continued improvement of its software and other technology to enhance its information processing for its intermodal transportation services. The Company believes that a significant portion of its future growth will depend on its information technology and accordingly it continues to concentrate in this area. The Company has several customers online with full electronic data interchange of information from a shipment's original loading through delivery at destination. The Company is primarily a provider of intermodal and highway brokerage transportation services, yet it continues to expand its service capabilities as customers increasingly outsource their transportation needs. The Company now performs logistics functions for a small number of its clients and intends to expand its logistics capabilities and offer new or additional services to meet or exceed customer demands. The Company's Carrier Vendors An important element of the Company's strategy is to continue to build and strengthen its close working relationship with each of the major intermodal railroads in the United States, Canada and Mexico. The Company has contracts with each of the following Class 1 railroads: BNSF Illinois Central Norfolk Southern Union Pacific/Southern Pacific CSX Transportation Canadian National Canadian Pacific Wisconsin Central Kansas City Southern These contracts govern the terms of transportation with each railroad, which include payment terms and the various services to be provided by each rail. The Company negotiates with each railroad in an effort to provide the best quality service at a favorable price to its client base. These contracts usually have staggered renewal dates at which time the Company revisits its volume with that rail and seeks to establish even more favorable contracts for the continuing years, including rebates for volume shipments. The Company is also able to negotiate special commodity pricing which provides price discounts on certain commodities based on competitive factors. The special pricing quotations are designed, in part, by the railroads to attract new business that the railroads have not previously handled. In addition, certain of these railroads offer rebates for fast payment of their invoices. 5 The Company also sees its local cartage ("drayage") and over-the-road carrier base as an integral part of its operations, since the Company's ability to perform on-time pick up and delivery of product is partially based on the level of service provided by these carriers. Accordingly, the Company has programs in place which monitor the performance of each of its carriers. Service reports are generated monthly and forwarded to each carrier, at which time, if service failures have occurred, a corrective action is taken by both the Company and the carrier to improve service levels. The Company's data base of carriers is maintained and updated regularly to ensure that only approved carriers with adequate insurance are available for use. The Company continues to seek out quality carriers throughout North America to enhance its ability to provide faster service and facilitate the Company's expansion. The Company's Customers The Company continued in its efforts to diversify and increase its customer base in 1999. This was accomplished primarily through the soliciting of new business by each of the offices (see "Sales and Marketing," below). The Company performs credit checks on all potential customers to ensure that they are credit worthy and are able to meet the payment terms established by the Company. The Company has transportation agreements with various companies to perform substantial portions of their transportation needs on agreed-upon pricing terms for specified routes. Many of these agreements are verbal and non-binding. Others are binding and in written form, but are cancelable on short notice. All of the Company's agreements are based upon the Company's price quotes as accepted by its customers. The quotation document sets forth all of the terms of the agreement between the parties and includes a liability disclaimer (see "Liability Issues," below). Quotation documents establish pricing and delivery terms of freight, and are often used by shippers on a continuous basis. All agreements based on the Company's written quotations can be cancelled by either party at any time prior to shipment without penalty. Many of the Company's customers in the automotive, scrap metal, food services, retail and spirit industries operate within a multi-divisional environment. The Company does business with more than one division of several of its principal customers, and is dependent on the various divisions of such companies for a substantial portion of its business. As its agreements with those customers are made on a divisional rather than a corporate basis, management believes it is not likely that the Company would lose all of the business of any of its principal customers if it were to lose the business of any one of their divisions. During the year ended December 31, 1999, the Company had sales to various divisions of one major customer, an automobile manufacturer, which amounted to 33% of total sales, down from 43% in the prior year. The Company conducts its business with this customer on a multi-divisional basis and the percentage provided in the preceding sentence is for the aggregate of all divisions of this customer. The Company has separate agreements with each division and the percentage of business represented by each division is substantially less than the corporate aggregate. During June 1999, this customer placed its business out for bid in a tender process. The result was that the Company lost a substantial portion of the business, which had a negative impact on revenues. Due to the fact that the customer evaluates each division separately, however, the Company was able to retain agreements with certain divisions. The maximum percentage of sales by any one division is approximately 5% of the Company's total sales. 6 Sales and Marketing The Company believes that developing long-term relationships with its client base is crucial to its continued growth. By developing these long-term relationships, the Company is able to better understand its customers' needs and is then able to customize its services to each client. The Company has an extensive database of existing and potential new clients to which it continually markets its services. The Company undertakes a variety of marketing initiatives, including the use of direct surveys on a client-by-client basis to determine new or additional customer needs and meet the demand. An approach to a new client generally involves the assessment of that customer's transportation requirements. In making its analysis, the Company reviews the customer's business patterns and determines if the customer is maximizing its transportation dollar. The Company also seeks to integrate itself into the customer's environment to determine if there are additional logistic services the Company can provide. The objective of the Company's analysis is to market the Company's services by presenting to the customer a program of reducing the customer's overall costs while offering the customer a superior level of transportation service. The Company regularly surveys its customers in order to continually receive evaluations of the Company's performance, keep abreast of customer needs, and develop leads for new business. The Company has sales offices in Atlanta, Georgia, Los Angeles, California and Chicago, Illinois. In addition, the Company utilizes a combination of outside commissioned sales agents and internal marketing staff to support its sales efforts. The Company's commissioned agents are located in major geographic locations across North America. A unit of Vitran based in Concord, Ontario, Canada represents the Company as its Canadian agent. Each outside sales person receives a commission based on a percentage of the gross profit generated on each movement. The Company is striving to develop commission sales agreements in all major markets within North America. In November 1996, the Company obtained its ISO-9000 certification, which the Company believes will assist its national and international sales efforts. ISO-9000 is a series of international standards for quality management systems. Computer Systems The Company has invested in the purchase and development of computer programs that provide pertinent tracking information to its customers on a daily basis. The Company has also helped develop for its own use a program which allows for the integration of scheduling, pricing and quotations, routing, dispatch, tracing, billing and accounting systems for its internal operations. With the Company's computer systems capability described in the preceding paragraph, the Company can advise its customers on a regular basis of the exact location of any shipment. Every customer receives a daily shipment tracking report, which provides the location of each shipment in transit within the United States, Mexico and Canada. This technology permits the Company to solve problems with customers' shipments in many instances before they cause any delay to the shipper. 7 All of the Company's offices are networked into the system so that up-to-date information is always available for the customers of each location. The Company uses both in-house and external trained computer technicians who support the system on an on-going basis. They make the necessary modifications and enhancements to the system to ensure that the Company is up-to-date on the latest technological advancements. In addition, they are able to customize programs to meet specific customer reporting requirements. Liability Issues Brokers such as the Company do not generally assume liability for loss or damage to freight. Since the Company operates as a transportation broker (that is, a company that finds a carrier to haul a shipper's freight) of property and a shipper's agent, it does not take possession of the freight and is therefore not liable for the carrier's failure to perform or the carrier's negligent performance. The Company has a liability disclaimer as a part of each freight agreement signed with its customers. This liability disclaimer sets forth the Company's legal responsibilities and states that since the Company is acting as a transportation intermediary and not as a carrier, it will not be liable for loss or damage resulting from the transportation of freight. Although as a broker it is not responsible for loss of or damage to freight, the Company will assist the shipper as its agent in the claim collection process. The Federal Highway Administration does not require a broker to carry cargo insurance, but it does require a broker's surety bond of $10,000, the purpose of which is to show financial responsibility and provide surety for arrangements with carriers and shippers. Competition The transportation services industry is highly competitive. The Company competes against other IMCs, as well as brokers of freight, logistic service companies and with railroads that attempt to market their own intermodal services. The Company also competes with over the road carriers who have entered the intermodal market by converting their long-haul traffic to intermodal. Competition is based primarily on freight rates, quality of service, reliability and transit times. The Company competes with several other IMCs, such as The Hub Group, Mark VII Transportation, AP Distribution, Alliance Shippers, GST Corporation, and numerous small regional and local firms. Many of these firms have larger gross revenues than the Company, however the Company believes that it is an established IMC able to meet the requirements of railway carriers and shippers and that it is competitive with the largest IMCs. With the trend towards further consolidation in the industry, the Company believes that its financial stability and its continual investment in information systems will uniquely position the Company for continued growth both through external sales development and the possible acquisition of other IMCs. 8 Employees At December 31, 1999, the Company had 30 full-time employees engaged in performing executive, administrative, marketing and clerical duties. These employees were located in each of the offices, with the majority of the administrative duties being performed from the Tampa, Florida headquarters. As of the date of this Report, the Company has 26 full-time employees. With the relocation of the headquarters from Tampa, Florida, to Atlanta, Georgia, in March 2000, the Company was able to consolidate some of the job functions, thereby achieving greater efficiency of its staff. Management intends to add employees throughout the coming year, as it deems necessary, in order to provide continuous quality service. Executive Officers of the Registrant As of the date hereof, there are two executive officers of the Company. Richard E. Gaetz serves as the Chief Executive Officer of the Company and has served in that capacity since October 11, 1996. Geoff Duncan serves as the President of the Company. He has served in that capacity since April 1, 1998, replacing Richard Gaetz in that position. Prior to that date, Mr. Duncan served as the Executive Vice President of the Company. For information as to Mr. Gaetz and Mr. Duncan's prior business experience, see Item 10 of this Report. Environmental Matters The Company does not believe that compliance with federal, state and local laws and regulations, which have been enacted or adopted regulating the discharge of materials into the environment, will have any material adverse impact upon the capital expenditures, earnings, or competitive position of the Company. Item 2. PROPERTIES The Company's corporate headquarters were relocated from Tampa, Florida to Atlanta, Georgia in March 2000. Prior to this date, the Company leased approximately 5,000 square feet in Tampa, Florida in a lease, which expired February 29, 2000. The annual rent for this space was $44,442 for the year ended December 31, 1999. The Company rented an office in Atlanta, Georgia under a lease expiring June 30, 2001. Rent expense incurred under this lease was $25,332 for the year ended December 31, 1999. In order to accommodate the relocation of the Company's headquarters to Atlanta, Georgia in March 2000, additional space would be needed. In December 1999, management of the Company entered into a lease commitment with the landlords to replace the existing lease with a new agreement for increased square footage. The new lease expires January 31, 2005. The Company rented an executive suite for its Los Angeles, California office until the expiration of the lease on November 30, 1999. At that time, the Company determined that an executive suite no longer met its needs, so it entered into a lease in an office building with additional space. This lease expires November 30, 2004. Rent expense for the Los Angeles location for the year ended December 31, 1999, was $33,690. 9 The Company also leased space in San Francisco, California, Chicago, Illinois and Minneapolis, Minnesota during 1999. Rent expense incurred for these three leases for the year ended December 31, 1999, was $11,060, $2,750 and $9,600, respectively. The expiration dates of these leases were January 31, 2000, May 31, 1999 and February 29, 2000, respectively. The Company made the decision to close each of these offices and therefore did not renew any of the leases upon expiration. Item 3. LEGAL PROCEEDINGS As of the date of this Report, and for the fiscal year covered by this Report, the Company was not a party to any material legal proceedings. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fiscal year covered by this Report. PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is quoted on the NASD electronic bulletin board and in the "pink sheets" under the symbol FTCN. There has never been an active trading market for the Company's Common Stock, nor does one now exist. The National Quotation Bureau, Inc., has advised the Company that the following bid quotations have been reported: Bid Prices ---------- Period High Low ------ ---- --- January 1 - March 31, 1998 .69 .56 April 1 - June 30, 1998 .75 .69 July 1 - September 30, 1998 .75 .63 October 1 - December 31, 1998 .63 .38 January 1 - March 31, 1999 .41 .38 April 1 - June 30, 1999 .56 .31 July 1 - September 30, 1999 .53 .53 October 1 - December 31, 1999 .53 .34 10 Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission. Such quotes are not necessarily representative of actual transactions, or of the value of the Company's securities, and are in all likelihood not based upon any recognized criteria of securities valuation as used in the investment banking community. The Company has been advised that 8 member firms of the NASD are currently acting as market makers for the Common Stock. However, there are no meaningful trading transactions currently for the Company's stock, nor have there ever been any such transactions. The Company believes that the absence of such transactions is due in substantial part to its shares of Common Stock being held by few individuals. There is no assurance that an active trading market will develop which will provide liquidity for the Company's existing shareholders. Neither the Company's certificate of incorporation, its by-laws, nor any agreement to which it is a party restricts the payment of dividends. However, a loan agreement established between Republic Bank, St. Petersburg, Florida, and the Company contains certain covenants concerning the Company's net worth and ratio of debt to net worth. Payment of dividends could be restricted if such payment would cause the Company to violate either of these covenants. The Company has not paid any dividends on its Common Stock. As of March 22, 2000, there were 29 holders of record of the Company's Common Stock. Certain of the shares of Common Stock are held in "street" name and may, therefore, be held by several beneficial owners. 11 Item 6. SELECTED FINANCIAL DATA The following data illustrates the results of operations for the five years ended December 31, 1995, 1996, 1997, 1998 and 1999, respectively. The data has been derived from and should be read in conjunction with, the Company's Financial Statements and related notes included elsewhere in this Report. All data has been derived from the Company's audited financial statements.
Year Ended Year Ended Year Ended Year Ended Year Ended December December December December December (000's omitted) 31, 1995 31, 1996 31, 1997 31, 1998 31, 1999 - -------------------------------------------------------------------------------------- Freight income $20,014 $22,173 $26,333 $28,094 $26,873 Freight expense 18,044 20,184 23,947 25,480 24,443 ------- ------- ------- ------- ------- Gross profit 1,970 1,989 2,386 2,614 2,430 Selling, general and administrative expenses 1,142 1,486 1,673 2,299 2,348 Depreciation and Amortization 99 62 69 73 82 ------- ------- ------- ------- ------- Income (loss) from 729 441 644 242 0 Operations ------- ------- ------- ------- ------- Other income (expenses) 4 10 21 60 43 ------- ------- ------- ------- ------- Income (loss) before 733 451 665 302 43 taxes ------- ------- ------- ------- ------- Income tax expense 285 180 200 125 22 ------- ------- ------- ------- ------- Net income (loss) $ 448 $ 271 $ 465 $ 177 $ 21 ======= ======= ======= ======= ======= Net income (loss) $ .09 $ .06 $ .10 $ .04 $ .00 ======= ======= ======= ======= ======= per share Financial Position - ------------------ Working capital $ 1,233 $ 1,405 $ 1,899 $ 2,059 $ 2,127 Total assets $ 3,295 $ 3,759 $ 4,657 $ 5,128 $ 4,580 Stockholders' Equity $ 1,444 $ 1,698 $ 2,163 $ 2,340 $ 2,361
12 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Financial Statements appearing elsewhere in this Report. The information which follows includes results for the years ended December 31, 1997, 1998 and 1999, respectively. Forward-Looking Statements Except for the historical statements and discussions contained herein, statements contained in this report constitute "forward-looking statements" as defined in the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended. These forward-looking statements rely on a number of assumptions concerning future events, and are subject to a number of risks and uncertainties and other factors, many of which are outside the control of the Company, that could cause actual results to differ materially from such statements. Readers are cautioned not to put undue reliance on such forward-looking statements, each of which speaks only as of the date hereof. Factors and uncertainties that could affect the outcome of such forward-looking statements include, among others, market and industry conditions, increased competition, changes in governmental regulations, general economic conditions, pricing pressures, and the Company's ability to continue its growth and expand successfully into new markets and services. The Company disclaims any intention or obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Liquidity and Capital Resources The Company has increased its working capital from $2,059,341 at December 31, 1998, to $2,126,665 at December 31, 1999, an increase of 3.3%. The Company will use working capital to open additional sales offices as it deems necessary. The cash position of the Company at December 31, 1999, was $746,353 compared to $515,125 at December 31, 1998. Many of the Company's customers require supporting documentation before they will remit payment for an invoice. At December 31, 1998, the Company was experiencing difficulty with collecting this paperwork from its carrier vendors. Throughout 1999, the Company has refined the procedure and this has enabled the Company to provide an invoice to the customer in a timelier manner, resulting in improved cash flow. The accounts receivable balance at December 31, 1999, was $3,490,511, a decrease of $758,207, or 17.8% from December 31, 1998. The accounts payable balance at December 31, 1999, was $2,219,125, a decrease of $569,097 or 20.4%, from the prior year. The decrease in both the accounts receivable balance and the accounts payable balance for December 31, 1999, as compared to the prior year, is primarily due to the reduction in business that the Company experienced during the fourth quarter of 1999, as compared to the 1998 fourth quarter. The Company had a net increase in cash from operations of $296,651 and $1,163,423 for the years ended December 31, 1999 and 1997, respectively. For the year ended December 31, 1998, the Company had a net decrease in cash from operations of $710,376. The net increase in cash from operations for the year ended December 31, 1999, was primarily due to the reduction in the accounts receivable balance offset by the reduction in the accounts payable balance. The net reduction in cash from operations for the year ended December 31, 1998, was primarily due to the 13 significant increase in the accounts receivable balance from the prior year, as well as the start-up costs associated with the opening of sales offices. The net increase in cash from operations for the year ended December 31, 1997, was primarily due to the net income of $464,671 for the year, combined with the decrease in the accounts receivable balance and the increase in the accounts payable balance. The Company continues to purchase fixed assets as it deems necessary. For the years ended December 31, 1999, 1998, and 1997, the Company purchased fixed assets in the amounts of $65,423, $60,428 and $51,405, respectively, the majority of which was computer software and equipment. Stockholders' equity was $2,360,910 at December 31, 1999, compared to $2,339,616 at December 31, 1998. Earnings per share for the year ended December 31, 1999, were $.00, compared to $.04 and $.10, for the years ended December 31, 1998 and 1997, respectively. In compliance with provisions in the Company's contracts with certain railroads, the Company has obtained an unsecured surety bond in the amount of $150,000. In addition the Federal Highway Administration requires the Company to maintain a surety bond in the amount of $10,000, which is secured by a certificate of deposit. In March 1999, the Company obtained an unsecured surety bond in the amount of $500,000 as a requirement of one of its major customers. On September 1, 1999, the Company renewed its revolving line of credit with Republic Bank, St. Petersburg, Florida, in the amount of $2,000,000. This line is secured by the Company's accounts receivable. The Company intends to use the line to provide cash required by the Company's acceptance of new business and for the possible opening of new sales offices. The Company does not have any outstanding bank debt as of the date of this Report, nor did it have any bank debt at December 31, 1999. At December 31, 1999 and 1998, the Company did not have any capital lease obligations, nor did it have any long-term debt. Results of Operations Revenues for the year ended December 31, 1999, were $26,872,967, compared to $28,094,511 and $26,333,344 for the years ended December 31, 1998 and 1997, respectively. In June 1999, the Company lost a substantial portion of business from one of its major customers in a tender process. As a result, revenues generated by this customer decreased by $3,504,553 for the year ended December 31, 1999, as compared to the prior year. Although the Company obtained new clients during 1999 and increased the volume from its existing customers, it was not sufficient to replace the business that was lost. This is the primary reason for the 4.3% reduction in revenues for the year ended December 31, 1999, as compared to 1998. The Company also closed the Minneapolis, Minnesota and San Francisco, California offices during November 1999, which impacted revenues. The Company retained the majority of the business from the Minneapolis office; however, most of the business generated by the San Francisco office was lost to competition. The Company is targeting new customers through its marketing efforts to replace the lost revenues. The Company is also continuing to expand its highway brokerage division, and revenues from this division represented 29.1% of revenues for 1999, compared to 18.3% in the prior year. Revenues for the years ended December 31, 1998 and 1997, included accounts receivable credit balances in excess of 12 months less certain allowances resulting in a net increase to revenues ("additional income") of $124,349, and $113,356, respectively. For the year ended December 31, 1999, there was no increase to revenues resulting from additional income. 14 The gross profit margin was 9.0%, 8.9%, and 8.7%, (before additional income), for the years ended December 31, 1999, 1998, and 1997, respectively. The industry is extremely competitive; however, through better pricing and tightly managed expenses, the Company continues to improve its margin. Through the expansion of the Company's highway brokerage division, the gross profit margin should improve further, as these moves generally offer higher profit margins. The Company's selling, general and administrative expenses ("SG&A") were $2,347,904, or 8.7% of revenues for the year ended December 31, 1999, compared to $2,299,108, or 8.2% of revenues for the year ended December 31, 1998, and $1,672,807, or 6.4% of revenues for the year ended December 31, 1997. The Company's SG&A as a percentage of revenue for the year ended December 31, 1999, increased due to the decrease in revenues that the Company experienced during 1999, as compared to 1998. Although the revenue reduction from one of the Company's major customers was substantial, the corresponding reduction in overhead was slight. The SG&A as a percentage of revenue for the year ended December 31, 1998, rose significantly over 1997 due to the start-up costs incurred in opening the new sales offices, and the lack of sufficient volume to cover these costs. In February 1999, the Company merged its two Chicago offices, which resulted in administrative efficiencies. Additionally, the closing of the two offices in November 1999, will allow the Company to maximize the productivity of its other offices, as the remaining customers from these two locations will be serviced by the Company's other offices without adding resources. The relocation of the headquarters from Tampa, Florida to Atlanta, Georgia, will enable the Company to achieve further administrative efficiencies, which management anticipates will lower the SG&A as a percentage of revenue in the coming year. The pre-tax income of the Company was $43,294, or 0.2% of revenues for the year ended December 31, 1999, compared to $301,669, or 1.1% of revenues, and $664,415, or 2.5% of revenues, for the years ended December 31, 1998 and 1997, respectively. The pre-tax income for the Company for the year ended December 31, 1999, decreased compared to the prior year, due to the 4.3% reduction in revenues from the prior year, without a corresponding reduction in the SG&A expense. Income tax expense for the years ended December 31, 1999, 1998, and 1997, was $22,000, $125,000, and $199,744, respectively. The tax expense for the year ended December 31, 1997, was reduced by the Company's booking of a deferred tax asset in the amount of $58,256. Net income for the years ended December 31, 1999, 1998, and 1997, was $21,294, $176,669, and $464,671, respectively. Although the Company improved its gross profit margin, the revenue shortfall and the increased SG&A affected the profitability of the Company. The Company will concentrate on generating new business and using existing resources to service this business. The Company will continue to market its services and promote its ISO 9002 registration. In addition, it will strive to open sales offices and obtain sales representation in the major geographic areas of North America. Outlook The cost of fuel during the first quarter of 2000 has resulted in sluggish results from the highway brokerage division. The Company has had to impose a fuel surcharge on its customers to recoup the increased costs incurred by the Company. Additionally, the rail providers are beginning to impose fuel surcharges. As of the date of this Report, there has been no relief from these price increases and no determination can be made as to when fuel prices will lower. 15 The Company is diligently working with its customers to provide the most cost-effective means of transporting their goods, while still meeting their time requirements. The Company will continue to evaluate the situation and will take whatever actions it deems necessary. The Company will also strive to increase its customer base and now, with its headquarters in Atlanta, Georgia, will be able to handle new business in the most efficient manner possible. Year 2000 The Company's transition into the Year 2000 was seamless to the customer. The Company had systems in place that were Year 2000 compliant enabling the Company to provide the same quality service to its customers in the Year 2000 as it did in 1999. The Company's carrier vendors were also able to meet expectations. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See accompanying Table of Contents to Financial Statements on F-1. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There were no changes in or Disagreements with Accountants on Accounting and Financial Disclosure to be reported for the year ended December 31, 1999. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT. The Directors and Executive Officers of the Company are as follows: Name Age Position - ---- --- -------- Richard E. Gaetz 42 Officer, Director Geoff Duncan 51 Officer Albert Gnat 61 Director Richard D. McGraw 56 Director Kevin A. Glass 42 Director 16 Richard E. Gaetz has been the President of Vitran Distribution System and Chief Operating Officer of Vitran since August 1989. From October 1987 to August 1989, he was Vice-President, Clarke Transport Canada. Effective October 11, 1996, Mr.Gaetz began serving as the Company's President and Chief Executive Officer. He continues in his role as Chief Executive Officer as of the date of this Report. Geoff Duncan was appointed President on April 1, 1998. From November 1996 through this date, he was Executive Vice President of the Company. From May 1996 through November 1996, he was Vice President of Sales and Marketing. Prior to joining the Company, he was Vice-President of Sales and Marketing at APL. Albert Gnat has been Vice-Chairman of the Board and a director of Vitran since 1983. He is a partner in the law firm of Lang Michener, Toronto, Ontario, Canada. Richard D. McGraw has been the President, Chief Executive Officer and a director of Vitran since 1983. Kevin A.Glass has been the Vice President of Finance and Chief Financial Officer of Vitran since October 1998. Prior to this he was the Chief Financial Officer of Livingston Group Inc. Messrs. Gaetz, Gnat and McGraw were elected directors of the Company on December 1, 1993. Kevin Glass was appointed a director on November 16, 1998. Vitran may be deemed a "parent" of the Company under Securities Act Rule 405. See Item 13 of this Report. Directors are elected to serve for one (1) year or until the next annual meeting of shareholders and until their successors have been elected and have qualified. Executive officers are elected to serve at the discretion of the directors for one (1) year or until the first meeting of the Board of Directors following the next annual meeting of shareholders and until their successors have been elected and have qualified. No compensation is paid to any director, as such, for his or her services, but, by resolution of the Board of Directors, a fixed sum or expense for actual attendance at each regular or special meeting by the Board may be authorized. Compliance with Section 16(a) of the Exchange Act The Company does not have a class of equity security that is registered pursuant to Section 12 of the Securities Exchange Act of 1934. Accordingly, no compliance with Section 16(a) of the Exchange Act is required of any officer, director, or principal shareholder. Item 11. EXECUTIVE COMPENSATION The following table sets forth, for the fiscal years ended December 31, 1997, 1998 and 1999, all compensation of the Company's President and its Chief Executive Officer. No other executive officer or director of the Company received total annual salary and bonus exceeding $100,000 in any of such fiscal years. The information provided should be read in conjunction with the Company's Financial Statements and related notes thereto. 17 SUMMARY COMPENSATION TABLE -------------------------- Name and Fiscal All Other Principal Position Year Salary Bonus Compensation ------------------ ------ ------ ------ ------------ Geoff Duncan, President 1999 $128,045 $ 9,850 $ 8,880(1) 1998 $123,120 $11,400 $ 8,640(1) 1997 $114,400 $11,000 $ 8,400(1) - --------------------------------------------------------------------- (1) Automobile allowance of $740, $720 and $700 per month for 1999, 1998 and 1997, respectively. OPTION GRANTS ------------- The purpose of the following table is to report grants of stock options to the named officers during the years ended December 31, 1997, 1998 and 1999.
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Individual Grants Option Term - -------------------------------------------------------------------------------------------------------- % of Total Options Granted Fiscal Options to Employees in Exercise Expiration Year Name Granted Fiscal Year Price Date 5% ($) 10% ($) - ---- ---- ------- ----------- ----- ---- ------- -------- 1999 Geoff Duncan 5,000 100.00% $1.00 1/01/05-09 (1) $ 18 $ 1,761 1998 Geoff Duncan 10,000 32.26% $1.00(2) 1/01/04-08 (1) $ 1,107 $ 6,223 - --------------------------
(1) Mr. Duncan's options vest over a five-year period (20% per year) and expire five years from the date that the options are vested. At December 31, 1999, Mr. Duncan had 47,000 vested options. (2) On May 14, 1998, the Board of Directors approved an option repricing program to which essentially all current employee stock options with an exercise price of $1.25 were reduced to $1.00. - ---------------------------- During May 1996, the Company adopted a Stock Option Plan (the "Plan") whereby employees of the Company may be granted incentive or non-qualified options to purchase shares of the Company's common stock. The Board of Directors has direct responsibility for the administration of the Plan. The exercise price of the incentive options to employees must be equal to at least 100% of the fair market value of the common stock at the date of grant. The exercise price of incentive options to officers or affiliated persons must be at least 110% of the fair market value as of the date of the grant. The fair market value of options granted was determined using the exercise price of the Vitran stock purchase warrant ($.650631 per share; the warrant expired July 31, 1997) as well as other criteria that the Board deemed relevant. This value may not relate to the trading value on the NASD Bulletin Board as there is not an active market for the Company's stock and trades are sporadic. Upon termination of employment, all options held by the grantee shall immediately terminate. The Board may waive any conditions or rights under, or amend, alter, suspend, discontinue, or terminate, any Option theretofore granted and any Stock Option Agreements relating thereto; provided, however, that without the consent of an affected grantee, no such action may materially impair the rights of such grantee under such option. Michael Jackson, former president of the Company, held 80,000 options with an exercise termination date of August 22, 1999. On that date, the options did terminate without being exercised. 18 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information with respect to (i) any person or "group" known to the Company to be the beneficial owner, as of March 22, 2000, of more than five percent of the Common Stock, and (ii) all Directors and executive officers of the Company, individually and as a group. Amounts set forth for shareholders, who are not members of management, are based on shareholder records. The owner may hold additional shares in street name which are not shown below. Each beneficial owner has advised the Company that he, she or it has sole voting and investment power as to the shares of the Common Stock. Amount and Nature Percentage of of beneficial Class Name of Beneficial Owner ownership (1) - ------------------------------------------------------------------------------ Michael J. Jackson 600,000 12.43% Clearwater, FL 34615 Vitran Corporation Inc. 3,918,030 81.19% 70 University Avenue Suite 350 Toronto, Canada M5J2M4 Richard E. Gaetz None -- 70 University Avenue, Suite 350 Toronto, Canada M5J2M4 (2) Geoff Duncan 10,000 .21% 12900 Dupont Circle Tampa, FL 33626 (2) Albert Gnat None -- 70 University Avenue, Suite 350 Toronto, Canada M5J2M4 (2) Richard M. McGraw None -- 70 University Avenue, Suite 350 Toronto, Canada M5J2M4 (2) Kevin A. Glass None -- 70 University Avenue, Suite 350 Toronto, Canada M5J2M4 (2) All Directors and Executive Officers as a Group 10,000 .21% (5 persons) (2) - ----- (1) The percentages in this column are computed on the basis of 4,825,630 shares of Common Stock outstanding, as of the date of this Report. (2) Four persons who are officers or directors of Vitran are directors of the Company. See Item 10 of this Report. 19 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS For information as to changes in control of the Company see Item 1 of this Report. Vitran is a North American multi-divisional operating company headquartered in Toronto, Ontario, Canada. Vitran provides services to the freight and environmental industries and has over 3000 employees and associates at over one hundred service centers and offices across Canada and the United States. Vitran's Distribution Services Group, of which the Company is a part, provides a complete range of services for the movement of freight throughout the continent, utilizing both highway and rail modes. Services include less than truckload, full load, intermodal, dedicated contract carriage, warehousing and inventory management. The members of the Vitran Distribution Services Group are Transwestern Express, a less than truckload ("LTL") company concentrating on central and western markets of Canada, as well as the Northwest United States; G&W Freightways, which has five facilities in Quebec and Ontario, Canada, and specializes in next-day delivery in all of its service corridors; CAN-AM LTL, which offers cross-border LTL service between the United States and Canada and has facilities in Toronto and Chicago; CAN-AM Logistics, which provides logistic services to its customers; Frontier, which performs truckload services; Vitran Express, which performs LTL services, and the Company. Vitran solicits business between the United States and Canada as an agent for the Company through a Vitran sales office in Toronto. Vitran and the Company have an agreement that all intermodal trans-border rail shipments shall be written by the Company, with Vitran's receiving an agency commission from the Company for such business. Trans-border over-the-road shipments may be made by the Company or other Vitran subsidiaries, including the Overland Group, depending on the type of service required by the shipper of such freight. The Company does not believe that, given the different businesses of the Company and the other Vitran subsidiaries, the Company will compete for any freight business with another Vitran subsidiary, nor does the Company anticipate that the Company and any other Vitran subsidiary will bid the same trans-border over-the-road business. However, in the event that any such unanticipated conflict does occur, the Company and Vitran intend to resolve any such conflict on a case-by-case basis, with resolution depending solely on which entity can best serve the needs of potential customers. For information concerning the Company's relationship with Vitran and the other members of Vitran's Distribution Services Group, see Item 1 of this Report. For information with respect to the relationship between the Company's directors and Vitran, see Item 10 of this Report. 20 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K a) Exhibits and Financial Statement Schedules Number Description - ------ ----------- 2.1 Agreement and Plan of Merger dated December 1, 1991 (2) 3.1 Certificate of Incorporation (1) 3.2 By-Laws (1) 3.2.1 Amended and Restated By-Laws (1) 3.3 Articles of Merger - Florida (1) 3.4 Certificate of Merger - Delaware (1) 4.1 Specimen Certificate of Common Stock (1) 4.2 Specimen Certificate of Class A Warrant (1) 4.2(a) Specimen Certificate of Class B Warrant (1) 4.3 Form of Four Year Common Stock Purchase Warrant (1) 4.4 (Intentionally left blank) 4.5 Form of Warrant Agency Agreement (1) 4.5(a) Amendment dated June 1, 1994, to Warrant Agency Agreement (1) 4.5(b) Amendment dated September 1, 1994, to Warrant Agency Agreement (1) 4.5(c) Amendment dated December 7, 1995, to Warrant Agency Agreement (1) 4.6 Warrant for the purchase of Common Stock issued to Vitran Corporation Inc. and dated July 14, 1993 (3) 10.1 Subscription Agreement between Vitran Corporation Inc. and The Freight Connection, Inc., dated July 14, 1993 (3) 21 10.2 Employment Agreement between The Freight Connection, Inc., and Michael J. Jackson dated July 14, 1993 (1) 10.3 Form of Lockup Agreement (1) 10.4 Agreement with Robert and Patricia Johnston dated June 14, 1993 (1) 10.5 Shareholders' Agreement between Vitran Corporation Inc. and Michael J. Jackson (1) 10.6 Extended Lease Agreement dated February 4, 1997. (4) 10.7 Loan Agreement between Republic Bank, St. Petersburg, Florida, and The Freight Connection, Inc., dated August 19, 1995, as amended to date (1), (6) (1) Incorporated by reference to post-effective amendments to the Company's Registration Statement on Form SB-2. (2) Incorporated by reference to Report on Form 8-K filed January 27, 1992. (3) Incorporated by reference to Report on Form 8-K filed July 21, 1993. (4) Incorporated by reference to Report on Form 10-K filed March 26, 1997. (5) Incorporated by reference to Report on Form 8-K filed December 1, 1997. (6) Fourth Addendum to the Loan Agreement, dated September 1, 1999 included herewith. b) Reports on Form 8-K During the year ended December 31, 1999, no reports were filed on Form 8-K. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report and any subsequent amendments thereto to be signed on its behalf by the undersigned, thereunto duly authorized. THE FREIGHT CONNECTION, INC. a Delaware corporation Dated: March 27, 2000 By: /s/ Richard E. Gaetz ----------------- --------------------- Richard E. Gaetz, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons in their respective capacities with the Registrant and on the dates indicated. Signatures Title Date - ---------- ----- ---- /s/ Richard E. Gaetz Chief Executive Officer March 27, 2000 - ----------------------- and Director --------------- Richard E. Gaetz /s/ Geoff Duncan President March 27, 2000 - ----------------------- --------------- Geoff Duncan /s/ Albert Gnat Director March 27, 2000 - ----------------------- --------------- Albert Gnat /s/ Richard D. McGraw Director March 27, 2000 - ---------------------- --------------- Richard D. McGraw /s/ Kevin A. Glass Director March 27, 2000 - ------------------ --------------- Kevin A. Glass SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORT PURSUANT TO SECTION 15(d) OF THE ACT During the year ended December 31, 1999, the Company provided each shareholder with a copy of its Annual Report on Form 10-K for the year ended December 31, 1998. The Company did not provide any other annual report or proxy materials to its shareholders during 1999. THE FREIGHT CONNECTION, INC. INDEX TO AUDITED FINANCIAL STATEMENTS THE FREIGHT CONNECTION, INC. PAGE ---- Report of Independent Auditors - Margolies, Fink and Wichrowski F-2 Balance Sheets - December 31, 1999, and December 31, 1998 F-3 Statements of Income - Years ended December 31, 1999, 1998 and 1997 F-4 Statements of Stockholders' Equity F-5 Statements of Cash Flows- Years ended December 31, 1999, 1998 and 1997 F-6 Notes to Financial Statements F-7 F-1 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors The Freight Connection, Inc. We have audited the accompanying balance sheets of The Freight Connection, Inc. as of December 31, 1999 and 1998, and the related statements of income, stockholders' equity and cash flows for the years ended December 31, 1999, 1998 and 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above, present fairly, in all material respects, the financial position of The Freight Connection, Inc. as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the years ended December 31, 1999, 1998 and 1997 in conformity with generally accepted accounting principles. /s/ Margolies, Fink and Wichrowski January 20, 2000 Pompano Beach, FL F-2 THE FREIGHT CONNECTION, INC. BALANCE SHEETS DECEMBER 31, 1999 AND 1998 ASSETS 1999 1998 ---- ---- Current assets: Cash and cash equivalents (Note 1) $ 746,353 $ 515,125 Accounts receivable - trade, net of allowance for doubtful accounts of $160,088 and $115,474, respectively (Note 8, 10) 3,490,511 4,248,718 Accounts receivable - affiliates 38,933 Accounts receivable - income taxes 20,258 50,005 Deferred tax asset (Note 6) 40,956 20,456 Prepaid expenses and other receivables 8,779 13,259 ---------- ---------- Total current assets 4,345,790 4,847,563 Property and equipment (net of accumulated Depreciation) (Notes 1 and 2) 176,217 193,192 Deposits and other assets 58,028 87,083 ---------- ---------- $4,580,035 $5,127,838 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses (Note 3) $2,219,125 $2,788,222 ---------- ---------- Total current liabilities 2,219,125 2,788,222 ---------- ---------- Stockholders' equity Common stock, $.001 par value; Authorized 20,000,000 shares; 4,825,630, shares issued and outstanding 4,826 4,826 Additional paid-in capital 918,982 918,982 Retained earnings 1,437,102 1,415,808 ---------- ---------- Total stockholders' equity 2,360,910 2,339,616 ---------- ---------- $4,580,035 $5,127,838 ========== ========== The accompanying notes are an integral part of these financial statements F-3 THE FREIGHT CONNECTION, INC. STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997 -------------- ------------- ------------- Freight income (Note 5) $26,872,967 $28,094,511 $26,333,344 Freight expense 24,442,949 25,480,324 23,947,680 -------------- ------------- ------------- Gross profit 2,430,018 2,614,187 2,385,664 Selling, general and administrative expenses 2,347,904 2,299,108 1,672,807 Depreciation and amortization 82,398 73,144 68,691 -------------- ------------- ------------- Income (loss) from operations (284) 241,935 644,166 -------------- ------------- ------------- Other income (expenses): Interest and dividend income 43,578 59,734 28,598 Interest expense - - (8,349) -------------- ------------- ------------- Total other income (expenses) 43,578 59,734 20,249 -------------- ------------- ------------- Income before income taxes 43,294 301,669 664,415 Income tax expense (Notes 1 & 6) 22,000 125,000 199,744 -------------- ------------- ------------- Net income $ 21,294 $ 176,669 $ 464,671 ============= ============= ============= Net income per common share: Basic Net income per common share $ .00 $ .04 $ .10 ============= ============= ============= Weighted average number of common shares 4,825,630 4,825,630 4,825,630 ============= ============= ============= Net income per common share: Diluted: Net income per common share $ .00 $ .04 $ .10 ============= ============= ============= Weighted average number of common shares 4,825,630 4,825,630 4,825,630 ============= ============= =============
The accompanying notes are an integral part of these financial statements F-4 THE FREIGHT CONNECTION, INC. STATEMENT OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Common Stock Additional Number of Par Paid-in Retained Shares Value Capital Earnings Total ------------ -------------- ------------ ----------- ----------- Balance, January 1, 1997 4,825,630 $ 4,826 $ 918,982 $ 774,468 $ 1,698,276 Net income year ended, December 31, 1997 - - - 464,671 464,671 ------------ -------------- ------------ ----------- ----------- Balance, December 31, 1997 4,825,630 4,826 918,982 1,239,139 2,162,947 Net income year ended, December 31, 1998 - - - 176,669 176,669 ------------ -------------- ------------ ----------- ----------- Balance, December 31, 1998 4,825,630 $ 4,826 $ 918,982 $ 1,415,808 $ 2,339,616 Net income year ended, December 31, 1999 - - - 21,294 21,294 ------------ -------------- ------------ ----------- ----------- Balance, December 31, 1999 4,825,630 $ 4,826 $ 918,982 $ 1,437,102 $ 2,360,910 ============ ============== ============ =========== ===========
The accompanying notes are an integral part of these financial statements F-5 THE FREIGHT CONNECTION, INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997 ------------ ------------- -------------- Cash flows from operating activities: Net income $ 21,294 $ 176,669 $ 464,671 ------------ ------------- -------------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 82,398 73,144 68,691 Deferred tax asset (net) (20,500) 37,800 (58,256) Loss on disposal of fixed assets 1,540 6,064 Changes in assets and liabilities: Accounts receivable 758,207 (1,222,780) 207,923 Accounts receivable - affiliates (38,933) Accounts receivable - income taxes 29,747 (50,005) Prepaid expenses and other receivables 4,480 10,297 33,929 Deposits and other assets 29,055 (30,900) 6,520 Accounts payable and accrued expenses (569,097) 362,705 407,458 Income taxes payable - (68,846) 26,423 ------------ ------------- -------------- Total adjustments 275,357 (887,045) 698,752 ------------ ------------- -------------- Net cash provided by (used in) operations 296,651 (710,376) 1,163,423 ------------ ------------- ------------- Net cash used in investing activities: Purchase of fixed assets (net) (65,423) (60,428) (51,405) ------------ ------------- ------------- Net increase (decrease) in cash and cash equivalents 231,228 (770,804) 1,112,018 Cash and cash equivalents, beginning of period 515,125 1,285,929 173,911 -------------- ------------ ------------- Cash and cash equivalents, end of period $ 746,353 $ 515,125 $ 1,285,929 ============= ============= ============ Supplemental disclosure: Cash paid for interest $ - $ - $ 8,349 ============= ============= ============ Cash paid for income taxes $ 9,147 $ 206,051 $ 229,800 ============= ============= =============
The accompanying notes are an integral part of these financial statements F-6 THE FREIGHT CONNECTION, INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS AND BASIS OF PRESENTATION The Company operates as a transportation freight broker and coordinates both truck and rail shipments from point of origin to delivery at destination for its clients' freight shipments. The Company is responsible for paying carriers for hauling the freight and extends credit to its clients for the shipment. The Company's primary office facilities are located in Tampa, Florida with additional sales offices located in Atlanta, Ga., Los Angeles, Ca., Chicago, Ill., and Toronto, Ontario. CASH EQUIVALENTS Cash equivalents are short-term, highly liquid investments readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. PROPERTY AND EQUIPMENT Property and equipment are carried at cost. The Company provides depreciation for financial purposes over the estimated useful lives of fixed assets using the straight-line method. Upon retirement or sale of fixed assets, their net book value is removed from the accounts and the difference between such net book value and proceeds received is recorded in income. Expenditures for maintenance repairs are charged to expense; renewals and improvements are capitalized. REVENUE RECOGNITION The Company recognizes freight income, freight charges and expenses when the shipment leaves its point of origin. Quick-pay rebates are recognized in the month earned, and volume rebates are recorded annually per contract agreements. Accounts receivable credit balances are taken into income after twelve months. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of the Company's financial instruments such as accounts receivable and accounts payable, approximate their carrying value. ACCOUNTING ESTIMATES The Management of the Company occasionally uses accounting estimates in determining certain revenues and expenses. Estimates are based on subjective as well as objective factors and, as a result, judgment is required to estimate certain amounts at the date of the financial statements. F-7 THE FREIGHT CONNECTION, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES The Company has adopted Statement of Financial Accounting Standard No. 109 "Accounting for Income Taxes" which requires an asset and liability approach to financial accounting for income taxes. Deferred income tax assets and liabilities are computed annually for the difference between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period, plus or minus the change during the period in deferred tax assets and liabilities. On May 29, 1998 the Company entered into a tax allocation agreement with its parent company Vitran Corporation, and has elected to file its future federal income tax returns on a consolidated basis. NET INCOME PER SHARE In 1998, the Company adopted SFAS No. 128, ("Earnings Per Share") which requires the reporting of both basic and diluted earnings per share. Basic net income per share is determined by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted income per share reflects the potential dilution that could occur if options or other contracts to issue common stock were exercised or converted into common stock, as long as the effect of their inclusion is not anti dilutive. For the years ended December 31, 1999, 1998, and 1997 outstanding options have not been reflected in the computation of diluted earnings per share because the market price of common stock outstanding has not been in excess of the option price. At December 31, 1997 all outstanding warrants had expired. F-8 THE FREIGHT CONNECTION, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. PROPERTY AND EQUIPMENT Property and equipment at December 31, 1999 and 1998 consist of the following: 1999 1998 ------------- ------------- Computer software $ 76,413 $ 71,659 Leasehold improvements 2,650 2,650 Office furniture and equipment 360,430 336,432 ------------- ------------- 439,493 410,741 Less accumulated depreciation 263,276 217,549 ------------- ------------- $ 176,217 $ 193,192 ============ ============ Depreciation and amortization expense for the years ended December 31, 1999, 1998 and 1997, were $82,398, $ 73,144, and $68,691, respectively. 3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses at December 31, 1999 and 1998 consist of the following: 1999 1998 ----------- ------------ Accounts payable - trade $ 2,042,728 $ 2,621,634 Accounts receivable credit balances 107,487 65,990 Accrued expenses 68,910 100,598 ----------- ------------ $ 2,219,125 $ 2,788,222 =========== =========== 4. LEASES The Company leases various office facilities under non-cancelable operating leases which expire between years 1999 and 2005. The Company also leases office equipment under non-cancelable operating leases which expire over the next three years. Rent expense incurred under these leases was $155,283, $130,881, and $89,081, for the years ended December 31, 1999, 1998 and 1997 respectively. Future minimum lease payments for operating leases with initial terms in excess of one year as of December 31, 1999 are as follows; 2000 - $124,292, 2001 - $103,190, 2002 - 103,778, 2003 - $107,014, 2004 - $106,550, and, 2005 - $4,328. F-9 THE FREIGHT CONNECTION, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. FREIGHT INCOME Freight income includes rebate income, late charge income, and accounts receivable credit balances in excess of twelve months. These items totaled $192,463, $327,398, and $504,513, for the years ended, December 31, 1999, 1998, and 1997, respectively. 6. INCOME TAXES The provision for income taxes consisted of the following: December 31, ------------ 1999 1998 1997 -------------- -------------- -------------- Current: Federal $ 33,000 $ 70,800 $ 219,800 State 9,500 16,400 38,200 Deferred: Federal (16,700) 32,300 (49,600) State (3,800) 5,500 (8,656) -------------- -------------- -------------- $ 22,000 $ 125,000 $ 199,744 ============== ============ ============ Reconciliation of the Company's provision for income taxes to the federal statutory rate is as follows:
Year ended Year Ended Year Ended December 31, 1999 December 31, 1998 December 31, 1997 ----------------- ----------------- ----------------- Statutory rate applied to income before income taxes $ 14,750 34.0% $ 102,600 34.0% $225,900 34.0% State income tax net of federal benefit 3,000 6.9% 22,000 7.3% 35,300 5.3% Recognition of deferred tax asset (58,256) (8.8)% Other 4,250 9.8% 400 0.1% (3,200) 0.5% ----------- ---- ---------- ---- -------- ---- $ 22,000 50.7% $ 125,000 41.4% $199,744 31.0% =========== ===== ========== ===== ======== =====
F-10 THE FREIGHT CONNECTION, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. INCOME TAXES ( CONTINUED) The components of deferred tax assets and liabilities were as follows: December 31, ------------ 1999 1998 ---- ---- Deferred tax assets: Accounts receivable reserve $ 63,875 $ 46,074 Deferred tax liability: Depreciation (23,019) (25,618) ------------- ------------- 40,956 20,456 Valuation allowance - - ------------- ------------- Total deferred tax asset $ 40,956 $ 20,456 ============= ============= SFAS No. 109 requires a valuation allowance to be recorded when it is more likely than not that some or all of the deferred tax asset will not be realized. As a result of the Company's likelihood for future continuing profitability, management has determined that more likely than not, future taxable income will be sufficient to enable the Company to realize all of its deferred tax assets. Accordingly, no valuation allowance has been recorded at December 31, 1999 and 1998. 7. RELATED PARTY TRANSACTIONS The Company transacts business with various subsidiaries of its parent company, Vitran Corporation Inc. Billings to these companies approximated $1,010,000, $176,000, and $123,000, for the year ended December 31, 1999, 1998, and 1997, respectively. Billings from these companies approximated $110,000, $93,000, and $75,000, respectively. At December 31, 1999 and 1998 accounts receivable from these companies approximated $126,700 and $62,700, respectively, and accounts payable to these companies approximated $20,000 and $5,400, respectively. 8. ECONOMIC DEPENDENCY During the years ended December 31, 1999, 1998 and 1997, sales to one major customer exceeded 10% of the Company's total sales. This customer, an automobile manufacturer, accounted for 33%, 43%, and 61% of total sales for the years ended December 31, 1999, 1998 and 1997, respectively. In addition, the Company is dependent upon its continuing business relationship with its freight carriers, particularly the railroads. F-11 THE FREIGHT CONNECTION, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 9. PENSION PLAN The Company sponsors a 401(k) profit sharing plan which covers all full time employees of the Company who meet certain age and length of service requirements. Plan contributions are based on participant voluntary payroll deductions, subject to a maximum contribution per participant. Expense for contributions to the plan was $24,670 and $18,120 for the years ended December 31, 1999 and 1998 respectively. 10. CONCENTRATION OF CREDIT RISK The Company's financial instruments subject to credit risk are primarily trade accounts receivable. The Company does not require collateral or other security to support customer receivables. The Company's clients generally pay in thirty days or less; however, occasionally payments are not received until invoices age to 60 days. Other concentrations of credit risk with respect to trade receivables are limited due to the dispersion of the majority of the Company's customers across different industries throughout North America. The rail carriers generally draft the Company's bank accounts for payment. The carrier is responsible to the client for lost or damaged merchandise, therefore, the Company does not assume liability for such loss, if any. During the year, the Company has maintained cash balances in excess of the Federally insured limits. The funds are with a major money center bank. Consequently, the Company does not believe that there is a significant risk in having these balances in one financial institution. 11. STOCK OPTIONS During May 1996, the Company adopted a Stock Option Plan (the "Plan) whereby employees of the Company may be granted incentive or non-qualified options to purchase shares of the Company's common stock. The Board of Directors has direct responsibility for the administration of the plan. The exercise price of the incentive options to employees must be equal to at least 100% of the fair market value of the common stock at the date of grant. The exercise price of incentive options to officers, or affiliated persons, must be at least 110% of the fair market value as of the date of the grant. Options are granted subject to terms and conditions determined by the Board of Directors, and generally are exercisable in increments of 20% for each year of employment beginning one year from the date of grant and generally expire five years from date of grant. On May 14, 1998 the Board of Directors approved an option repricing program to which essentially all current employee stock options with an exercise price of $1.25 were reduced to $1.00. At December 31, 1999, the Company has granted 171,000 incentive stock options at an exercise price ranging from $.75 to $1.00; of this total, 109,800 incentive stock options were vested but not exercised. To date the Company has issued no non-qualified stock options. F-12 THE FREIGHT CONNECTION, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 11. STOCK OPTIONS (CONTINUED) Transactions and other information relating to the plans are summarized as follows: Incentive Stock Options ----------------------- Weighted Shares Ave. Price ------ ---------- Outstanding at December 31, 1996 260,000 .95 Granted during 1997 1,000 1.00 ----------- Outstanding at December 31, 1997 261,000 .95 Granted during 1998 31,000 1.00 Canceled during 1998 (1,000) .95 ----------- Outstanding at December 31, 1998 291,000 .95 Granted during 1999 9,000 1.00 Canceled during 1999 (129,000) .94 ----------- Outstanding at December 31, 1999 171,000 .95 =========== The following table summarizes information about all of the stock options outstanding at December 31, 1999:
Outstanding Options Exercisable Options ------------------- ------------------- Weighted Average Weighted Weighted Range of remaining Average average Exercised prices Shares life (years) Price Shares price ---------------- ------ ----------- ----- ------ ----- $ .75 25,000 1.0 years $ .75 25,000 $ .75 $ 1.00 146,000 5.0 years 1.00 84,800 1.00
F-13 THE FREIGHT CONNECTION, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 11. STOCK OPTIONS (CONTINUED) PRO FORMA DISCLOSURE The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" issued in October 1995. Accordingly, no compensation cost has been recognized for its fixed stock option plans with respect to its employees. Had compensation cost for the Company's fixed-based compensation plan been determined based on the fair value at the grant dates for awards under this plan consistent with the method of SFAS 123, the Company's proforma net income, and proforma net income per share would have been as indicated below:
1999 1998 1997 ---- ---- ---- Net income, as reported $ 21,294 $ 176,669 $ 464,671 ============== ============= ============= Net income, proforma $ 23,388 $ 179,199 $ 493,441 ============== ============= ============= Net income per common share: Basic and dilutive Net income, as reported $ .00 $ .04 $ .10 ============= ============= ============= Net income, proforma $ .00 $ .04 $ .10 ============= ============= =============
For purposes of the preceding proforma disclosures, the weighed average fair value of each option has been estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1999, 1998, and 1997, respectively: no dividend yield, volatility approximating 50%, risk free interest rate of 6.0%, and an expected term approximating 4.5 years. 12. COMMITMENTS AND CONTINGENCIES On September 1, 1999, the Company renewed a line of credit agreement with a commercial bank for $2,000,000 which expires on May 31, 2000. Interest is at the lower of the London Interbank Offer Rate plus 250 basis points or the bank's base rate. Any outstanding principal balance plus unpaid interest is due on demand. The line is secured by the Company's accounts receivable, and fixed assets. As of December 31, 1999, no amounts are outstanding on this credit line. F-14 EX-10 2 EXHIBIT 10.7 EXHIBIT 10.7 FOURTH ADDENDUM TO LOAN AGREEMENT This Fourth Addendum to Loan Agreement (the "Addendum") dated this 22nd day of September 1999, effective as of September 1, 1999, amends and modifies that certain Loan Agreement dated August 18, 1995 as previously amended by Addendum to Loan Agreement dated effective August 18, 1996, as further amended by Second Addendum to Loan Agreement dated effective August 18, 1997, and as further amended by Third Addendum to Loan Agreement dated effective August 18, 1998 (collectively the "Loan Agreement") by and among REPUBLIC BANK, a Florida banking corporation (the "Bank"), and THE FREIGHT CONNECTION, INC., a Delaware corporation (the"Borrower"). All of the capitalized terms used herein shall have the same identification and defined meanings as set forth in the Loan Agreement unless otherwise specifically indicated or defined herein. RECITALS: A. Borrower has requested the Bank to extend and renew a Revolving Credit Line Loan (the "Loan") in the amount of $2,000,000.00 under the terms of the Loan Agreement and this Addendum. B. The Bank has agreed to the renewal of the Loan pursuant to the terms of this Addendum and the other loan documents herein referred. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the parties agree as follows: 1. Recitals. The above Recitals are true and correct and by this reference are incorporated herein. 2. Renewal of Credit Line Loan. The Bank hereby renews the Loan effective as of September 1, 1999 pursuant to the terms of a Renewal Revolving Line of Credit Promissory Note of even date herewith (the "Renewal Note") which provides for an extended maturity date of May 31, 2000. 3. Security. The Renewal Note shall continue to be secured by the Security Interests as set forth in the Loan Agreement. 4. Covenants. The following subparagraph 7.02(k) is added to Paragraph 7 of the Loan Agreement: 7.02(k) Other Financing: Borrower is prohibited from obtaining other financing, aside from normal trade payables and affiliated party transactions, from third parties other than the Bank, without the prior written consent of the Bank. 5. Events of Default. Paragraph 8.01 of the Loan Agreement is amended to provide that upon the occurrence of an event of default, the Bank has the option of requiring all accounts receivable to be lock-boxed on such terms and conditions as the Bank may determine. 6. Warranties. Borrower hereby affirms and warrants that all of the warranties made in the Loan Documents, and any other documents or instruments recited herein or executed with respect thereto directly or indirectly, are true and correct as of the date hereof and that Borrower is not in default of any of the foregoing nor aware of any default with respect thereto, and that Borrower has no defenses or rights of offset with respect to any indebtedness to the Bank. Borrower hereby releases the Bank from any cause of action against it existing as of the date of execution hereof. The rights and defenses being waived and released hereunder include without limitation any claim or defense based on the Bank having charged or collected interest at a rate greater than that allowed to be contracted for by applicable law as changed from time to time, provided, however, in no event shall such waiver and release be deemed to change or modify the terms of the Loan Documents which provide that sums paid or received in excess of the maximum rate of interest allowed to be contracted for by applicable law, as changed from time to time, reduce the principal sum due, said provision to be in full force and effect. 7. State taxes. Borrower is liable for the full amount of any documentary stamps, intangible tax, interest and penalties, if any, levied by the State of Florida incident to the loan transactions and modifications described in this Fourth Addendum. If the same be not promptly paid by Borrower when levied by the State of Florida, the Bank may (without obligation to do so) pay the same. 8. Consent and waiver. Borrower hereby consents to the foregoing and agrees that the execution of this Fourth Addendum shall in no manner or way whatsoever impair or otherwise adversely affect Borrower's liability to the Bank under the Loan Documents or any other instrument set forth in the Recitals or herein, all as modified by this Fourth Addendum. 9. Cross Document Default. Any default under the terms and conditions of this Fourth Addendum or of any instrument set forth herein or contemplated by this Fourth Addendum shall be and is a default under every other instrument set forth herein or contemplated by this Fourth Addendum. 10. Ratification. Except as modified by this Fourth Addendum, Borrower hereby ratifies and confirms the continued validity and viability of all terms, conditions and obligations set forth in the Loan Documents and all other instruments executed in connection with this Fourth Addendum. 11. Severability. Whenever possible, each provision of this Fourth Addendum shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision hereof shall be prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity only, without invalidating the remainder of such provision or of the remaining provisions of this Fourth Addendum. 12. Florida Contract. This Fourth Addendum shall be deemed a Florida contract and shall be construed according to the laws of the State of Florida, regardless of whether this Fourth Addendum is executed by certain of the parties hereto in other states. 13. Binding effect. This Fourth Addendum shall bind the successors and assigns to the parties hereto and constitutes the entire understanding of the parties, which may not be modified except in writing. 14. Waiver of Jury Trial. The parties to this Fourth Addendum hereby irrevocably waive their respective rights to trial by jury in any and all actions arising out of the terms of this Fourth Addendum. 15. Conflict. As to any conflict between the terms of the Loan Agreement or this Fourth Addendum, then the terms of this Fourth Addendum shall supersede and control over such other terms. 16. Other Terms. Except as specifically amended, modified and supplemented by this Fourth Addendum, all of the other terms, covenants and conditions of the Loan Agreement remain in full force and effect. WITNESSES As to Borrower "BORROWER" THE FREIGHT CONNECTION, INC., /s/ Richard Lydic a Delaware corporation By: /s/ Geoff Duncan /s/ Ron Anderson Geoff Duncan, as its President (CORPORATE SEAL) WITNESSES: As to Lender "LENDER" REPUBLIC BANK, a Florida /s/ Betty L. Slack banking corporation By: /s/ William S. Nye /s/ Melanie L. Wetzel William S. Nye, as its Vice President (CORPORATE SEAL) STATE OF FLORIDA COUNTY OF HILLSBOROUGH The foregoing instrument was acknowledged before me this 22nd day of September, 1999 by GEOFF DUNCAN, as President of THE FREIGHT CONNECTION, INC., a Delaware corporation, on behalf of the corporation. X Georgia Driver's License /s/ Julie M. Watkins Notary Public "Official Seal" Notary Public, Cherokee County, Georgia My commission expires February 6, 2001 STATE OF FLORIDA COUNTY OF PINELLAS The foregoing instrument was acknowledged before me this 22nd day of September, 1999 by WILLIAM S. NYE, as Vice President of REPUBLIC BANK, a Florida banking corporation, on behalf of the Bank. X Personally known /s/ Patricia A. Peck Notary Public "Official Seal" Patricia A. Peck My commission #CC797219 expires January 4, 2003 Bonded thru Troy Fain Insurance, Inc. EX-27 3 FDS
5 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 746,353 0 3,490,511 0 0 4,345,790 439,493 263,276 4,580,035 2,219,125 0 0 0 4,826 2,356,084 4,580,035 26,872,967 26,872,967 24,442,949 24,442,949 2,430,302 0 0 43,294 22,000 21,294 0 0 0 21,294 .00 .00
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