Attached files
file | filename |
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EX-21 - INTEGRATED FREIGHT Corp | ex21kano2093009.htm |
EX-2.1 - INTEGRATED FREIGHT Corp | ex2kano2093009.htm |
EX-3.5 - INTEGRATED FREIGHT Corp | ex35kano2093009.htm |
EX-31.2 - INTEGRATED FREIGHT Corp | ex312kano2093009.htm |
EX-33.1 - INTEGRATED FREIGHT Corp | ex321kano2093009.htm |
EX-32.2 - INTEGRATED FREIGHT Corp | ex322kano2093009.htm |
EX-31.1 - INTEGRATED FREIGHT Corp | ex311kano2093009.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
AMENDMENT
NO. 2
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934: For the fiscal year ended September 30,
2009
|
[
]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Commission
file number: 000–14273
PLANGRAPHICS, INC.
(Exact
name of registrant as specified in its charter)
Colorado
|
84–0868815
|
State
or other jurisdiction of
incorporation
or organization
|
I.R.S.
Employer Identification No.
|
Suite
200, 6371 Business Boulevard
Sarasota,
Florida
|
34240
|
(Address
of principal executive offices)
|
(Zip
code)
|
Issuer’s
telephone number: (888)
623-4378
Securities
registered under Section 12(b) of the Exchange Act: None
Securities
registered under Section 12(g) of the Exchange Act:
Title
of each class:
|
Name
of Exchange on which registered:
|
Common
Stock, no par value
|
(None)
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
|
Yes
o
|
No
x
|
|||||
Indicate
by check mark if the registrant is not required to file reports pursuant
to Section 13 or Section 15(d) of the Act.
|
Yes
o
|
No
x
|
|||||
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
|
Yes
x
|
No
o
|
|||||
Indicate
by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files).
|
Yes
x
|
No
o
|
|||||
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) 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.
|
o
|
||||||
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
|
|||||||
Large
accelerated filer
|
o
|
Accelerated
filer
|
o
|
||||
Non-accelerated
filer
|
o
|
Smaller
reporting company
|
x
|
||||
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).
|
Yes
o
|
No
x
|
|||||
The
aggregate market value* of the voting and non-voting common equity held by
non-affiliates:
|
$235,001
|
||||||
*
Computed by reference to the price at which the common equity was last
sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second
fiscal quarter.
|
|||||||
The
number of shares of our common stock outstanding at January 11, 2010
was:
|
1,907,000,462
|
||||||
Table
of Contents
|
||
Page
|
||
Part
I
|
||
Item
1.
|
Business
|
4
|
Item
1A.
|
Risk
Factors
|
12
|
Item
1B.
|
Unresolved
Staff Comments
|
19
|
Item
2.
|
Properties
|
19
|
Item
3.
|
Legal
Proceedings
|
19
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
20
|
Part
II
|
||
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
20
|
Item
6.
|
Selected
Financial Data
|
20
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
20
|
Item
7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
27
|
Item
8.
|
Financial
Statements and Supplementary Data
|
27
|
Item
9.
|
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
|
27
|
Item
9A.
|
Controls
and Procedures
|
27
|
Item
9A(T).
|
Evaluation
of Disclosure Controls and Procedures
|
27
|
Item
9B.
|
Other
Information
|
29
|
Part
III
|
||
Item
10.
|
Directors,
Executive Officers and Corporate Governance
|
29
|
Item
11.
|
Executive
Compensation
|
31
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
33
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
34
|
Item
14.
|
Principal
Accounting Fees and Services
|
35
|
Part
IV
|
||
Item
15.
|
Exhibits,
Financial Statement Schedules
|
36
|
Signatures
|
39
|
2
DOCUMENTS
INCORPORATED BY REFERENCE
We have
not incorporated any documents by reference.
SUMMARIES
OF REFERENCED DOCUMENTS
This
annual report on Form 10-K contains references to, summaries of and selected
information from agreements and other documents. These agreements and documents
are not incorporated by reference; but, they are filed as exhibits to this
annual report or to other reports we have filed with the U.S. Securities and
Exchange Commission. The summaries of and selected information from those
agreements and other documents are qualified in their entirely by the full text
of the agreements and documents, which you may obtain from the Public Reference
Section of or online from the Commission. See “Where You Can Find Additional
Information About Us And Exhibits” for instructions as to how to access and
obtain this information. Whenever we make reference in this annual report to any
of our agreements and other documents, the references are not necessarily
complete and you should refer to the exhibits attached to the registration
statement of which this annual report is a part for copies of the actual
contract, agreement or other document.
FORWARD-LOOKING
STATEMENTS
This
annual report on Form 10–K and the information incorporated by reference may
include “forward–looking statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities and
Exchange Act of 1934, as amended. We intend the forward–looking statements to be
covered by the safe harbor provisions for forward–looking statements in these
sections.
This
annual report contains forward-looking statements that involve risks and
uncertainties. We use words such as “project,” “believe,” “anticipate,” “plan,”
“expect,” “estimate,” “intend,” “should,” “would,” “could,” “will,” or “may,” or
other such words, verbs in the future tense and words and phrases that convey
similar meaning and uncertainty of future events or outcomes to identify these
forward-looking statements. There are a number of important factors beyond our
control that could cause actual results to differ materially from the results
anticipated by these forward-looking statements. While we make these
forward–looking statements based on various factors and derived using numerous
assumptions, we have no assurance the factors and assumptions will prove to be
materially accurate when the events they anticipate actually occur in the
future.
These
important factors include those that we discuss in this annual report under
the caption “Risk Factors”, as well as elsewhere in this annual report. You
should read these factors and the other cautionary statements made in this
annual report as being applicable to all related forward-looking statements
wherever they appear in this annual report. If one or more of these factors
materialize, or if any underlying assumptions prove incorrect, our actual
results, performance or achievements may vary materially from any future
results, performance or achievements expressed or implied by these
forward-looking statements. We undertake no obligation to publicly update any
forward-looking statements, whether as a result of new information, future
events or otherwise.
WHERE YOU CAN FINDAGREEMENTS AND OTHER DOCUMENTS
REFERRED TO
IN
THIS ANNUAL REPORT
We file
reports with the U.S. Securities and Exchange Commission pursuant to Section 13
of the Securities Exchange Act of 1934. You may read and copy any reports and
other materials we have filed with the Commission at the Commission’s Public
Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission maintains an Internet site at which
you may obtain all reports, proxy and information statements, and other
information that we file with the Commission. The address of that web site is
http://www.sec.gov.
3
PART
I
Item
1. Business.
Our
corporate and business history -
“We”,
“our” and “us", as used in this annual report, refer to PlanGraphics, Inc., and
includes the following wholly owned subsidiaries, during the applicable
periods:
PlanGraphics,
Inc., a Maryland corporation, (“PGI-MD”) our only subsidiary until
December 27, 2009, when we sold it.
|
Integrated
Freight Corporation, a Florida corporation, between December 3 and 23,
2009, when we acquired it as a wholly owned subsidiary and then merged
Integrated Freight into us.
|
Morris
Transportation, Inc., an Arkansas corporation, beginning December 23,
2009, when we acquired it as a wholly owned subsidiary by merger with
Integrated Freight.
|
Smith
Systems Transportation, Inc., a Nebraska corporation, beginning December
23, 2009, when we acquired it as a wholly owned subsidiary by merger with
Integrated Freight.
|
The
address of our principal executive office is Suite 200, 6371 Business Boulevard,
Sarasota, Florida 34240, and our telephone number at that address is
888-623-4378. The address of our web site is
www.integrated-freight.com. We transferred the web site at
www.plangraphics.com to PGI-MD when we sold that company on December 27,
2009.
We were
incorporated as DCX, Inc. in Colorado in 1981. In 1997, we acquired all of the
outstanding shares of PGI–MD and, in 1998, changed our name to Integrated
Spatial Information Solutions, Inc. from DCX, Inc. In 2002, we changed our name
to PlanGraphics, Inc. from Integrated Spatial Information Solutions,
Inc.
As of May
1, 2009, Integrated Freight acquired 401,599,467 shares, or 80.2 percent, of our
issued and outstanding common stock, in redemption of 500 shares of our issued
and outstanding preferred stock which we had sold for $500,000 to the
Nutmeg/Fortuna Fund LLLP in 2006. Nutmeg/Fortuna Fund is a private investment
company, which we believe is now in receivership in Chicago, Illinois.
Integrated Freight paid Nutmeg/Fortuna Fund 1,307,822 shares of its common stock
and a one-year promissory note in the amount of $167,000 to purchase our
preferred stock. At the date of this transaction, the preferred stock had a cash
redemption value of $562,573.12, including accrued and unpaid dividends, which
we were unable and had no reasonable expectation of being able to pay upon
demand. The redemption request we received from Nutmeg/Fortuna Fund included an
offer for redemption of the preferred stock and accrued and unpaid dividends by
the issuance of our common stock, the number of shares to be determined by
dividing the redemption value by $0.0016, which represented the per share volume
weighted average of the highest and lowest closing prices for our common stock
published by OTC Bulletin Board for the period of February 15 to April 15,
2009.
Negotiations
for the sale and purchase of our preferred stock and the related transactions
were conducted over a period of several months. The negotiations involved
Nutmeg/Fortuna Fund’s management company and the management of Integrated
Freight and our prior management. Prior to the commencement of the negotiations,
there was no then existing or former relationship between and among any of the
parties to the negotiations or their respective controlling stockholders. At and
prior to the commencement of negotiations, Integrated Freight had been exploring
“reverse mergers” with reporting “shell companies”, as defined in the federal
securities laws and quotation of its stock on the OTC Bulletin Board, as a means
of acquiring a public stockholder base and an existing public market. By itself,
Integrated Freight had only seventeen stockholders at that time, an insufficient
number it believed to initiate a public market of its own by filing a Form 10
registration statement with the Commission. As a publicly traded company,
Integrated Freight’s management believed it would be able to more easily obtain
equity and debt funding than it could as a privately held company, and publicly
traded stock would be more readily acceptable to stockholders of privately owned
companies Integrated Freight would want to acquire at least partially for stock.
Furthermore, the two acquisitions it had made included an obligation for
Integrated Freight to become a publicly traded company. Integrated Freight had
been offered control of “public shell companies” for prices in the range of
$300,000. Integrated Freight decided to utilize us as its vehicle to achieve a
public market, because we do not have the stigma of having been a “shell
company”. Valuing its stock at $0.10 per share at that time, Integrated Freight
concluded that the stock and note it was able to negotiate with Nutmeg/Fortuna
Fund was within the price range it would have to pay for an alternative,
reporting, OTC Bulletin Board shell company, with the added benefit of deferring
the cash portion of the price with the one-year note.
4
Integrated
Freight originally intended to merge us into itself, thus succeeding to our
registration under the Securities Exchange Act of 1934 and our public market. In
a related transaction, we were to sell PGI-MD to our then director and chief
executive officer, John C. Antenucci. Integrated Freight was not interested in
continuing the business of PGI-MD, which had been experiencing poor financial
performance as a publicly traded company and was facing either bankruptcy or
voluntary termination of its securities registration, or both. Mr. Antenucci
believed that PGI-MD represented a viable business as a privately owned company,
and as its founder, was interested in purchasing PGI-MD from us. See “Terms of
our sale of PGI-MD”, below.
This
merger and the related reverse stock split and sale of PGI-MD (as our only
substantial asset, at that time) required stockholder approval under Colorado
corporation law pursuant to an effective registration statement on Form S-4
under the Securities Act of 1933. This created uncertainty as to when an
effective date for the registration statement and the stockholder vote would
occur. As a consequence of this uncertainty, Integrated Freight found it could
not obtain sufficient debt or equity funding it needed (a) to complete the
audits and reviews of financial statements required to amend the then pending
registration statement on Form S-4 and (b) pursue and close additional
acquisitions it was negotiating.
We
restructured our combination with Integrated Freight as a parent – subsidiary
merger under Colorado and Florida law, thus eliminating the need for stockholder
approval of the merger and the sale of PGI-MD (no longer a substantial asset,
after the merger) and an effective registration statement on Form S-4. The new
structure was approved by both Integrated Freight and us concurrently on
November 10, 2009. At that date, the same five persons served on Integrated
Freight’s board and on our board.
In
furtherance of the restructured transaction, we acquired 93.797 percent of the
issued and outstanding common stock of Integrated Freight, including all of the
stock it was obligated to issue, in exchange for 1,406,284,229 shares of our
authorized but unissued common stock. We acquired the Integrated Freight stock
from The Integrated Freight Stock Exchange Trust, a Florida business trust
(“Trust”) established to hold all of Integrated Freight’s common stock for
purposes of the exchange and all of our stock which was owned by Integrated
Freight. At the conclusion of this transaction, the Trust now owns 94.8 percent
of our issued and outstanding common stock. On December 23, 2009, we merged
Integrated Freight into us.
In order
to achieve the additional outcomes that would have resulted from the original
transaction structure, we have filed a preliminary Schedule 14C information
statement with the Commission for a special stockholders meeting at which the
following actions will be approved by the Trust, as our majority
stockholder:
•
|
a
reverse stock split in a ratio of one new share for each 244.8598 shares
of our issued and outstanding common
stock;
|
•
|
a
change of our name to Integrated Freight Corporation;
and
|
•
|
a
change in our state of incorporation to Florida from
Colorado.
|
We must
hold a meeting to approve these actions because Colorado corporation law
requires that action written consent receive unanimous stockholder
approval. We view it as unlikely that 100 percent of our stockholders
would even respond to a request for consents. These outcomes were
part of the original transaction structure and were described in Integrated
Freight’s registration statement on Form S-4.
Following
the approval of these actions by our stockholders, we will issue an additional
number of our shares of common stock to:
• the Trust
so that it can transfer to its beneficiaries one of our shares for each share of
Integrated Freight deposited into the Trust and which would have been deposited
into the Trust by persons to whom Integrated Freight was obligated to issue
shares but had not yet delivered certificates;
• two other
stockholders of Integrated Freight who held an aggregate of 1,337,882 shares
they did not deposit into the Trust, one of our shares for each share of
Integrated Freight which they owned prior to the merger.
The
reverse stock split ratio was based on two factors. First, the number of shares
held after the merger by Integrated Freight’s stockholders at May 1, 2009 were
be equal to the number of shares they held on May 1, 2009. Second, the number of
shares held after the merger by Integrated Freight’s stockholders at May 1, 2009
would be equal to ninety percent of our issued and outstanding common stock as
of May 1, 2009. The balance of ten percent would be held by public stockholders,
the Nutmeg/Fortuna Fund, PGI-MD, Mr. Antenucci and Frederick G. Beisser. See
“Terms of our sale of PGI-MD”, below. The 90:10 ratio was in the range of stock
ownership percentages that Integrated Freight had been offered in transactions
with alternative, reporting, OTC Bulletin Board shell companies.
5
The
restructured transaction and the additional actions to be taken subject to
stockholder approval, as described above, will have the same outcome for
stockholders and the constituent companies as the original structure of the
transactions.
The
principal business of PGI–MD beginning at inception to the present is life–cycle
systems integration and implementation, providing a broad range of services in
the design and implementation of information technology solutions within the
public and commercial sectors. Its customers have primarily included federal,
state and local governments, utility companies, and commercial enterprises in
the United States and foreign markets. PGI-MD’s focus and specialty is on
spatial information management technologies, including web–enabled GIS and
applications. Spatial information management systems, which include GIS, provide
a means for accessing, managing, integrating, analyzing and interpreting
disparate data sets that require locational or “spatial” information by relating
the geographic location of a feature or event to other descriptive information.
GIS software allows data, in both graphic or map format and alphanumeric data to
be combined, segregated, modeled, analyzed and displayed, thus becoming useful
information for managers. This was also our only business until December 3,
2009, when we acquired the stock of Integrated Freight. We completed the sale of
MDI-PG to Mr. Antenucci on December 27, 2009.
Integrated
Freight was incorporated in Florida on May 13, 2008 by Paul A. Henley, its
founder, under the name of “Integrated Freight System, Inc.” Integrated Freight
changed its name to Integrated Freight Corporation on July 27, 2009. Mr. Henley
is currently one of our directors and our chief executive officer. Mr. Henley
founded Integrated Freight for the purpose of acquiring and consolidating
operating motor freight companies. Integrated Freight acquired our two existing
business units, which are:
Company Name
|
Year Established
|
Acquisition Date
|
Morris
Transportation, Inc.
|
1998
|
As
of September 1, 2008
|
Smith
Systems Transportation, Inc.
|
1992
|
As
of September 1, 2008
|
We are
operating these subsidiaries as independent companies under the management of
their founders and original stockholders from whom we purchased them. We expect
this management arrangement to continue until we have sufficient working capital
to pay the costs associated with combining and consolidating the elements of
their operations that are duplicative.
Overview
of Our Truck Transportation Business
We are,
beginning December 27, 2009, exclusively a motor freight carrier providing truck
load service primarily in two markets in the mid-West United States. We do not
specialize in any specific types of freight or commodities. We carry dry
freight, refrigerated freight and hazmat and hazwaste (hazardous materials and
waste). We provide long-haul, regional and local service to our
customers.
Our
Strategy
Truck
transportation in general has suffered during the recent economic
recession. According to Transportation
Topics (___), over 6,200 trucking companies are believed to have ceased
operations between September 2007 and January 2010. We believe the trucking
companies that have survived in the current economic recession, whether
presently profitable or marginally unprofitable, represent good future value at
the prices for which we believe many of them can be acquired. Our management
believes that many of them will require debt and equity funding and cost
reductions which they may be unlikely to obtain individually. We believe that
the demand for truck transportation services will return to pre recession
levels, with an initially inadequate supply of trucks to meet demand. The
American Trucking Association Tonnage Index reported a 3.5 percent increase in
tonnage of freight shipped in the first two months of 2010. (Transportation Topics, March 29, 2010).
We believe our strategy we will position us to fill part of the demand
for over-the-road freight services.
We intend
to continue acquiring well established trucking companies when we can do so at
prices which we deem to be advantageous. In the alternative, we may acquire
assets. We also plan to expand beyond our truckload service through acquisitions
into logistics, brokering, less than a load (LTL) and expedite/just-in-time
services, as opportunities are presented to us.
We
believe that we can achieve savings in operating costs by centralizing certain
common functions of our subsidiaries, such as administration, fuel and tire
purchasing, billing and collections, dispatching, maintenance scheduling and
other functions. We believe that with a larger service territory and customer
base than any one subsidiary would have working alone, we will be able to
achieve greater efficiencies in route and equipment utilization.
We expect to face increasing competition for acquisitions. In 2007,
seventy-six acquisitions were completed, compared to less than fifty in 2009.
Transportation Topics predicts a
increase in merger and acquisition activity as the economy recovers. Transpiration Topics (April 12, 2010).
6
Our
Markets
Historically
our subsidiary companies have operated in well-established geographic traffic
lanes or routes. These lanes are defined by our customers’ distribution
patterns. Because there is some overlap within the most heavily traveled lanes,
especially between points in the upper Midwest and Texas, our management
believes that we will be able to realize increased cost and productivity
improvements.
The
following map displays information about the lanes our trucks most routinely or
most frequently travel.
*A drop
yard is a temporary or semi permanent location we rent where we store trailers
when not in use between pick-ups and deliveries. Typically, we rent drop yards
in terminal facilities of other motor freight carriers, which provide
security.
Our
Customers and Marketing
We serve
approximately 175 customers on a regular basis. The following table presents
information regarding our relationship with our customers based on
percentage-of-revenue concentration derived from analysis of our operating data.
Although we do not have contracts with any of these customers, we have
long-standing relationships with most of them.
Number
of customers
|
%
of revenue
|
Four
customers
|
Up
to 35%
|
All
other customers
|
65%
or more
|
The
following table presents information regarding the average length of our
trips.
Longest
haul (overnight)
|
1,950
miles
|
Shortest
haul
|
175
miles
|
Average
haul
|
850
miles
|
Ninety-eight
percent of the freight we haul is dry van freight. The following table presents
information regarding the approximate percentage makeup of the freight we
haul.
Forest
and paper products
|
38%
|
Hazmat
and hazwaste
|
39%
|
All
other freight (freight of all kinds – FAK)
|
23%
|
Marketing
Mr.
Morris, Mr. Smith and one sales person specializing in hazmat and hazwaste
constitute our sales and marketing force. We do not have a formal marketing plan
at the present time. We attend relevant trade shows and trade association
meetings, and seek to maintain good relations with our existing customers. As we
grow our carrier base, of which there is no assurance, we plan to establish a
central marketing group that will support the sales and customer service efforts
of each subsidiary.
7
Our
People
We
believe our employees are our most important asset. The following table presents
information about our full-time employees.
Drivers
- company
|
75
|
Drivers
– independent contract*
|
48
|
Platform
and warehouse
|
2
|
Fleet
technicians
|
6
|
Dispatch
|
6
|
Sales
|
1
|
Office
|
3
|
Administrative
and Executive
|
4
|
None of
our employees are represented by a collective bargaining unit. We consider
relations with our employees to be good. We offer basic health insurance
coverage to all employees.
Our
Drivers
We
believe that maintaining a safe and productive professional driver group is
essential to providing excellent customer service and achieving profitability.
All of our drivers must have three years of verifiable driving experience, a
hazmat endorsement (if hauling hazmat or hazwaste), no major violation in the
previous thirty-six months and comply with all requirements of employment by
U.S. Department of Transportation and applicable state laws. We maintain
complete driver histories and are prepared to comply with the
soon-to-be-implemented comprehensive safety analysis reporting program (USDOT
known as "CSA 2010".
We select
drivers, including independent contractors, using our specific guidelines for
safety records, driving experience, and personal evaluations. We maintain
stringent screening, training, and testing procedures for our drivers to reduce
the potential for accidents and the corresponding costs of insurance and claims.
We train new drivers in all phases of our policies and operations, as well as in
safety techniques and fuel-efficient operation of the equipment. All new drivers
also must pass USDOT required tests prior to assignment to a
vehicle.
We
primarily pay company-employed drivers a fixed rate per mile. The rate increases
based on length of service. Drivers also are eligible for bonuses based upon
safe, efficient driving. We also pay independent contractors a fixed rate per
mile. Independent contractors pay for their own fuel, insurance, maintenance,
and repairs.
Competition
in the trucking industry for qualified drivers is normally intense. Our
operations have been impacted, and from time-to-time we have experienced
under-utilization of our equipment and increased expense, as a result of a
shortage of qualified drivers. We place a high priority on the recruitment and
retention of an adequate supply of qualified drivers. Our average annual
turn-over rate is less than twenty percent, compared to an industry average of
forty-four percent for the fourth quarter of 2009, as published in Transport Topics, March 29,
2010.
Our
Operations
We
currently conduct all of our freight transportation operations, including
dispatch and accounting functions, from the headquarters facilities of our
operating subsidiaries, using different information management systems and
personnel that were employed when we acquired them as our operating
subsidiaries. These arrangements produce many overlaps and duplications in
facilities, office systems and personnel. We believe that these operating
arrangements provide less than optimal results. We intend to centralize many of
these functions, as noted above. Centralization is subject to obtaining adequate
internal or external financing, of which there is no assurance.
8
Our
Revenue Equipment
The
following table presents information regarding our revenue producing
equipment.
Power
units (tractors) – sleeper
|
84
|
|
Power
units (tractors) – day cab
|
2
|
|
Trailers
|
||
Flatbed
|
6
|
|
Dry
van
|
329
|
|
Refrigerated
|
30
|
|
Other
specialized
|
9
|
|
Tanker
|
9
|
The
average age of our power units is approximately 3.6 years. All of our power
units are GPS equipped. The majority of our power units are Freightliner
vehicles. This uniformity allows for reduced inventory of parts required by our
maintenance departments. In addition, the training required for our technicians
is greater focused on a primary product line. We replace our power units at
approximately four years of age. The average age of our trailers is
approximately 4.5 years for general freight and ten years (as needed) for hazmat
and hazwaste which may sit idle for extended periods of time. We maintain all of
our revenue producing equipment in good order and repair.
We
believe we have an optimal tractor to trailer ratio based upon our current and
anticipate customer activity.
Acquisition
of assets in the bankruptcy of Gulf Coast Transport and affiliated companies of
Sunnyvale, Texas
We
submitted an Asset Purchase Agreement to the Bankruptcy Court for the Northern
District of Texas covering the purchase of certain assets of Gulf Coast
Transport of Dallas Texas. Recently, the proceeding was converted to
a liquidation. There is no assurance as to whether or not we will be
able to acquire any or how many, if any, of the tractors and trailers
from the creditors taking possession from Gulf Coast Transport.
Diesel
Fuel Availability and Cost
Our
operations are heavily dependent upon the use of diesel fuel. The price and
availability of diesel fuel can vary and are subject to political, economic, and
market factors that are beyond our control. Fuel prices have fluctuated
dramatically and quickly at various times during the last three years. They
remain high based on historical standards and can be expected to increase with
increased demand for truck transportation in a recovering economy. We
actively manage our fuel costs with volume purchasing arrangements with national
fuel centers that allow our drivers to purchase fuel at a discount while in
transit. During 2008 and 2009, over eighty-five percent of our fuel
purchases were made at contracted locations.
To help
further reduce fuel consumption, we began installing auxiliary power units in
our tractors during 2007. These units reduce fuel consumption by providing
quiet climate control and electrical power for our drivers without idling the
tractor engine. We anticipate having these units installed in
approximately ninety-six percent of our company-owned fleet by December 31,
2010.
Our
cost-cutting measures include utilizing technology such as Peoplenet and
Carrierweb to monitor travel speed/idling/rpms/high overspeed operations. In
addition, governing the top speed of our power units helps reduce our fuel
costs. We are installing the newly designed roll resistant, and thus more fuel
efficient, tires as replacements are needed.
We
further manage our exposure to changes in fuel prices through fuel surcharge
programs with our customers and other measures that we have implemented.
We have historically been able to pass through most long-term increases in fuel
prices and related taxes to customers in the form of fuel surcharges.
These fuel surcharges, which adjust with the cost of fuel, enable us
to recover a substantial portion of the higher cost of fuel as prices increase,
except for non-revenue miles, out-of-route miles or fuel used while the tractor
is idling. As of December 31, 2009 (our most recently completed fiscal year), we
had no derivative financial instruments to reduce our exposure to fuel price
fluctuations.
9
Our
Competition and Industry
Trucks
provide transportation services to virtually every industry operating in the
United States and generally offer higher levels of reliability and faster
transit times than other surface transportation options. Trucks hauled 68.8
percent of all freight, with estimated total revenues from this industry sector
are $660.3 billion in 2008, according to American Transportation Research
Institute. The transportation industry is highly competitive on the basis of
both price and service. The trucking industry is comprised principally of two
types of motor carriers: truckload and less-than-a-load, generally identified as
LTL. Truckload carriers generally provide an entire trailer to one customer from
origin to destination. LTL carriers pick up multiple shipments from multiple
customers on a single truck and then route those shipments through service
centers, where freight may be transferred to other trucks with similar
destinations for delivery. All of our service is truckload service.
The
surface freight transportation market in which we operate is frequently referred
to as highly fragmented and competitive. There are an estimated 227,000
for-hire motor freight companies on file with USDOT, with ninety-six
percent operating twenty-eight or fewer trucks. Even the largest motor freight
companies haul a small percentage of the total freight. The following table
presents information regarding the estimated percentage of freight hauled by the
largest trucking companies compared to all other trucking companies.
[Information
obtained from the American Transportation Research
Institute.]
Ten
largest trucking companies
|
16.4%
|
All
other trucking companies
|
83.6%
|
*Transportation Topics 2009 Top 100 Survey |
Competition
in the motor freight industry is based primarily on service (including on-time
pickup and delivery), price, equipment availability and business relationships.
We believe that we are able to compete effectively in our markets by providing
high-quality and timely service at competitive prices. We believe our
relationships with our customers are good. We compete with smaller and several
larger transportation service providers. Our larger competitors may have more
equipment, a broader coverage network and a wider range of services than we
have. They may also have greater financial resources and, in general, the
ability to reduce prices to gain business, especially during times of reduced
growth rates in the economy. This could potentially limit our ability to
maintain or increase prices, and could also limit our growth in shipments and
tonnage.
We
believe that we do not compete with transportation by train, barge or ship,
which we believe are not options for our existing customers.
Regulation
Our
operations as a for-hire motor freight carrier are subject to regulation by the
U.S. Department of Transportation (USDOT) and its agency, the Federal Motor
Carrier Safety Administration, and certain business is also subject to state
rules and regulations. These agencies exercise broad powers over our
business, generally governing such activities as authorization to engage in
motor carrier operations, safety and insurance requirements. The USDOT
periodically conducts reviews and audits to ensure our compliance with all
federal safety requirements, and we report certain accident and other
information to the USDOT.
Our
company drivers and independent contract drivers also must comply with the
safety and fitness regulations promulgated by the USDOT, including those
relating to drug and alcohol testing and hours-of-service. In
November 2008, the USDOT adopted final rule concerning hours of
service for commercial vehicle drivers. This a final rule allows
drivers to continue to drive up to eleven hours within a fourteen-hour
non-extendable window from the start of the workday, following at least ten
consecutive hours off duty. The rule also allows motor freight
carriers and drivers to continue to restart calculations of weekly on-duty
limits after the driver has at least thirty-four consecutive hours off
duty. The rule was effective January 19, 2009. We believe
these regulations will not have a significant negative impact on our operations
or financial results in fiscal year 2010.
We are
also subject to various environmental laws and regulations dealing with the
handling of hazardous materials, air emissions from our vehicles and facilities,
engine idling, and discharge and retention of storm water. These
regulations have not had a significant impact on our operations or financial
results and we do not expect a negative impact in the future.
Terms
of Our Acquisitions
We
acquired Morris Transportation and Smith Systems Transportation in the merger
with Integrated Freight. The following table describes the material terms of
these acquisitions by Integrated Freight, as amended and in effect at the filing
date of this amended annual report.
10
Morris Transportation
|
Smith Systems
Transportation
|
||
Shares
of our stock
|
3,000,000
shares
|
825,000
shares
|
|
Note
amount
|
$600,000
(1)(2)(4)
|
$250,000
(5)
|
|
Note
amount
|
$400,000
(3)(2)(4)
|
||
Refinancing
of equipment
|
Required
by (6)
|
Required
by (5)
|
|
(1)
The interest rate on the note is eight percent per annum. We
have paid $100,000 of the original principal amount of $600,000 has
been reduced to $500,000 by the cash payment of $100,000 in January
2010. Payments of the balance of the note are as
follows: $25,000 on February 18, 2010; $125,000 on April 20,
2010 and $350,000 on May 1, 2010. Security for the note in
stock of Morris was terminated.
|
|
(2)
The notes and accrued interest are convertible at the election of Mr.
Morris into our common stock at $1 per share. In the event the
market price of our common stock is less than $1 per share one year after
conversion, then Mr. Morris will be entitled to receive additional shares
such that the aggregate market price of all shares received will equal the
dollar amount converted into common
stock.
|
|
(3) The
interest rate on the note is eight percent per annum. We issued
the note in lieu of cash payments we incurred at closing. This note
represents an aggregate of a $150,000 cash payment and a $250,000 cash
payment, both due by amendment on October 31, 2009, and is due on May 1,
2010.
|
|
(4) The
two notes have been consolidated with payments to be made as follows:
$41,000-June 1, 2010; $100,000-September 1, 2010; $150,000-December 1,
2010; $250,000-February 1, 20111; and $400,000-May 1,
2011.
|
|
(5) Two
notes of $125,000, one payable to Mr. Smith and the other payable to Ms.
Smith, due by amendment on May 15, 2011. The notes are secured
by a pledge of the Smith Systems Transportation
stock.
|
|
(6)
For the purpose of eliminating personal guaranties. At the present time,
there is no deadline by which personal guaranties must be eliminate, as
long as we are pursuing commercially reasonable mesa of doing so.
|
Terms
of our sale of PGI-MD
The
agreement to sell PGI-MD to Mr. Antenucci was made on an arm’s length basis in
connection with Integrated Freight’s purchase of our preferred stock from
Nutmeg/Fortuna Fund described above. The agreement included the following
provisions, as modified due to delays in completing the merger with Integrated
Freight, which were satisfied in the completion of the sale on December 27,
2009:
•
|
We
transferred all of our assets to PGI-MD with a depreciated book value of
nil, excluding the stock we owned in PGI and the assets we acquired by
merger with Integrated Freight.
|
•
|
PGI-MD
assumed all of our operating debts and obligations as of May 1, 2009,
totaling $88,340, excluding $28,000 in accrued auditing fees and our
operating costs incurred subsequent to May 1,
2009.
|
•
|
We
issued a promissory note to PGI-MD for $51,739.95 of our operating costs
incurred subsequent to May 1, 2009 which PGI-MD had
paid.
|
•
|
We
are subject, as a result of the merger, to Integrated Freight’s obligation
to issue 177,170 shares of common stock and 177,170 common stock purchase
warrants good for two years at a price of $0.50 per share in consideration
for PGI-MD’s release of us from our obligation to repay inter-company
loans totaling $684,311.
|
We
accepted Mr. Antenucci’s termination of his employment agreement as our chief
executive officer, which included an obligation for us to pay him approximately
$335,000 in severance, as full payment for his purchase of PGI-MD.
As a
result of the merger, we are subject to Integrated Freight’s obligation to issue
to Mr. Antenucci 59,327 shares of common stock and 59,327 common stock purchase
warrants good for two years at a price of $0.50 per share in consideration for
Mr. Antenucci’s release of us from payment of his deferred compensation and
expense reimbursement in the amount of $88,954.
As a
result of the merger, we are subject also to Integrated Freight’s obligation to
issue to Frederick G. Beisser, our former senior vice president - finance,
75,525 shares of common stock and 75,525 common stock purchase warrants good for
two years at a price of $0.50 per share in consideration for Mr. Beisser’s
release of us from payment of his deferred compensation in the amount of
$112,830. (but not including unpaid wages, automobile allowance and reimbursable
expenses totaling $24,126 owed to him at November 9, 2009).
We are
also required to maintain directors and officers’ tail coverage for three years
for the benefit of Messrs. Antenucci and Beisser.
11
Integrated
Freight had no interest in maintaining, managing and funding the business of
PGI-MD as a subsidiary company. The transactions outlined above resulted in our
relief from liabilities in an aggregate amount of $1,309,435, in consideration
for common stock which Integrated Freight valued at the time of negotiations at
$0.10 per share (the price at which it was selling its common stock at that time
in private placements), for an aggregate value of $31,175, before valuing the
warrants. Furthermore, the sale of PGI-MD removed approximately $3,281,679 in
liabilities from our consolidated balance sheet that were liabilities of PGI-MD
and relieved us of all the operational and business difficulties centered in
PGI-MD. We did not obtain an independent appraisal of PGI-MD. Nor, did we seek
other buyers for PGI-MD or its business and technologies. We believe that our
management composed of Mr. Antenucci during our negotiations with Integrated
Freight would have been less interested or uninterested in entering into the
transactions with Integrated Freight, as compared to declaring bankruptcy or
terminating our reporting status under the Securities Exchange Act, if the
transactions had not involved our sale of PGI-MD to Mr. Antenucci.
Notwithstanding the foregoing, at May 1, 2009, our management, the management of
Integrated Freight and Mr. Antenucci believed that these related transactions
were fair and acceptable to all parties. We believe the negotiations for our
sale of PGI-MD were conducted at arms’ length, because fundamentally Mr.
Antenucci was not negotiating against us, when he was our sole director and
chief executive officer, but was negotiating against Integrated
Freight.
Item
1A. Risk Factors.
In
addition to the forward-looking statements outlined previously in this annual
report and other comments regarding risks and uncertainties included in the
description of our business, the following risk factors should be carefully
considered when evaluating our business. Our business, financial condition or
financial results could be materially and adversely affected by any of these
risks.
The
terms of our amended acquisition note enable the Mr. and Ms. Smith to recover
ownership of Smith Systems Transportation, which would represent a significant
loss of business.
The
amended $150,000 promissory notes ($250,000 total) we have given to Mr. and Ms.
Smith the purchase Smith Systems Transportation are secured by a pledge of the
stock in the acquired company. The maturity date of the notes has been amended
to May 15, 2011. We expect to require additional equity or debt funding, of
which there is no assurance, in order to satisfy our financial obligations under
the acquisition notes. In the event we are unable to pay the acquisition notes
by maturity and the Smiths exercise their security interests, they would recover
their ownership of Smith Systems Transportation. In that event we would lose one
of our operating subsidiaries resulting in a material reduction in our
business.
We
may experience difficulty in combining and consolidating the management and
operations of our acquired companies which could have a material adverse impact
on our operations and financial performance.
We have
purchased our operating subsidiaries and expect any additional subsidiaries we
purchase to be made from the founders and management of the acquired companies,
all of whom have been responsible for their own businesses and methods of
operations as independent business owners. While these individuals will continue
to be responsible to a degree for the continuing operations of our operating
subsidiaries, we intend to centralize and standardize many areas of operations.
Notwithstanding that many of these individuals from whom we have and plan to
acquire our operating subsidiaries will serve on our board of directors, we may
be unable to develop a cohesive corporate culture in which these individuals
will be willing to forego their former independence. Our inability to
successfully combine and consolidate the policies, procedures and operations of
our subsidiaries can be expected to have a material adverse effect on our
business and prospects, financial and otherwise.
Our
information management systems are diverse, may prove inadequate and may be
difficult to integrate or replace.
We depend
upon our information management systems for many aspects of our business. Each
company we acquire will have its own information management system with which
its employees are acquainted. None of these systems may be adequate to our
consolidated operations and may not be compatible with a centralized information
management system. We expect to require additional software to initially
integrate existing systems or to ultimately replace these diverse systems.
Switching to new information management systems is often difficult, resulting in
disruption, delays and lost productivity, which could impact our dispatching,
collections and other operations. Our business will be materially and adversely
affected if our information management systems are disrupted or if we are unable
to improve, upgrade, integrate, expand or replace our systems as we continue to
execute our growth strategy.
12
Our management
information systems are subject to
certain risks that we cannot control.
Our
management information systems, including dispatching and accounting systems,
are dependent upon third-party software, global communications providers,
telephone systems and other aspects of technology and Internet infrastructure
that are susceptible to failure. Our management information systems is
susceptible to outages, computer viruses, break-ins and similar disruptions that
may inhibit our ability to provide services to our customers and the ability of
our customers to access our systems. This may result in the loss of customers or
a reduction in demand for our services.
If
we are unable to successfully execute our growth strategy, our business and
future results of operations may suffer.
Our
growth strategy includes the acquisition of additional motor freight companies
to increase revenues, to selectively expand our geographic footprint and to
broaden the scope of our service offerings. If we are unable to acquire
additional motor freight companies at prices that meet our financial model, our
growth will be limited to expanding sales and reducing expenses in our existing
subsidiaries. In connection with our growth strategy, we may purchase additional
equipment, expand and upgrade service centers, hire additional personnel and
increase our sales and marketing efforts.
Our
growth strategy exposes us to a number of risks, including the
following:
•
|
geographic
expansion and acquisitions require start-up costs that could expose us to
temporary losses;
|
•
|
growth
and geographic expansion is dependent on the availability of real estate.
Shortages of suitable real estate may limit our geographic expansion and
might cause congestion in our service center network, which could result
in increased operating expenses;
|
•
|
growth
may strain our management, capital resources, information systems and
customer service;
|
•
|
hiring
new employees may increase training costs and may result in temporary
inefficiencies until those employees become proficient in their
jobs;
|
•
|
expanding
our service offerings may require us to enter into new markets and
encounter new competitive challenges;
and
|
•
|
growth
through acquisition could require us to temporarily match existing freight
rates of the acquiree’s markets, which may be lower than the rates that we
would typically charge for our services.
|
We have
no assurance we will overcome the risks associated with our growth. If we fail
to overcome those risks, we may not realize additional revenue or profits from
our efforts, we may incur additional expenses and therefore our financial
position and results of operations could be materially and adversely
affected.
We
are significantly dependent on the continued services of Paul A. Henley to
realize our growth strategy.
We are
dependent upon the vision and efforts of Mr. Henley, our founder and principal
stockholder, for the realization of our growth strategy. In the event Mr.
Henley’s services were to be unavailable to us, our continued activity to expand
our business operations through acquisition could be substantially impaired or
be abandoned.
Our
management owns more than a majority of our outstanding common stock and outside
stockholders will be unable to influence management decisions or elect their
nominees to our board of directors, if they should so desire.
Our
management will control fifty-six percent of our common stock after the
reverse stock split and the issue of the additional shares required by our plan
of merge with Integrated Freight. All corporate actions involving amendment
of our articles of incorporation (such as name change and increase in authorized
shares), election of directors and other extraordinary actions and transactions
such as certain mergers, consolidations and recapitalizations and sales of all
or substantially all of our assets, require the approval of only a majority of
the issued and outstanding shares of our common stock. Accordingly, our
management will be able to approve any such actions and transactions and elect
all directors even if all of the outside stockholders oppose such transactions,
or in the case of directors, nominate other persons for election. Our minority
stockholders will be unable to effect changes in our management or in our
business.
13
We
have significant ongoing cash requirements and expect to incur additional cash
requirements that could limit our growth and adversely affect our profitability
if we are unable to obtain sufficient financing.
Our
business is capital intensive, involving the frequent purchase of new power
units and trailers. In 2008, 2009 and to date in fiscal year 2010, we made
capital expenditures for new equipment of approximately $50,000 in each
year. We anticipate that we may spend as much as $250,000 in new equipment in
fiscal year 2011. In addition, we have issued promissory notes to cover part of
the costs of our acquisitions and expect to continue issuing promissory notes
for part of the cost of acquisitions. We expect to pay for projected capital
expenditures with cash flows from operations and borrowings under credit
facilities, which at the date of this annual report are $is estimated at
$250,000. Due to the existing uncertainty in the capital and credit markets,
capital and loans may not be available on terms acceptable to us. If we are
unable in the future to generate sufficient cash flow from operations or borrow
the necessary capital to fund our operations and acquisitions, we will be forced
to operate our equipment for longer periods of time and to limit our growth,
which could have a material adverse effect on our operating results. In
addition, our business has significant operating cash requirements. If our cash
requirements are high or our cash flow from operations is low during particular
periods, we may need to seek additional financing, which may be costly or
difficult to obtain. If any of the financial institutions that have extended
credit commitments to us are or continue to be adversely affected by current
economic conditions and disruption to the capital and credit markets, they may
become unable to fund borrowings under their credit commitments or otherwise
fulfill their obligations to us, which could have a material and adverse impact
on our financial condition and our ability to borrow additional funds, if
needed, for working capital, capital expenditures, acquisitions and other
corporate purposes.
Recent
instability of the credit markets and the resulting effects on the economy could
have a material adverse effect on our operating results.
Recently,
there has been widespread concern over the instability of the credit markets and
the current credit market effects on the economy. If the economy and credit
markets continue to weaken, our business, financial results, and results of
operations could be materially and adversely affected, especially if consumer
confidence declines and domestic spending decreases. Although we think it
is unlikely given our current cash position, we may need to incur indebtedness,
which may include drawing on our Credit Facility, or issue debt securities in
the future to fund working capital requirements, make investments, or for
general corporate purposes. Additionally, the stresses in the credit
market have caused uncertainty in the equity markets, which may result in
volatility of the market price for our securities.
We
derive thirty-five percent of our revenue from four customers, the loss of one
or more of which could have a material adverse effect on our
business.
For the
six months ended September 30, 2009, our top four customers, based on
revenue, accounted for approximately twenty-five percent of our revenue. A
reduction in or termination of our services by one or more of our major
customers could have a material adverse effect on our business and operating
results. A default in payments of invoices by one or more of these customers
could have a material adverse effect on our financial condition. See “Our
Business – Our customers and marketing”.
We
operate in a highly competitive and fragmented industry, and our business will
suffer if we are unable to adequately address potential downward pricing
pressures and other factors that may adversely affect our operations and
profitability.
We
compete with many other truckload carriers that provide dry-van and
temperature-sensitive service of varying sizes and, to a lesser extent, with
less-than-truckload carriers, railroads and other transportation companies, many
of which have more equipment, a wider range of services and greater capital
resources than we do or have other competitive advantages. In particular,
several of the largest truckload carriers that offer primarily dry-van service
also offer temperature-sensitive service, and these carriers could attempt to
increase their business in the temperature-sensitive market. Numerous other
competitive factors could impair our ability to maintain our revenues and
achieve profitability. These factors include, but are not limited to, the
following:
•
|
we
compete with many other transportation service providers of varying sizes,
some of which may have more equipment, a broader coverage network, a wider
range of services, greater capital resources or have other competitive
advantages;
|
•
|
some
of our competitors periodically reduce their prices to gain business,
especially during times of reduced growth rates in the economy, which may
limit our ability to maintain or increase prices or maintain revenue
growth;
|
•
|
many
customers reduce the number of carriers they use by selecting “core
carriers,” as approved transportation service providers, and in some
instances we may not be selected;
|
14
•
|
many
customers periodically accept bids from multiple carriers for their
shipping needs, and this process may depress prices or result in the loss
of some business to competitors;
|
•
|
the
trend towards consolidation in the ground transportation industry may
create other large carriers with greater financial resources and other
competitive advantages relating to their
size;
|
•
|
advances
in technology require increased investments to remain competitive, and our
customers may not be willing to accept higher prices to cover the cost of
these investments; and
|
•
|
competition
from non-asset-based logistics and freight brokerage companies may
adversely affect our customer relationships and pricing
policies.
|
If
our employees were to unionize, our operating costs would increase and our
ability to compete would be impaired.
None of
our employees are currently represented under a collective bargaining agreement.
From time to time there may be efforts to organize our employees. There is no
assurance that our employees will not unionize in the future, particularly if
legislation is passed that facilitates unionization such as the Employee Free
Choice Act (“EFCA”). The unionization of our employees could have a material
adverse effect on our business, financial condition and results of operations
because:
•
|
some
shippers have indicated that they intend to limit their use of unionized
trucking companies because of the threat of strikes and other work
stoppages;
|
•
|
restrictive
work rules could hamper our efforts to improve and sustain operating
efficiency;
|
•
|
restrictive
work rules could impair our service reputation and limit our ability to
provide next-day services;
|
•
|
a
strike or work stoppage would negatively impact our profitability and
could damage customer and employee relationships;
and
|
•
|
an
election and bargaining process could divert management’s time and
attention from our overall objectives and impose significant
expenses.
|
Insurance
and claims expenses could significantly reduce our profitability.
We are
exposed to claims related to cargo loss and damage, property damage, personal
injury, workers’ compensation, long-term disability and group health. We have
insurance coverage with third-party insurance carriers, but retain or
self-insure a portion of the risk associated with these claims. If the number or
severity of claims increases, or we are required to accrue or pay additional
amounts because the claims prove to be more severe than our original assessment,
our operating results would be adversely affected. Insurance companies may
require us to obtain letters of credit to collateralize our self-insured
retention. If these requirements increase, our borrowing capacity could be
adversely affected. Our future insurance and claims expense might exceed
historical levels, which could reduce our earnings. We expect our growth
strategy to require a periodic reassessment or our insurance strategy, including
self-insurance of a greater portion of our claims exposure resulting from
workers’ compensation, auto liability, general liability, cargo and property
damage claims, as well as employees’ health insurance under pending federal
legislation, which we are unable to predict. We may also become responsible for
our legal expenses relating to such claims. With growth, we will be required to
periodically evaluate and adjust our claims reserves to reflect our experience.
However, ultimate results may differ from our estimates, which could result in
losses over our reserved amounts. We maintain insurance above the amounts for
which we self-insure with licensed insurance carriers. Although we believe the
aggregate insurance limits should be sufficient to cover reasonably expected
claims, it is possible that one or more claims could exceed our aggregate
coverage limits. Insurance carriers have raised premiums for many businesses,
including trucking companies. As a result, our insurance and claims expense
could increase, or we could raise our self-insured retention when our policies
are renewed. If these expenses increase, or if we experience a claim in excess
of our coverage limits, or we experience a claim for which coverage is not
provided, results of our operations and financial condition could be materially
and adversely affected.
15
Our
customers and suppliers’ business may be impacted by the current downturn in the
worldwide economy and disruption of financial markets.
Our
business is dependent on a number of general economic and business factors that
may have a materially adverse effect on our results of operations, many of which
are beyond our control. These factors include excess capacity in the
trucking industry, strikes or other work stoppages, and significant increases or
fluctuations in interest rates, fuel taxes, and license and registration
fees. We are affected by recessionary economic cycles and downturns in
customers’ business cycles, particularly in market segments and industries where
we have a significant concentration of customers. Economic conditions may
adversely affect our customers and their ability to pay for our services.
Current economic conditions have adversely affected and may continue to
adversely affect our customers’ business levels, the amount of transportation
services they need and their ability to pay for our services. Customers
encountering adverse economic conditions may be unable to obtain additional
financing, or financing under acceptable terms, because of the disruptions to
the capital and credit markets. These customers represent a greater potential
for bad debt losses, which may require us to increase our reserve for bad debt.
Economic conditions resulting in bankruptcies of one or more of our large
customers could have a significant impact on our financial position, results of
operations or liquidity in a particular year or quarter. Our supplier’s business
levels have also been and may continue to be adversely affected by current
economic conditions or financial constraints, which could lead to disruptions in
the supply and availability of equipment, parts and services critical to our
operations. A significant interruption in our normal supply chain could disrupt
our operations, increase our costs and negatively impact our ability to serve
our customers.
We
may be adversely impacted by fluctuations in the price and availability of
diesel fuel.
We
require large amounts of diesel fuel to operate our tractors and to power the
temperature-control units on our trailers. Fuel is one of our largest operating
expenses. Fuel prices tend to fluctuate, and prices and availability of all
petroleum products are subject to political, economic and market factors that
are beyond our control. We do not hedge against the risk of diesel fuel price
increases. We depend primarily on fuel surcharges, auxiliary power units for our
tractors, volume purchasing arrangements with truck stop chains and bulk
purchases of fuel at our terminals to control and recover our fuel expenses. We
have no assurance that we will be able to collect fuel surcharges or enter into
volume purchase agreements in the future. An increase in diesel fuel prices or
diesel fuel taxes, or any change in federal or state regulations that results in
such an increase, could have a material adverse effect on our operating results,
unless the increase is offset by increases in freight rates or fuel surcharges
charged to our customers. Historically, we have been able to offset significant
increases in diesel fuel prices through fuel surcharges to our customers, and we
were able to minimize the negative impact on our profitability in 2008 that
resulted from the rapid and significant increase to the cost of diesel fuel.
Depending on the base rate and fuel surcharge levels agreed upon by individual
shippers, a rapid and significant decline in the cost of diesel fuel could also
have a material adverse effect on our operating results. We continuously monitor
the components of our pricing, including base freight rates and fuel surcharges,
and address individual account profitability issues with our customers when
necessary. While we have historically been able to adjust our pricing to offset
changes to the cost of diesel fuel, through changes to base rates and/or fuel
surcharges, we cannot be certain that we will be able to do so in the future.
The absence of meaningful fuel price protection through these measures,
fluctuations in fuel prices, or a shortage of diesel fuel, could materially and
adversely affect our results of operations.
Our
operations are subject to various environmental laws and regulations, the
violation of which could result in substantial fines or penalties.
We are
subject to various federal, state and local environmental laws and regulations
dealing with the handling and transportation of hazardous materials ("hazmat")
and waste ("hazwaste") (which is a material portion of our existing business).
We operate in industrial areas, where truck terminals and other industrial
activities are located, and where groundwater or other forms of environmental
contamination have occurred. Our operations involve the risks of fuel spillage
or seepage, environmental damage and hazardous waste disposal, among others. If
a spill or other accident involving fuel, oil or hazardous substances occurs, or
if we are found to be in violation of applicable laws or regulations, it could
have a material adverse effect on our business and operating results. One of our
subsidiaries specializes in transport of hazardous materials and waste. If we
should fail to comply with applicable environmental laws and regulations, we
could be subject to substantial fines or penalties, to civil and criminal
liability and to loss of our licenses to transport the hazardous materials and
waste. Under certain environmental laws, we could also be held responsible for
any costs relating to contamination at our past facilities and at third-party
waste disposal sites. Any of these consequences from violation of such laws and
regulations could be expected to have a material adverse effect on our business
and prospects, financial and otherwise.
16
Increased prices, reduced
productivity, and restricted availability of new revenue equipment could cause
our financial condition, results of operations and cash flows to
suffer.
Prices
for new tractors have increased over the past few years, primarily as a result
of higher commodity prices, better pricing power among equipment manufacturers,
and government regulations applicable to newly manufactured tractors and diesel
engines. We expect to continue to pay increased prices for revenue
equipment and incur additional expenses and related financing costs for the
foreseeable future. Our business could be harmed if we are unable to
continue to obtain an adequate supply of new tractors and trailers or if we have
to pay increased prices for new revenue equipment. The EPA adopted revised
emissions control regulations, which require progressive reductions in exhaust
emissions from diesel engines through 2010, for engines manufactured in
October 2002, and thereafter. Some manufacturers have significantly
increased new equipment prices, in part to meet new engine design requirements
imposed by the EPA, increasing the cost of our new tractors. The revised
regulations decrease the amount of emissions that can be released by tractor
engines and affect tractors produced after the effective date of the
regulations. Compliance with these regulations has, lowered fuel mileage and
increased our operating expenses and maintenance costs. These adverse effects
combined with the uncertainty as to the reliability of the vehicles equipped
with the newly designed diesel engines and the residual values that will be
realized from the disposition of older vehicles are expected increase our costs
or otherwise adversely affect our business or operations. There is no assurance
that continued increases in pricing or costs will not have an adverse effect on
our business and operations.
Seasonality and the impact of weather
can adversely affect our profitability.
Our
tractor productivity generally decreases during the winter season because
inclement weather impedes operations and some shippers reduce their shipments.
At the same time, operating expenses generally increase, with harsh weather
creating higher accident frequency, increased claims and more equipment repairs.
We can also suffer short-term impacts from weather-related events such as
hurricanes, blizzards, ice-storms, and floods that could harm our results or
make our results more volatile.
Increases
in driver compensation or difficulty in attracting drivers could affect our
profitability and ability to grow.
We
periodically experience difficulties in attracting and retaining qualified
drivers, including independent contract drivers. With increased competition for
drivers, we could experience greater difficulty in attracting sufficient numbers
of qualified drivers. In addition, due in part to current economic conditions,
including the cost of fuel and insurance, the available pool of independent
contractor drivers is smaller than it has been historically. Accordingly, we may
and periodically do face difficulty in attracting and retaining drivers for all
of our current tractors and for those we may add. We may face difficulty in
increasing the number of our independent contractor drivers. In addition, our
industry suffers from high turnover rates of drivers. Our turnover rate requires
us to recruit a substantial number of drivers. Moreover, our turnover rate could
increase. If we are unable to continue to attract drivers and contract with
independent contractors, we could be required to continue adjusting our driver
compensation package beyond the norm or let equipment sit idle. An increase in
our expenses or in the number of power units without drivers could materially
and adversely affect our growth and profitability. Our operations may be
affected in other ways by a shortage of qualified drivers in the future, such as
temporary under-utilize our fleet and difficulty in meeting shipper demands.
When we encounter difficulty in attracting or retaining qualified drivers, our
ability to service our customers and increase our revenue could be adversely
affected. A shortage of qualified drivers in the future could cause us to
temporarily under-utilize our fleet, face difficulty in meeting shipper demands
and increase our compensation levels for drivers.
We operate in a highly regulated
industry and increased costs of compliance with, or liability for violation of,
existing or future regulations could have a materially adverse effect on our
business.
The USDOT
and various state and local agencies exercise broad powers over our business,
generally governing such activities as authorization to engage in motor carrier
operations, safety and insurance requirements. Our company drivers and
independent contractors also must comply with the safety and fitness regulations
promulgated by the USDOT, including those relating to drug and alcohol testing
and hours-of-service. We also may become subject to new or more
restrictive regulations relating to fuel emissions, drivers’ hours-of-service,
ergonomics, or other matters affecting safety or operating methods. Other
agencies, such as the Environmental Protection Agency and the Department of
Homeland Security also regulate our equipment, operations, and drivers.
Future laws and regulations may be more stringent and require changes in our
operating practices, influence the demand for transportation services, or
require us to incur significant additional costs. Higher costs incurred by us or
by our suppliers who pass the costs onto us through higher prices could
adversely affect our results of operations.
In the
aftermath of the September 11, 2001 terrorist attacks, federal, state, and
municipal authorities have implemented and continue to implement various
security measures, including checkpoints and travel restrictions on large
trucks. As a result, it is possible we may fail to meet the needs of our
customers or may incur increased expenses to do so. These security measures
could negatively impact our operating results.
17
Some
states and municipalities have begun to restrict the locations and amount of
time where diesel-powered tractors, such as ours, may idle, in order to reduce
exhaust emissions. The State of California has recently enacted
legislation which requires tractors weighing more than 10,000 pounds to use
alternative sources, such as auxiliary power units, when powering their cabs at
idle for more than five minutes. The State of California has also enacted
legislation requiring compliance with exhaust emissions standards for
refrigeration units on trailers. Compliance is being phased in by the
state, beginning with 2001 and earlier models. Given our investment in
auxiliary power units for our tractors and the average age of our trailer fleet,
we do not expect these regulations will have a significant impact on our
operations or financial results.
From time
to time, various federal, state, or local taxes are increased, including taxes
on fuels. We cannot predict whether, or in what form, any such increase
applicable to us will be enacted, but such an increase could adversely affect
our profitability.
Higher
interest rates on borrowed funds would adversely impact our results of
operations.
We rely
on borrowings to finance our revenue equipment and receivables. We are subject
to interest rate risk to the extent our borrowings. Even though we attempt to
manage our interest rate risk by managing the amount of debt we carry, our debt
levels are not entirely within our control in the short term. An increase in the
rates of interest we incur on borrowings and financing we cannot decrease in the
short term without adversely impacting our level of service to our customers and
expansion of our business will adversely affect our results of
operations.
Our
financial results may be adversely impacted by potential future changes in
accounting practices.
Future
changes in accounting standards or practices, and related legal and regulatory
interpretations of those changes, may adversely impact public companies in
general, the transportation industry or our operations specifically. New
accounting standards or requirements, such as a conversion from U.S. generally
accepted accounting principles to International Financial Reporting Standards,
could change the way we record revenues, expenses, assets and liabilities or
could be costly to implement. These types of regulations could have a negative
impact on our financial position, liquidity, results of operations or access to
capital.
"Penny
stock” rules may make buying and selling our common stock
difficult.
Trading
in our common stock is subject to the "penny stock" rules of the Securities and
Exchange Commission. The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock to deliver a standardized risk disclosure document
that provides information about penny stocks and the risks in the penny stock
market. The broker-dealer must also provide the customer with current bid and
offer quotations for the penny stock, the compensation of the broker-dealer and
its salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer’s account. In addition,
the penny stock rules generally require that prior to a transaction in a penny
stock the broker-dealer make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser’s
written agreement to the transaction. These disclosure requirements may have the
effect of reducing the level of trading activity in the secondary market for a
stock that becomes subject to the penny stock rules. Our securities are subject
to the penny stock rules, and investors may find it more difficult to sell their
securities.
We
will incur significant expense in complying with Section 404 of the
Sarbanes-Oxley Act of 2002 on a timely basis.
The SEC,
as directed by Section 404 of the Sarbanes-Oxley Act, adopted rules generally
requiring each public company to include a report of management on the company's
internal controls over financial reporting in its annual report on Form 10-K
that contains an assessment by management of the effectiveness of the company's
internal controls over financial reporting. Under current rules, commencing with
our annual report for the fiscal year ending September 30, 2011, our independent
registered accounting firm must attest to and report on management's assessment
of the effectiveness of our internal controls over financial
reporting.
We have
not developed a basic Section 404 implementation plan. We have in the past
discovered, and may in the future discover, areas of our internal controls that
need improvement. How companies should be implementing these new requirements
including internal control reforms to comply with Section 404's requirements and
how independent auditors will apply these requirements and test companies'
internal controls, continues to change. We do not have a precedent available
with which to measure compliance adequacy. Accordingly, there can be no positive
assurance that we will receive a positive attestation from our independent
auditors.
18
We expect
that we may need to hire and/or engage additional personnel and incur
incremental costs in order to complete the work as required by Section 404. We
have initially concluded that our internal controls are not effective; in the
event that in the future we conclude that our internal controls are effective,
our independent accountants may disagree with our assessment and may issue a
report that is qualified. Any failure to implement required new or improved
controls, or difficulties encountered in their implementation, could harm our
operating results or cause us to fail to meet our reporting
obligations.
Item
1B. Unresolved Staff Comments.
We are
not an accelerated filer or a large accelerated filer, as defined in Rule 12b-2
of the Exchange Act (§240.12b-2 of this chapter), or a well-known seasoned
issuer as defined in Rule 405 of the Securities Act (§230.405 of this chapter);
and, we are not subject to this item.
Item 2.
Properties.
Our
corporate headquarters office is located in Sarasota, Florida. We do not have a
lease or written rental agreement and are not being charged rent. We believe
this facility will not be adequate for our needs in the immediate future. Based
upon our future acquisitions, we will determine the best facility to use as a
corporate and operations headquarters.
The
headquarters of our operating subsidiaries are located in Hamburg, Arkansas and
Scotts Bluff, Nebraska. The following table presents information regarding these
facilities.
Location
|
Acres
|
Under
Roof*
|
Office*
|
Warehouse*
|
Service*
|
Trucks
Accommodated
|
Hamburg
facility (Morris)
|
10
|
15,000
|
3,000
|
none
|
12,000
|
170
trucks
|
Scotts
Bluff facility (Smith)
|
10
|
36,500
|
3,000
|
30,000
|
3,500
|
400
trucks
|
*Number
indicates square feet.
We also
have terminals in Pine Bluff, Arkansas, Arcadia, California, Kimble, Nebraska
and Ponca City, Oklahoma. We rent drop yards on a short term basis as the
seasonal and operational needs of our customers require. These drop yards are
routinely located in Eldorado, Arkansas, Sacramento, California, Chicago,
Illinois, Iowa City, Iowa, Denton and Houston, Texas and Dell, Utah. Drop yards
are a specific number of truck parking places we rent on an as-needed basis in
terminal facilities of other trucking companies.
We
believe all of these facilities are adequate for our operations for the
foreseeable future. We expect to acquire additional facilities for operations
when we make future acquisitions, of which there is no assurance.
Item
3. Legal Proceedings.
We expect
to be engaged in litigation from time to time in the normal course of our
business as a motor freight carrier. Claims for worker’s compensation, auto
accident, general liability and cargo and property damage are routine
occurrences in the motor transportation industry. We have programs and policies
which are designed to minimize the events that result in such claims. We
maintain insurance against workers’ compensation, auto liability, general
liability, cargo and property damage claims. We are responsible for deductible
amounts up to $3,000 per accident. We periodically evaluate and adjust our
insurance and claims reserves to reflect our experience. Our workers’
compensation claims are entirely covered by our insurance. Insurance
carriers have raised premiums for many businesses, including truck
transportation companies. As a result, our insurance and claims expense could
increase, or we could raise our deductible when our policies are renewed. We
believe that our policy of self-insuring up to set limits, together with our
safety and loss prevention programs, are effective means of managing insurable
costs.
The
following table presents information regarding our claims experience during
calendar year 2009.
Category of Claim
|
Total Claims*
|
Our Portion
|
||||
Auto
Accident
|
$
|
0
|
$
|
0
|
||
General
Liability
|
$
|
27,250
|
$
|
0
|
||
Cargo
Damage
|
$
|
0
|
$
|
0
|
||
Property
Damage
|
$
|
11,000
|
$
|
3,000
|
*Includes
estimated amounts of pending claims, which are expected to settle in
2010.
We
require our contract drivers to carry their own occupational accidental
insurance, which is similar to workers’ compensation insurance.
19
The
following table presents our accident experience during the past twenty-four
months.
Type
|
Fatal
|
Injury
|
Tow
|
Total
|
Crashes
|
0
|
4
|
4
|
8
|
Item
4. Submission of Matters to a Vote of Security Holders.
We did
not submit any matters to our stockholders for action or approval during the
last quarter of our fiscal year.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
Market
information. Our common
stock trades on OTC Bulletin Board under the symbol, PGRA. The following
quotations reflect inter–dealer prices without retail markup, markdown, or
commission, and may not necessarily represent actual transactions. The quarterly
ranges of high and low sales prices per share for the past two fiscal years have
been as follows:
Quarters
Ended
|
Sales
Price
|
|||
High
|
Low
|
|||
December
31, 2007
|
.0220
|
.0050
|
||
March
31, 2008
|
.0090
|
.0015
|
||
June
30, 2008
|
.0080
|
.0002
|
||
September
30, 2008
|
.0002
|
.0002
|
||
December
31, 2008
|
.0220
|
.0050
|
||
March
31, 2009
|
.0025
|
.0015
|
||
June 30,
2009
|
.0049
|
.0012
|
||
September
30, 2009
|
.0020
|
.0005
|
As of
December 31, 2009, the last reported sales price of our common stock was
$0.00219.
Holders. Based on information
supplied by certain record holders of our common stock, we estimate that as of
December 31, 2009, there were approximately 2,960 beneficial owners of our
common stock, of which approximately 2,010 are registered
shareholders.
Dividends. We have never
declared or paid any dividends on our common stock. Because we currently intend
to retain any future earnings to finance operations and growth, we do not
anticipate paying any cash dividends in the foreseeable future.
Securities authorized for issuance
under equity compensation plans. Our employment agreement with Steven E.
Lusty requires us to issue 25,000 shares (after our planned reverse stock split
on 1:244.8598) for each month we are not able to pay his compensation in cash
beginning August 2009. At the date of this annual report, he has not received
any shares issued by Integrated Freight and we are obligated to issue 125,000
shares to him after approval of the reverse stock split.
Performance
graph. We are not required
to include this information in our annual report.
Recent sales of unregistered
securities. All sales of equity securities during our 2009 fiscal year
have been reported on Form 8-K and Form 10-Q.
Item
6. Selected Financial Data.
We are
not required to provide the information under this item.
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
You
should read the following discussion of our financial condition and results of
operations in conjunction with the consolidated financial statements and notes
to those statements included elsewhere in this report.
20
During
the twelve-month period covered by management’s discussion under this item, the
results of operations for the period ended and financial condition at September
30, 2009, our business was exclusively providing life–cycle systems integration
and implementation of information technology solutions within the public and
commercial sectors with a focus and specialty is on spatial information
management technologies, including web–enabled GIS and applications. We sold
this business on December 27, 2009. Beginning December 3, 2009, when we acquired
the stock of Integrated Freight, we added motor freight transportation to our
business and at the date of this annual report are exclusively engaged in that
business. Our future financial performance will be unrelated to our financial
performance through September 30, 2009, discussed below.
Financial
Condition
Liquidity
During
fiscal year 2009, we are reporting a net loss to common stockholders of
$511,960, about nine percent higher than the net loss recorded for the prior
year. We continued to experience very constrained cash flows. The limited cash
flows have, from time to time, adversely affected our ability to timely meet
vendor payment obligations. We have an accumulated deficit of $24,468,511 at
September 30, 2009, a net working capital deficit of $3,203,345 at September 30,
2009, net losses for the years ended September 30, 2009 and 2008, and net losses
back to 1998. Substantially all of our operations, and the losses associated
therewith, have been conducted in PGI-MD.
Cash
Flow
The
accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. During fiscal years 1998
through 2009, we experienced significant losses with corresponding reductions in
working capital and net worth, excluding the impact of certain onetime gains.
Our revenues and backlog have also decreased substantially during the past two
years. We have struggled to maintain a minimal cash flow necessary to meet our
barebones operating and capital requirements and have been be forced to restrict
operating expenditures to match available resources. These factors, among
others, raised substantial doubt about our ability to continue as a going
concern.
We
continued to experience significant liquidity issues that caused us to finance
the needed resources with funds from now discontinued operations and accretion
of amounts owed to creditors. As a result, from time to time we delayed payment
of subcontractor invoices. At September 30, 2009, we had a net working capital
deficit of $3,203,345 compared with a net working capital deficit of $3,469,474
at September 30, 2008.
Cash
provided by operations. In the twelve months ended September 30, 2009,
operations used net cash of $18,856, as compared to $167,872 provided by
operations during the period ended September 30, 2008. This $186,728 change from
the prior year was primarily a result of:
A
decrease of $43,321 in cash used to fund our current year net loss of $511,960
versus $468,639 for the prior year plus a net change of $87,009 for changes in
operating assets and liabilities of continuing operations which decreased the
cash used, plus a decrease of $186,728 in cash provided by discontinued
operations. The latter decrease was primarily a result of gains from
extinguishments of debt.
Cash used
by investing activities. In the period ended September 30, 2009, investing
activities used cash of $23,425 versus $71,423 used in investing activities
during the period ended September 30, 2008. The primary reason for the change
was decreased purchases of software for future use in the current period. All
activity was from discontinued operations.
Cash
provided by and used in financing activities. During the period ended September
30, 2009, financing activities provided $41,877 as compared to net cash used of
$174,677 in financing activities in the period ended September 30, 2008. The
change was mainly a result of proceeds received from the issue of a convertible
debenture in continuing operations and a related party note payable in
discontinued operations versus the pay-down of debt in discontinued operations
in the prior year period.
Accounts
receivable balances at September 30, 2009 and 2008, have been reclassified in
the current presentation to “current assets of discontinued operations” on our
balance sheets.
21
We
depended on revenues and accounts receivable collections from discontinued
operations to fund our costs of administration at the parent company level
through the completion of the merger with Integrated Freight on December 27,
2009. Therefore the elevated levels of aged accounts receivable we experience
periodically, coupled with the need to finance activities with cash from
discontinued operations, places cash flow constraints on us requiring it to very
closely manage its expenses and payables. From time to time we have also
borrowed funds from officers and employees to meet working capital
needs.
Accounts
Receivable
At
September 30, the components of contract receivables were as
follows:
2009
|
2008
|
||||
Billed
|
$
|
204,256
|
$
|
544,720
|
|
Unbilled
|
38,834
|
238,470
|
|||
243,090
|
783,190
|
||||
Less
allowance for doubtful accounts
|
14,151
|
49,718
|
|||
Accounts
receivable, net
|
$
|
228,939
|
$
|
733,472
|
Unbilled
receivables represent work-in-process that has been performed but has not yet
been billed. This work will be billed in accordance with milestones and other
contractual provisions. Unbilled work-in-process includes revenue earned as of
the last day of the reporting period which will be billed in subsequent days.
The amount of unbilled revenues will vary in any given period based upon
contract activity.
Receivables
include retainages receivable representing amounts billed to customers that are
withheld for a certain period of time according to contractual terms, generally
until project acceptance by the customer. At September 30, 2009 and 2008,
retainage amounted to $4,055 and $168,434, respectively. Management considers
all retainage amounts to be collectible.
Billed
receivables include $37,597 for the net amount of factored invoices due from
Rockland. This amount is comprised of the amount of outstanding uncollected
invoices on hand at Rockland ($83,716) less the net amount of funds employed by
Rockland in servicing them ($67,684) which consists of actual cash advances,
payments, and other reserves and fees related to the factoring agreement.
Pursuant to the factoring agreement we have granted Rockland and a lien and
security interest in all of PGI-MD’s cash, accounts, goods and
intangibles.
PGI-MD
has historically received greater than ten percent of its annual revenues from
one or more customers creating some amount of concentration in both revenues and
receivables.
At
September 30, 2009, customers exceeding ten percent of accounts receivable were
the Italian Ministry of Finance ("IMOF"), twenty-seven percent and China Clients
fourteen percent. At the same date, customers exceeding ten percent of revenue
for the year were IMOF, twenty-seven percent, San Francisco Department of
Technology and Information Systems (“SFDTIS”), eleven percent, and Dawson
County, Georgia, thirteen percent.
At
September 30, 2008, customers exceeding ten percent of accounts receivable were
the Italian Ministry of Finance ("IMOF"), twenty-four percent, New York City
Department of Environmental Engineering (“NYDEP”), nineteen percent. At the same
date, customers exceeding ten percent of revenue for the year were NYDEP,
twenty-six percent, San Francisco Department of Technology and Information
Systems (“SFDTIS”), sixteen percent, and the IMOF, twelve percent.
Deferred
revenue amounts of $130,269 and $312,303 at September 30, 2009 and 2008,
respectively, represented amounts billed in excess of amounts
earned.
Contractual
Obligations and Commercial Commitments
As a
result of our sale of PGI-MD on December 27, 2009, we no longer are subject to
any contractual obligations and commitments of that company. We have
assumed the contractual obligations and commercial commitments of Integrated
Freight as a result of our merger on December 23, 2009. Contractual
obligations and commercial commitments consist primarily of leases and financing
agreements, in each case for terms of up to forty-eight months for power
units and trailers.
22
Off-Balance
Sheet Arrangements
We do not
have any (1) guaranties, (2) retained or contingent interest in transferred
assets, (3) obligations under derivative instruments classified as equity or
(4) obligations arising out of a material variable interest in an
unconsolidated entity that provides financing, liquidity, market risk or credit
risk support to the company, or that engages in leasing, hedging or
research and development arrangements with the company.
Capital
Resources
We
believe our capital resources are insufficient to fund our business
plan. We will require additional debt and equity funding to complete
the acquisition of additional companies and to provide additional working
capital for our existing operations and operations we may acquire. To
date our capital needs have been met by the private sale of our common stock to
individual investors and convertible and non-convertible loans to individual
investors. We believe we will need to continue to develop sources of
private funding until such time as the scale of our operations, our sales and
our profits are sufficient to attract the interest of institutional investors,
if we are ever able so to do.
Results
of Operations
Business
operations during the twelve months ended September 30, 2009 were conducted
exclusively in PGI-MD. We conducted administrative operations as related to
maintenance of our public reporting obligations. We discontinued these
historical operations on December 27, 2009 with the sale of PGI-MD.
Results
of continuing operations:
Revenues
With the
reclassification of PGI-MD to discontinued operations we recorded our financial
results to continuing operations and to discontinued operations. As a result,
because our continuing operations do not generate revenue we have no revenues
for continuing operations.
Costs
and Expenses from Continuing Operations
Total
costs and expenses for the twelve months ended September 30, 2009, amounted to
$186,027, a $10,844 reduction from the $196,871 for the same period ended
September 30, 2008. This 6% decrease is primarily due to reductions in salaries
and benefits.
Salaries
and benefits decreased by $9,457, or 13% as a result of management’s decision to
change to a reduced workweek of thirty-two hours pending receipt of new
contracts. General and administrative expenses decreased by $1,387, or one
percent, primarily as a result of decreased accounting fees.
Operating
loss from continuing operations
We
reported an operating loss from continuing operations of $186,027 for the 12
months ended September 30, 2009, as compared to an operating loss of $196,871 in
the prior year. This decrease of $10,844, or 6%, was a result of the items
described above.
Interest
expense decreased to $38,776 in the current period compared with $60,163 during
the prior year; the decrease of $21,387, or 36%, occurred because the redemption
of outstanding preferred stock terminated further accrual of related
interest.
Loss from
continuing operations amounted to $233,019 in the current year period compared
to $257,034 in the prior year. The 13% decrease resulted from the items noted
above.
Results
of discontinued operations
Revenue
from our discontinued information technology operations amounted to $1,854,617
for the year ended September 30, 2009, a decrease of $1,759,399, or 49%, from
prior year revenues of $3,614,016. The decrease resulted from contraction of the
economy which manifested itself in reduced tax collections by our primary local
government customers who reduced their spending accordingly.
23
Discontinued
operations incurred an operating loss of $498,952 in the current period versus
an operating loss of $192,102 in the prior year period. The $306,840 increase
resulted primarily from the decrease in revenues noted above; the decrease of
$1,452,548 in total costs and expenses was insufficient to offset the drop in
revenue. While direct contract costs decreased $1,153,560, or 55%, salaries and
employee benefits decreased only $205,854, or 20%.
Other
income and expenses from discontinued operations amounted to income of $258,472
in the current year versus an income of $63,252 in the prior year. The primary
cause was income recorded from the write off of liabilities.
Interest
expenses also fell $34,284 from the prior year total of $82,745, primarily as a
result of reduced levels of borrowing for operations.
Loss from
discontinued operations amounted to $288,941 in the current year period compared
to $211,605 in the prior year. The 37% increase resulted from the items noted
above.
Our net
loss.
Our net
loss for the year ended September 30, 2009, is $511,960 versus $468,639 in the
prior year. The $43,321 increase resulted from the items noted
above.
Market
Risk
Market
risk is the potential change in a financial instrument’s value caused by
fluctuations in interest or currency exchange rates, or in equity and commodity
prices. Our activities expose us to certain risks that management evaluates
carefully to minimize earnings volatility. During the fiscal year ended
September 30, 2009, we were not a party to any derivative arrangement. We did
not engage in trading, hedging, market–making or other speculative activities in
the derivatives markets.
Our
international sales were denominated in U.S. dollars with the exception of the
payments made to Xmarc Limited whose clients pay in British Pounds Sterling,
Euros and US Dollars. Receipts in currencies other than United States dollars
are converted into United States dollars at the exchange rate in effect on the
date of the transaction. Management views the exchange rate fluctuations
occurring in the normal course of business as low risk and they are not expected
to have a material effect on the financial results of the Company.
Foreign Currency
Exchange Rate Risk. We
conducted business in a number of foreign countries and, therefore, face
exposure to slight but sometimes adverse movements in foreign currency exchange
rates. International revenue of $640,330 was about 35% of our total revenue in
2009, of which about $571,690, or thirty-one percent of our total revenue, was
denominated in a currency other than U.S dollars. Accordingly, a ten percent
change in exchange rates could increase or decrease our revenue by $57,169.
Since we do not use derivative instruments to manage foreign currency exchange
rate risks, the consolidated results of operations in U.S. dollars may be
subject to some amount of fluctuation as foreign exchange rates change. In
addition, our foreign currency exchange rate exposures may change over time as
business practices evolve and could have a material impact on our future
financial results.
Our
primary foreign currency exposure was related to non–U.S. dollar denominated
sales, cost of sales and operating expenses related to our international
operations. This means we are subject to changes in the consolidated results of
operations expressed in U.S. dollars. Other international business, consisting
primarily of consulting and systems integration services provided to
international customers in Asia, is predominantly denominated in U.S. dollars,
which reduced our exposure to fluctuations in foreign currency exchange rates.
There have been period–to–period fluctuations in the relative portions of
international revenue that are denominated in foreign currencies. The net amount
of foreign currency gains and (losses) was a loss of $56,043 for fiscal year
2009 and a gain of $8,675 for fiscal year 2008.
Critical
Accounting Policies
General.
Discussion and analysis of our
financial condition and results of operations are based upon our consolidated
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation
of our financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent liabilities. On a regular basis, we evaluate
estimates, including those related to bad debts, intangible assets,
restructuring, and litigation. Estimates are based on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
24
We
believe the following critical accounting policies, which applied to our
discontinued operations, required significant judgments and estimates used in
the preparation of our consolidated financial statements.
Revenue Recognition. Our
revenue recognition policy was significant because our revenues were a key
component of our results of operations. We recognize revenue in accordance with
SEC Staff Accounting Bulletin 104 “Revenue Recognition” (“SAB 104”). SAB 104
provides guidance on the recognition, presentation, and disclosure of revenue in
financial statements and updates Staff Accounting Bulletin Topic 13 to be
consistent with Accounting Standards Codification (“ASC”) 605, Revenue
Arrangements with Multiple Deliverables. We recognize revenues when (1)
persuasive evidence of an arrangement exists, (2) the services have been
provided to the client, (3) the sales price is fixed or determinable, and (4)
collectability is reasonably assured. Determination of criteria (3) and (4) are
based on management’s judgments regarding the fixed nature of the fee charged
for services rendered and products delivered and the collectability of those
fees. Our operations require us to make significant assumptions concerning cost
estimates for labor and expense on contracts in process. Due to the
uncertainties inherent in the estimating process for costs to complete contracts
in process under the percentage of completion method, it is possible that
completion costs for some contracts may need to be revised in future periods.
Should changes in conditions or estimates cause management to determine a need
for revisions to these balances in transactions or periods, revenue recognized
for any reporting period could be adversely affected.
Allowance for
Doubtful. Accounts. We
make estimates of the collectability of our accounts receivable. We specifically
analyze accounts receivable and historical bad debts, client credit-worthiness,
current economic trends, and changes in our client payment terms and collection
trends when evaluating the adequacy of our allowance for doubtful accounts. Any
change in the assumptions used in analyzing a specific account receivable may
result in additional allowance for doubtful accounts being recognized in the
period in which the change occurs.
Goodwill and
Intangible Assets. Goodwill represents the excess of the
purchase price over the fair value of the assets acquired. The Company accounts
for goodwill in accordance with FASB ASC 350, “Intangibles and Other”. ASC 350
requires the use of a non–amortization approach to account for purchased
goodwill and certain intangible assets. Under the non–amortization approach,
goodwill and certain intangible assets are not amortized into results of
operations, but instead are reviewed for impairment at least annually and
written down and charged to results of operations in the periods in which the
recorded value is determined to be greater than the fair value. The Company did
not record any impairment of assets on its records for fiscal year
2009.
Impairment of
Assets. We review
long–lived assets and certain identifiable intangibles for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In performing the review for recoverability, we estimate
the future cash flows expected to result from the use of the asset and its
eventual disposition. If the sum of the expected future cash flows (undiscounted
and without interest charges) is less than the carrying amount of the asset, we
recognize an impairment loss. Otherwise, an impairment loss is not recognized.
Measurement of an impairment loss for long–lived assets and identifiable
intangibles that we expect to hold and use are based on the fair value of the
asset. We have reviewed these assets recorded at September 30, 2009 and found no
impairment.
Purchased and Internally Developed
Software Costs for Future Project Use. Purchased software is recorded at
the purchase price. Software products that are internally developed are
capitalized when a product’s technological feasibility has been established.
Amortization begins when a product is available for general release to
customers. The costs for both purchased and developed software are then
amortized over a future period. The amortization is computed on a straight–line
basis over the estimated economic life of the product, which is generally three
years, or on a basis using the ratio of current revenue to the total of current
and anticipated future revenue, whichever is greater. All other research and
development expenditures are charged to research and development expense in the
period incurred. Management routinely assesses the utility of its capitalized
software for future usability in customer projects. No write-downs were recorded
in fiscal year 2009.
Deferred
Tax Valuation Allowance –– Fiscal Year 2009
We
reported net loss of $511,960 for the twelve months ended September 30, 2009.
Coupled with losses in prior years, we have generated a federal tax net
operating loss, or NOL, carryforward that totals approximately $20.8 million as
of September 30, 2009, compared to $19.9 million at September 30, 2008. We have
established a 100% valuation allowance on the net deferred tax asset arising
from the loss carryforwards in excess of the deferred tax liability. The
valuation allowance has been recorded as our management has not been able to
determine that it is more likely than not that the deferred tax assets will be
realized. As a result, no provision or benefit for federal income taxes has been
recorded for the period ended September 30, 2009. The utilization of the loss
carry forwards is limited under Internal Revenue Service Code Section 382 due to
the changes in ownership noted as subsequent events.
25
Effect
of Recent Accounting Pronouncements
The
pronouncements that may affect us in the ensuing fiscal year are:
In June
2009, the FASB issued SFAS 168 (now: FASB ASC 105-10), Generally Accepted
Accounting Principles the FASB Accounting Standards Codification. SFAS 168
represented the last numbered standard to be issued by FASB under the old
(pre-Codification) numbering system, and amends the GAAP hierarchy established
under SFAS 162. On July 1, 2009, the FASB launched FASB’s new Codification
entitled “The FASB Accounting Standards Codification”, or FASB ASC. The
Codification supersedes all existing non-SEC accounting and reporting standards.
FASB ASC 105-10 is effective in the first interim and annual periods ending
after September 15, 2009. This pronouncement had no effect on our consolidated
financial statements upon adoption other than current references to GAAP, which,
where appropriate, have been replaced with references to the applicable
codification paragraphs.
In March
2008, the FASB issued FASB ASC 815, Derivatives and Hedging, which requires
additional disclosures about the objectives of derivative instruments and
hedging activities, the method of accounting for such instruments and its
related interpretations, and a tabular disclosure of the effects of such
instruments and related hedged items on our financial position, financial
performance, and cash flows. FASB ASC 815 was effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008
with early adoption encouraged. Management believes that, for the foreseeable
future, this guidance will not have a material impact on the financial
statements.
In
December 2007, the FASB issued FASB ASC 805, Business Combinations. The
statement retains the purchase method of accounting for acquisitions, but
requires a number of changes, including changes in the way assets and
liabilities are recognized in purchase accounting. It also changes the
recognition of assets acquired and liabilities assumed arising from
contingencies, requires the capitalization of in-process research and
development at fair value, and requires the expensing of acquisition-related
costs as incurred. FASB ASC 805 was effective for our company beginning December
15, 2008 and will apply prospectively to business combinations completed on or
after that date. Management believes that, for the foreseeable future, this
guidance will have no material impact on our financial statements.
In
December 2007, the FASB issued FASB ASC 810-65, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No 51, which changes the
accounting and reporting for minority interests. Under this pronouncement,
minority interest is recharacterized as noncontrolling interests and is to be
reported as a component of equity separate from the parent’s equity, and
purchases or sales of equity interests that do not result in a change in control
are to be accounted for as equity transactions. In addition, net income
attributable to the noncontrolling interest will be included in consolidated net
income on the face of the income statement and, upon a loss of control, the
interest sold, as well as any interest retained, will be recorded at fair value
with any gain or loss recognized in earnings. FASB ASC 810-65 was effective for
our company December 15, 2008 and applies prospectively, except for the
presentation and disclosure requirements, which will apply retrospectively.
Management believes that, for the foreseeable future, this guidance will not
have a material impact on our financial statements.
The FASB
issued FASB ASC 820, Fair Value Measurements and Disclosures, which defines fair
value as used in numerous accounting pronouncements, establishes a
framework for measuring fair value and expands disclosure of fair value
measurements. In February 2008, the FASB issued FASB Staff Position, FASB ASC
820-15-5, which delayed the effective date of FASB ASC 820 for one year for
certain nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). Excluded from the scope of FASB ASC 820 are certain
leasing transactions accounted for under FASB ASC 840, Leases. The exclusion
does not apply to fair value measurements of assets and liabilities recorded as
a result of a lease transaction but measured pursuant to other pronouncements
within the scope of FASB ASC 820. Management believes that, for the foreseeable
future, this guidance will have no material impact on our financial
statements.
In April
2008, FASB ASC 350-50 was issued. This standard amends the factors that should
be considered in developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset. FASB ASC 350-50 is effective
for financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. Early adoption was
prohibited. Management is currently evaluating the effects, if any, that this
guidance may have on our financial reporting.
In May
2009, the FASB issued FASB ASC 855, Subsequent Events. FASB ASC 855 establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. FASB ASC 855 requires the disclosure of the date through
which an entity has evaluated subsequent events and the basis for that date,
that is, whether the date represents the date the financial statements were
issued or were available to be issued. FASB ASC 855 is effective in the first
interim period ending after June 15, 2009. We expect FASB ASC 855 will have an
impact on disclosures in our consolidated financial statements, but the nature
and magnitude of the specific effects will depend upon the nature, terms and
value of any subsequent events occurring after adoption.
26
In June
2009, the FASB issued “Amendments to FASB Interpretation No. 46(R)”, FASB ASC
810-Consolidation, that will change how we determine when an entity that is
insufficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated. Under this guidance, determining whether a
company is required to consolidate an entity will be based on, among other
things, an entity’s purpose and design and a company’s ability to direct the
activities of the entity that most significantly impact the entity’s economic
performance. The changes are FASB ASC 810-10, effective for financial statements
after January 1, 2010. We are currently evaluating the requirements of this
guidance and the impact of adoption on our consolidated financial
statements
We have
reviewed all significant newly issued accounting pronouncements and concluded
that, other than those disclosed herein, no material impact is anticipated on
the financial statements as a result of announced accounting
changes.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk.
We are
not required to provide information under this item.
Item
8. Financial Statements and Supplementary Data.
The
financial statements required by this item, including an index to the financial
statements, begin on page F–1 of this annual report.
Item
9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.
We have
not had any change in or disagreement with our accountants
Item
9A. Controls and Procedures.
We are
subject to the requirements of Item 9A(T), at the date of this
report.
Item
9A(T).
Evaluation
of Disclosure Controls and Procedures
We are
not maintaining "disclosure controls and procedures" as such term is defined in
Rule 13a-15(e) of the Securities Exchange Act of 1934. We will be required to
design and evaluate our disclosure controls and procedures, recognizing that
disclosure controls and procedures, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of
disclosure controls and procedures are met. Additionally, in designing
disclosure controls and procedures, our management necessarily are required to
apply its judgment in evaluating the cost-benefit relationship of possible
disclosure controls and procedures. The design of any disclosure controls and
procedures will be based partially upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions.
Disclosure
controls and procedures are intended:
•
|
to
give reasonable assurance that the information required to be disclosed by
us in reports that we file under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms,
and
|
•
|
to
ensure that information required to be disclosed in the reports that we
file or submit under the Securities Exchange Act of 1934 is accumulated
and communicated to our management, including our chief executive officer
and senior vice president – finance, who is also our principal accounting
officer, to allow timely decisions regarding required
disclosure.
|
Our
former chief executive officer and former senior vice president – finance, who
were also our principal accounting officer were responsible for evaluating the
effectiveness of the our disclosure controls and procedures and conclude, based
on their evaluation, that such disclosure controls and procedures were effective
as at September 30, 2009, to ensure that information required to be disclosed in
reports filed or submitted under United States securities legislation was
recorded, processed, summarized and reported within the same period specified in
those rules and regulations. These controls and procedures applied to
the business conducted by our prior management and do not apply to our business
at the present time. We do not have disclosure controls and procedures in
place at the present time.
27
Management’s
Report on Internal Controls Over Financial Reporting
Our chief
executive officer and the principal accounting officer are responsible for
designing and maintaining internal controls over financial reporting, or causing
them to be designed under their supervision, to provide reasonable assurance for
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles. Our internal controls over financial reporting should
include policies and procedures that:
•
|
Pertain
to the maintenance of records that in reasonable detail will accurately
and fairly reflect the transactions and dispositions of our
assets,
|
•
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are made
only in accordance with the authorization of management,
and
|
•
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of assets that could have a
material effect on our financial
statements.
|
Using the
framework provided by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”), on our behalf our former chief executive officer and former
principal accounting officers conducted an evaluation of the effectiveness of
the internal controls over financial reporting as of September 30, 2009 and
concluded that there were deficiencies and material weaknesses in internal
controls over financial reporting, which included follows:
•
|
The
Company did not have an audit committee,
and
|
•
|
Due
to the limited number of staff resources, the Company believes there are
instances where a lack of segregation of duties existed which would be
required to provide effective
controls;
|
•
|
Due
to the limited number of staff resources, the Company may not have the
necessary in-house knowledge to address complex accounting and tax issues
that may arise; and
|
•
|
The
limited staff in accounting and finance may not allow for an adequate
review process of adjusting journal entries and financial
results.
|
As a
result of these findings, our internal controls over financial reporting at
September 30, 2009 were deemed not effective.
PCAOB
Auditing Standard No. 5 defines:
•
|
A
material weakness as a deficiency, or a combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of annual or interim financial
statements will not be prevented or detected on a timely
basis.
|
•
|
A
significant deficiency as a deficiency, or a combination of deficiencies,
in internal control over financial reporting that is less severe than a
material weakness, yet important enough to merit attention by those
responsible for oversight of the company's financial
reporting.
|
The
findings noted above and their related risks are not uncommon in a small company
of our size of because of limitations in size and number of staff. We believe
our management has taken initial steps to mitigate these risks by identifying
certain conditions that require correction and involving the Board of Directors
in reviews and consultations where necessary. However, these weaknesses in
internal controls over financial reporting could result in a more than remote
likelihood that a material misstatement may not be prevented or detected. We
believe that our management must take additional steps to further mitigate these
risks by consulting outside advisors on a more regular and timely
basis.
This
annual report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our independent
registered public accounting firm pursuant to temporary rules of the SEC that
permit us to provide only management’s report in this annual
report.
Our
independent auditors will be required to attest to, and report on, management’s
assessment of the effectiveness of internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act of 2002 (SOX) in their audit of
our annual report for the year ending September 30, 2011.
Changes
in Internal Control Over Financial Reporting
During
the fourth fiscal quarter, we did not make any changes in our internal controls
over financial reporting that have materially affected, or are reasonably likely
to materially affect, our internal controls over financial
reporting.
28
Item
9B. Other Information.
We
believe we have filed reports on Form 8-K during the fourth fiscal year
providing all information required to be reported on Form 8-K which occurred
during that period.
PART
III
Item
10. Directors, Executive Officers and Corporate Governance.
The
following table and biographical information following the table provide
information about our directors and executive officers elected effective at 5:30
o’clock p.m. Central Standard Time on November 9, 2009. These persons held the
same offices with Integrated Freight at the date of their election as our
directors and officers and through the date of the merger of Integrated Freight
into us on December 23, 2009.
NAME
|
AGE
|
POSITION
|
John
E. Bagalay
|
75
|
Director
|
Paul
A. Henley
|
50
|
Director,
Chief Executive Officer, Chief Financial and Accounting
Officer
|
Henry
P. Hoffman
|
58
|
Director
|
Steven
E. Lusty
|
48
|
Chief
Operating Officer
|
Jackson
L. Morris
|
65
|
Corporation
Secretary
|
T.
Mark Morris
|
43
|
Director
and Chief Operating Officer of Subsidiary
|
Monte
W. Smith
|
55
|
Director
and Chief Operating Officer of
Subsidiary
|
Biographical
Information About Our Directors And Executive Officers
John E. Bagalay is one of our
independent directors.
•
|
2005
to present – Mr.
Bagalay is executive-in-residence at EuroUS Ventures LLC, a venture
capital firm located in Newton, Massachusetts that invests exclusively in
European based technology companies that wish to establish a U.S. market.
That firm’s investment is committed to facilitate that expansion into the
U.S. market.
|
•
|
2003
to 2005 – He was Director of Special Projects in the Life Sciences at the
Boston University Technology Commercialization
Institute
|
•
|
1989
to 2003 – Mr. Bagalay was Senior Advisor to the Chancellor of Boston
University from January 1998 to November 2003.
|
•
|
1989
to 1998 – He Managing Director of BU Ventures, a university venture
capital company.
|
Mr.
Bagalay is an independent director of the following publicly traded, registered
companies: Wave Systems Corp. and Cytogen Corp. He serves on various committees
of the boards of directors of these corporations. Mr. Bagalay earned a B.A.
degree in philosophy, history and economics (1954) from Baylor University, a
J.D. degree (1964) from the University of Texas at Austin and a Ph.D. degree
(1957) from Yale University.
Paul A.
Henley is the chairman of
our board, chief executive officer, chief financial and accounting officer. he
devotes all of his working time to our business.
•
|
May
2008 to present – Mr. Henley is the founder of Integrated Freight
Corporation and has served as its chairman of the board and chief
executive officer since its inception. He now also serves as its chief
financial and accounting officer.
|
•
|
June
2002 to June 2006 - He was President of Henley Capital Group, a consulting
company that worked with private companies and early stage public
companies in the area of business development. He assisted companies in
the following areas; writing of business plans, the preparing of budgets,
corporate communications (public relations/investor relations), corporate
presentations at various types of events, assisting in the development of
board of directors, hiring of market makers, attorneys and auditors,
merger and acquisition consulting and the planning and implementation of
capital programs.
|
•
|
October
2006 to May 2007 - Mr. Henley was engaged in a joint venture with
Friedland Capital doing business under the name of Friedland-Henley
Advisers which was engaged in developing a venture capital fund for early
stage companies. Mr. Henley terminated his relationship before the fund
began to raise capital.
|
•
|
June
2006 to 2007 - He was a consultant to Friedland Capital of Denver,
Colorado in the areas of product development and investment
seminars.
|
29
•
|
June
2006 - 2008 - Mr. Henley was engaged on a part time basis in planning a
business to acquire trucking companies, efforts to obtain funding and
efforts to identify potential acquisition targets. This activity
culminated in his founding of High Point Transport, Inc. in 2006, which
filed a registration statement on Form 10 in August 2007. High Point
Transport acquired Cannon Freight Systems, Inc., located in Harrison
Township, Michigan, in November 2007 that continued to be operated on
a daily basis by its founder and president. Due to operating losses and
breach of financial covenants by Cannon Freight, unforeseen and unexpected
by High Point Transport at the time of acquisition, Cannon Freight was
forced to cease operations in or about February 2008. This circumstance
prevented High Point Transport from satisfying its covenants with Cannon
Freight’s founder and selling stockholder, who as a consequence became the
controlling stockholder of High Point Transport. Management of Integrated
Freight believes, under the new controlling stockholder, High Point
Transport also terminated its business activities in or about February
2008.
|
•
|
May
2008 to present – He is the founder of Integrated Freight Corporation and
has served as its chairman of the board and chief executive officer since
its inception. He now also serves as its chief financial and accounting
officer.
|
Mr.
Henley earned a B.A. degree in business management and marketing (1981) from
Florida State University.
Henry P. (“Hank”) Hoffman is
one of our independent directors.
•
|
February
2000 to May 2006 - Mr. Hoffman was founder, President & CEO, and
chairman of the board of SiriCOMM, Inc. an applications service provider
and wireless networking business serving the U.S. truckload industry. The
company installed its VSAT-based network technology in the major truck
stop chain facilities throughout the U.S. to support its applications and
those of third party partners.
|
31
•
|
June
2006 to May 2007 – He served as chairman of the board of SiriCOMM. Upon
his departure in May 2007, the company subsequently changed its business
model to a pure Internet service provider. The company filed for
bankruptcy in 2008.
|
•
|
June
2007 to present – Mr. Hoffman is President & CEO and a director of
SeaBridge Freight, Inc., a tug and barge transportation company that
provides short sea service between Port Manatee, FL and Brownsville,
TX.
|
Mr.
Hoffman earned his BS degree (1973) from the United States Military Academy and
a MBA degree (1985) from the University of Wisconsin.
Steven E. Lusty is our chief
operating officer. He devotes essentially all of his working time to
our business.
•
|
2006
to present – Mr. Lusty owns and operates Valleytown Ventures, LLC which
specializes in providing interim executive officer/turnaround consulting
services in the transportation/logistics industry. He performs
implementation and integration of financial, information technology,
operations enhancements, cost models, pricing standards, route
utilization, driver relations, policy and procedures, regulatory and
compliance, and safety. In his consulting capacity, he provided
services to High Point Transport, Inc. in 2007, subsequently in 2008
serving as the interim chief executive officer of its operating
subsidiary, Cannon Freight Systems, Inc. for purposes of orderly
liquidated assets, collected debts, and settled collections. See Mr.
Henley’s biographical information for more information about High Point
Transport, Inc. Mr. Lusty has provided operations analysis for a
restructuring firm and has analyzed numerous trucking firms’ financials
and operations for acquisitions by investment firms and holding
companies.
|
2009
to present – He has been employed by Integrated
Freight.
|
•
|
1998
to 2007 – Mr. Lusty founded and operated Chromos, Inc. This company
originally provided transportation brokerage, later establishing a
trucking operation and making three acquisitions. The company
operated in varied freight sectors. Chromos established six field
agents in the Southeast for brokerage. In 2006, signed an agreement with
XRG, Inc., a publicly traded holding company operating in the interstate
trucking sector. Under the agreement, XRG was to provide back office,
accounting and disbursement as an agent of Chromos. Chromos paid XRG
amounts needed for disbursement in payment of Chromos’ payables, but XRG
failed to disburse those funds in payment of Chromos’ obligations,
including long term debt. Without remaining funds to pay these
obligations, Chromos was forced to file for liquidation in bankruptcy. Mr.
Lusty was also forced to file for bankruptcy as a result of loans he had
guaranteed for Chromos.
|
30
Mr. Lusty
earned a BA degree in civil engineering (1985) from Mississippi State
University.
Jackson L. Morris fills the
statutory position of corporation secretary as a courtesy and incidental to his
services as our independent corporate and securities counsel. He has served in
these capacities with Integrated Freight since inception. Mr. Morris has been
engaged in the private practice of law since 1982, maintaining his own practice
in the Tampa Bay area since 1993. Mr. Morris focuses his practice in corporate,
securities and business transaction law. Mr. Morris earned a B.A. degree in
economics from Emory University in 1966, a J.D. degree from Emory University Law
School in 1969 and an LL.M. from Georgetown Law School in 1974.
T. Mark Morris is one of our
directors and is the chief operating officer of one of Integrated Freight’s
subsidiaries, Morris Transportation, Inc., which he founded in 1998 and has been
its chief executive officer from inception to the present. Mr. Morris earned a
BA degree in business administration (1988) from Ouachita Baptist University in
Arkadelphia, Arizona.
Monte W. Smith is one of our
directors and is the chief operating officer of one of Integrated Freight’s
subsidiaries, Smith Systems Transportation, Inc., which he founded in 1992 and
has been its chief executive officer from inception to the present. Mr. Smith
attended the University of Nebraska at Kearney, studying finance.
Audit
Committee/Audit Committee Financial Expert
Our audit
committee is composed of John E. Bagalay and Henry P. Hoffman, our two
independent directors.
Section
16(a) Beneficial Ownership Reporting Compliance
Based
solely upon a review of Forms 3, 4 and 5 filed with the SEC, and other
information known to the Company, during and with respect to the fiscal year
ended September 30, 2009, we believe that, with the exception of Integrated
Freight, all directors, officers and beneficial owners of more than ten percent
of our registered shares timely filed all reports required by Section 16(a) of
the Exchange Act.
Code
of Ethics
Our
former Board of Directors approved a Code of Ethics for senior financial
officers on October 7, 2002. We filed it with our September 30, 2002 report on
Form 10–KSB as Exhibit 99.3. The current board of directors has not
reviewed or considered continuation of the Code of Ethics and there is no
assurance it will do so.
Item
11. Executive Compensation
Summary
Compensation Table
The
following table sets forth summary information concerning compensation awarded
to, earned by, or accrued for services rendered to us in all capacities by our
principal executive officer, our former chief operating officer, and the other
most highly compensated employee of PGI-MD who were employed at September 30,
2009 (collectively, the “Named Executive Officers”).
Name
and principal position
|
Year
|
Salary
|
Total
|
John
C Antenucci President & Chief Executive Officer
|
2009
|
$157,000
|
$157,000
|
Michael
Kevany, Senior Vice President, PGI-MD
|
2009
|
$103,000
|
$103,000
|
(1) These
amounts in the salary column reflect the basic compensation earned during fiscal
year 2009 by the named executive officers.
31
The
following table sets forth certain information with respect to outstanding
equity awards at September 30, 2009, for our Named Executive Officers.
Name
|
Outstanding
Equity Awards at Fiscal Year End September 30, 2009 Option
awards |
||||
Number
of securities underlying unexercised options
exercisable
(1)
|
Number
of securities underlying unexercised options
unexercisable
|
Equity
incentive
plan
awards:
Number of securities underlying unexercised unearned
options
|
Option
exercise price
($)
|
Option
expiration
date
|
|
972,144 | - | - | 0.0150 | Apr 30, 2010 | |
John C. Antenucci | 972,144 | - | - | 0.0120 | Apr 30, 2011 |
1,750,000
|
-
|
-
|
0.0140
|
May
16, 2012
|
(1) As
was customary for our stock option grants, all of Mr. Antenucci’s stock options
were immediately fully vested at the date of grant and expire five years from
the date of grant.
2009
Option Exercises and Stock Vested
During
fiscal year 2009 there no options exercised to acquire shares of our common
stock; accordingly the total intrinsic value of options exercised during fiscal
year 2009 is nil.
Employment
and Change in Control Agreements
Employment
Agreements
|
Messrs.
Antenucci and Beisser, our management prior to a change in our management to
that of Integrated Freight, have voluntarily terminated their employment
agreements. See “Terms of Sale of PGI-MD, under Item 1, above.
Director
Compensation
Through
the period September 30, 2009, we did not provide any cash compensation to our
sole director, Mr. Antenucci. Directors who are not our employees will receive
25,000 shares of our common stock (on a post reverse stock split basis) for each
month during which either a board meeting(s) is held or an action by written
consent is required.
Compensation
of Our Current Management
The
following table presents information about compensation of Integrated Freight’s
chief executive officer and each of our highest paid executive officers who have
compensation exceeding $100,000 per year. We paid only cash compensation to
these persons, except for 125,000 shares of Integrated Freight’s common stock
issued to Mr. Lusty in lieu of six months of cash compensation reflected in the
following table.
Name and principal position
|
Year (1)
|
Salary
|
||||
Paul
A. Henley, Chief Executive Officer (2)
|
2008
|
$
|
57,500
|
|||
2009
|
$
|
195,000
|
||||
Steven
E. Lusty, Executive Vice President
|
2009
|
$
|
150,000
|
|||
T.
Mark Morris, Chief Executive Officer of Morris Transportation
(3)
|
2007
|
$
|
78,000
|
|||
2008
|
$
|
105,000
|
||||
2009
|
$
|
110,000
|
||||
Monte
W. Smith, Chief Executive Officer of Smith Systems Transportation
(3)
|
2007
|
$
|
110,000
|
|||
2008
|
$
|
110,000
|
||||
2009
|
$
|
110,000
|
(1)
Fiscal year ended March 31.
(2) The
completion of the merger of Integrated Freight into us entitles Mr. Henley to
receive a bonus of $50,000 during the fiscal year ended March 31,
2010.
(3)
Includes annual salary, prior to the respective date of our acquisitions, but
excludes distributed and undistributed S-corporation
earnings.
32
Neither
our chief executive officer nor our other highest paid executives received any
form of compensation other than cash salary during the periods indicated. The
salaries of Mr. Morris and of Mr. Smith were paid by their employing
companies.
Compensation
Committee
Integrated
Freight did not established a compensation committee prior to its merger into
us. These functions are provided by its full board of directors. As a privately
owned company with Mr. Henley as the sole director, a compensation committee was
neither possible nor necessary as he has approved his own compensation. The
compensation of executive officers other than Mr. Henley was approved by the
full board of directors, except the compensation of the chief operating officers
of our operating subsidiaries has been negotiated in the acquisition from the
respective director/officers/controlling stockholders of those companies by Mr.
Henley as the sole director at the time of such negotiations. We plan to have a
compensation committee when we elect additional independent persons to our board
of directors.
Employment
Agreements
We have
succeeded to the employment agreements Integrated Freight entered into with its
executive officers identified in the following table. These persons are our
executive officers, beginning November 10, 2009.
Name
|
Began
|
Ends (1)
|
Annual
Cash Salary
|
Annual
Increase
|
Bonus
|
Other
|
||
Paul
A. Henley
|
May
30, 2008
|
May
29, 2011
|
$
|
195,000
|
10%
|
(2)(3)
|
||
Steven
E. Lusty
|
January
1, 2009
|
December
31, 2011
|
$
|
150,000
|
(2)
|
(4)
|
||
T.
Mark Morris
|
September
1, 2008
|
August
31, 2011
|
$
|
110,000
|
$
|
25,000(2)(5)(6)
|
||
Monte
W. Smith
|
September
1, 2008
|
August
31, 2011
|
$
|
110,000
|
(2)(6)
|
|
(1)
Subject to subsequent automatic annual
renewals.
|
|
(2)
Eligible for discretionary bonuses, upon board review and
approval.
|
|
(3)
Achievement of a public market for our shares – bonus of $50,000. Closing
acquisitions – bonus equal to one-tenth of one percent (.001) of the
revenue from operations generated by acquired
company.
|
|
(4)
150,000 shares of our common stock as a signing bonus, plus 25,000 shares
of our common stock per month for every month in which salary is not paid
beginning August 1, 2009. Mr. Lusty’s agreement provides for a
base salary increase of ten percent per
year.
|
|
(5)
A contractual-bonus of $25,000 which is in
arrears.
|
|
(6) Mr.
Morris receives a bonus equal to ten percent of EBITA and Mr. &
Ms. Smith receives an aggregate bonus equal to ten percent of
EBITA.
|
|
|
Each
employment agreement provides for payment of benefits provided to other
employees, an automobile allowance, and an opportunity to earn a performance
bonus and bonuses for initiating successful acquisitions equal to fifteen
percent of one-year’s acquired revenues.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
The
following table identifies the beneficiaries of The Integrated Freight Stock
Exchange Trust who are also our directors and officers and other persons who,
based on their stock ownership of Integrated Freight at September 30, 2009, will
own five percent or more of our common stock after the reverse stock split and
related transactions are completed and sets forth the number and percentage of
shares they beneficially own. Following the reverse stock split to be approved
at the special stockholders meeting, the Trust will distribute these shares out
of the Trust and into the names of these beneficial owners. The address of our
directors and officers is our address. These persons own the shares before the
reverse beneficially only, and after the reverse legally unless otherwise
identified.
33
Number of Shares
|
Percent
|
|||||||
Name
|
Before
Reverse
Split
(1)
|
After
Reverse
Split
(2)
|
After
all shares
are
issued (3)
|
|||||
John
E. Bagalay
|
4,400,787
|
50,000
|
*
|
|||||
Paul
A. Henley
|
572,102,258
|
6,500,000
|
30
|
%
|
||||
Henry
P. Hoffman
|
4,400,787
|
50,000
|
*
|
|||||
Steven
E. Lusty
|
88,015,732
|
1,125,000
|
4.615
|
%
|
||||
Jackson
L. Morris
|
44,007,866
|
500,000
|
2.308
|
%
|
||||
T.
Mark Morris
|
264,047,196
|
3,000,000
|
13.846
|
%
|
||||
Monte
W. Smith (4)
|
81,854,631
|
930,000
|
4.292
|
%
|
||||
All
directors and officers as a group (7
persons)
|
1,058,829,256
|
12,030,000
|
55.523
|
%
|
||||
MTH
Ventures, Inc.
|
101,218,092
|
1,150,000
|
5.308
|
%
|
||||
24636
Harbour View Drive, Ponte Vedra, FL 32082
|
||||||||
Edgar
Renteria
|
132,023,598
|
1,500,000
|
6.923
|
%
|
||||
Unit
105, 3550 Wembley Way, Palm Harbor, FL 34685
|
||||||||
Tangiers
Investors LP
|
176,317,515
|
2,003,250
|
9.246
|
%
|
||||
Suite
400, 1446 Front Street, San Diego, CA 92101
|
|
*Less
than one percent.
|
|
(1) PlanGraphics
shares held in the
Trust.
|
|
(2)
PlanGraphics shares to be distributed from the Trust following
the reverse stock split and the issue of additional shares under the plan
of merger, total is equal to the number of shares owned directly in
Integrated Freight Corporation before placement in the
Trust.
|
|
(3)
Percentage of total issued and outstanding after reverse stock
split and the issue of additional shares to the Trust, such that one of
our shares will be distributed by the Trust for each share of Integrated
Freight Corporation placed in the Trust, plus an additional 1,337,822
shares not placed the Trust.
|
|
(4)
Includes 36,306,489 shares and 412,500 shares, respectively,
legally owned by Mary Catherine Smith, Mr. Smith’s
spouse.
|
Item
13. Certain Relationships and Related Transactions, and Director
Independence.
During
the 2009 fiscal year, we did not enter into any transactions with our directors,
executive officers and persons who own more than five percent of our common
stock, or with their relatives and entities they control, except we contracted
to sell PGI-MD to Mr. Antenucci as of May 1, 2009. This sale was completed on
December 27, 2009. This transaction is described under “Terms of Our Sale of
PGI-MD”, under Item 1, above.
Integrated
Freight Corporation did not entered into any transactions with our directors and
executive officers, persons who owned more than five percent of its common stock
outside of normal employment transactions, or with their relatives and entities
they control; except the following:
•
|
We
issued 6.5 million shares of our common stock to Mr. Henley for his
founding of our incorporation, organizational and start up expenses in the
amount of approximately $1,786. Mr. Henley is our founder and was our sole
director at the date the issue of stock was approved.
|
|
•
|
We
issued 500,000 shares to Jackson Morris for his services in performed in
our organization and start up.
|
From time
to time we sold additional securities to outside investors who at the time of
certain sales may have owned more than five percent of our common stock. These
sales were on the same terms we were offering to others and were negotiated on
an arms’-length basis.
We do not
anticipate entering into any future transactions with our directors, officers
and affiliates apart from normal employment transactions.
Jackson
L. Morris and T. Mark Morris are not related.
34
Item
14. Principal Accounting Fees and Services.
Aggregate
fees billed by our principal independent registered public accounting firms for
audits of the financial statements for the fiscal years indicated:
2009
|
2008
|
|||||
Audit
Fees
|
$ |
60,000
|
$ |
58,500
|
||
Audit–Related
Fees(1)
|
–
|
–
|
||||
Tax
Fees
|
–
|
–
|
||||
All
Other Fees
|
–
|
–
|
||||
Total
|
$ |
60,000
|
$ |
58,500
|
Percentage of hours
on audit engagement performed by non–FTEs: The audit work performed by non–full
time employees was less than 50% of total time.
Audit pre–approval
policies and procedures: In accordance with the Amended and
Restated Audit Committee Charter of March 21, 2003 as provided with our Proxy
Statement dated April 1, 2003, the Board of Directors, acting as the Audit
Committee, reviewed with the independent auditors, Sherb & Co. LLP, and
financial management of the Company the scope of the proposed audit and timing
of quarterly reviews for the current year and as well as non–audit services
requested and the audit procedures to be utilized. The Board of Directors,
acting as the Audit Committee, also approves in advance all audit and any
non–audit services for which the independent auditors may be
retained.
35
PART
IV
Item
15. Exhibits, Financial Statement Schedules.
(a) Financial
Statements
INDEX
TO FINANCIAL STATEMENTS
Page
|
|
Index
to Consolidated Financial Statements of PlanGraphics, Inc.
|
F-1
|
Index
to Financial Statements of Integrated Freight Corporation (Predecessor
Company)
|
F-31
|
Index
to Financial Statements of Morris Transportation, Inc. (Predecessor
Company)
|
F-82
|
Index
to Consolidated Financial Statements of Smith Systems Transportation, Inc.
(Predecessor Company)
|
F-95
|
Index
to Pro Forma Unaudited Financial Information of PlanGraphics,
Inc.
|
F-110
|
36
PLANGRAPHICS, INC.
|
|
Financial
Statements
|
|
September
30, 2009 and 2008
|
|
TABLE OF CONTENTS
|
|
Page
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-2
|
FINANCIAL STATEMENTS
|
|
CONSOLIDATED
BALANCE SHEETS
|
F-3
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
F-4
|
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
|
F-5
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
F-6
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
F-7
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors
PlanGraphics,
Inc.
We have
audited the accompanying consolidated balance sheets of PlanGraphics, Inc. and
Subsidiaries as of September 30, 2009 and 2008 and the related consolidated
statements of operations, changes in stockholders’ deficit and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with the auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
controls over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purposes of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. 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 statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of PlanGraphics,
Inc. and Subsidiaries, as of September 30, 2009 and 2008 and the consolidated
results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. The Company has suffered recurring
losses and has a negative working capital position and a stockholders’ deficit.
These factors raise substantial doubt about the Company’s ability to continue as
a going concern. Management’s plans with regard to these matters are described
in Note B. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/
Sherb & Co., LLP Certified Public Accountants |
Boca
Raton, Florida
January
12, 2010
F-2
PLANGRAPHICS, INC.
|
|||||
CONSOLIDATED
BALANCE SHEETS
|
|||||
September
30,
|
|||||
ASSETS
|
2009
|
2008
|
|||
CURRENT
ASSETS
|
|||||
Cash
and cash equivalents
|
|||||
Cash
|
$
|
-
|
$
|
202
|
|
-
|
202
|
||||
Note
receivable from related party
|
20,469
|
-
|
|||
Current
assets of discontinued operations
|
249,508
|
754,079
|
|||
Total
current assets
|
269,977
|
754,281
|
|||
PROPERTY
AND EQUIPMENT
|
|||||
Equipment
and furniture
|
2,000
|
2,000
|
|||
Less
accumulated depreciation and amortization
|
(2,000)
|
(2,000)
|
|||
Long-term
assets of discontinued operations
|
15,377
|
23,169
|
|||
15,377
|
23,169
|
||||
OTHER
ASSETS
|
|||||
Other
assets of discontinued operations
|
92,156
|
195,759
|
|||
92,156
|
195,759
|
||||
TOTAL
ASSETS
|
$
|
377,510
|
$
|
973,209
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|||||
CURRENT
LIABILITIES
|
|||||
Mandatory
redeemable Series A preferred stock, $0.001 par
|
|||||
value,
nil and 500 shares issued and outstanding at September
|
|||||
30,
2009 and 2008, respectively
|
$
|
-
|
$
|
500,000
|
|
Notes
payable - current maturities
|
57,668
|
7,668
|
|||
Accounts
payable
|
181,560
|
142,778
|
|||
Accrued
payroll costs
|
32,202
|
13,256
|
|||
Accrued
expenses
|
118,502
|
244,052
|
|||
Current
liabilities of discontinued operations
|
3,087,511
|
3,316,001
|
|||
Total
current liabilities
|
3,477,443
|
4,223,755
|
|||
TOTAL
LIABILITIES
|
3,477,443
|
4,223,755
|
|||
STOCKHOLDERS'
DEFICIT
|
|||||
Common
stock, no par value, 2,000,000,000 shares authorized,
|
|||||
500,718,173
and 99,158,706 shares issued and outstanding
|
|||||
at
September 30, 2009 and 2008, respectively
|
21,368,578
|
20,706,005
|
|||
Accumulated
deficit
|
(24,468,511)
|
(23,956,551)
|
|||
TOTAL
STOCKHOLDER'S DEFICIT
|
(3,099,933)
|
(3,250,546)
|
|||
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$
|
377,510
|
$
|
973,209
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
F-3
PLANGRAPHICS,
INC.
|
|||||
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|||||
Years ended September 30, | |||||
2009
|
2008
|
||||
Revenues
|
$
|
-
|
$
|
-
|
|
Costs
and expenses
|
|||||
Salaries
and employee benefits
|
64,876
|
74,333
|
|||
General
and administrative expenses
|
121,151
|
122,538
|
|||
Total
costs and expenses
|
186,027
|
196,871
|
|||
Operating
loss
|
(186,027)
|
(196,871)
|
|||
Other
income (expense):
|
|||||
Other
income
|
1,784
|
-
|
|||
Interest
expense
|
(38,776)
|
(60,163)
|
|||
(36,992)
|
(60,163)
|
||||
Loss
from continuing operations
|
(223,019)
|
(257,034)
|
|||
Discontinued
operations
|
|||||
Operating
loss from discontinued operations
|
(498,952)
|
(192,113)
|
|||
Other
income
|
258,472
|
63,253
|
|||
Interest
expense
|
(48,461)
|
(82,745)
|
|||
Loss
from discontinued operations
|
(288,941)
|
(211,605)
|
|||
Net
loss
|
$
|
(511,960)
|
$
|
(468,639)
|
|
Basic
and diluted loss per common share
|
|||||
Loss
from continuing operations
|
$
|
(0.00)
|
$
|
(0.00)
|
|
Loss
from discontinued operations
|
(0.00)
|
(0.00)
|
|||
Net
loss per common share
|
$
|
(0.00)
|
$
|
(0.00)
|
|
Weighted
average shares of common stock
|
|||||
outstanding
- basic and diluted
|
237,779,234
|
99,158,706
|
|||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-4
PLANGRAPHICS, INC. | ||||||||||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT | ||||||||||||||||
Years
ended September 30, 2009 and 2008
|
||||||||||||||||
Common
Stock
|
Accumulated
|
Stockholders'
|
||||||||||||||
Shares
|
Amount
|
Deficit
|
Equity
(Deficit)
|
|||||||||||||
Balance,
September 30, 2007
|
97,214,418
|
$
|
20,697,839
|
$
|
(23,487,912)
|
$
|
(2,790,073)
|
|||||||||
Issue
of common stock upon option exercise
|
1,944,288
|
8,166
|
- |
8,166
|
||||||||||||
Net
loss
|
-
|
-
|
(468,639)
|
(468,639)
|
||||||||||||
Balance
at September 30, 2008
|
99,158,706
|
20,706,005
|
(23,956,551)
|
(3,250,546)
|
||||||||||||
Issue
of common stock upon conversion of
|
||||||||||||||||
preferred
stock
|
401,559,467
|
662,573
|
- |
662,573
|
||||||||||||
Net
loss
|
-
|
-
|
(511,960)
|
(511,960)
|
||||||||||||
Balance
at September 30, 2009
|
500,718,173
|
$
|
21,368,578
|
$
|
(24,468,511)
|
$
|
(3,099,933)
|
|||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
|
||||||||||||||||
F-5
PLANGRAPHICS,
INC.
|
|||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||
Years ended September 30, | |||||
2009
|
2008
|
||||
Cash
provided by (used in) operating activities:
|
|||||
Loss
from continuing operations
|
$
|
(223,019)
|
$
|
(257,034)
|
|
Loss
from discontinued operations
|
(288,941)
|
(211,605)
|
|||
Net
loss
|
(511,960)
|
(468,639)
|
|||
Adjustments
to reconcile net loss to net cash
|
|||||
provided
by (used in) continuing operating activities:
|
|||||
Changes
in operating assets and liabilities
|
|||||
Prepaid
expenses and other
|
(4,121)
|
2,620
|
|||
Accounts
payable
|
38,782
|
30,556
|
|||
Accrued
expenses
|
106,604
|
42,854
|
|||
Net
cash provided by continuing operating activities
|
(81,754)
|
(181,004)
|
|||
Adjustments
to reconcile net loss to net cash
|
|||||
provided
by (used in) discontinued operating activities:
|
|||||
Depreciation
and amortization
|
114,852
|
175,130
|
|||
Allowance
for doubtful accounts
|
(32,586)
|
49,718
|
|||
Net
change in discontinued operating assets and liabilities
|
269,573
|
335,633
|
|||
Net
cash provided by discontinued operations
|
62,898
|
348,876
|
|||
Net
cash used by operating activities
|
(18,856)
|
167,872
|
|||
Cash
flows used in investing activities:
|
|||||
Used
in continuing operations investing activities
|
|||||
Note
receivable due from related party
|
(20,469)
|
-
|
|||
Used
in discontinued operations investing activities
|
|||||
Purchases
of equipment
|
(2,150)
|
(3,602)
|
|||
Software
developed for future use
|
(806)
|
(67,831)
|
|||
Cash
used in discontinued operations investing activities
|
(2,956)
|
(71,433)
|
|||
Net
cash used in investing activities
|
(23,425)
|
(71,433)
|
|||
Cash
flows provided by (used in) discontinued operations financing
activities:
|
|||||
Payments
on debt
|
(8,123)
|
(174,677)
|
|||
Proceeds
from debt
|
50,000
|
-
|
|||
Proceeds
from notes payable to related party
|
13,750
|
-
|
|||
Payments
of note payable to related party
|
(13,750)
|
-
|
|||
Net
cash provided by (used in) discontinued operations financing
activities
|
41,877
|
(174,677)
|
|||
Net
decrease in cash
|
(404)
|
(78,238)
|
|||
Cash
and cash equivalents at beginning of year
|
404
|
78,642
|
|||
Cash
- continuing operations
|
-
|
202
|
|||
Cash
- discontinued operations
|
-
|
202
|
|||
Cash
and cash equivalents at end of year
|
$
|
-
|
$
|
404
|
The
accompanying notes are an integral part of these consolidated financial
statements.
F-6
PLANGRAPHICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009 and 2008
NOTE
A – COMPANY BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
1. The
Company
These
consolidated financial statements include the accounts of PlanGraphics, Inc. (a
Colorado Corporation) and those of its wholly owned subsidiary held for sale,
PlanGraphics, Inc. (a Maryland Corporation), and the latter’s wholly owned
subsidiaries, RTD2M and Xmarc Ltd (collectively the "Company"). All significant
inter-company accounts and transactions have been eliminated in consolidation.
(See also Note N, Subsequent Events, regarding the sale of
subsidiary.)
The
Company has historically been a full life-cycle systems integration and
implementation firm providing a broad range of services in the design and
implementation of information technology in the public and commercial sectors.
The Company has extensive experience with spatial information systems and
e-services.
Reclassifications
resulting from discontinued operations. During the third quarter, the Company
determined to sell its operating subsidiary, PlanGraphics of Maryland (including
its two subsidiaries) and the sale was subsequently completed on December 27,
2009. Accordingly, the assets and liabilities related to the subsidiary are
considered to be held for sale in this report and have been reclassified in this
report as “discontinued operations” in the consolidated balance sheets in
accordance with Statement of Financial Accounting Standards Codification (“ASC”)
No. 360, “Property, Plant and Equipment” and ASC 205, Presentation of Financial
Statements. Both current and historical operating results of the subsidiary have
been reclassified as “discontinued operations.” Depreciation and amortization on
long-lived assets of the subsidiary were also reclassified to discontinued
operations. Certain amounts in the Company’s consolidated financial statements
for prior periods have also been reclassified to conform to the current period
presentation.
The
Company’s historical customers are located in the United States and foreign
markets requiring locational or “spatial” information. Approximately 65% of its
revenue comes from customers in federal, state and local governments and
utilities; 34% from international; and the remaining 1% from commercial
enterprises within the United States. International revenues were derived from
various countries and as a percent of total revenue the countries are: Italy
26%, China 2%, England 4%, and the remaining 2% from Holland, Australia and
Portugal.
2. Cash and Cash Equivalents;
Restricted Cash
The
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
3. Management
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the consolidated financial statements, and the reported revenues and expenses
during the reporting periods. Significant changes in the estimates or
assumptions, or in actual outcomes related to them, could possibly have a
material impact on the financial statements.
F-7
PLANGRAPHICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009 and 2008
NOTE A - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
The
Company’s activities in discontinued operations require it to make significant
assumptions concerning cost estimates for labor and expenses on contracts in
process. Due to the uncertainties inherent in the estimation process of costs to
complete for contracts in process, it is possible that completion costs for some
contracts may have to be revised in future periods.
4. Allowance for Doubtful
Accounts
We make
estimates of the collectability of our accounts receivable. We specifically
analyze accounts receivable and historical bad debts, client credit-worthiness,
current economic trends, and changes in our client payment terms and collection
trends when evaluating the adequacy of our allowance for doubtful accounts. Any
change in the assumptions used in analyzing a specific account receivable may
result in additional allowance for doubtful accounts being recognized in the
period in which the change occurs.
5. Property, Equipment and
Depreciation and Amortization
Property
and equipment are recorded at cost less accumulated depreciation or
amortization. Depreciation is computed primarily using the straight-line method
over the estimated useful lives ranging from 5 to 31 years. Depreciation and
amortization expense on property and equipment was $114,852 and $175,130 for the
years ended September 30, 2009 and 2008, respectively. Maintenance and repairs
are charged to expense as incurred and expenditures for major improvements are
capitalized. When assets are retired or otherwise disposed of, the property
accounts are relieved of costs and accumulated depreciation, and any resulting
gain or loss is credited or charged as an expense to operations.
6. Revenue and Cost
Recognition
We
recognize revenue in accordance with SEC Staff Accounting Bulletin 104 “Revenue
Recognition” (“SAB 104”). SAB 104 provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements and updates
Staff Accounting Bulletin Topic 13 to be consistent with Accounting Standards
Codification (“ASC”) 605, Revenue Arrangements with Multiple Deliverables. We
recognize revenues when (1) persuasive evidence of an arrangement exists, (2)
the services have been provided to the client, (3) the sales price is fixed or
determinable, and (4) collectability is reasonably assured.
Revenues
from fixed fee projects are recognized on the percentage of completion method
using total costs incurred to date to determine the percent complete. Revenues
for projects are recognized as services are provided for time and material
projects. Revisions in cost and profit estimates during the course of the work
are reflected in the accounting period in which they become known.
Contract
costs include all direct material and labor costs and those indirect costs
related to contract performance, such as subcontracted labor, supplies, tools,
repairs and depreciation costs. General and administrative costs are charged to
expense as incurred. Deferred revenue represents retainage and prepayments in
connection with these contracts, as well as amounts billed in excess of amounts
earned under percentage of completion accounting.
F-8
PLANGRAPHICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September
30, 2009 and 2008
NOTE A - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
7.
Income
Taxes
The Company files United States federal
and state income tax returns for its domestic operations, and files separate
foreign tax returns for its United Kingdom subsidiary. The Company accounts for income taxes
under FASB ASC 740, Income Taxes. Deferred income taxes result from temporary
differences. Temporary differences are differences between the tax bases of
assets and liabilities and their reported amounts in the financial statements
that will result in taxable or deductible amounts in future
years.
8. Net Loss Per
Share
Basic
income (loss) per share is computed by dividing net income (loss) by weighted
average number of shares of common stock outstanding during each period. Diluted
income per share is computed by dividing net income by the weighted average
number of shares of common stock, common stock equivalents and potentially
dilutive securities outstanding during each period. Exercise of outstanding
stock options is not assumed if the result would be antidilutive, such as when a
net loss is reported for the period or the option exercise price is greater than
the average market price for the period presented.
The
following is a reconciliation of the weighted average number of shares used in
the Basic Earnings Per Share ("EPS") and Diluted EPS computations:
Year
ended September 30,
|
|||
2009
|
2008
|
||
Basic
EPS share quantity
|
237,779,234
|
99,158,706
|
|
Effect
of dilutive options and warrants
|
-
|
-
|
|
Diluted
EPS share quantity
|
237,779,234
|
99,158,706
|
*For the
net-loss periods ended September 30, 2009 and 2008, we excluded any effect of
the 4,694,288 and 5,966,432 outstanding options and warrants, respectively, as
their effect would be anti-dilutive.
9. Research and Development
costs
Research
and development costs are expensed as incurred. The amounts for fiscal years
2009 and 2008 were insignificant.
10. Concentrations of Credit
Risk
The
Company's financial instruments that are exposed to concentrations of credit
risk consist of cash and cash equivalent balances in excess of the insurance
provided by governmental insurance authorities. The Company's cash and cash
equivalents are placed with reputable financial institutions and are primarily
in demand deposit accounts. The Company did not have balances in excess of FDIC
insured limits as of September 30, 2009, or at September 30, 2008. Because of
large but infrequent payments that may be received from major customers, account
balances may exceed FDIC insured limits for very short periods.
F-9
PLANGRAPHICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September
30, 2009 and 2008
NOTE A - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
Concentrations
of credit risk with respect to accounts receivable are associated with a few
customers dispersed across geographic areas. The Company reviews a customer's
credit history before extending credit and establishes an allowance for doubtful
accounts based upon the credit risk of specific customers, historical trends and
other information. Generally, the Company does not require collateral from its
customers, as a significant number of the customers are governmental
entities.
11. Fair Value of Financial
Instruments
Fair
Value Measurements. On October 1, 2008, the Company adopted FASB ASC 820, Fair
Value Measurements and Disclosures which defines fair value, establishes a
framework for measuring fair value under generally accepted accounting
principles, and expands disclosures about fair value measurements. This ASC
applies under other accounting pronouncements that require or permit fair value
measurements, the Financial Accounting Standards Board having previously
concluded in accounting pronouncements that fair value is a relevant measurement
attribute. Accordingly, this ASC does not require any new fair value
measurements. However, for some entities, the application of this ASC will
change current practices.
The
following table sets forth the liabilities the Company has elected to record at
fair value under ASC 820 as of September 30, 2009:
Fair
Value Measurements at September 30, 2009
|
|||
Using
Significant Unobservable Inputs
|
|||
Description
|
(Level
3)
|
||
Accounts
payable – discontinued operations:
|
|||
Balance
before fair value adjustment
|
$2,658,590
|
||
Charge
to accounts payable
|
(
91,516)
|
||
Balance
after fair value charge
|
$2,567,074
|
The
Company has antiquated legacy accounts payable balances in discontinued
operations that are at least four years old and some as old as ten years that it
believes will never require a financial payment for a variety of reasons.
Accordingly, under ASC 820, (and in this case for our United Kingdom subsidiary,
the UK’s Financial Reporting Standard 12, “Provisions, Contingent Liabilities
and Contingent Assets” (“FRS 12”), since this is where the balances are located)
the Company has analyzed the accounts and recorded a charge against those legacy
balances as permitted under FSR 12 in the United Kingdom reducing the balances
to the amount expected to be paid out. The income recorded during the year ended
September 30, 2009 was $91,516 and is recorded in other income from discontinued
operations on the Company's Consolidated Statement of Operations.
Fair
Value of Financial Instruments. The carrying amounts of cash equivalents,
short-term investments, accounts receivable and accounts payable and accrued
expenses approximate fair value due to the short maturities of these items. The
carrying value of long-term investments, long-term debt and lease obligations
approximates fair value.
F-10
PLANGRAPHICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September
30, 2009 and 2008
NOTE A - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
12. Segment
Information
The
Company follows the provisions of FASB ASC 280, Segment Reporting, which
establishes standards for the reporting of information about operating segments
in annual and interim financial statements. Operating segments are defined as
components of an enterprise for which separate financial information is
available that is evaluated regularly by the chief operating decision maker(s)
in deciding how to allocate resources and in assessing performance. In the
opinion of management, the Company operates in one business segment, business
information services, and all revenue from its services and license fees and
royalties are made in this segment. Management of the Company makes decisions
about allocating resources based on this one operating segment.
The
Company has three geographic regions for its operations, the United States,
Europe and Asia. Revenues are attributed to geographic areas based on the
location of the customer. The following graph depicts the geographic information
expected by FASB ASC 280:
Geographic
Information
|
||||||
Long-lived
|
Accounts
|
|||||
Revenues
|
Assets
|
Receivable
|
||||
2009
|
||||||
North
America
|
$
|
1,214,287
|
$
|
95,005
|
$
|
115,601
|
Europe
|
608,438
|
4,011
|
38,137
|
|||
Asia
|
31,892
|
-
|
75,201
|
|||
Total
|
$
|
1,854,617
|
$
|
99,016
|
$
|
228,939
|
2008
|
||||||
North
America
|
$
|
2,799,856
|
$
|
207,591
|
$
|
504,866
|
Europe
|
595,804
|
3,321
|
257,629
|
|||
Asia
|
218,356
|
-
|
-
|
|||
Total
|
$
|
3,614,016
|
$
|
210,912
|
$
|
762,495
|
F-11
PLANGRAPHICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September
30, 2009 and 2008
NOTE A - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
13. Recognition of Expenses in
Outsourced Work
Pursuant
to management’s assessment of the services that have been performed by
subcontractors on contracts and other assignments, we recognize expenses as the
services are provided. Such management assessments include, but are not limited
to: (1) an evaluation by the project manager of the work that has been
completed during the period, (2) measurement of progress prepared
internally or provided by the third-party service provider, (3) analyses of
data that justify the progress, and (4) management’s judgment. Several of
our contracts extend across multiple reporting periods.
14. Stock-Based Compensation
Expense
The
Company applies FASB ASC 718, Compensation – Stock Compensation, which
establishes the financial accounting and reporting standards for stock-based
compensation plans. The Company uses the modified prospective method requiring
companies to record compensation expense for (1) the unvested portion of
previously issued awards that remain outstanding at the initial date of
adoption, which we did not have, and (2) for any awards issued, modified or
settled after the effective date of the statement which we also did not have.
The Company recognizes stock compensation expenses over the requisite service
period of the award, normally the vesting term of the options which are
generally immediately fully vested and exercisable. As required by FASB ASC 718,
the Company has recognized the cost resulting from all stock-based payment
transactions including shares issued under its now expired stock option plans in
the financial statements. See Note I, Item 2, below, for further
discussion.
15. Foreign Currency
Translation
Assets
and liabilities of the Company's foreign subsidiary are translated at the rate
of exchange in effect at the end of the accounting period. Net sales and
expenses denominated in foreign currencies are translated at the actual rate of
exchange incurred for each transaction during the period. The total of all
foreign currency transactions and translation adjustments were considered not to
be material as of the end of the reporting period.
We
conduct business in a number of foreign countries and, therefore, face exposure
to slight but sometimes adverse movements in foreign currency exchange rates.
International revenue of $640,330 was about 35% of our total revenue in 2009, of
which about $571,690, or 31% of our total revenue, was denominated in a currency
other than U.S dollars. Accordingly, a 10% change in exchange rates could
increase or decrease our revenue by $57,169. Since we do not use derivative
instruments to manage foreign currency exchange rate risks, the consolidated
results of operations in U.S. dollars may be subject to some amount of
fluctuation as foreign exchange rates change. In addition, our foreign currency
exchange rate exposures may change over time as business practices evolve and
could have a material impact on our future financial results.
F-12
PLANGRAPHICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September
30, 2009 and 2008
NOTE A - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
Our
primary foreign currency exposure is related to non–U.S. dollar denominated
sales, cost of sales and operating expenses related to our international
operations. This means we are subject to changes in the consolidated results of
operations expressed in U.S. dollars. Other international business, consisting
primarily of consulting and systems integration services provided to
international customers in Asia, is predominantly denominated in U.S. dollars,
which reduces our exposure to fluctuations in foreign currency exchange rates.
There have been and there may continue to be period–to–period fluctuations in
the relative portions of international revenue that are denominated in foreign
currencies. The net amount of foreign currency gains and (losses) was a loss of
$56,043 for fiscal year 2009 and a gain of $8,675 for fiscal
year 2008. In view of the foregoing, we believe our exposure to market risk
is limited.
16. Recent Accounting
Pronouncements
In
December 2007, the FASB issued FASB ASC 805, Business Combinations. The
statement retains the purchase method of accounting for acquisitions, but
requires a number of changes, including changes in the way assets and
liabilities are recognized in purchase accounting. It also changes the
recognition of assets acquired and liabilities assumed arising from
contingencies, requires the capitalization of in-process research and
development at fair value, and requires the expensing of acquisition-related
costs as incurred. FASB ASC 805 was effective for our company beginning December
15, 2008 and will apply prospectively to business combinations completed on or
after that date. Management believes that, for the foreseeable future, this
guidance will have no material impact on our financial statements.
In
December 2007, the FASB issued FASB ASC 810-65, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No 51, which changes the
accounting and reporting for minority interests. Under this pronouncement,
minority interest is recharacterized as noncontrolling interests and is to be
reported as a component of equity separate from the parent’s equity, and
purchases or sales of equity interests that do not result in a change in control
are to be accounted for as equity transactions. In addition, net income
attributable to the noncontrolling interest will be included in consolidated net
income on the face of the income statement and, upon a loss of control, the
interest sold, as well as any interest retained, will be recorded at fair value
with any gain or loss recognized in earnings. FASB ASC 810-65 was effective for
our company December 15, 2008 and applies prospectively, except for the
presentation and disclosure requirements, which will apply retrospectively.
Management believes that, for the foreseeable future, this guidance will not
have a material impact on our financial statements.
In March
2008, the FASB issued FASB ASC 815, Derivatives and Hedging, which requires
additional disclosures about the objectives of derivative instruments and
hedging activities, the method of accounting for such instruments and its
related interpretations, and a tabular disclosure of the effects of such
instruments and related hedged items on our financial position, financial
performance, and cash flows. FASB ASC 815 was effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008
with early adoption encouraged. Management believes that, for the foreseeable
future, this guidance will not have a material impact on the financial
statements.
F-13
PLANGRAPHICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September
30, 2009 and 2008
NOTE A - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
In April
2008, FASB ASC 350-50 was issued. This standard amends the factors that should
be considered in developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset. FASB ASC 350-50 is effective
for financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. Early adoption was
prohibited. Management is currently evaluating the effects, if any, that this
guidance may have on our financial reporting.
In May
2009, the FASB issued FASB ASC 855, Subsequent Events. FASB ASC 855 establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. FASB ASC 855 requires the disclosure of the date through
which an entity has evaluated subsequent events and the basis for that date,
that is, whether the date represents the date the financial statements were
issued or were available to be issued. FASB ASC 855 is effective in the first
interim period ending after June 15, 2009. We expect FASB ASC 855 will have an
impact on disclosures in our consolidated financial statements, but the nature
and magnitude of the specific effects will depend upon the nature, terms and
value of any subsequent events occurring after adoption.
In June
2009, the FASB issued SFAS 168 (now: FASB ASC 105-10), Generally Accepted
Accounting Principles the FASB Accounting Standards Codification. SFAS 168
represented the last numbered standard to be issued by FASB under the old
(pre-Codification) numbering system, and amends the GAAP hierarchy established
under SFAS 162. On July 1, 2009, the FASB launched FASB’s new Codification
entitled “The FASB Accounting Standards Codification”, or FASB ASC. The
Codification supersedes all existing non-SEC accounting and reporting standards.
FASB ASC 105-10 is effective in the first interim and annual periods ending
after September 15, 2009. This pronouncement had no effect on our consolidated
financial statements upon adoption other than current references to GAAP, which,
where appropriate, have been replaced with references to the applicable
codification paragraphs.
The FASB
issued FASB ASC 820, Fair Value Measurements and Disclosures, which defines fair
value as used in numerous accounting pronouncements, establishes a framework for
measuring fair value and expands disclosure of fair value measurements. In
February 2008, the FASB issued FASB Staff Position, FASB ASC 820-15-5, which
delayed the effective date of FASB ASC 820 for one year for certain nonfinancial
assets and nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually). Excluded from the scope of FASB ASC 820 are certain leasing
transactions accounted for under FASB ASC 840, Leases. The exclusion does not
apply to fair value measurements of assets and liabilities recorded as a result
of a lease transaction but measured pursuant to other pronouncements within the
scope of FASB ASC 820. Management believes that, for the foreseeable future,
this guidance will have no material impact on our financial
statements.
In June
2009, the FASB issued “Amendments to FASB Interpretation No. 46(R)”, FASB ASC
810-Consolidation, that will change how we determine when an entity that is
insufficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated. Under this guidance, determining whether a
company is required to consolidate an entity will be based on, among other
things, an entity’s purpose and design and a company’s ability to direct the
activities of the entity that most significantly impact the entity’s economic
performance. The changes are FASB ASC 810-10, effective for financial statements
after January 1, 2010. We are currently evaluating the requirements of this
guidance and the impact of adoption on our consolidated financial
statements.
F-14
PLANGRAPHICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September
30, 2009 and 2008
NOTE A - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the consolidated financial statements
upon adoption.
17. Reclassifications
Certain
reclassifications have been made to the fiscal 2008 financial statements to
conform to the fiscal 2009 financial statements’ presentation. Related to this
is the reclassification of financial balances and results for the sole operating
subsidiary to present its financial results as discontinued operations as
required by FASB ASC 205 because it is considered held for sale at September 30,
2009, as a result of its sale subsequent to the end of the reporting year. (See
Note L, Results of Discontinued Operations) The reclassifications have no effect
on the financial position or net loss available to common shareholders as
previously reported.
18. Purchased and Internally
Developed Software Costs for Future Project Use
The
Company follows FASB ASC 350, Intangibles – Goodwill and Other. Purchased
software is recorded at the purchase price. Software products that are
internally developed are capitalized when a product’s technological feasibility
has been established. Amortization begins when a product is available for
general release to customers. The amortization is computed on a straight-line
basis over the estimated economic life of the product, which is generally three
years, or on a basis using the ratio of current revenue to the total of current
and anticipated future revenue, whichever is greater. Amortization expense
amounted to $104,910 and $165,019 for fiscal years 2009 and 2008, respectively.
All other research and development expenditures are charged to research and
development expense in the period incurred. Management routinely assesses the
utility of its capitalized software for future usability in customer projects.
No impairments were recorded in 2009.
NOTE
B – LIQUIDITY CONSIDERATIONS
The Company has an accumulated deficit
of $24,468,511 at September 30, 2009, and the Company’s working capital deficit
decreased to $3,203,345 at September 30, 2009 and it has recurring net losses in
fiscal years 2009 back to 1998. Additionally the Company reported a net
loss of $511,960 for fiscal year 2009 versus a net loss of $468,639 for fiscal
year 2008 and a significant decrease in revenue of $1,759,399, or 49%, during
fiscal year 2009 as a result of slowed tax revenue receipts in state and local
government customers. The resulting constrained cash flows adversely affect the
Company’s ability to meet payroll, subcontractor and other payment obligations
on a timely basis. On occasion, payroll disbursements to employees were delayed
resulting in payments made subsequent to normal due dates. Delayed payments to
subcontractors have caused work stoppages and, at times, adversely affected the
Company’s ability to service certain of its major projects and to generate
revenue.
F-15
PLANGRAPHICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September
30, 2009 and 2008
NOTE
B – LIQUIDITY CONSIDERATIONS (Continued)
Board’s Plan for
PlanGraphics, Inc. PlanGraphics experienced declining
revenues in the past several years. The costs for audits, legal advice, other
items related to the Company’s SEC reporting and maintaining its status as a
public company are significant and have had an adverse effect on our ability to
successfully operate our historical core business. Based on this combination of
declining revenues and increasing costs, in 2003, the Company’s Board of
Directors began examining strategic alternatives for PlanGraphics and retained a
number of specialist investment banking firms to assist with this process.
Through these efforts, and in parallel with efforts to maintain and build on our
traditional lines of business, the Board has concluded that in order to provide
shareholders with some opportunity for achieving value on their investment,
PlanGraphics needed to aggressively pursue the option of deriving value from one
or more of the assets of the corporation. One such option that the Company has
pursued in recent years is the spin-off of PGI-MD and the sale of PlanGraphics,
the public entity, to a private company interested in becoming a publicly traded
corporation.
As
disclosed in Note N, Subsequent Events, the Company has completed the reverse
merger of Integrated Freight Corporation into the Company effective December 23,
2009, and then sold its historical operating subsidiary, PGI-MD, to John
Antenucci effective December 27, 2009 (See Note N, Subsequent Events). The board
believes these actions create a larger entity that will be profitable and
capable of bearing the costs of being a publicly traded company.
The
Company’s new management has been in discussions with potential investors and
investment bankers regarding funding to support the new operation’s growth
plans. Viability of the Company will initially be dependent upon obtaining
external funding. There can be no assurance that these efforts will be
successful.
NOTE
C - ACCOUNTS RECEIVABLE – DISCONTINUED OPERATIONS
At
September 30, the components of contract receivables were as
follows:
2009
|
2008
|
||||
Billed
|
$
|
204,256
|
$
|
544,720
|
|
Unbilled
|
38,834
|
238,470
|
|||
243,090
|
783,190
|
||||
Less
allowance for doubtful accounts
|
14,151
|
49,718
|
|||
Accounts
receivable, net
|
$
|
228,939
|
$
|
733,472
|
Unbilled
receivables represent work-in-process that has been performed but has not yet
been billed. This work will be billed in accordance with milestones and other
contractual provisions. Unbilled work-in-process includes revenue earned as of
the last day of the reporting period which will be billed in subsequent days.
The amount of unbilled revenues will vary in any given period based upon
contract activity.
Receivables
include retainages receivable representing amounts billed to customers that are
withheld for a certain period of time according to contractual terms, generally
until project acceptance by the customer. At September 30, 2009 and 2008,
retainage amounted to $4,055 and $168,434, respectively. Management considers
all retainage amounts to be collectible.
F-16
PLANGRAPHICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (DISCONTINUED)
September
30, 2009 and 2008
NOTE
C - ACCOUNTS RECEIVABLE – DISCONTINUED OPERATIONS (Continued)
Billed
receivables include $37,597 for the net amount of factored invoices due from
Rockland. This amount is comprised of the amount of outstanding uncollected
invoices on hand at Rockland ($83,716) less the net amount of funds employed by
Rockland in servicing them ($67,684) which consists of actual cash advances,
payments, and other reserves and fees related to the factoring agreement.
Pursuant to the factoring agreement we have granted Rockland a lien and security
interest in all of our cash, accounts, goods and intangibles.
The
Company has historically received greater than 10% of its annual revenues from
one or more customers creating some amount of concentration in both revenues and
receivables.
At
September 30, 2009, customers exceeding 10% of accounts receivable were the
Italian Ministry of Finance ("IMOF"), 27% and China Clients 14%. At the same
date, customers exceeding 10% of revenue for the year were IMOF, 27%, San
Francisco Department of Technology and Information Systems (“SFDTIS”), 11%, and
Dawson County, GA, 13%.
At
September 30, 2008, customers exceeding 10% of accounts receivable were the
Italian Ministry of Finance ("IMOF"), 24%, New York City Department of
Environmental Engineering (“NYDEP”), 19%. At the same date, customers exceeding
10% of revenue for the year were NYDEP, 26%, San Francisco Department of
Technology and Information Systems (“SFDTIS”), 16%, and the IMOF,
12%.
Deferred
revenue amounts of $182,034 and $312,303 at September 30, 2009 and 2008,
respectively, represent amounts billed in excess of amounts earned.
NOTE
D – ACCOUNTS PAYABLE
Accounts
payable at September 30 consist of:
2009
|
2008
|
||||
Trade
payables
|
$
|
1,419,292
|
$
|
1,333,529
|
|
Payable
to subcontractors
|
1,229,729
|
1,347,369
|
|||
Other
payables
|
99,613
|
105,936
|
|||
Total
accounts payable
|
$
|
2,786,634
|
$
|
2,786,834
|
NOTE
E – ACCRUED EXPENSES
Accrued
expenses at September 30 are as
follows:
|
2009
|
2008
|
||||
Accrued
expenses due to vendors and subcontractors
|
$
|
72,198
|
$
|
41,210
|
|
Accrued
interest
|
136,178
|
263,479
|
|||
Accrued
professional fees
|
-
|
67,003
|
|||
Other
accrued expenses
|
7,599
|
8,945
|
|||
Total
accrued expenses
|
$
|
215,975
|
$
|
380,637
|
F-17
PLANGRAPHICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September
30, 2009 and 2008
NOTE
F - NOTES PAYABLE
Notes
payable at September 30, 2009 were as follows:
|
2009
|
2008
|
|||
Continuing
operations:
|
|||||
An
uncollateralized promissory note with a vendor in the original
amount of $11,500, interest rate of 12%. The note,
requiring monthly payments of $1,916 matured on September
15, 2006 and is currently in default.
|
$
|
7,668
|
$
|
7,668
|
|
A
convertible promissory note with an unrelated party in exchange
for a business loan in the amount of $30,000 bearing
interest at 6% per annum. The note matured on February
28, 2009. As a result the note became convertible
into common stock of the Company. Liquidation
of the note will occur in connection with the merger
of Integrated Freight into PGRA.
|
30,000
|
-
|
|||
A
convertible promissory note in exchange for a business loan in the amount
of $20,000 borrowed from an unrelated entity. The note, which bears
interest at 8% per annum and matures on January 15, 2010, is guaranteed by
Integrated Freight Corporation.
|
20,000
|
-
|
|||
Discontinued
operations:
|
|||||
An
uncollateralized promissory note with a vendor in the original
amount of $91,509, interest rate of 5%. An initial payment
of $25,000 was due January 31, 2007 followed by
12 monthly payments of $5,694.
|
-
|
11,317
|
|||
An
uncollaterlized promissory note with a vendor in the original amount
of $185,000, interest rate of 9.5%. The note matured June 21,
2001 when final payment of $23,665 was due and is currently in
default. As a result the interest rate increased to
13.5%.
|
21,165
|
23,665
|
|||
Total
notes payable
|
78,833
|
42,650
|
|||
Less:
Current maturities
|
78,833
|
42,650
|
|||
Notes
payable – long-term
|
$
|
-
|
$
|
-
|
|
F-18
PLANGRAPHICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September
30, 2009 and 2008
NOTE
G – TAXES ON INCOME
The
provision for income taxes consisted of the following:
2009
|
2008
|
||||
Current
|
$
|
-
|
$
|
-
|
|
Deferred
|
-
|
-
|
|||
Total
|
$
|
-
|
$
|
-
|
A
reconciliation of the effective tax rates and the statutory U.S. federal income
tax rates is as follows:
2009
|
2008
|
||||
U.S.
federal statutory rates
|
(34.0%)
|
(34.0%)
|
|||
State
income tax, net of federal tax benefit
|
(3.3)
|
(3.3)
|
|||
Permanent
differences
|
-
|
-
|
|||
Foreign
income taxes, net of federal tax benefit
|
-
|
-
|
|||
(Increase)
decrease in deferred tax asset valuation allowance
|
37.3
|
37.3
|
|||
Effective
tax rate
|
-%
|
-%
|
Temporary
differences that give rise to a significant portion of the deferred tax asset
are as follows:
2009
|
2008
|
||||
Deferred
tax assets:
|
|||||
Net
operating loss carryforwards
|
$
|
7,758,000
|
$
|
7,719,000
|
|
Provision
for losses on accounts receivable
|
5,000
|
8,000
|
|||
Accrued
payroll costs and vacation
|
11,000
|
32,000
|
|||
Total
gross deferred tax asset
|
7,774,000
|
7,759,000
|
|||
Deferred
tax liabilities:
|
|||||
Deferred
income of foreign corporation
|
(577,000)
|
(441,000)
|
|||
7,197,000
|
7,318,000
|
||||
Valuation
allowance
|
(7,197,000)
|
(7,318,000)
|
|||
Net
deferred tax asset
|
$
|
-
|
$
|
-
|
A
valuation allowance equal to the net deferred tax asset has been recorded as
management of the Company has not been able to determine that it is more likely
than not that the net deferred tax assets will be realized.
During
the year ended September 30, 2009, the valuation allowance decreased by
$121,000.
During
the year ended September 30, 2009, the Company’s estimated tax asset relating to
its net-operating loss carryforward from prior years was revised by $297,000 to
reflect a change in the estimated tax rates in effect when the asset would be
utilized.
F-19
PLANGRAPHICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September
30, 2009 and 2008
NOTE
G – TAXES ON INCOME (CONTINUED)
At
September 30, 2009, the Company had estimated net operating loss carryforwards
of approximately $20.8 million with expirations through 2029. On May 29, 2009,
Integrated Freight Corporation acquired approximately 80% of our outstanding
shares resulting in an ownership change. Accordingly, the utilization of the
loss carry forwards is limited under Internal Revenue Service Code Section 382
regulations due to the change of ownership.
NOTE
H - COMMITMENTS AND CONTINGENCIES
1. Obligations Under Operating
Lease – Related Party
The
Company leases an office facility from Capitol View Development, LLC, a
partnership, which includes a related party, under a triple net commercial
lease. An officer/shareholder owns approximately ten percent of Capitol View
Development, LLC. The annual lease amount is $102,500 excluding taxes, insurance
and maintenance costs.
2. Operating Lease
Commitments
The
Company leases certain office facilities and certain furniture and equipment
under various operating leases. The remaining lease terms range from one to five
years.
Minimum
annual operating lease commitments at September 30, 2009 are as
follows:
Year
ending September 30,
|
||
2010
|
$
|
120,627
|
2011
|
105,242
|
|
2012
|
102,500
|
|
2013
|
102,500
|
|
2014
|
102,500
|
|
Thereafter
|
273,333
|
|
$
|
806,702
|
Rental
expense for the years ended September 30, 2009 and 2008 totaled $133,892 and
$163,198, respectively.
3. Licensing
Agreement
The
Company entered into a licensing agreement under which it obtained exclusive
North American rights to Xmarc, Ltd., intellectual property and spatial
integration software owned by a Swiss based investment company, HPI Holding SA
and a Cayman Island company, Glendower Opportunity Partners II, collectively the
Xmarc Sellers (“XS”), for use in the public sector and utility markets. Under
the agreement the Company supports former Xmarc clients, work in progress and
outstanding proposals and pay XS, a royalty stream for a period of 21 months
ending September 30, 2003 as it receives revenue for the product licensing and
maintenance.
F-20
PLANGRAPHICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September
30, 2009 and 2008
NOTE
H – COMMITMENTS AND CONTINGENCIES (CONTINUED)
Under the
agreement the Company also had the right to acquire in perpetuity the exclusive
rights to Xmarc intellectual property and technology and all subsequent product
enhancements for the North American public sector and utility markets. Effective
April 1, 2003 the Company exercised its right to acquire the intellectual
property. As a result, the Company paid XS the amount of $50,000 annually on
March 31 in the years 2004 through 2008 (see Note F) and royalty payments for
amounts due for each of these years in which the royalties earned exceeds
$50,000. During fiscal year 2008 the Company had recorded approximately $736,235
in revenues earned under the revenue license agreement and $24,172 in
royalties.
4. Employment
Agreements
On April
30, 2002, the Company entered into new employment agreements with its officers.
One of them was effective January 1, 2002 for one year and the third was
effective on May 1, 2002 for three years. The employment agreements set forth
annual compensation to the employees of between $66,000 and $157,000 each. Under
the employment agreements, each employee is entitled to between 18 months and
three years of severance pay upon termination of their employment for reasons
other than constructive termination. On the anniversary date of his employment
agreement, the chief executive officer is entitled to receive options to acquire
common stock equal to 1% of the outstanding shares of the Company's common
stock. The Company extended the employment agreements of its two officers
through December 31, 2008. During fiscal year 2007 the Company granted
stock options to acquire a total of 2,750,000 shares of common stock to the two
officers as inducement to extend their employment agreements to December 31,
2008. Pursuant to the employment agreement for the chief executive officer,
stock options to acquire 972,144 and 972,144 of common stock were granted during
fiscal year 2007 and 2008. Recently both agreements were extended from time to
time through December 31, 2009; pursuant to the reverse merger agreement with
Integrated Freight both officers resigned all their positions with PGRA
effective November 9, 2009 (See also Note N, Subsequent Events).
5. KSTC
Agreement
On June
16, 2003, the Company’s subsidiary, PlanGraphics, Inc. (“PGI-MD”), entered into
a two-year agreement with Kentucky State Technology Corporation (“KSTC”) to
develop classification algorithms to delineate and classify wetlands in
commercial satellite images, field verify the imagery interpretation and to
establish a marketing program for these value added wetlands imagery product to
potential governmental and business clients. KSTC provides $200,000 under the
agreement on a cost share matching basis for cash and in-kind services provided.
The Company has established a wholly owned subsidiary, RDT2M, as required by the
agreement, and has selected Murray State University to work with RDT2M. Murray
State University will receive 51% and RDT2M will receive 49% of the funding. The
agreement provides for payment to the Company of certain development expenses of
approximately $200,000. The agreement also requires the Company’s repayment of
up to $400,000, including the grant amount, through a royalty stream based on
free cash flow if a commercial and sustainable market is developed for the
products. Should no viable market be established, repayment of the grant amount
is waived. On June 7, 2004, KTSC renewed the agreement, which can again be
renewed, and increased the repayment provision up to $800,000.
F-21
PLANGRAPHICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September
30, 2009 and 2008
NOTE
H – COMMITMENTS AND CONTINGENCIES (CONTINUED)
6. Xmarc
Ltd.
During
the first quarter of calendar year 2004 the Company determined, in conjunction
with the termination of the Xmarc Services Limited agreement, that it was more
efficient and economical to simply acquire Xmarc Ltd, the already existing
distributor for Xmarc in Europe. Accordingly, on April 30, 2004, the Company
completed a purchase transaction with an effective date of March 31, 2004, in
which it acquired Xmarc Ltd in a non-cash transaction. The results of XL’s
operations have been included in the consolidated financial statements since
that date. Headquartered in Great Britain, XL has been a distributor of Xmarc
products throughout Europe. The Company believes the acquisition, which has
resulted in revenue of $766,686 during fiscal year 2009, enhances the
strategic development and prospects for growth of its operating
subsidiary.
NOTE
I – EQUITY TRANSACTIONS
1. Preferred
Stock
As of
September 30, 2009, the Company had authorized 20,000,000 shares of preferred
stock, 500 of which were issued and outstanding at September 30, 2008. The
shares of preferred stock may be issued from time to time in one or more series.
The Company’s board of directors is expressly authorized, without further
approval by shareholders, to provide for the issue of all or any of the shares
of the preferred stock in one or more series, and to fix the number of shares
and to determine or alter for each such series, such voting powers, full or
limited, or no voting powers, and such designations, preferences, and relative,
participating, optional, or other rights and such qualifications, limitations,
or restrictions thereof, as shall be adopted by the board of directors and as
may be permitted by law.
On August
21, 2006, the Company entered into a Series A Preferred Stock Purchase Agreement
with Nutmeg Group, LLC pursuant to which it sold and Nutmeg Group, LLC bought,
for an aggregate purchase price of $500,000, a total of 500 shares (the
"Shares") of the Company's Series A 12% Redeemable Preferred Stock (the "Series
A Preferred Stock") and a warrant to purchase shares of the Company's common
stock equal to 80 percent of the fully diluted outstanding shares with an
aggregate exercise price of $10.00 (the "Warrant,"). The Series A Preferred
Stock is non-voting and was not convertible
into shares of the company's common stock.
The
holder of Series A Preferred Stock could have required the Company to redeem the
Series A Preferred Stock in whole or in part at any time after February 17,
2007. In addition, at any time after August 17, 2007, the Company had the right
to redeem the Series A Preferred Stock in whole or in part. The investor did not
exercise the Warrant prior to its expiration date.
On May
29, 2009, in lieu of a cash payment of $662,573, the Company issued 401,559,467
shares of the Company's common stock (the number of shares that the Company was
required to issue in accordance with an agreed upon formula) to Integrated
Freight Systems Inc. (“IFSI”), a Florida corporation and holder in due course of
the Preferred Stock, to satisfy our obligations for redemption of our Series A
Redeemable Preferred Stock and accrued unpaid dividends pursuant to the related
Redemption Request from the Nutmeg Group. The issuance resulted in a change in
control of the Company, with IFSI owning 80.2% of the shares of common stock
issued and outstanding after giving effect to the issuance. The shares of Common
Stock were issued in reliance on the exemption from registration provided in
Section 4(2) of the Securities Act. No commissions or fees were paid in
connection with the redemption. The certificates representing the shares were
issued with a restrictive legend.
F-22
PLANGRAPHICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September
30, 2009 and 2008
NOTE
I – EQUITY TRANSACTIONS (CONTINUED)
2. Common
Stock
On
January 14, 2009, PlanGraphics, Inc., entered into a business loan in the amount
of $30,000 with the holder of all of the outstanding Series A Preferred Stock of
PlanGraphics, Nutmeg/Fortuna Fund LLLP (the "Holder"), in the form of a
convertible debenture ("the Debenture"). The Debenture provides for an interest
rate of 6% per annum with a maturity date of February 28, 2009. Proceeds of the
Debenture were applied to certain critical working capital needs. The Debenture
is, in the event of default, convertible into common stock of the Company if the
default is not timely cured. The Debenture is convertible in whole or in part at
a conversion price on the date of conversion at the lesser of $0.002 per share
or fifty percent (50%) of the average closing price for the common stock on the
five trading days immediately prior to the conversion date. Conversion of the
Debenture into common stock of the registrant is limited and the Holder or its
affiliates, according to the terms of the Debenture agreement, may not be the
beneficial owner of more than 4.99% of the total number of shares of the
Company's common stock outstanding immediately after giving effect to the
issuance of shares permitted upon conversion by the Holder. Upon not less than
61 days notice to the Company, the Holder may increase or decrease this
limitation. As of March 1, 2009, the Company has been in default with regard to
the terms of the Debenture, and the Holder has the right to require the Company
to convert the amounts owing under the Debenture to common stock. The Debenture
will be liquidated concurrent with the reverse merger transaction discussed in
Note N, Subsequent Events, below.
Convertible
Promissory Note. On July 16, 2009, the Company entered into a business loan in
the amount of $20,000 with an unrelated entity, Tangiers Investors LP (the
"Holder"), in the form of a convertible promissory note ("the Note"). The Note
provides for an interest rate of 8% per annum with a maturity date of
January 15, 2010. Default rate of interest is 15% if the note is not cured
within 20 days of maturing. The Holder of the note has the right to convert the
principal amount into common stock of the Company at 65% of the three lowest
volume weighted average prices of the Company's common stock during the 10 day
trading period preceding the conversion notice. Any shares that may be issued
pursuant to the promissory note are issuable only if an effective registration
statement is available to cover the shares or if an exemption from registration
is available under Rule 144 of the 1933 Act. Proceeds of the Note were applied
to certain working capital needs.
3.Stock-Based Compensation
As noted
above, the Company follows provisions of FASB ASC 718 in accounting for
share-based payments to employees, including grants of employee stock options,
and recognizes related expenses in the statement of operations as compensation
expense (based on their fair values) over the vesting period of the
awards.
The
Company’s option valuation model (the Black-Scholes model) requires the input of
highly subjective assumptions including the expected life of the option. Because
the Company’s employee stock options have characteristics significantly
different from those of traded options (which it does not have), and because
changes in the subjective input assumptions can materially affect the fair value
estimate, the existing models do not, in management’s opinion, necessarily
provide a reliable single measure of the fair value of the Company’s employee
stock options.
The
Company did not grant options to acquire shares of common stock during the
fiscal year ended September 30, 2009.
F-23
PLANGRAPHICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September
30, 2009 and 2008
NOTE
I – EQUITY TRANSACTIONS (CONTINUED)
A summary
of the status of the Company's stock option plans, changes and outstanding
options and warrants as of September 30, 2009 and 2008 and changes during the
years ended on those dates is presented below:
Options
|
Warrants
|
||||||
Weighted
|
Weighted
|
||||||
Number
of
|
Average
|
Number
of
|
Average
|
||||
Shares
|
Exercise
Price
|
Shares
|
Exercise
Price
|
||||
Outstanding
|
|||||||
at
9/30/2007
|
8,447,790
|
$ 0.021
|
-
|
$ -
|
|||
Granted
|
972,144
|
0.005
|
-
|
-
|
|||
Expired
|
(1,509,214)
|
0.018
|
-
|
-
|
|||
Exercised
|
(1,944,288)
|
0.004
|
-
|
-
|
|||
Outstanding
|
|||||||
at
9/30/2008
|
5,966,432
|
$ 0.021
|
-
|
$ -
|
|||
Granted
|
-
|
-
|
-
|
-
|
|||
Exercised
|
-
|
-
|
-
|
-
|
|||
Expired
|
(1,272,144)
|
0.040
|
-
|
-
|
|||
Outstanding
|
|||||||
at
9/30/2009
|
4,694,288
|
$ 0.014
|
-
|
$ -
|
|||
Exercisable
|
|||||||
at
9/30/2008
|
5,966,432
|
$ 0.021
|
-
|
$ -
|
|||
Exercisable
|
|||||||
at
9/30/2009
|
4,694,288
|
$ 0.014
|
-
|
$ -
|
|||
There
were no options exercised during the period ending September 30, 2009;
accordingly, the total intrinsic value of options exercised during fiscal year
2009 is nil.
F-24
PLANGRAPHICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September
30, 2009 and 2008
The range
of exercise prices, shares, weighted-average remaining contractual life and
weighted-average exercise price for all options and warrants outstanding at
September 30, 2009 is presented below:
Stock
Options
|
|||
Range of |
Weighted-average
|
||
Exercise
|
Remaining
Years
|
||
Prices
|
Shares
|
Contractual
Life
|
|
$0.012-$0.0400
|
4,694,288
|
1.64
|
|
4,694,288
|
F-25
PLANGRAPHICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September
30, 2009 and 2008
NOTE
I – EQUITY TRANSACTIONS (CONTINUED)
No
options were granted in the current fiscal year. The fair value of the options
granted in the period ending September 30, 2008, was estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions:
2009
|
2008
|
||||
Dividend
yield
|
N/A
|
0.00%
|
|||
Expected
Volatility
|
N/A
|
311.00%
|
|||
Risk
free interest rate
|
N/A
|
3.10%
|
|||
Expected
lives
|
N/A
|
5
years
|
No
options were granted in the current fiscal year. The weighted-average grant date
fair value for options granted during 2008 was approximately $0.
For the
twelve months ended September 30, 2009 and 2008, net loss and the loss per share
reflect the actual deduction for stock-based compensation expense which was $0
and $0, respectively. The expense for stock-based compensation is a non-cash
expense item when it occurs.
Because
we did not have any unvested options or warrants as of September 30, 2009, there
was no unrecognized compensation cost related to nonvested share-based
compensation arrangements granted under the Equity Compensation
Plan.
NOTE
J – EMPLOYEE BENEFIT PLANS
The
Company has a Section 401(k) deferred compensation plan covering substantially
all employees. The plan allows participating employees to defer up to 20% of
their annual salary with a tiered matching contribution by PlanGraphics up to
1.75%. Additional contributions may be made at PlanGraphics’ discretion based
upon PlanGraphics’ performance. During April 2003 the matching contributions
were suspended pending improved profitability of the Company; accordingly, no
discretionary matching expenses were charged to operations for the plan during
the years ended September 30, 2009 and 2008.
NOTE
K – LITIGATION
Subcontractor
Claim. On December 22, 2008, a subcontractor, Sanborn Map Company, Inc.
("Sanborn"), asserted in a summons filed in the District Court for Douglas
County, Colorado, that it was entitled to recover an outstanding amount of
$896,475 plus certain unpaid retainage of $18,501 earned for work as a
subcontractor to the Company’s operating subsidiary, PlanGraphics of Maryland.
All amounts had been previously recorded in the Company's financial records. The
case was moved to the U.S. District Court for the District of Colorado (case #
09-cv-0332-RPM) and subsequently to the District Court of the City and County of
Denver. On December 10, 2009, the parties presented to the District Court and
the Court entered an Order for a Stipulation of Payment or Entry of Judgment.
The parties agreed that PGI MD is to begin making a timely series of payments on
November 30, 2009, through July 31, 2014, in liquidation of an agreed amount.
PGI-MD agreed to the Court’s authority to enforce payment of the agreed amount
less any prior payments, should PGI-MD default on the payment
terms.
F-26
PLANGRAPHICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September
30, 2009 and 2008
NOTE K –
LITIGATION (Continued)
The
Company is engaged in various other litigation matters from time to time in the
ordinary course of business. In the opinion of management, the outcome of any
such litigation will not materially affect the financial position or results of
operations of the Company.
NOTE
L – RESULTS OF DISCONTINUED OPERATIONS
The
discontinued operations of PGI-MD, our operating subsidiary, will continue to
fund our limited continuing operations until completion of the sale of PGI-MD
and the pending reverse merger of Integrated Freight into PGRA are completed.
Therefore we are providing the financial position and the operating results for
PGI-MD in the disclosures below.
Statement
of Financial Position - Discontinued Operations
|
|||||
September
30,
|
|||||
2009
|
2008
|
||||
Cash
and cash equivalents
|
$
|
-
|
$
|
202
|
|
Accounts
receivable, less allowances for doubtful
|
|||||
accounts
of $14,151 and $49,718
|
228,939
|
733,472
|
|||
Prepaid
expenses and other
|
20,569
|
20,405
|
|||
Equipment
and furniture net of accumulated depreciation
|
|||||
of
$355,890 and $345,948
|
15,377
|
23,169
|
|||
Software
development costs, net of accumulated
|
|||||
amortization
of $927,896 and $822,986
|
83,640
|
187,743
|
|||
Other
assets
|
8,516
|
8,016
|
|||
Notes
- payable current maturities
|
(21,165)
|
(34,982)
|
|||
Accounts
payable
|
(2,567,074)
|
(2,644,056)
|
|||
Accrued
payroll costs
|
(271,530)
|
(188,075)
|
|||
Accrued
expenses
|
(97,473)
|
(136,585)
|
|||
Deferred
revenue and prebillings
|
(130,269)
|
(312,303)
|
|||
Net
liabilities of discontinued operations
|
$
|
(2,730,470)
|
$
|
(2,342,994)
|
F-27
PLANGRAPHICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September
30, 2009 and 2008
NOTE
M – SUPPLEMENTAL DATA TO STATEMENTS OF CASH FLOWS
2009
|
2008
|
||||
Years
ended September 30,
|
|||||
Cash
paid for interest
|
$
|
50,900
|
$
|
113,789
|
|
Cash
paid for income taxes
|
-
|
4,393
|
Non-cash
transactions affecting cash flow computations during the years ended
were:
September
30, 2008:
In
continuing operations;
•
|
Exercise
of stock options $8,166.
|
September
30, 2009:
In
continuing operations:
•
|
Payment
of amounts due in liquidation of redeemable preferred stock and accrued
dividends which totaled $662,573.
|
|
•
|
Cancellation
of $1,314 of accounts payables in continuing
operations.
|
In
discontinued operations:
•
|
Cancellation
off of $159,470 of receivables.
|
|
•
|
Fair
value adjustment of $91,516 to certain liabilities.
|
|
•
|
Cancellation
of $372,865 of accounts payables.
|
|
•
|
Cancellation
of $5,694 of debt.
|
|
•
|
Cancellation
of $208,438 liabilities.
|
NOTE
N – SUBSEQUENT EVENTS
Resignations.
Effective November 9, 2009, Mssrs. Antenucci and Beisser, pursuant to the terms
of the agreement with Integrated Freight Corporation, resigned from their
positions as director and chief executive officer (Antenucci) and senior vice
president – finance, treasurer and secretary (Beisser). As of the date of the
filing of this report the Company owes Mr. Beisser $24,126 for unpaid wages,
accrued vacation and reimbursable expenses.
Subcontractor
Claim. On November 9, 2009, a subcontractor of PGI-MD, Charter Global, Inc.,
("CGI"), asserted in a summons filed in the Franklin Circuit Court in the
Commonwealth of Kentucky, that it was entitled to recover an outstanding amount
of $55,800 plus interest for work as a subcontractor to the Company’s operating
subsidiary, PlanGraphics of Maryland. All amounts had been previously recorded
in the Company's financial records. The Company is aggressively defending its
interests and has challenged the fees sought and is complying with an order of
the court by entering into mediation with CGI.
Change in
Control. As disclosed in Note I, above, on May 29, 2009, the Company issued
401,559,467 shares of its common stock to an unrelated entity, Integrated
Freight, in payment of $500,000 of the Company’s outstanding preferred stock and
accrued and unpaid dividends of approximately $162,573. Integrated Freight had
previously acquired the preferred stock and unpaid dividends from the Nutmeg
Fund LLC.
F-28
PLANGRAPHICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September
30, 2009 and 2008
NOTE
N – SUBSEQUENT EVENTS (Continued)
The stock
issuance resulted in a change in control of the Company, with Integrated Freight
owning 80.2% of the shares of common stock issued and outstanding after giving
effect to the issue. In connection with such change in control, Mr. Paul A.
Henley, a control person of Integrated Freight before and after the merger, is
deemed to be a "control person" and beneficial owner with sole voting
power.
Subsequently,
on November 9, 2009, pursuant to certain agreements between Integrated Freight,
Nutmeg and the Company, Antenucci and Beisser resigned their positions with PGRA
and Integrated Freight appointed directors of its choosing to the open board of
directors positions. On January 7, 2010, the Company committed to paying the
amount of $24,126 owed at November 9, 2009 to Mr. Beisser for unpaid wages,
accrued vacation and reimbursable expenses in monthly increments of
approximately one-third of the total with each increment to be paid no later
than the end of January, February and March of 2010.
Actions
Preliminary to Merger of Integrated Freight into PlanGraphics, Inc. (Colorado
corporation). Integrated Freight originally acquired the 401,559,467 shares of
our common stock, or 80.2 percent of our issued and outstanding common stock,
for the purpose of merging PGRA into IFC, with IFC being the surviving
corporation. Uncertainty as to when IFC could obtain an effective registration
statement on Form S-4 to complete the merger caused delays in IFC obtaining
external debt and equity funding and also impeded negotiations for additional
acquisitions. On October 30, 2009, PGRA’s former board of directors comprised of
John C. Antenucci agreed with IFC to restructure the transaction to provide for
PGRA’s acquisition of more than ninety percent of IFC’s issued and outstanding
common stock and its merger into PGRA. Colorado corporate law permits the merger
of a subsidiary company owned ninety percent or more by a parent company into
the parent company without stockholder approval.
In
furtherance of this change to the plan to combine IFC and PGRA, as approved by
the board of directors of each corporation on November 11, 2009, common stock
amounting to 20,228,246 shares of IFC’s outstanding common stock were
transferred by its stockholders to Jackson L. Morris, trustee for The Integrated
Freight Stock Exchange Trust, a Florida business trust (“Trust”). IFC also
transferred the 401,559,467 shares of PGRA’s common stock that it owned to the
Trust. PGRA then exchanged 1,406,284,229 shares of its unissued common stock for
the 20,228,246 shares of IFC, after which PGRA effectively owns 94.787 percent
of IFC outstanding shares which are held in the Trust. As a result of this
transfer and exchange, the Trust now holds 1,807,842,696 of our shares.
Consequently the requirements of Colorado law that PGRA own ninety percent or
more of IFC in order to complete the merger without stockholder approval were
been met.
Acquisition
of IFC. On December 22, 2009, PGRA filed articles of merger in the State of
Florida; and, on December 23, 2009, in the State of Colorado. Pursuant to these
articles of merger, Integrated Freight Corporation (“IFC”) merged into PGRA with
PGRA being the surviving corporation.
F-29
PLANGRAPHICS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September
30, 2009 and 2008
NOTE
N – SUBSEQUENT EVENTS (Continued)
Sale of
PGI-MD. On December 27, 2009, the Company completed the sale of its historical
operating subsidiary, PGI-MD, to Mr. Antenucci, a former director and chief
executive officer of the Company, pursuant to an agreement executed as of May 1,
2009, in connection with IFC’s acquisition of control of PGRA. As a
result:
•
|
PGRA
will transfer all of its assets to PGI-MD, excluding the stock it owns in
PGI-MD and PGI-MD will assume all of PGRA’s debts and obligations at May
1, 2009, excluding $28,000 in auditing
fees.
|
•
|
PGRA
will sell the stock of PGI-MD to Mr. Antenucci. Mr. Antenucci will pay for
the stock of PGI-MD by (1) relieving PGRA from its obligation to make
severance payments and forego any claim associated with the obligations
pursuant to Mr. Antenucci’s Executive Employment Agreement, and (2)
voluntarily terminating his Executive Employment
Agreement.
|
Pending
Shareholder Vote. On December 28, 2009, the Company filed with the SEC a
Preliminary Information Statement on Schedule 14C for a special stockholders
meeting at which three proposals will be approved by the Trust, as a majority
stockholder. These proposals are a reverse stock split in a ratio of one new
share for each 244.8598 shares outstanding, a change of the Company’s state of
incorporation to Florida from Colorado and a change in the Company’s name to
Integrated Freight Corporation.
The
Company has evaluated events and transactions that occurred subsequent to
September 30, 2009 through January 12, 2010, the date the financial statements
were issued, for potential recognition or disclosure in the accompanying
financial statements. Other than the disclosures shown, we did not identify any
other events or transactions that would need to be recognized or disclosed in
the accompanying consolidated financial statements.
F-30
CONSOLIDATED FINANCIAL STATEMENTS
OF
INTEGRATED
FREIGHT CORPORATION
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
F-32
|
Consolidated
Balance Sheet at March 31, 2009
|
F-33
|
Consolidated
Statement of Operations from May 13, 2008 (inception) through March 31,
2009
|
F-34
|
Consolidated
Statement of Changes in Stockholders’ Deficit from May 13, 2008
(inception) through
|
F-35
|
March
31, 2009
|
|
Consolidated
Statement of Cash Flows from May 13, 2008 (inception) through March 31,
2009
|
F-36
|
Notes
to Consolidated Financial Statements
|
F-37
|
F-31
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders
Integrated
Freight Corporation
Sarasota,
Florida
We have
audited the accompanying consolidated balance sheet of Integrated Freight
Corporation as of March 31, 2009, and the related consolidated statements of
operations, changes in stockholders’ deficit and cash flows from May 13, 2008
(inception) through March 31, 2009. These consolidated 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 in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. 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, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Integrated Freight
Corporation as of March 31, 2009, and the results of their operations and their
cash flows from May 13, 2008 (inception) through March 31, 2009 in conformity
with accounting principles generally accepted in the United States of
America.
/s/
Cordovano and Honeck LLP
Cordovano
and Honeck LLP
Englewood,
Colorado
July 24,
2009
F-32
INTEGRATED
FREIGHT CORPORATION
Consolidated
Balance Sheet
March
31, 2009
Assets
|
|||
Current
assets:
|
|||
Cash
|
$
|
158,442
|
|
Accounts
receivable, net of allowance for doubtful accounts of
$50,000
|
2,061,297
|
||
Deferred
finance costs, net of amortization of $79,130
|
135,220
|
||
Prepaid
expenses
|
187,475
|
||
Total
current assets
|
2,542,434
|
||
Property
and equipment, net of accumulated depreciation of
$6,748,293 (Note 3)
|
7,193,426
|
||
Intangible
assets, net of accumulated amortization of $298,521 (Note
4)
|
1,236,730
|
||
Other
assets
|
123,331
|
||
Total
assets
|
$
|
11,095,921
|
|
Liabilities
and Stockholders’ Deficit
|
|||
Current
liabilities:
|
|||
Bank
overdraft
|
$
|
497,541
|
|
Accounts
payable
|
337,819
|
||
Accrued
and other liabilities
|
639,933
|
||
Line
of credit (Note 5)
|
630,192
|
||
Notes
payable - related parties (Note 7)
|
1,075,000
|
||
Current
portion of notes payable (Note 6)
|
3,942,592
|
||
Total
current liabilities
|
7,123,077
|
||
Notes
payable, net of current portion (Note 6)
|
4,184,293
|
||
Total
liabilities
|
11,307,370
|
||
Minority
interest
|
303,393
|
||
Stockholders’
deficit:
|
|||
Common
stock, $0.001 par value, 50,000,000 shares authorized, 17,798,250
shares
|
|||
Issued
and outstanding (Note 9)
|
17,798
|
||
Additional
paid-in capital
|
1,041,276
|
||
Retained
deficit
|
(1,573,916)
|
||
Total
stockholders’ deficit
|
(514,842)
|
||
Total
liabilities and stockholders’ deficit
|
$
|
11,095,921
|
|
See
notes to consolidated financial
statements
|
F-33
INTEGRATED
FREIGHT CORPORATION
Consolidated
Statement of Operations for the period from May 13, 2008
(inception)
through March 31, 2009
Revenue
|
$
|
10,460,113
|
||
Operating
Expenses
|
||||
Rents
and transportation
|
2,060,175
|
|||
Wages,
salaries & benefits
|
3,294,275
|
|||
Fuel
and fuel taxes
|
3,430,465
|
|||
Depreciation
and amortization
|
1,129,034
|
|||
Insurance
and claims
|
529,592
|
|||
Operating
taxes and licenses
|
143,479
|
|||
General
and administrative
|
919,602
|
|||
Total
Operating Expenses
|
11,506,622
|
|||
Other
Expenses
|
||||
Interest
|
457,930
|
|||
Interest
- related parties
|
50,838
|
|||
Other
Income
|
(102,327)
|
|||
Total
Other Expenses
|
406,441
|
|||
Net
loss before minority interest
|
$
|
(1,452,950)
|
||
Minority
interest share of subsidiary net income
|
$
|
(18,615)
|
||
Net
loss
|
$
|
(1,471,565)
|
||
Net
loss per share - basic and diluted
|
$
|
(0.12)
|
||
Weighted
average common shares outstanding - basic and diluted
|
12,667,988
|
|||
See
notes to consolidated financial
statements
|
F-34
INTEGRATED
FREIGHT CORPORATION
Consolidated
Statement of Stockholders’ Deficit for the period from May 13, 2008
(inception)
through March 31, 2009
Common
Stock
|
Additional
|
|||||||||||||||
Shares
|
Par
Value
|
Paid-in
Capital
|
Retained
Deficit
|
Total
|
||||||||||||
Balance
at May 13, 2008 (inception)
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
|||||||
Common
stock issued to officers in exchange
|
||||||||||||||||
for
organizational services (Note 9)
|
7,000,000
|
7,000
|
—
|
—
|
7,000
|
|||||||||||
Common
stock issued in exchange
|
||||||||||||||||
for
services (Note 9)
|
2,450,000
|
2,450
|
242,550
|
—
|
245,000
|
|||||||||||
Common
stock issued to acquire Smith Systems
|
||||||||||||||||
Transportation,
Inc. (Note 11)
|
825,000
|
825
|
81,675
|
82,500
|
||||||||||||
Common
stock issued to acquire Morris
|
||||||||||||||||
Transportation,
Inc. (Note 11)
|
3,000,000
|
3,000
|
297,000
|
300,000
|
||||||||||||
Sale
of common stock (Note 9)
|
1,580,000
|
1,580
|
143,920
|
—
|
145,500
|
|||||||||||
Shareholder
distributions
|
—
|
—
|
—
|
(187,351)
|
(187,351)
|
|||||||||||
Shareholder
contributions
|
—
|
—
|
—
|
85,000
|
85,000
|
|||||||||||
Common
stock and warrants issued as deferred
|
||||||||||||||||
finance
costs on notes payable (Note 9)
|
2,150,000
|
2,150
|
212,850
|
—
|
215,000
|
|||||||||||
Finder's
fee paid in common stock (Note 9)
|
400,000
|
400
|
(400)
|
—
|
—
|
|||||||||||
Common
stock issued to extend loan (Note 9)
|
393,250
|
393
|
38,932
|
—
|
39,325
|
|||||||||||
Fair
value of warrants issued with short-term
|
||||||||||||||||
note
payable (Note 9)
|
—
|
—
|
24,749
|
—
|
24,749
|
|||||||||||
Net
loss
|
—
|
—
|
—
|
(1,471,565)
|
(1,471,565)
|
|||||||||||
Balance
at March 31, 2009
|
17,798,250
|
$
|
17,798
|
$
|
1,041,276
|
$
|
(1,573,916)
|
$
|
(514,842)
|
|||||||
See
notes to consolidated financial statements
|
||||||||||||||||
F-35
INTEGRATED
FREIGHT CORPORATION
Consolidated
Statement of Cash Flows for the period from May 13, 2008
(inception)
through March 31, 2009
Net
loss
|
$
|
(1,471,565)
|
|||||||
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
|||||||||
Depreciation
and amortization
|
1,129,034
|
||||||||
Debt
discount amortization
|
21,538
|
||||||||
Deferred
finance cost amortization
|
79,130
|
||||||||
Loss
on asset dispositions
|
73,480
|
||||||||
Minority
interest in earnings of subsidiary
|
18,615
|
||||||||
Stock
Issued for stock based compensation
|
252,000
|
||||||||
Stock
issued for interest
|
39,325
|
||||||||
Increases/decreases
in operating assets and liabilities:
|
|||||||||
Accounts
receivable
|
1,052,400
|
||||||||
Prepaid
expenses
|
68,070
|
||||||||
Other
assets
|
(83,331)
|
||||||||
Bank
overdraft
|
28,757
|
||||||||
Accounts
payable
|
(17,306)
|
||||||||
Accrued
and other liabilities
|
226,550
|
||||||||
Net
cash provided by operating activities
|
1,416,697
|
||||||||
Cash
flows from investing activities:
|
|||||||||
Purchase
of property and equipment
|
(80,818)
|
||||||||
Proceeds
from asset dispositions
|
65,940
|
||||||||
Cash
proceeds from acquisitions of subsidiaries
|
154,707
|
||||||||
Net
cash provided by investing activities
|
139,829
|
||||||||
Cash
flows from financing activities:
|
|||||||||
Repayments
of notes payable, and
|
(1,381,726)
|
||||||||
Proceeds
of long term debt
|
164,026
|
||||||||
Payment
on line of credit
|
(223,536)
|
||||||||
Proceeds
from sale of common stock
|
145,500
|
||||||||
Distributions
paid to common shareholders
|
(187,348)
|
||||||||
Contributions
received from stockholders
|
85,000
|
||||||||
Net
cash used in financing activities
|
(1,398,084)
|
||||||||
Net
change in cash
|
158,442
|
||||||||
Cash,
beginning of period
|
-
|
||||||||
Cash,
end of period
|
$
|
158,442
|
|||||||
Supplemental
disclosure of cash flow information:
|
|||||||||
Cash
paid during the period for:
|
|||||||||
Income
taxes
|
$
|
-
|
|||||||
Interest
|
$
|
314,329
|
|||||||
Schedule
of noncash investing and financing transactions:
|
|||||||||
Common
stock issued for acquisition of subsidiaries
|
|||||||||
Common
stock issued in purchase
|
$
|
382,500
|
|||||||
Notes
payable issued in purchase
|
850,000
|
||||||||
Less:
assets received in purchase, net of cash
|
(13,027,033)
|
||||||||
Plus:
liabilities assumed during purchase
|
11,664,462
|
||||||||
Minority
interest
|
284,778
|
||||||||
Net
cash received at purchase
|
$
|
154,707
|
|||||||
Common
stock issued for stock based compensation
|
$
|
252,000
|
|||||||
Common
Stock and warrants issued for deferred finance costs, extension
of
|
|||||||||
loans
and with notes payable
|
$
|
279,074
|
|||||||
See
notes to consolidated financial
statements
|
F-36
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
1. Nature
of Operations and Summary of Significant Accounting Policies
Nature
of Business
Integrated
Freight Corporation (a
Florida corporation) and subsidiaries (the “Company”) is a short to medium-haul
truckload carrier of general commodities headquartered in Sarasota, Florida. The
Company also has service centers located throughout the United
States. The Company provides dry van, hazardous materials, and
temperature controlled truckload carriers and intends to open brokerage
services. The Company is subject to regulation by the Department of
Transportation and various state regulatory authorities.
Principles
of Consolidation
The
consolidated financial statements include the financial statements of Integrated
Freight Corporation
(“IFC”), and its wholly owned subsidiaries, Morris Transportation, Inc.
(“Morris”) and Smith Systems Transportation, Inc. (“Smith”). Smith
holds a 60% ownership interest in SST Financial Group, LLC
(“SSTFG”). All significant intercompany balances and transactions
within the Company have been eliminated upon consolidation.
Use
of Estimates
The
financial statements contained in this report have been prepared in conformity
with accounting principles generally accepted in the United States of
America. The preparation of these statements requires us to make estimates
and assumptions that directly affect the amounts reported in such statements and
accompanying notes. Management evaluates these estimates on an ongoing
basis utilizing historical experience, consulting with experts and using other
methods we consider reasonable in the particular circumstances.
Nevertheless, the Company’s actual results may differ significantly from our
estimates.
Management
believes that certain accounting policies and estimates are of more significance
in our financial statement preparation process than others. Management
believes the most critical accounting policies and estimates include the
economic useful lives and salvage values of our assets, provisions for
uncollectible accounts receivable, and estimates of exposures under our
insurance and claims plans. To the extent that actual, final outcomes are
different than our estimates, or additional facts and circumstances cause the
Company to revise the estimates, the earnings during that accounting period will
be affected.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. The Company had no
cash equivalents at March 31, 2009.
Accounts
Receivable Allowance
The
Company makes estimates of the collectability of the accounts receivable. The
Company specifically analyzes accounts receivable and historical bad debts,
client credit-worthiness, current economic trends, and changes in the client
payment terms and collection trends when evaluating the adequacy of the
allowance for doubtful accounts. Any change in the assumptions used in
analyzing a specific account receivable may result in additional allowance for
doubtful accounts being recognized in the period in which the change
occurs.
Accordingly,
the Company made a $50,000 allowances for uncollectible accounts and revenue
adjustments as of March 31, 2009.
F-37
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
1. Nature
of Operations and Summary of Significant Accounting Policies
(continued)
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation. Depreciation of
property and equipment is calculated on the straight-line method over the
following estimated useful lives:
Years
|
|
Land
improvements
|
7-
10
|
Buildings
/ improvements
|
20
- 30
|
Furniture
and fixtures
|
3 –
5
|
Shop
and service equipment
|
2 –
5
|
Revenue
equipment
|
3
- 5
|
Leasehold
improvements
|
1 –
5
|
The
Company expenses repairs and maintenance as incurred. The Company
periodically reviews the reasonableness of its estimates regarding useful lives
and salvage values for revenue equipment and other long-lived assets based upon,
among other things, the Company's experience with similar assets, conditions in
the used revenue equipment market, and prevailing industry
practice. Salvage values are typically 15% to 20% for tractors and
trailing equipment and consider any agreements with tractor suppliers for
residual or trade-in values for certain new equipment. The Company
capitalizes tires placed in service on new revenue equipment as a part of the
equipment cost. Replacement tires and costs for recapping tires are
expensed at the time the tires are placed in service. Gains and losses on
the sale or other disposition of equipment are recognized at the time of the
disposition.
Deferred
Finance Charge
Costs
incurred to obtain financing are recorded as a deferred finance charge and is
amortized over the initial term of the loan agreement on the interest
method.
Intangible
Assets
The
Company accounts for business combinations in accordance with SFAS No. 141,
Business Combinations,
which requires that the purchase method of accounting be used for all business
combinations. SFAS 141 requires intangible assets acquired in a business
combination to be recognized and reported separately from goodwill.
Goodwill
represents the cost of the acquired businesses in excess of the fair value of
identifiable tangible and intangible net assets purchased. The Company assigns
all the assets and liabilities of the acquired business, including goodwill, to
reporting units in accordance with SFAS No. 142, Goodwill and Other Intangible
Assets. Our business combinations did not result in any
goodwill as of March 31, 2009.
The
Company evaluates intangible assets for recoverability whenever events or
changes in circumstances indicate that their carrying amounts may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the future undiscounted net
cash flows expected to be generated by the asset. If these assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying value of the assets exceeds the fair value of the
assets.
F-38
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
1. Nature
of Operations and Summary of Significant Accounting Policies
(continued)
Furthermore,
SFAS No. 142 requires purchased intangible assets other than goodwill to be
amortized over their useful lives unless these lives are determined to be
indefinite. Purchased intangible assets are carried at cost less accumulated
amortization. No impairment of intangibles has been identified since the date of
acquisition.
Impairment
of Long-lived Assets
In
accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, long-lived assets and certain identifiable
intangible assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
evaluated by a comparison of the carrying amount of assets to estimated
undiscounted net cash flows expected to be generated by the assets. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amounts of the assets exceed the
fair value of the assets. There has been no impairment as of March 31,
2009.
Revenue
Recognition
The
Company recognizes revenues on the date the shipments are delivered to the
customer. Revenue includes transportation revenue, fuel surcharges,
loading and unloading activities, equipment detention, and other accessorial
services. Revenue is recorded on a gross basis, without deducting
third party purchased transportation costs, as the Company acts as a principal
with substantial risks as primary obligor.
Advertising
Costs
The
Company charges advertising costs to expense as incurred. During the
period ended March 31, 2009, advertising expense was approximately
$4,217.
Income
Taxes
The
Company accounts for income taxes under the asset and liability method, which
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements. Under this method, deferred tax assets and liabilities are
determined based on the differences between the financial statements and tax
basis of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. The effect of a
change in tax rates on deferred tax assets and liabilities is recognized in
income in the period that includes the enactment date.
The
Company records net deferred tax assets to the extent it believes these assets
will more likely than not be realized. In making such determination, the Company
considers all available positive and negative evidence, including scheduled
reversals of deferred tax liabilities, projected future taxable income, tax
planning strategies and recent financial operations.
The
Company recognizes a tax benefit from an uncertain tax position when it is
more likely than not that the position will be sustained upon examination,
including resolutions of any related appeals or litigation processes, based on
the technical merits.
F-39
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
1. Nature
of Operations and Summary of Significant Accounting Policies
(continued)
Stock-based
Compensation
The
Company has adopted the fair value recognition provisions of Financial
Accounting Standards Board (FASB), Statement of Financial Accounting Standards,
Share-Based Payment, or
SFAS No. 123(R), using the modified prospective application method. Under
SFAS No. 123R, stock-based compensation expense is measured at the
grant date based on the value of the option or restricted stock and is
recognized as expense, less expected forfeitures, over the requisite service
period.
Concentrations
of Credit Risk
Financial
instruments, which potentially subject the Company to concentrations of credit
risk, include cash and trade receivables. For the period ended March 31,
2009, the Company’s top four customers, based on revenue, accounted for
approximately 35%, of the total revenue. The Company’s top four customers,
based on revenue, accounted for approximately 35% of the total trade accounts
receivable at March 31, 2009.
Financial
instruments with significant credit risk include cash. The Company deposits its
cash with high quality financial institutions in amounts less than the federal
insurance limit of $250,000 in order to limit credit risk. As of March 31, 2009,
the Company's bank deposits did not exceed insured limits.
Fair
Value of Financial Instruments
The
carrying amounts of cash, accounts receivable and accounts payable approximate fair value
because of their short maturities. At March 31, 2009, the Company had $630,192
outstanding under its revolving credit agreement, and approximately $ 9,201,885,
including $1,075,000 with related parties, outstanding under promissory notes
with various lenders. The carrying amount of the revolving credit
agreement approximates fair value as the rate of interest on the revolving
credit facility approximate current market rates of interest for similar
instruments with comparable maturities, and the interest rate is
variable. The fair value of notes payable to various lenders is based
on current rates at which the Company could borrow funds with similar remaining
maturities.
Losses
resulting from personal liability, physical damage, workers' compensation, and
cargo loss and damage are covered by insurance subject to deductible, per
occurrence. Losses resulting from uninsured claims are recognized when such
losses are known and can be estimated. The Company estimates and accrues a
liability for the share of ultimate settlements using all available information.
The Company accrues for claims reported, as well as for claims incurred but not
reported, based upon our past experience. Expenses depend on actual loss
experience and changes in estimates of settlement amounts for open claims which
have not been fully resolved. These accruals are based on our evaluation of the
nature and severity of the claim and estimates of future claims development
based on historical trends. Insurance and claims expense will vary based on the
frequency and severity of claims and the premium expense. At March
31, 2009, management estimated $-0- in claims accrual.
F-40
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
1. Nature
of Operations and Summary of Significant Accounting Policies
(continued)
Earnings
per Share
The
Company calculates earnings per share in accordance with SFAS No. 128,
“Earnings per Share.”
Basic income per share is computed by dividing the net income by the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share is computed similar to basic income per share except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if the potential common stock equivalents had been
issued and if the additional common shares were dilutive. The
$600,000 note payable to the previous owner of Morris Transportation is
convertible at the election of the holder into common stock at $1 per
share.
At March
31, 2009, there was no variance between the basic and diluted loss per
share. The 675,000 warrants to purchase common shares outstanding at
March 31, 2009 are not included in the weighted-average number of shares
computation for diluted earnings per common share, as the warrants are
anti-dilutive.
Recent
Accounting Pronouncements
In May
2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles (“SFAS No.
162”). SFAS No. 162 identifies the source of accounting principles
and the framework for selecting the principles used in the preparation of
financial statements that are presented in accordance with accounting principles
generally accepted in the United States. This statement will be
effective 60 days following the Securities and Exchange Commission’s approval of
the Public Company Accounting Oversight Board amendments to AU Section 411, “The
Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles.” The Company does not expect the adoption of SFAS No. 162
to have a material impact on the Company’s financial condition, results of
operations, and disclosures.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements – an Amendment of ARB 51 (“SFAS No.
160”). This statement amends ARB 51 and revises accounting and
reporting requirements for noncontrolling interests (formerly minority
interests) in a subsidiary and for the deconsolidation of a
subsidiary. Upon the adoption of SFAS No. 160 on April 1, 2009, any
noncontrolling interests will be classified as equity, and income attributed to
the noncontrolling interest will be included in the Company’s
income. The provisions of this standard are applied retrospectively
upon adoption.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations, (“SFAS No. 141(R)”). SFAS No. 141(R) clarifies and
amends the accounting guidance for how an acquirer in a business combination
recognizes and measures the assets acquired, liabilities assumed, and any
noncontrolling interest in the acquiree. The provisions of SFAS No.
141(R) are effective for the Company for any business combinations occurring on
or after January 1, 2009.
F-41
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
1. Nature
of Operations and Summary of Significant Accounting Policies
(continued)
In
December 2008, the FASB issued FSP No. FAS 140-4 and FIN 46(R)-8, which amends
SFAS No. 140, to require additional disclosures about transfers of financial
assets. The FSP also amended FASB Interpretation No. 46(R), to
provide additional disclosures about entities’ involvement with variable
interest entities. The FSP’s scope is limited to disclosure only and
is not expected to have an impact on the Company's consolidated financial
position or results of operations. The Company does not expect the adoption of
SFAS No. 162 to have a material impact on the Company’s financial
condition, results of operations, and disclosures.
From
inception to date, we have not entered into any transactions with our directors
and executive officers, outside of normal employment transactions, or with their
relatives and entities they control; except for the following:
·
|
The
Company issued 6,500,000 shares of our common stock to Mr. Henley for his
services related to founding our corporation as well as organizational and
start-up expenses in the amount of approximately $1,786. Mr. Henley is our
founder and was our sole director at the date the issue of stock was
approved. We also issued 500,000 shares to Mr. J. Morris for his services
performed in our organization and start up. The stock issuances have been
recorded based upon the estimated fair value of the services
rendered.
|
·
|
The
Company issued 150,000 shares of its common stock to Mr. Lusty, Chief
Operating Officer as part of an employment
contract.
|
·
|
As
described in Note 11, the Company acquired the stock of Morris and Smith
and issued notes payable to the previous owners of those companies
totaling $850,000. Unpaid interest of $39,682 was accrued on
those notes through March 31, 2009.
|
Note
3. Property
and Equipment
Property
and equipment consist of the following at March 31, 2009:
IFC
|
Smith
|
Morris
|
Consolidated
|
|
Property
Plant and Equipment
|
$
46,472
|
$6,444,400
|
$
7,450,847
|
$13,941,719
|
Less:
accumulated depreciation
|
(3,485)
|
3,359,627
|
(3,385,181)
|
(6,748,293)
|
Total
|
$
42,987
|
$3,084,773
|
$
4,065,666
|
$7,193,426
|
Depreciation
expense totaled $830,513 for the period ended March 31, 2009.
Note
4. Intangible
Assets
The Company purchased the stock of
Smith and Morris, see Note 11, which resulted in the recognition of intangibles
assets. These intangible assets include the “employment and
non-compete agreements” which are critical to Company because of the management
team’s business intelligence and customer relationship value which is required
to execute the Company’s business plan. The intangibles also include
their “company operating authority” which is tied to their motor carrier number
that is issued and monitored by the U.S. Department of Transportation
(FDOT). The FDOT issues a rating to each company which has a direct
impact on that company’s ability to attract and maintain a stable customer base
as well as reduce the Company’s insurance costs, one of the most significant
expenditure for freight companies. Both Morris and Smith have the
FDOT’s highest rating, “Satisfactory,” which provides the Company with
significant value. As of March 31, 2009, these intangible are as
follows:
F-42
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
4. Intangible
Assets (continued)
Employment
and non-compete agreements
|
$
|
1,043,293
|
|
Company
operating authority
|
491,958
|
||
Total
intangible assets
|
1,535,251
|
||
Less:
accumulated amortization
|
(298,521)
|
||
Intangible
assets, net
|
$
|
1,236,730
|
Amortization
expense totaled $298,521 for the seven months ended March 31, 2009.
The
intangible assets acquired in the business combination are expected to amortize
over the next three years as follows:
March
31,
|
||
2010..........................................................................................
|
511,750
|
|
2011..........................................................................................
|
511,750
|
|
2012..........................................................................................
|
213,230
|
|
$
|
1,236,730
|
Note
5. Line
of Credit
Morris Revolving
Credit
At March
31, 2009, Morris has $630,192 outstanding under a revolving credit line
agreement that allows them to borrow up to a total of $1,500,000. The line of
credit is secured by accounts receivable, guaranteed by a previous owner and is
due on demand. The applicable interest rate under this agreement is
based on the LIBOR plus 3.5%. The line has financial covenants that require
Morris to maintain a tangible net worth of not less than $700,000 and a fixed
charge coverage ratio of at least 1 to 1. Morris is currently in
default of these covenants but believe they can negotiate a successful
resolution with the lender.
F-43
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
6. Notes
Payable
Notes
payable owed by Smith consisted of the following as of March 31,
2009:
Notes
payable to bank, due December 2012, payable in monthly installments of
$65,000, interest of 9% collateralized by substantially all of Smith
assets
|
$
|
2,357,890
|
Notes
payable to bank, due April 2010, with monthly interest payments of 9%,
collateralized by substantially all of Smith assets
|
1,766,721
|
|
Note
payable to Platte Valley National Bank, due December 2010, payable in
monthly installments of $1,423, with interest at 9.5% collateralized
vehicle.
|
27,047
|
|
Notes
payable to Daimler Chrysler, due 2010, Payable in monthly installments of
$10,745, interest ranging from 8-9%, collateralized by 6
units.
|
112,309
|
|
Note
payable to Floyds, due 2010, payable in monthly installments of $2,664
with interest at 8.5% unsecured.
|
9,564
|
|
Note
payable to General Motors due November 2009, payable in monthly
installments of $778, with interest at 8% secured by a
vehicle.
|
4,744
|
|
Note
payable to Nissan Motors due June 2011, payable in monthly installments of
$505, with interest at 37% secured by a vehicle.
|
15,278
|
|
Unsecured,
non-interest bearing note payable to Colorado Holdings, due 2010, payable
in monthly installments of $1,250.
|
32,690
|
|
Total
|
$
|
4,326,243
|
The
carrying amount of Smith assets pledged as collateral for the installment notes
payable totaled $3,067,624 at March 31, 2009.
Notes
payable owed by Morris consisted of the following as of March 31,
2009:
Notes
payable to Chrysler Financial payable in monthly installments ranging from
$569 to $5,687 including interest through May 2013 with interest rate
ranging from 5.34% to 8.07% secured by equipment
|
$2,041,641
|
|
Notes
payable to Banks payable in monthly installments ranging from $1,805 to
$5,829 including interest through June 2010 with interest rate ranging
from 5.9% to 7.25% secured by equipment
|
130,083
|
|
Notes
payable to GE Financial payable in monthly installments ranging from
$2,999 to $7,535 including interest through April 2013 with interest rate
ranging from 6.69% to 8.53% secured by equipment
|
1,209,669
|
|
6.9%
note payable to a GMAC Financial in installments of $667
including interest, through August 2013 secured by a
vehicle
|
143,845
|
|
8.59%
note payable to a Wells Fargo Bank payable in monthly installments of
$4,271 including interest, through October 2011 secured by
equipment
|
129,143
|
|
Totals
|
$
|
3,654,381
|
F-44
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
6. Notes
Payable (continued)
Notes
payable owed by IFC consisted of the following as of March 31,
2009:
Note
payable to Tangiers payable in May to 2009, with interest rate of 9.9%,
collateralized by assets of IFS with unamortized discount of
$3,211.
|
$
|
44,789
|
Notes
payable to Tangiers payable in January 2010, with interest rate of 9.9%,
collateralized by assets of IFS and personally guaranteed by three
stockholders and managers of the Company.
|
60,000
|
|
Note
payable to Ford Credit, principal and 16.8% interest payment of $885 due
monthly, collateralized by truck used by Stockholder.
|
41,472
|
|
$
|
146,261
|
Future
maturities of notes payable for the five years subsequent to March 31,
2009, are as follows:
March
31,
|
||
2010..........................................................................................
|
3,942,592
|
|
2011..........................................................................................
|
1,764,806
|
|
2012..........................................................................................
|
1,503,798
|
|
2013..........................................................................................
|
852,860
|
|
2013..........................................................................................
|
|
62,829
|
$
|
8,126,885
|
Note
7. Notes
Payable – Related Parties
Notes
payable owed by the Company to related parties at March 31, 2009 is as
follows:
Note
payable to related party, from acquisition described in note 11, to
previous owner of Morris, with interest of 8%, secured by all shares of
Morris common stock, principal and interest due by October 31,
2009.
|
$
|
600,000
|
Notes
payable to related party, from acquisition described in note 11, to
previous owners of Smith, with interest of 8%, secured by all shares of
Smith common stock, principal and interest due October 31,
2009.
|
250,000
|
|
8.5%
note payable to previous owner, due on demand.
|
225,000
|
|
$
|
1,075,000
|
Note
8. Income
Taxes
The
Company accounts for income taxes under SFAS 109, which requires use of the
liability method. SFAS 109 provides that deferred tax assets and liabilities are
recorded based on the differences between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes,
referred to as temporary differences.
F-45
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
8. Income
Taxes (continued)
Deferred
tax assets and liabilities at the end of each period are determined using the
currently effective tax rates applied to taxable income in the periods in which
the deferred tax assets and liabilities are expected to be settled or realized.
The reconciliation of enacted rates the year ended March 31, 2009 is as
follows:
2009
|
|
Federal
|
34%
|
State
|
0%
|
Net
operating loss carry forward
|
--
|
Increase
in valuation allowance
|
(34%)
|
-
|
At March
31, 2009, the Company had a net operating loss carry forward of approximately
$2,800,000 which can be offset against future taxable income. However $2,200,000
of that may be subject to limitations imposed by the Internal Revenue Service.
This carry-forward is subject to review by the Internal Revenue Service and, if
allowed, may be offset against taxable income through 2029. A portion
of the net operating loss carryovers begin expiring in 2019.
Deferred
tax assets are as follows:
2009
|
||
Deferred
tax asset due to net operating loss
|
$
|
1,147,579
|
Valuation
allowance
|
(1,147,579)
|
|
Net
Asset Less Liability
|
-
|
The
deferred tax asset relates principally to the net operating loss carry-forward.
A valuation allowance was established at March 31 2009 to eliminate the deferred
tax benefit that existed at that time since it is uncertain if the tax benefit
will be realized. The deferred tax asset (and the related valuation allowance)
increased by $1,147,579 for the period May 18, 2008 (inception) to March 31,
2009.
Note
9. Shareholders’
Deficit
Common
Stock
On May
13, 2008, the Company issued 7,000,000 shares of its common stock to its
officers, directors, and other individuals at par value in exchange for work and
services attendant to the organization of the Company. The Company
recorded $7,000 of expense on these shares
In May
and July 2008, in total, the Company issued 2,300,000 shares of common stock for
various consulting services and recognized an expense of $230,000.
On July
14, 2008, the Company sold 100,000 shares of common stock for
$10,000.
On August
28, 2008, the Company issued 825,000 shares of its common stock to the
stockholders of Smith Systems Transportation, Inc. as part of a business
combination (see Note 11).
F-46
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
9. Shareholders’
Deficit
On
September 12, 2008, the Company issued 3,000,000 shares of its common stock to
the stockholders of Morris Transportation, Inc. as part of a business
combination (see Note 11).
In
November 2008 and January 2009, the Company issued 2,150,000 shares in
consideration of receiving debt financing as described in Note 6. The
Company recorded $312,500 of deferred financing costs as a result of issuing
these shares. These deferred financing costs are amortized over the
term of the debt.
In
February 2009, the Company issued 105,000 shares of common stock for $0.10 per
share.
On
February 26, 2009 The Company issued 393,250 shares of common stock to the
holder of a note payable by the Company in order to extend the maturity date of
the note payable for 90 days. The $39,325 value of the stock was
recorded as interest expense.
On March
10, 2009, the Company issued 150,000 shares of its common stock to the Chief
Operating Officer upon execution of an employment agreement. The
stock’s fair market value of $15,000 was recognized as compensation
expense.
In March
2009, the Company issued 1,375,000 shares of common stock for $137,500, less
$12,500 in fees. The Company also issued 400,000 shares of common
stock and warrants to purchase another 350,000 shares as a finders’ fee to the
companies that introduced the buyers to IFC. In May 2009, the Company
agreed that there was an error in the amount of shares and warrants issued to
the two entities that found the purchaser and issued another 137,500 common
shares and warrants to purchase 68,572 common shares.
Warrants
to Purchase Common Stock
On
November 26, 2008 the Company’s Board of Directors issued 325,000 common stock
warrants as payment for an incentive to extend a senior subordinated secured
debenture totaling $48,000. The warrants vested immediately, carry an exercise
price of $0.10 and expire on November 26, 2011. The Company’s common
stock had no quoted market price on the date of issuance. The Company
valued the warrants at $.157 per share, or $51,025 in aggregate, in accordance
with SFAS 123R. Stock-based compensation expense recognized is based
on awards ultimately expected to vest and has been reduced for estimated
forfeitures. SFAS 123R requires forfeitures to be estimated at the
time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.
On March
7, 2009 the Company issued 350,000 common stock warrants as payment for a
finder’s fee. The warrants vested immediately, carry an exercise price of $.01
and expire on March 6, 2014. The Company’s common stock had no quoted
market price on the date of issuance. The Company valued the warrants
at $.09 per share, or $31,500 in aggregate, in accordance with SFAS
123R. Stock-based compensation expense recognized is based on awards
ultimately expected to vest and has been reduced for estimated
forfeitures. SFAS 123R requires forfeitures to be estimated at the
time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.
F-47
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
The fair
value for the warrants was estimated at the date of valuation using the
Black-Scholes option-pricing model with the following
assumptions:
Risk-free
interest rate
|
1.38-
2.57%
|
Dividend
yield
|
0.00%
|
Volatility
factor
|
59.552%
|
Expected
life
|
3.84
years
|
The
relative fair value of the warrants, calculated in accordance with Accounting
Principles Board (“APB”) Opinion 14, “Accounting for Convertible Debt and Debt
issued with Stock Purchase Warrants”; totaled $24,749, or $.076 per share.
The relative fair value of the warrants issued with the debenture has been
charged to additional paid-in capital with a corresponding discount on the note
payable. The discount is amortized over the life of the debt. As the
discount is amortized, the reported outstanding principal balance of the notes
will approach the remaining unpaid value ($18,546 at March 31, 2009).
A summary
of the grant activity for the years ended March 31, 2009, is presented
below:
Weighted
|
||||||||
Weighted
|
Average
|
|||||||
Stock
Awards
|
Average
|
Remaining
|
Aggregate
|
|||||
Outstanding
|
Exercise
|
Contractual
|
Intrinsic
|
|||||
&
Exercisable
|
Price
|
Term
|
Value
|
|||||
Balance,
May 13, 2008
|
-
|
N/A
|
N/A
|
N/A
|
||||
Granted
|
675,000
|
$ 0.10
|
3.84
years
|
-
|
||||
Exercised
|
N/A
|
N/A
|
N/A
|
|||||
Expired/Cancelled
|
-
|
N/A
|
N/A
|
N/A
|
||||
Balance,
March 31, 2009
|
675,000
|
$ 0.10
|
3.84
years
|
$
-
|
As of
March 31, 2009, the number of warrants that were currently vested and expected
to become vested was 675,000.
Note
10. Commitments
and Contingencies
Operating
Leases
The
Company leases office space in Sarasota, Florida under a one year operating
lease with two additional one year extension at the option of the
Company. The Company pays $695 per month, which increases to $770 per
month in October 2009 if the Company elects to exercise its option for
additional years under the lease.
F-48
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
10. Commitments
and Contingencies (continued)
Employment
Agreements
The
Company entered into three year employment agreements with four executives of
the Company. The Company is committed to pay the executives a total
of $590,000 per year, with certain guaranteed bonuses and
increases. The agreements also call for bonuses if the executives
meet certain goals which are to be set by the board of directors. The minimum
commitments under these are agreements are as follows:
Year
ended March 31,
|
||
2010
|
$
|
606,250
|
2011
|
627,375
|
|
2012
|
316,825
|
|
$
|
1,550,450
|
The
Company’s purchase commitments for revenue equipment are currently under
negotiation. Upon execution of the purchase commitments, the Company anticipates
that purchase commitments under contract will have a net purchase price of
approximately $300,000 and will be paid throughout 2010.
Claims
and Assessments
We are
involved in certain claims and pending litigation arising from the normal
conduct of business. Based on the present knowledge of the facts and, in
certain cases, opinions of outside counsel, we believe the resolution of these
claims and pending litigation will not have a material adverse effect on our
financial condition, our results of operations or our liquidity.
Contingency
In IFC’s
note payable to Tangiers there is a requirement to develop a public market
defined by having a ticker symbol on a trading market, by December 31,
2009. If this does not occur Tangiers is entitled to a break-up fee
of $100,000.
Note
11. Business
Combinations
Smith
Systems Transportation, Inc.
On August
28, 2008, the Company acquired 100% of the common stock of Smith Systems
Transportation, Inc. (“Smith”), a Nebraska-based hazardous waste carrier, under
the terms of a Stock Exchange Agreement. The accounting date of the
acquisition was September 1, 2008 and the transaction was accounted for under
the purchase method in accordance with SFAS 141. Smith’s results of operations
have been included in our consolidated financial statements since the date of
acquisition. Identifiable intangible assets acquired as part of the
acquisition included definite-lived intangibles which totaled $783,570, with a
weighted average amortization period of 3 years.
F-49
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
11. Business
Combinations (continued)
The
aggregate purchase price was $332,500, including 825,000 shares of the Company’s
common stock valued at $0.10 per share. Below is a summary of the total purchase
price:
Common
stock (825,000 shares)
|
$
|
82,500
|
Note
payable
|
250,000
|
|
$
|
332,500
|
The
following table represents the final purchase price allocation to the estimated
fair value of the assets acquired and liabilities assumed:
Cash
|
$
|
96,454
|
||
Accounts
Receivable, Trade
|
1,913,282
|
|||
Accounts
Receivable, Officers
|
96,305
|
|||
Prepayments
|
255,545
|
|||
Other
Current Assets
|
39,687
|
|||
Net
Property and Equipment
|
3,546,996
|
|||
Employment
contract and non-compete
|
525,000
|
|||
Company
operating authority
|
258,570
|
|||
Total
assets acquired
|
6,731,839
|
|||
Bank
overdraft
|
468,784
|
|||
Accounts
payable
|
136,048
|
|||
Accrued
liabilities and other current liabilities
|
321,943
|
|||
Notes
payable
|
5,187,786
|
|||
Total
liabilities assumed
|
6,114,561
|
|||
Net
assets acquired before minority interest
|
617,278
|
|||
less
Minority Interest
|
(284,778)
|
|||
Net
assets acquired
|
$
|
332,500
|
Contingent
Consideration
As
part of the Stock Exchange Agreement with Morris, if Smith does not maintains
certain levels of profitability the note payable to Smith can be reduced by up
to the full amount, $250,000, of the note. The results of the payment
contingency may affect the final valuation of the Morris acquisition, to be
measured at the October 31, 2009 maturity date of the note.
Morris
Transportation, Inc.
On
September 12, 2008, the Company acquired 100% of the common stock of Morris
Transportation, Inc. (“Morris”), an Arkansas-based dry van truckload carrier,
under the terms of a Stock Exchange Agreement. The accounting date of the
acquisition was September 1, 2008 and the transaction was accounted for under
the purchase method in accordance with SFAS 141. Morris’ results of operations
have been included in our consolidated financial statements since the date of
acquisition. Identifiable intangible assets acquired as part of the
acquisition included definite-lived intangibles which totaled $751,681, with a
weighted average amortization period of 3 years.
F-50
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
11. Business
Combinations (continued)
The
aggregate purchase price was $900,000, including 3,000,000 shares of the
Company’s common stock valued at $0.10 per share. Below is a summary of the
total purchase price:
Common
stock (3,000,000 shares)
|
$
|
300,000
|
Note
payable
|
600,000
|
|
$
|
900,000
|
The
following table represents the final purchase price allocation to the estimated
fair value of the assets acquired and liabilities assumed:
Cash
|
$
|
58,252
|
||
Accounts
Receivable, Trade
|
1,104,423
|
|||
Net
Property and Equipment
|
4,535,545
|
|||
Intangible
assets:
|
||||
Employment
and non-compete agreement
|
518,293
|
|||
Company
operating authority
|
233,388
|
|||
Total
assets acquired
|
6,449,901
|
|||
Accounts
payable
|
219,073
|
|||
Accrued
liabilities and other current liabilities
|
92,560
|
|||
Notes
payable
|
5,238,268
|
|||
Total
liabilities assumed
|
5,549,901
|
|||
Net
Assets Acquired
|
$
|
900,000
|
Contingent
Consideration
As part
of the Stock Exchange Agreement with Morris, if Morris does not maintains
certain levels of profitability the amount of the note payable to Morris can be
reduced up to $250,000. The results of the payment contingency may
affect the final valuation of the Morris acquisition, to be measured at the
October 31, 2009 maturity date of the note.
Pro
forma results
If the
Company had purchased Morris and Smith at the date of inception (May 13, 2008)
the results of operations would be as follow:
F-51
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
11. Business
Combinations (continued)
IFC
|
Smith
|
Morris
|
Total
|
|||||
Revenue
|
$
|
7,182,311
|
$
|
10,346,177
|
$
|
17,528,488
|
||
Operating
Expenses
|
||||||||
Rents
and transportation
|
-
|
2,079,321
|
1,613,394
|
3,692,715
|
||||
Wages,
salaries & benefits
|
427,102
|
1,987,549
|
2,605,396
|
5,020,047
|
||||
Fuel
and fuel taxes
|
-
|
1,610,937
|
4,410,511
|
6,021,448
|
||||
Other
operating expenses
|
190,810
|
1,739,832
|
1,487,652
|
3,418,294
|
||||
Total
Operating Expenses
|
617,912
|
7,417,639
|
10,116,953
|
18,152,504
|
||||
Other
Expenses
|
183,283
|
179,788
|
312,193
|
675,264
|
||||
Net
loss before minority interest
|
(801,195)
|
(415,116)
|
(82,969)
|
(1,299,280)
|
||||
Minority
interest share of
|
||||||||
subsidiary
net income
|
-
|
(34,003)
|
-
|
(34,003)
|
||||
Net
loss
|
$
|
(801,195)
|
$
|
(449,119)
|
$
|
(82,969)
|
$
|
(1,333,283)
|
Note
12. Business
Segment Information
The
Company follows the provisions of FASB 131, Disclosures
about Segments of an Enterprise and Related Information , which
established standards for the reporting of information about operating segments
in annual and interim financial statements. Operating segments are
defined as components of an enterprise for which financial information is
available that is evaluated regularly by the chief operating decision makers(s)
in deciding how to allocate resources and in assessing
performance. The Company operates both of its subsidiaries (Morris
Transportation and Smith Systems) as independent companies under separate
management of their respective founders. Management of the Company makes
decisions about allocating resources based on these operating segments. The
following table depicts the information expected by FASB 131.
|
Revenue
|
Net
Income(loss)
|
Total
Assets
|
||||
IFC
(Parent)
|
$ -
|
$ (1,215,824)
|
$ 2,868,874
|
||||
Morris
|
6,299,649
|
12,403
|
5,159,423
|
||||
Smith
|
4,160,464
|
(268,144)
|
3,067,624
|
||||
$ 10,460,113
|
$ (1,471,565)
|
$ 11,095,921
|
|||||
F-52
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
13. Subsequent
Events
On May 1,
2009 the Company purchased 500 shares of PlanGraphics, Inc. (PlanGraphics) 12%
redeemable preferred stock, $0.001 par value, in exchange for 1,307,822 shares
of the Company’s common stock and a $167,000 promissory note due in one year
from the date of closing. As part of this transaction the Company
also issued to PlanGraphics 177,170 shares of common stock and two year warrants
to purchase another 177,170 shares of common stock with an exercise price of
$0.50 per share. On June 2, 2009, these preferred shares were
converted into 401,599,467 shares of common stock, which gave the Company voting
control over approximately 80% of PlanGraphics’ outstanding shares. PlanGraphics
is a public OTCBB company with a ticker symbol of PGRA.
Also on
May 1, 2009, PlanGraphics transferred all operating assets and liabilities
(except for $28,000 of audit fees) to a subsidiary created in the state of
Maryland also called PlanGraphics, Inc. (PGI Maryland). PlanGraphics
sold to their previous management 100% of the shares of PGI Maryland in exchange
for a released from all obligations under their employment
agreements. Management also received from IFC 134,579 shares of IFC
common stock and warrants to purchase another 134,579 shares of IFC common stock
at $0.50 per share, with a term of two years.
In
addition to the above, in several transactions pursuant to various debt and
equity financings from April 1, 2009 to date of this report, the Company has
issued 892,142 shares of its common stock and five year warrants to purchase
another 260,000 shares of common stock with an exercise price of $0.01 per
share.
The
securities discussed above were offered and sold in reliance upon exemptions
from the registration requirements of Section 5 of the Act, pursuant to Section
4(2) of the Act and Rule 506 promulgated there under. Such securities were sold
or conveyed exclusively to accredited investors as defined by Rule 501(a) under
the Act.
F-53
CONSOLIDATED
FINANCIAL STATEMENTS OF
INTEGRATED
FREIGHT CORPORATION
Page
|
|
Consolidated
Balance Sheet as of September 30, 2009 (unaudited) and March 31,
2009
|
F-55
|
Consolidated
Statement of Operations For the Six Months Ended September 30,
2009
and
the Period from May 13, 2008 (inception) to September 30, 2008
(unaudited)
|
F-56
|
Consolidated
Statement of Changes in Stockholders’ Deficit For the Six Months
Ended
September
30, 2009 (unaudited) and the Period from May 13, 2008
(inception)
to
March 31, 2009
|
F-57
|
Consolidated
Statement of Cash Flows For the Six Months Ended September 30, 2009
(unaudited)
and
the Period from May 13, 2008 (inception) to September 30, 2008
(unaudited)
|
F-59
|
Notes
to Consolidated Financial Statements
|
F-61
|
F-54
INTEGRATED
FREIGHT CORPORATION
Consolidated
Balance Sheets
September
30, 2009
|
March
31, 2009
|
|||||
Assets
|
(Unaudited)
|
|||||
Current
assets:
|
||||||
Cash
|
$
|
29,610
|
$
|
158,442
|
||
Accounts
receivable, net of allowance for doubtful accounts of
$50,000
|
2,689,454
|
2,061,297
|
||||
Deferred
finance costs, net of amortization of $173,881 and $79,130
|
40,469
|
135,220
|
||||
Prepaid
expenses & other assets
|
180,447
|
187,475
|
||||
Total
current assets
|
2,939,980
|
2,542,434
|
||||
Property
and equipment, net of accumulated depreciation (Note 3)
|
6,396,001
|
7,193,426
|
||||
Intangible
assets, net of accumulated amortization (Note 4)
|
1,106,135
|
1,236,730
|
||||
Other
assets
|
842,176
|
123,331
|
||||
Total
assets
|
$
|
11,284,292
|
$
|
11,095,921
|
||
Liabilities
and Stockholders’ Deficit
|
||||||
Current
liabilities:
|
||||||
Bank
overdraft
|
$
|
177,277
|
$
|
497,541
|
||
Accounts
payable
|
574,661
|
337,819
|
||||
Accrued
and other liabilities
|
786,372
|
639,933
|
||||
Line
of credit (Note 5)
|
812,097
|
630,192
|
||||
Notes
payable - related parties (Note 7)
|
850,000
|
1,075,000
|
||||
Current
portion of notes payable, net of unamortized discount
|
||||||
of
$141,213 and $24,749 respectively (Note 6)
|
3,920,948
|
3,942,592
|
||||
Total
current liabilities
|
7,121,355
|
7,123,077
|
||||
Notes
payable, net of current portion (Note 6)
|
4,706,613
|
4,184,293
|
||||
Total
liabilities
|
11,827,968
|
11,307,370
|
||||
Stockholders’
deficit:
|
||||||
Common
stock, $0.001 par value, 50,000,000 shares authorized,
|
||||||
21,366,068
and 17,798,250 shares issued and outstanding
|
21,366
|
17,798
|
||||
Additional
paid-in capital
|
2,288,391
|
1,041,276
|
||||
Retained
deficit
|
(3,140,606)
|
(1,573,916)
|
||||
Total
stockholders’ deficit
|
(830,849)
|
(514,842)
|
||||
Minority
interest
|
287,173
|
303,393
|
||||
Total
liabilities and stockholders’ deficit
|
$
|
11,284,292
|
$
|
11,095,921
|
||
See notes to consolidated financial statements | ||||||
F-55
INTEGRATED
FREIGHT CORPORATION
Consolidated
Statement of Operations
Six
Months
|
May
13, 2008
|
||||||||
Ended
|
(inception)
to
|
||||||||
September
30,
|
September
30,
|
||||||||
2009
|
2008
|
||||||||
(Unaudited)
|
(Unaudited)
|
||||||||
Revenue
|
$
|
8,832,631
|
$
|
1,855,789
|
|||||
Operating
Expenses
|
|||||||||
Rents
and transportation
|
2,617,766
|
360,998
|
|||||||
Wages,
salaries & benefits
|
2,949,320
|
340,332
|
|||||||
Fuel
and fuel taxes
|
1,911,444
|
611,020
|
|||||||
Depreciation
and amortization
|
952,475
|
185,563
|
|||||||
Insurance
and claims
|
324,261
|
74,820
|
|||||||
Operating
taxes and licenses
|
64,390
|
7,815
|
|||||||
General
and administrative
|
1,121,140
|
334,902
|
|||||||
Total
Operating Expenses
|
9,940,796
|
1,915,450
|
|||||||
Other
Expenses
|
|||||||||
Interest
|
586,456
|
101,166
|
|||||||
Interest
- related parties
|
34,093
|
8,589
|
|||||||
Other
Income
|
(108,498)
|
(14,066)
|
|||||||
Total
Other Expenses
|
512,051
|
95,689
|
|||||||
Net
loss before minority interest
|
|
(1,620,216)
|
|
(155,350)
|
|||||
Minority
interest share of subsidiary net income
|
|
16,220
|
|
(6,071)
|
|||||
Net
loss
|
$
|
(1,603,996)
|
$
|
(161,421)
|
|||||
Net
loss per share - basic and diluted
|
$
|
(0.08)
|
$
|
(0.01)
|
|||||
Weighted
average common shares outstanding
|
|||||||||
-
basic and diluted
|
21,366,068
|
13,225,000
|
|||||||
See
notes to consolidated financial
statements
|
F-56
INTEGRATED
FREIGHT CORPORATION
Consolidated
Statement of Stockholders’ Deficit
May
13, 2008 (inception) through March 31, 2009 and for the
Six
Months Ended September 30, 2009
|
Common
Stock
|
Additional
|
||||||||||||||||||||||||||||||||
Par
|
Paid-in
|
Retained
|
|||||||||||||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Deficit
|
Total
|
|||||||||||||||||||||||||||||
Balance
at May 13, 2008 (Inception)
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||||||||||||||||||||
Common
stock issued to officers in exchange
|
|||||||||||||||||||||||||||||||||
for
organizational services (Note 9)
|
7,000,000
|
7,000
|
—
|
—
|
7,000
|
||||||||||||||||||||||||||||
Common
stock issued in exchange
|
|||||||||||||||||||||||||||||||||
for
services (Note 9)
|
2,450,000
|
2,450
|
242,550
|
—
|
245,000
|
||||||||||||||||||||||||||||
Common
stock issued to acquire Smith Systems
|
|||||||||||||||||||||||||||||||||
Transportation,
Inc. (Note 11)
|
825,000
|
825
|
81,675
|
—
|
82,500
|
||||||||||||||||||||||||||||
Common
stock issued to acquire Morris
|
|||||||||||||||||||||||||||||||||
Transportation,
Inc. (Note 11)
|
3,000,000
|
3,000
|
297,000
|
—
|
300,000
|
||||||||||||||||||||||||||||
Sale
of common stock (Note 9)
|
1,580,000
|
1,580
|
143,920
|
—
|
145,500
|
||||||||||||||||||||||||||||
Shareholder
distributions
|
—
|
—
|
—
|
(187,351)
|
(187,351)
|
||||||||||||||||||||||||||||
Shareholder
contributions
|
—
|
—
|
—
|
85,000
|
85,000
|
||||||||||||||||||||||||||||
Common
stock and warrants issued as deferred
|
|||||||||||||||||||||||||||||||||
finance
costs on notes payable (Note 9)
|
2,150,000
|
2,150
|
212,850
|
—
|
215,000
|
||||||||||||||||||||||||||||
Finder's
fee paid in common stock (Note 9)
|
400,000
|
400
|
(400)
|
—
|
—
|
||||||||||||||||||||||||||||
Common
stock issued to extend loan (Note 9)
|
393,250
|
393
|
38,932
|
—
|
39,325
|
||||||||||||||||||||||||||||
Fair
value of warrants issued with short-term
|
|||||||||||||||||||||||||||||||||
note
payable (Note 9)
|
—
|
—
|
24,749
|
—
|
24,749
|
||||||||||||||||||||||||||||
Net
loss
|
—
|
—
|
—
|
(1,471,565)
|
(1,471,565)
|
||||||||||||||||||||||||||||
Balance
at March 31, 2009
|
17,798,250
|
$
|
17,798
|
$
|
1,041,276
|
$
|
(1,573,916)
|
$
|
(514,842)
|
||||||||||||||||||||||||
See
notes to consolidated financial statements
|
F-57
INTEGRATED
FREIGHT CORPORATION
Consolidated
Statement of Stockholders’ Deficit
May
13, 2008 (inception) through March 31, 2009 and for the
Six
Months Ended September 30, 2009 – (Continued)
Common
Stock
|
Additional
|
|||||||||||||||
Par
|
Paid-in
|
Retained
|
||||||||||||||
Shares
|
Value
|
Capital
|
Deficit
|
Total
|
||||||||||||
Balance
at March 31, 2009
|
17,798,250
|
$
|
17,798
|
$
|
1,041,276
|
$
|
(1,573,916)
|
$
|
(514,842)
|
|||||||
Common
stock issued to officers in exchange
|
||||||||||||||||
for
organizational services (Note 9) (Unaudited)
|
—
|
—
|
—
|
—
|
—
|
|||||||||||
Common
stock issued in exchange
|
||||||||||||||||
for
services (Note 9) (Unaudited)
|
75,000
|
75
|
7,425
|
—
|
7,500
|
|||||||||||
Common
stock issued to acquire Smith Systems
|
||||||||||||||||
Transportation,
Inc. (Note 11) (Unaudited)
|
—
|
—
|
—
|
—
|
—
|
|||||||||||
Common
stock issued to acquire Morris
|
||||||||||||||||
Transportation,
Inc. (Note 11) (Unaudited)
|
—
|
—
|
—
|
—
|
—
|
|||||||||||
Sale
of common stock (Note 9) (Unaudited)
|
570,000
|
570
|
101,430
|
—
|
102,000
|
|||||||||||
Shareholder
distributions (Unaudited)
|
—
|
—
|
—
|
37,306
|
37,306
|
|||||||||||
Shareholder
contributions (Unaudited)
|
—
|
—
|
—
|
—
|
—
|
|||||||||||
Common
stock and warrants issued as deferred
|
||||||||||||||||
finance
costs on notes payable (Note 9) (Unaudited)
|
—
|
—
|
—
|
—
|
—
|
|||||||||||
Finder's
fee paid in common stock (Note 9) (Unaudited)
|
639,996
|
640
|
63,360
|
—
|
64,000
|
|||||||||||
Common
stock issued to extend loan (Note 9) (Unaudited)
|
25,000
|
25
|
2,475
|
—
|
2,500
|
|||||||||||
Fair
value of warrants issued with notes
|
||||||||||||||||
payable
(Note 9) (Unaudited)
|
—
|
—
|
—
|
—
|
—
|
|||||||||||
Common
stock issued to directors and
|
||||||||||||||||
executives
for compensation (Note 9) (Unaudited)
|
950,000
|
950
|
94,050
|
—
|
95,000
|
|||||||||||
Common
stock issue to purchase
|
||||||||||||||||
personal
property (Note 9) (Unaudited)
|
1,307,822
|
1,308
|
837,162
|
—
|
838,470
|
|||||||||||
Fair
value of warrants issued with short-term
|
||||||||||||||||
note
payable (Note 9) (Unaudited)
|
—
|
—
|
141,213
|
—
|
141,213
|
|||||||||||
Net
loss (Unaudited)
|
—
|
—
|
—
|
(1,603,996)
|
(1,603,996)
|
|||||||||||
Balance
at September 30, 2009 (Unaudited)
|
21,366,068
|
$
|
21,366
|
$
|
2,288,391
|
$
|
(3,140,606)
|
$
|
(830,849)
|
|||||||
See
notes to consolidated financial
statements
|
F-58
INTEGRATED
FREIGHT CORPORATION
Consolidated
Statement of Cash Flows
Six
Months
|
May
13, 2008
|
|||||||||||
Ended
|
(inception)
to
|
|||||||||||
September
30, 2009
|
September
30, 2008
|
|||||||||||
Cash
flows from operating activities:
|
(Unaudited)
|
(Unaudited)
|
||||||||||
Net
loss
|
$
|
(1,603,996)
|
$
|
(161,421)
|
||||||||
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
||||||||||||
Depreciation
and amortization
|
952,475
|
185,563
|
||||||||||
Debt
discount amortization
|
23,536
|
-
|
||||||||||
Deferred
finance cost amortization
|
94,751
|
-
|
||||||||||
Loss
on asset dispositions
|
-
|
73,480
|
||||||||||
Minority
interest in earnings of subsidiary
|
16,220
|
309,464
|
||||||||||
Stock
issued for stock based compensation
|
187,854
|
-
|
||||||||||
Stock
issued for interest
|
39,325
|
-
|
||||||||||
Increase/decrease
in operating assets and liabilities
|
||||||||||||
Accounts
receivable
|
(628,157)
|
(3,176,690)
|
||||||||||
Prepaid
expenses
|
7,028
|
(187,929)
|
||||||||||
Other
assets
|
(718,845)
|
(668,750)
|
||||||||||
Bank
overdraft
|
320,264
|
554,464
|
||||||||||
Accounts
payable
|
236,842
|
249,426
|
||||||||||
Accrued
and other liabilities
|
146,439
|
266,000
|
||||||||||
Net
cash used in operating activities
|
(926,264)
|
(2,556,393)
|
||||||||||
Cash
flows from investing activities:
|
||||||||||||
Purchase
of property and equipment
|
(24,455)
|
(7,899,046)
|
||||||||||
Net
cash used in investing activities
|
(24,455)
|
(7,899,046)
|
||||||||||
Cash
flows from financing activities:
|
||||||||||||
Repayments
of notes payable, and
|
(21,644)
|
-
|
||||||||||
Proceeds
of long term debt
|
522,320
|
10,013,129
|
||||||||||
Payment
on line of credit
|
181,905
|
878,728
|
||||||||||
Proceeds
from sale of common stock
|
102,000
|
-
|
||||||||||
Distributions
paid to common shareholders
|
37,306
|
-
|
||||||||||
Net
cash provided by financing activities
|
821,887
|
10,891,857
|
||||||||||
Net
change in cash
|
(128,832)
|
436,418
|
||||||||||
Cash,
beginning of period
|
158,442
|
-
|
||||||||||
Cash,
end of period
|
$
|
29,610
|
$
|
436,418
|
||||||||
See
notes to consolidated financial statements
|
||||||||||||
F-59
INTEGRATED
FREIGHT CORPORATION
Consolidated
Statement of Cash Flows – (Continued)
Six
Months
|
May
13, 2008
|
|||||||||||
Ended
|
(inception)
to
|
|||||||||||
September
30, 2009
|
September
30, 2008
|
|||||||||||
Supplemental
disclosure of cash flow information:
|
(Unaudited)
|
(Unaudited)
|
||||||||||
Cash
paid during the period for:
|
||||||||||||
Income
taxes
|
$
|
-
|
$
|
-
|
||||||||
Interest
|
$
|
1,028,556
|
$
|
547,398
|
||||||||
Schedule
of noncash investing and financing transactions:
|
||||||||||||
Common
stock issued for acquisition of subsidiaries
|
||||||||||||
Common
stock issued in purchase
|
$
|
-
|
$
|
382,500
|
||||||||
Notes
payable issued in purchase
|
-
|
850,000
|
||||||||||
Less:
assets received in purchase, net of cash
|
-
|
(13,027,033)
|
||||||||||
Plus:
liabilities assumed during purchase
|
-
|
11,664,462
|
||||||||||
Minority
interest
|
-
|
284,778
|
||||||||||
Net
cash received at purchase
|
$
|
154,707
|
||||||||||
Common
stock issued for stock based compensation
|
$
|
950,000
|
$
|
252,000
|
||||||||
Common
Stock and warrants issued for deferred finance costs,
extension
|
||||||||||||
of
loans and with notes payable
|
$
|
-
|
$
|
279,074
|
||||||||
See notes to consolidated financial statements |
F-60
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
1. Nature
of Operations and Summary of Significant Accounting Policies
Nature
of Business
Integrated
Freight Corporation (a
Florida corporation) and subsidiaries (the “Company”) is a short to medium-haul
truckload carrier of general commodities headquartered in Sarasota, Florida. The
Company also has service centers located throughout the West Central United
States. The Company provides dry van, hazardous materials, and
temperature controlled truckload services. The Company is subject to
regulation by the Department of Transportation and various state regulatory
authorities.
Principles
of Consolidation
The
consolidated financial statements include the financial statements of Integrated
Freight Corporation
(“IFC”), and its wholly owned subsidiaries, Morris Transportation, Inc.
(“Morris”) and Smith Systems Transportation, Inc. (“Smith”). Smith
holds a 60% ownership interest in SST Financial Group, LLC
(“SSTFG”). All significant intercompany balances and transactions
within the Company have been eliminated upon consolidation.
Use
of Estimates
The
financial statements contained in this report have been prepared in conformity
with accounting principles generally accepted in the United States of America
(“GAAP”). The preparation of these statements requires us to make
estimates and assumptions that directly affect the amounts reported in such
statements and accompanying notes. Management evaluates these estimates on
an ongoing basis utilizing historical experience, consulting with experts and
using other methods we consider reasonable in the particular
circumstances. Nevertheless, the Company’s actual results may differ
significantly from its estimates.
Management
believes that certain accounting policies and estimates are of more significance
in the financial statement preparation process than others. Management
believes the most critical accounting policies and estimates include the
economic useful lives and salvage values of the assets, provisions for
uncollectible accounts receivable, and estimates of exposures under the
insurance and claims plans. To the extent that actual, final outcomes are
different than the estimates, or additional facts and circumstances cause the
Company to revise the estimates, the earnings during that accounting period will
be affected.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Accounts
Receivable Allowance
The
Company makes estimates of the collectability of the accounts receivable. The
Company specifically analyzes accounts receivable and historical bad debts,
client credit-worthiness, current economic trends, and changes in the client
payment terms and collection trends when evaluating the adequacy of the
allowance for doubtful accounts. Any change in the assumptions used in
analyzing a specific account receivable may result in additional allowance for
doubtful accounts being recognized in the period in which the change occurs.
Accordingly,
the Company made a $50,000 allowances for uncollectible accounts and revenue
adjustments as of September 30, 2009 (unaudited) and March 31,
2009.
F-61
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
1. Nature
of Operations and Summary of Significant Accounting Policies
(continued)
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation. Depreciation of
property and equipment is calculated on the straight-line method over the
following estimated useful lives:
Years | ||||
Land
improvements
|
7-
10
|
|||
Buildings
/ improvements
|
20
- 30
|
|||
Furniture
and fixtures
|
3 –
5
|
|||
Shop
and service equipment
|
2 –
5
|
|||
Revenue
equipment
|
3
- 5
|
|||
Leasehold
improvements
|
1 –
5
|
The
Company expenses repairs and maintenance as incurred. The Company
periodically reviews the reasonableness of its estimates regarding useful lives
and salvage values for revenue equipment and other long-lived assets based upon,
among other things, the Company's experience with similar assets, conditions in
the used revenue equipment market, and prevailing industry
practice. Salvage values are typically 15% to 20% for tractors and
trailer equipment and consider any agreements with tractor suppliers for
residual or trade-in values for certain new equipment. The Company
capitalizes tires placed in service on new revenue equipment as a part of the
equipment cost. Replacement tires and costs for recapping tires are
expensed at the time the tires are placed in service. Gains and losses on
the sale or other disposition of equipment are recognized at the time of the
disposition.
Deferred
Finance Charge
Costs
incurred to obtain financing are recorded as a deferred finance charge and are
amortized over the initial term of the loan agreement on the interest
method.
Intangible
Assets
The
Company accounts for business combinations in accordance with Accounting
Standards Codification (“ASC”) 805, Business Combinations, which
requires that the purchase method of accounting be used for all business
combinations. ASC 805 requires intangible assets acquired in a business
combination to be recognized and reported separately from goodwill.
Goodwill
represents the cost of the acquired businesses in excess of the fair value of
identifiable tangible and intangible net assets purchased. The Company assigns
all the assets and liabilities of the acquired business, including goodwill, to
reporting units in accordance with ASC 350, Intangible – Goodwill and
Other. The business combinations did not result in any
goodwill as of December 31, 2009 (unaudited) and March 31, 2009.
The
Company evaluates intangible assets for recoverability whenever events or
changes in circumstances indicate that their carrying amounts may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the future undiscounted net
cash flows expected to be generated by the asset. If these assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying value of the assets exceeds the fair value of the
assets.
F-62
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
1. Nature
of Operations and Summary of Significant Accounting Policies
(continued)
Furthermore,
ASC 350 requires purchased intangible assets other than goodwill to be amortized
over their useful lives unless these lives are determined to be indefinite.
Purchased intangible assets are carried at cost less accumulated amortization.
No impairment of intangibles has been identified since the date of
acquisition.
Impairment
of Long-lived Assets
In
accordance with ASC 360, Property, Plant and
Equipment, long-lived assets and certain identifiable intangible assets
held and used by the Company are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is evaluated by a
comparison of the carrying amount of assets to estimated undiscounted net cash
flows expected to be generated by the assets. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amounts of the assets exceed the fair value of the assets. There
has been no impairment as of September 30, 2009 and March 31, 2009.
Revenue
Recognition
The
Company recognizes revenues on the date the shipments are delivered to the
customer. Revenue includes transportation revenue, fuel surcharges,
loading and unloading activities, equipment detention, and other accessorial
services. Revenue is recorded on a gross basis, without deducting
third party purchased transportation costs, as the Company acts as a principal
with substantial risks as primary obligor.
Advertising
Costs
The
Company charges advertising costs to expense as incurred. During the
six month period ended September 30, 2009, and from the
period of May 13, 2008 (inception) to September 30, 2008, advertising expense
was approximately $265 and $2,453 (unaudited).
Income
Taxes
The
Company accounts for income taxes under the asset and liability method, which
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements. Under this method, deferred tax assets and liabilities are
determined based on the differences between the financial statements and tax
basis of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. The effect of a
change in tax rates on deferred tax assets and liabilities is recognized in
income in the period that includes the enactment date.
The
Company records net deferred tax assets to the extent it believes these assets
will more likely than not be realized. In making such determination, the Company
considers all available positive and negative evidence, including scheduled
reversals of deferred tax liabilities, projected future taxable income, tax
planning strategies and recent financial operations.
The
Company recognizes a tax benefit from an uncertain tax position when it is
more likely than not that the position will be sustained upon examination,
including resolutions of any related appeals or litigation processes, based on
the technical merits.
F-63
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
1. Nature
of Operations and Summary of Significant Accounting Policies
(continued)
Stock-based
Compensation
The
Company has adopted the fair value recognition provisions of ASC 505, Equity and ASC 718, Compensation – Stock
Compensation, using the modified prospective application method. Under
ASC 505 and ASC 718, stock-based compensation expense is measured at the grant
date based on the value of the option or restricted stock and is recognized as
expense, less expected forfeitures, over the requisite service
period.
Concentrations
of Credit Risk
Financial
instruments, which potentially subject the Company to concentrations of credit
risk, include cash and trade receivables. For the period ended September
30, 2009 and 2008, the Company’s top four customers, based on revenue, accounted
for approximately 48% and 37% of the total revenue. The Company’s top four
customers, based on revenue, accounted for approximately 34% and 35% of the
total trade accounts receivable at September 30, 2009 and March 31,
2009.
Financial
instruments with significant credit risk include cash. The Company deposits its
cash with high quality financial institutions in amounts less than the federal
insurance limit of $250,000 in order to limit credit risk. As of September 30,
2009 and March 31, 2009, the Company's bank deposits did not exceed insured
limits.
Fair
Value of Financial Instruments
The
carrying amounts of cash, accounts receivable and accounts payable approximate fair value
because of their short maturities. At September 30, 2009 and March 31, 2009, the
Company had $812,097 (unaudited) and $630,192 outstanding under its revolving
credit agreement, and approximately $9,477,561 (unaudited) and $9,201,885,
including $850,000 (unaudited) and $1,075,000 with related parties, outstanding
under promissory notes with various lenders. The carrying amount of
the revolving credit agreement approximates fair value, as the rate of interest
on the revolving credit facility approximate current market rates of interest
for similar instruments with comparable maturities, and the interest rate is
variable. The fair value of notes payable to various lenders is based
on current rates at which the Company could borrow funds with similar remaining
maturities.
Losses
resulting from personal liability, physical damage, workers' compensation, and
cargo loss and damage are covered by insurance subject to deductible, per
occurrence. Losses resulting from uninsured claims are recognized when such
losses are known and can be estimated. The Company estimates and accrues a
liability for the Company’s share of ultimate settlements using all available
information. The Company accrues for claims reported, as well as for claims
incurred but not reported, based upon the Company’s past experience. Expenses
depend on actual loss experience and changes in estimates of settlement amounts
for open claims which have not been fully resolved. These accruals are based on
the evaluation of the nature and severity of the claim and estimates of future
claims development based on historical trends. Insurance and claims expense will
vary based on the frequency and severity of claims and the premium
expense. At September 30, 2009 and March 31, 2009, management
estimated $-0- in claims accrual.
F-64
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
1. Nature
of Operations and Summary of Significant Accounting Policies
(continued)
Earnings
per Share
The
Company calculates earnings per share in accordance with ASC 260, Earnings per Share. Basic income per share is
computed by dividing the net income by the weighted-average number of common
shares outstanding during the period. Diluted earnings per share is computed
similar to basic income per share except that the denominator is increased to
include the number of additional common shares that would have been outstanding
if the potential common stock equivalents had been issued and if the additional
common shares were dilutive. The $600,000 note payable to the
previous owner of Morris Transportation is convertible at the election of the
holder into common stock at $1 per share.
At
September 30, 2009 and March 31, 2009, there was no variance between the basic
and diluted loss per share. The 2,464,225 (unaudited) and 675,000
warrants to purchase common shares outstanding at September 30, 2009 and March
31, 2009 are not included in the weighted-average number of shares computation
for diluted earnings per common share, as the warrants are
anti-dilutive.
Recent
Accounting Pronouncements
In June
2009, the Financial Accounting Standards Board (“FASB”) approved FASB Accounting Standards
Codification (“Codification”) as the single source of authoritative
accounting guidance used in the preparation of financial statements in
conformity with GAAP for all non-governmental entities. Codification,
which changed the referencing and organization of accounting guidance without
modification of existing GAAP, is effective for interim and annual periods
ending after September 15, 2009. Since it did not modify existing GAAP,
Codification did not have any impact on the Company’s financial condition or
result of operations. On the effective date of Codification,
substantially all existing non-SEC accounting and reporting standards are
superseded and, therefore, are no longer referenced by title in the accompanying
interim condensed consolidated financial statements.
In June
2009, the FASB issued SFAS 168 (now: FASB ASC 105-10), Generally Accepted Accounting
Principles the FASB Accounting Standards Codification. SFAS 168
represented the last numbered standard to be issued by FASB under the old
(pre-Codification) numbering system, and amends the GAAP hierarchy established
under SFAS 162. On July 1, 2009, the FASB launched FASB’s new Codification
entitled The FASB Accounting
Standards Codification, or FASB ASC. The Codification supersedes all
existing non-SEC accounting and reporting standards. FASB ASC 105-10 is
effective in the first interim and annual periods ending after September 15,
2009. This pronouncement had no effect on the consolidated financial statements
upon adoption other than current references to GAAP, which, where appropriate,
have been replaced with references to the applicable codification
paragraphs.
In June
2009, the FASB issued Amendments to FASB Interpretation
No. 46(R), FASB ASC 810-Consolidation, that will
change how the Company determines when an entity that is insufficiently
capitalized or is not controlled through voting (or similar rights) should be
consolidated. Under this guidance, determining whether a company is
required to consolidate an entity will be based on, among other things, an
entity’s purpose and design and a company’s ability to direct the activities of
the entity that most significantly impact the entity’s economic performance. The
changes are FASB ASC 810-10, effective for financial statements after January 1,
2010. The Company is currently evaluating the requirements of this guidance and
the impact of adoption on the Company’s consolidated financial
statements.
F-65
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
1. Nature
of Operations and Summary of Significant Accounting Policies
(continued)
In May 2009, the FASB
issued FASB ASC 855, Subsequent Events. FASB ASC
855 establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued or are available to be issued. FASB ASC 855 requires the disclosure of
the date through which an entity has evaluated subsequent events and the basis
for that date; that is, whether the date represents the date the financial
statements were issued or were available to be issued. FASB ASC 855 is effective
in the first interim period ending after June 15, 2009. The Company expects FASB
ASC 855 will have an impact on disclosures in the Company’s consolidated
financial statements, but the nature and magnitude of the specific effects will
depend upon the nature, terms and value of any subsequent events occurring after
adoption.
Note
2. Related
Party Transactions
From
inception to date, the Company has not entered into any transactions with the
directors and executive officers, outside of normal employment transactions, or
with their relatives and entities they control; except for the
following:
·
|
The
Company issued 6,500,000 shares of the Company’s common stock to the
Company’s founder for services related to preincorporation, organization
and start-up.
|
·
|
The
Company also issued 500,000 shares to an officer and corporate counsel for
services related to incorporation, organization and start-up. The stock
issuances have been recorded based upon the estimated fair value of the
services rendered.
|
·
|
The
Company issued 1,000,000 shares of its common stock to an officer as part
of an employment contract.
|
·
|
The
Company issued 3,825,000 shares to two directors as
compensation
|
Note
3. Property
and Equipment
Property
and equipment consist of the following at September 30, 2009
(unaudited):
IFC
|
||||
(Parent)
|
Smith
|
Morris
|
Consolidated
|
|
Property
Plant and Equipment
|
$
46,472
|
$6,444,400
|
$
7,451,767
|
$13,942,639
|
Less:
accumulated depreciation
|
(
8,133)
|
(3,735,723)
|
(3,802,782)
|
(7,546,638)
|
Total
|
$
38,339
|
$2,708,677
|
$
3,648,985
|
$6,396,001
|
Depreciation
expense totaled $698,823 for the period ended September 30, 2009
(unaudited).
Property
and equipment consist of the following at March 31, 2009:
IFC
|
||||
(Parent)
|
Smith
|
Morris
|
Consolidated
|
|
Property
Plant and Equipment
|
$
46,472
|
$6,444,400
|
$
7,450,847
|
$13,941,719
|
Less:
accumulated depreciation
|
(3,485)
|
(3,359,627)
|
(3,385,181)
|
(6,748,293)
|
Total
|
$
42,987
|
$3,084,773
|
$
4,065,666
|
$7,193,426
|
Depreciation
expense totaled $830,513 for the period ended March 31, 2009.
F-66
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
4. Intangible
Assets
The
Company purchased the stock of Morris and Smith, see Note 11, which resulted in
the recognition of intangible assets. These intangible assets include
the “employment and non-compete agreements” which are critical to the Company
because of the management team’s business intelligence and customer relationship
value which is required to execute the Company’s business plan. The
intangibles also include their “company operating authority” which is tied to
their motor carrier number that is issued and monitored by the U.S. Department
of Transportation (“FDOT”). The FDOT issues a rating to each company
which has a direct impact on that company’s ability to attract and maintain a
stable customer base as well as reduce the Company’s insurance costs, one of the
most significant expenditures for freight companies. Both Morris and
Smith have the FDOT’s highest rating, “Satisfactory,” which provides the Company
with significant value. These intangible are as follows:
September
30, 2009
|
March
31, 2009
|
|||||
(Unaudited)
|
||||||
Employment
and non-compete agreements
|
$
|
1,043,293
|
$
|
1,043,293
|
||
Company
operating authority
|
491,958
|
491,958
|
||||
Total
intangible assets
|
1,535,251
|
1,535,251
|
||||
Less:
accumulated amortization
|
(429,116)
|
(298,521)
|
||||
Intangible
assets, net
|
$
|
1,106,135
|
$
|
1,236,730
|
Amortization
expense totaled $130,595 (unaudited) and $298,521 for the six months ended
September 30, 2009 and for the period from May 13, 2008 (date of inception) to
March 31, 2009.
Note
5. Line
of Credit
Morris Revolving
Credit
At
September 30, 2009 and March 31, 2009, Morris has
$812,097 (unaudited) and
$630,192 outstanding under a revolving credit line agreement that allows them to
borrow up to a total of $1,500,000. The line of credit is secured by accounts
receivable, guaranteed by a previous owner and is due on demand. The
applicable interest rate under this agreement is based on the LIBOR plus 3.5%.
The line has financial covenants that require Morris to maintain a tangible net
worth of not less than $700,000 and a fixed charge coverage ratio of at least 1
to 1. Morris is currently in default of these covenants but believe
they can negotiate a successful resolution with the lender.
F-67
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
6. Notes
Payable
Notes
payable owed by Morris consisted of the following:
September
30, 2009
|
March
31, 2009
|
|||||
(Unaudited)
|
||||||
Notes
payable to Chrysler Financial, payable in monthly installments ranging
from $569 to $5,687, including interest, through May 2013, with interest
rate ranging from 5.34% to 8.07%, secured by equipment
|
$
|
1,854,494
|
$
|
2,041,641
|
||
Notes
payable to Banks, payable in monthly installments ranging from $1,805 to
$5,829, including interest through June 2010, with interest rate ranging
from 5.9% to 7.25%, secured by equipment
|
65,159
|
130,083
|
||||
Notes
payable to GE Financial, payable in monthly installments ranging from
$2,999 to $7,535, including interest, through April 2013, with interest
rate ranging from 6.69% to 8.53%, secured by equipment
|
997,815
|
1,209,669
|
||||
6.9%
note payable to GMAC Financial, in installments of $667,
including interest, through August 2013, secured by a
vehicle
|
26,261
|
143,845
|
||||
8.59%
note payable to Wells Fargo Bank, payable in monthly installments of
$4,271, including interest, through October 2011, secured by
equipment
|
121,102
|
129,143
|
||||
Note
payable to shareholder is non-interest bearing, and is payable on
demand
|
390,000
|
-
|
||||
Totals
|
$
|
3,454,831
|
$
|
3,654,381
|
F-68
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
6. Notes
Payable (continued)
Notes
payable owed by Smith consisted of the following:
September
30, 2009
|
March
31, 2009
|
|||||
(Unaudited)
|
||||||
Notes
payable to bank, due December 2012, payable in monthly installments of
$65,000, interest of 9% collateralized by substantially all of Smith
assets
|
$
|
2,339,129
|
$
|
2,357,890
|
||
Notes
payable to bank, due April 2010, with monthly interest payments of 6.5%,
collateralized by substantially all of Smith assets
|
1,591,821
|
1,766,721
|
||||
Note
payable to Platte Valley National Bank, due December 2010, payable in
monthly installments of $1,423, with interest at 9.5% collateralized by a
vehicle.
|
18,514
|
27,047
|
||||
Notes
payable to Daimler Chrysler, due 2010, payable in monthly installments of
$10,745, interest ranging from 8-9%, collateralized by 6
units.
|
51,570
|
112,309
|
||||
Note
payable to Floyds, due 2010, payable in monthly installments of $2,664
with interest at 5.6% unsecured.
|
14,381
|
9,564
|
||||
Note
payable to General Motors, due November 2009, payable in monthly
installments of $778, with interest at 8%, secured by a
vehicle.
|
-
|
4,744
|
||||
Note
payable to Nissan Motors, due June 2011, payable in monthly installments
of $505, with interest at 5.6%, secured by a vehicle.
|
12,044
|
15,278
|
||||
Unsecured,
non-interest bearing note payable to Colorado Holdings, due 2010, payable
in monthly installments of $1,250.
|
674,058
|
32,690
|
||||
Total
|
$
|
4,701,517
|
$
|
4,326,243
|
||
The
carrying amount of Smith assets pledged as collateral for the installment notes
payable totaled $3,338,077 (unaudited) and $3,067,624 at September 30, 2009 and
March 31, 2009.
F-69
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
6. Notes
Payable (continued)
Notes
payable owed by IFC (Parent) consisted of the following:
September
30, 2009
|
March
31, 2009
|
|||||
(Unaudited)
|
||||||
Note
payable to lender, with interest rate of 9.9%, collateralized by assets of
PlanGraphics with unamortized discount of $3,211.
|
$
|
44,789
|
$
|
44,789
|
||
Notes
payable to lender, with interest rate of 9.9%, collateralized by assets of
PlanGraphics and personally guaranteed by three stockholders and managers
of the Company.
|
60,000
|
60,000
|
||||
Note
payable to Ford Credit, principal and 16.8% interest payment of $885 due
monthly, collateralized by truck used by Stockholder.
|
39,666
|
41,472
|
||||
Various
notes payable with various due dates. Interest rate of 9.9%.
Warrants convertible between .40 and .50 per share. 100% warrant
coverage.
|
112,186
|
-
|
||||
Various
notes payable with various due dates. Interest rate of 9.9%.
Warrants convertible between .40 and .50 per share. 100%
warrant coverage.
|
140,250
|
-
|
||||
Notes
payable to lender. Interest rate of 9.9%. Warrants convertible
at .40 per share. 100% warrant coverage.
|
25,000
|
-
|
||||
Note
payable to lender. Interest rate of 8.0%. The
principal amount and all accrued and unpaid interest shall be due on May
15, 2010.
|
167,000
|
|||||
Discount
on note payable
|
||||||
(117,678)
|
||||||
Totals
|
$
|
471,213
|
$
|
146,261
|
||
F-70
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
6. Notes
Payable (continued)
Summary
of notes payable:
IFC
|
||||||||
Smith
|
Morris
|
(Parent)
|
Total
|
|||||
Current
portion of notes payable
|
||||||||
(Unaudited)
|
2,269,195
|
1,220,206
|
431,547
|
3,920,948
|
||||
Notes
payable, net of current portion
|
||||||||
(Unaudited)
|
2,432,322
|
2,234,625
|
39,666
|
4,706,613
|
||||
Total
as of September 30, 2009
|
||||||||
(Unaudited)
|
4,701,517
|
3,454,831
|
471,213
|
8,627,561
|
||||
Current
portion of notes payable
|
||||||||
(Unaudited)
|
2,624,914
|
1,205,111
|
112,567
|
3,942,592
|
||||
Notes
payable, net of current portion
|
||||||||
(Unaudited)
|
1,701,329
|
2,449,270
|
33,694
|
4,184,293
|
||||
Total
as of March 31, 2009
|
||||||||
(Unaudited)
|
4,326,243
|
3,654,381
|
146,261
|
8,126,885
|
Note
7. Notes
Payable – Related Parties
Notes
payable owed by the Company to related parties are as follows:
September
30, 2009
|
March
31, 2009
|
|||||
(Unaudited)
|
||||||
Note
payable to related party, from acquisition described in note 11, to
previous owner of Morris, with interest of 8%, secured by all shares of
Morris common stock, principal and interest due October 31,
2009.
|
$
|
600,000
|
$
|
600,000
|
||
Notes
payable to related party, from acquisition described in note 11, to
previous owners of Smith, with interest of 8%, secured by all shares of
Smith common stock, principal and interest due October 31,
2009.
|
250,000
|
250,000
|
||||
8.5%
note payable to previous owner, due on demand.
|
-
|
225,000
|
||||
$
|
850,000
|
$
|
1,075,000
|
F-71
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
8. Shareholders’
Deficit
Common
Stock
In May
2008, the Company issued 7,000,000 shares of its common stock to two persons who
were its founders, a director and officer, and an officer and general counsel,
at par value in exchange for work and services attendant to the organization of
the Company. The Company recorded $7,000 of expense on these
shares.
In May
and July 2008, in total, the Company issued 2,300,000 shares of common stock for
various consulting services and recognized an expense of $230,000. The Company
also sold 100,000 shares of common stock for $10,000.
In August
2008, the Company issued 825,000 shares of its common stock to the stockholders
of Smith Systems Transportation, Inc. as part of a business combination (see
Note 11).
In
September 2008, the Company issued 3,000,000 shares of its common stock to the
stockholders of Morris Transportation, Inc. as part of a business combination
(see Note 11).
In
November 2008 and January 2009, the Company issued 2,150,000 shares in
consideration of receiving debt financing as described in Note 6. The
Company recorded $312,500 of deferred financing costs as a result of issuing
these shares. These deferred financing costs are amortized over the
term of the debt.
In
February 2009, the Company issued 105,000 shares of common stock for $0.10 per
share. The Company issued 393,250 shares of common stock to the holder of a note
payable by the Company in order to extend the maturity date of the note payable
for 90 days. The $39,325 value of the stock was recorded as interest
expense.
In March
2009, the Company issued 1,375,000 shares of common stock for $137,500, less
$12,500 in fees. The Company also issued 400,000 shares of common
stock as a finders’ fee to the companies that introduced the buyers to
IFC. The Company issued 150,000 shares of its common stock to the
Chief Operating Officer upon execution of an employment
agreement. The stock’s fair market value of $15,000 was recognized as
compensation expense.
In April
2009, the Company sold 150,000 shares of common stock for
$15,000. The Company issued 25,000 shares of common stock for
consideration of releasing the Company from a merger clause in Tangiers
agreement. The stock’s fair market value of $2,500 was recognized as
professional fees.
In May
2009, the Company issued 1,307,822 shares of common stock to purchase preferred
shares of PlanGraphics. The Company also issued 297,142 shares as a
finder’s fee. The stock’s fair market value of $29,712 was recognized as
professional fees.
In June
2009, the Company sold 420,000 shares to common stock for $87,000. The Company
issued 850,000 share of common stock to an officer. The stock’s fair
market value of $85,000 was recognized as compensation expense. The
Company issued 342,854 shares of common stock as finder’s fees. The stock’s fair
market value of $24,285 was recognized as professional fees.
In July
2009, the Company issued 75,000 shares of common stock for services to be
rendered. The stock’s fair market value of $7,500 was recognized as
professional fees.
F-72
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
8. Shareholders’
Deficit (continued)
In
September 2009, the Company issued 100,000 shares of common stock to two
directors. The stock’s fair market value of $10,000 was recognized as
compensation expense.
Warrants
to Purchase Common Stock
The
following is a summary of Warrants to Purchase Common Stock
In
November 2008, the Company issued 325,000 common stock warrants as payment for
an incentive to extend a senior subordinated secured debenture totaling $48,000.
The warrants vested immediately, carry an exercise price of $0.10 and expire in
18 months. The Company’s common stock had no quoted market price on
the date of issuance. The Company valued the warrants at $.157 per
share, or $51,025 in aggregate, in accordance with ASC 505 and ASC
718. Stock-based compensation expense recognized is based on awards
ultimately expected to vest and has been reduced for estimated
forfeitures. ASC 505 and ASC 718 requires forfeitures to be estimated
at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.
In
January 2009, the Company issued 980,000 common stock warrants as incentive to
purchase the Company’s debentures. The warrants vested immediately, carry an
exercise price of $.01 and expire in five years. The Company’s common
stock had no quoted market price on the date of issuance. The Company
valued the warrants at $.09 per share, or $88,200 in aggregate, in accordance
with ASC 505 and ASC 718.
In March
2009, the Company issued 350,000 common stock warrants as payment for a finder’s
fee. The warrants vested immediately, carry an exercise price of $.01 and expire
in five years. The Company’s common stock had no quoted market price
on the date of issuance. The Company valued the warrants at $.09 per
share, or $31,500 in aggregate, in accordance with ASC 505 and ASC
718. Stock-based compensation expense recognized is based on awards
ultimately expected to vest and has been reduced for estimated
forfeitures. ASC 505 and ASC 718 requires forfeitures to be estimated
at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.
In
May 2009, the Company issued 560,000 common stock warrants as payment for a
finder’s fee. The warrants vested immediately, carry an exercise
price of $.01 and expire in five years. The Company’s common stock
had no quoted market price on the date of issuance. The Company
valued the warrants at $.09 per share, or $50,400 in aggregate, in accordance
with ASC 505 and ASC 718. The Company also issued 32,500 common stock warrants
as incentive to purchase the Company’s debentures. The warrants vested
immediately, carry an exercise price of $.50 and expire in three
years. The Company’s common stock had no quoted market price on the
date of issuance. The Company valued the warrants at $.09 per share,
or $2,925 in aggregate, in accordance with ASC 505 and ASC 718.
In June
2009, the Company issued 86,500 common stock warrants as incentive to purchase
the Company’s debentures. The warrants vested immediately, carry an exercise
price of $.50 and expire in three years. The Company’s common stock
had no quoted market price on the date of issuance. The Company
valued the warrants at $.09 per share, or $7,785 in aggregate, in accordance
with ASC 505 and ASC 718.
In July
2009, the Company issued 84,750 common stock warrants as incentive to purchase
the Company’s debentures. The warrants vested immediately, carry an exercise
price of $.50 and expire in three years. The Company’s common stock
had no quoted market price on the date of issuance. The Company
valued the warrants at $.09 per share, or $7,628 in aggregate, in accordance
with ASC 505 and ASC 718.
F-73
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
8. Shareholders’
Deficit (continued)
In
September 2009, the Company issued 45,475 common stock warrants as incentive to
purchase the Company’s debentures. The warrants vested immediately, carry an
exercise price between $.40 and $.50, and expire in three years. The
Company’s common stock had no quoted market price on the date of
issuance. The Company valued the warrants at $.09 per share, or
$4,093 in aggregate, in accordance with ASC 505 and ASC 718.
The fair
value for the warrants was estimated at the date of valuation using the
Black-Scholes option-pricing model with the following
assumptions:
Risk-free
interest rate
|
1.38-
2.57%
|
Dividend
yield
|
0.00%
|
Volatility
factor
|
59.552%
|
Expected
life
|
3.19
to 3.84 years
|
The
relative fair value of the warrants, calculated in accordance with ASC 470-20,
Debt with Conversion and Other Options; totaled $141,213 (unaudited) and
$24,749, respectively. The relative fair value of the warrants issued with
the debenture has been charged to additional paid-in capital with a
corresponding discount on the note payable. The discount is amortized over
the life of the debt. As the discount is amortized, the reported outstanding
principal balance of the notes will approach the remaining unpaid value.
A summary
of the grant activity for the period ended September 30, 2009, is
presented below:
Weighted
|
||||||||
Weighted
|
Average
|
|||||||
Stock
Awards
|
Average
|
Remaining
|
Aggregate
|
|||||
Outstanding
|
Exercise
|
Contractual
|
Intrinsic
|
|||||
&
Exercisable
|
Price
|
Term
|
Value
|
|||||
Balance,
March 31, 2009
|
675,000
|
0.10
|
3.84
years
|
-
|
||||
Granted
|
1,789,225
|
$ 0.34
|
3.15
years
|
-
|
||||
Exercised
|
-
|
N/A
|
N/A
|
N/A
|
||||
Expired/Cancelled
|
-
|
N/A
|
N/A
|
N/A
|
||||
Balance,
September 30, 2009 (Unaudited)
|
2,464,225
|
$ 0.29
|
3.15
years
|
$ -
|
As of
September 30, 2009 and March 31, 2009, the number of warrants that were
currently vested and expected to become vested was 2,464,225 (unaudited) and
675,000.
F-74
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
9. Commitments
and Contingencies
Operating
Leases
The
Company leases office space in Sarasota, Florida under a one-year operating
lease with two additional one-year extensions at the option of the
Company. The Company pays $695 per month, which increases to $770 per
month in October 2009, if the Company elects to exercise its option for
additional years under the lease.
Employment
Agreements
The
Company entered into three-year employment agreements with four executives of
the Company. The Company is committed to pay the executives a total
of $590,000 per year, with certain guaranteed bonuses and
increases. The agreements also call for bonuses if the executives
meet certain goals which are to be set by the board of directors.
The
Company’s purchase commitments for revenue equipment are currently under
negotiation. Upon execution of the purchase commitments, the Company anticipates
that purchase commitments under contract will have a net purchase price of
approximately $300,000 and will be paid throughout 2010.
Contingency
In IFC’s
note payable to Tangiers there is a requirement to develop a public market
defined by having a ticker symbol on a trading market, by December 31,
2009. If this does not occur Tangiers is entitled to a break-up fee
of $100,000.
Note
10. Business
Combinations
Smith
Systems Transportation, Inc.
On August
28, 2008, the Company acquired 100% of the common stock of Smith Systems
Transportation, Inc. (“Smith”), a Nebraska-based hazardous waste carrier, under
the terms of a Stock Exchange Agreement. The accounting date of the
acquisition was September 1, 2008, and the transaction was accounted for under
the purchase method in accordance with ASC 805. Smith’s results of operations
have been included in the consolidated financial statements since the date of
acquisition. Identifiable intangible assets acquired as part of the
acquisition included definite-lived intangibles which totaled $783,570, with a
weighted average amortization period of 3 years.
F-75
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
10. Business
Combinations (continued)
The
aggregate purchase price was $332,500, including 825,000 shares of the Company’s
common stock valued at $0.10 per share. Below is a summary of the total purchase
price:
Common
stock (825,000 shares)
|
$
|
82,500
|
Note
payable
|
250,000
|
|
$
|
332,500
|
The
following table represents the final purchase price allocation to the estimated
fair value of the assets acquired and liabilities assumed:
Cash
|
$
|
96,454
|
|||
Accounts
Receivable, Trade
|
1,913,282
|
||||
Accounts
Receivable, Officers
|
96,305
|
||||
Prepayments
|
255,545
|
||||
Other
Current Assets
|
39,687
|
||||
Net
Property and Equipment
|
3,546,996
|
||||
Employment
contract and non-compete
|
525,000
|
||||
Company
operating authority
|
258,570
|
||||
Total
assets acquired
|
6,731,839
|
||||
Bank
overdraft
|
468,784
|
||||
Accounts
payable
|
136,048
|
||||
Accrued
liabilities and other current liabilities
|
321,943
|
||||
Notes
payable
|
5,187,786
|
||||
Total
liabilities assumed
|
6,114,561
|
||||
Net
assets acquired before minority interest
|
617,278
|
||||
less
Minority Interest
|
(284,778)
|
||||
Net
assets acquired
|
$
|
332,500
|
Contingent
Consideration
As part
of the Stock Exchange Agreement with Smith, if Smith does not maintain certain
levels of profitability the note payable to Smith can be reduced by up to the
full amount, $250,000, of the note. The results of the payment
contingency may affect the final valuation of the Morris acquisition, to be
measured at the October 31, 2009, maturity date of the note.
F-76
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
10. Business
Combinations (continued)
Morris
Transportation, Inc.
On August
28, 2008, the Company acquired 100% of the common stock of Morris
Transportation, Inc. (“Morris”), an Arkansas-based dry van truckload carrier,
under the terms of a Stock Exchange Agreement. The accounting date of the
acquisition was September 1, 2008, and the transaction was accounted for under
the purchase method in accordance with ASC 805. Morris’ results of operations
have been included in the consolidated financial statements since the date of
acquisition. Identifiable intangible assets acquired as part of the
acquisition included definite-lived intangibles which totaled $751,681, with a
weighted average amortization period of 3 years.
The
aggregate purchase price was $900,000, including 3,000,000 shares of the
Company’s common stock valued at $0.10 per share. Below is a summary of the
total purchase price:
Common
stock (3,000,000 shares)
|
$
|
300,000
|
Note
payable
|
600,000
|
|
$
|
900,000
|
The
following table represents the final purchase price allocation to the estimated
fair value of the assets acquired and liabilities assumed:
Cash
|
$
|
58,252
|
|||
Accounts
Receivable, Trade
|
1,104,423
|
||||
Net
Property and Equipment
|
4,535,545
|
||||
Intangible
assets:
|
|||||
Employment
and non-compete agreement
|
518,293
|
||||
Company
operating authority
|
233,388
|
||||
Total
assets acquired
|
6,449,901
|
||||
Accounts
payable
|
219,073
|
||||
Accrued
liabilities and other current liabilities
|
92,560
|
||||
Notes
payable
|
5,238,268
|
||||
Total
liabilities assumed
|
5,549,901
|
||||
Net
Assets Acquired
|
$
|
900,000
|
Note
10. Business
Combinations (continued)
Contingent
Consideration
As part
of the Stock Exchange Agreement with Morris, if Morris does not maintain certain
levels of profitability the amount of the note payable to Morris can be reduced
by up to $250,000. The results of the payment contingency may affect
the final valuation of the Morris acquisition, to be measured at the October 31,
2009, maturity date of the note.
F-77
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
10. Business
Combinations (continued)
Pro
forma results
If the
Company had purchased Morris and Smith at the date of inception (May 13, 2008)
the results of operations would be as follow:
IFC
|
||||
(Parent)
|
Smith
|
Morris
|
Total
|
|
Revenue
|
$ -
|
$ 7,182,311
|
$ 10,346,177
|
$ 17,528,488
|
Operating
Expenses
|
||||
Rents
and transportation
|
-
|
2,079,321
|
1,613,394
|
3,692,715
|
Wages,
salaries & benefits
|
427,102
|
1,987,549
|
2,605,396
|
5,020,047
|
Fuel
and fuel taxes
|
-
|
1,610,937
|
4,410,511
|
6,021,448
|
Depreciation
and amortization
|
3,485
|
361,256
|
770,742
|
1,135,483
|
Insurance
and claims
|
-
|
521,512
|
197,699
|
719,211
|
Operating
taxes and licenses
|
-
|
118,511
|
78,799
|
197,310
|
General
and administrative
|
187,325
|
738,553
|
440,411
|
1,366,289
|
Other
operating expenses
|
190,810
|
1,739,832
|
1,487,652
|
3,418,294
|
Total
Operating Expenses
|
617,912
|
7,417,639
|
10,116,953
|
18,152,504
|
Other
Expenses
|
183,283
|
179,788
|
312,193
|
675,264
|
Net
loss before minority interest
|
(801,195)
|
(415,116)
|
(82,969)
|
(1,299,280)
|
Minority
interest share of subsidiary net income
|
-
|
(34,003)
|
-
|
(34,003)
|
Net
loss
|
$ (801,195)
|
$ (449,119)
|
$ (82,969)
|
$ (1,333,283)
|
Note
11. Business
Segment Information
The
Company follows the provisions of FASB ASC 280, Segment Reporting, which
established standards for the reporting of information about operating segments
in annual and interim financial statements. Operating segments are
defined as components of an enterprise for which financial information is
available that is evaluated regularly by the chief operating decision makers(s)
in deciding how to allocate resources and in assessing
performance. The Company operates both of its subsidiaries (Morris
Transportation and Smith Systems) as independent companies under separate
management of their respective founders. Management of the Company makes
decisions about allocating resources based on these operating segments. The
following tables depict the information expected by FASB ASC
280:
F-78
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
11. Business
Segment Information (continued)
|
Revenue
|
Net
Income(loss)
|
Total
Assets
|
||||
2009
|
|||||||
IFC
(Parent)
|
$ -
|
$ (1,534,368)
|
$ 3,185,385
|
||||
Morris
|
5,407,832
|
95,755
|
3,127,742
|
||||
Smith
|
3,424,799
|
(165,383)
|
4,971,165
|
||||
$ 8,832,631
|
$ (1,603,996)
|
$ 11,284,292
|
|||||
2008
|
|||||||
IFC
(Parent)
|
$ -
|
$ (330,574)
|
$ 3,425,566
|
||||
Morris
|
1,061,143
|
150,307
|
6,015,960
|
||||
Smith
|
794,646
|
18,846
|
4,349,789
|
||||
$ 1,855,789
|
$ (161,421)
|
$ 13,791,315
|
|||||
F-79
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
12. Subsequent
Events
Effective
December 24, 2009, the Company merged into PlanGraphics, Inc.
(PGRA).
Prior to
the merger, PGRA acquired approximately 94% of the issued and outstanding common
shares of the Company in exchange for 1,807,842,696 shares of PGRA’s common
stock. At the closing of the merger, the former shareholders of the Company
owned approximately 94% of the outstanding common stock of the PGRA. For
accounting purposes, this merger has been treated as a reverse acquisition and
recapitalization of the Company, with PGRA the legal surviving
entity.
Pursuant
to an agreement in connection with the Company’s acquisition of control of PGRA
on May 1, 2009, PGRA completed the sale of its historic operations to its former
director and chief executive officer. This transaction closed on December
27, 2009. Since PGRA had, due to the sale of its historical operations,
minimal assets and limited operations, the recapitalization has been accounted
for as the sale of shares of the Company’s common stock for the net liabilities
of PGRA. Therefore, the historical financial information prior to the date of
the recapitalization is the financial information of the Company. Costs of the
transaction have been charged to the period in which they are
incurred.
Following
are the terms of the merger agreement:
On
December 24, 2009, PGRA filed articles of merger in the State of Florida; and,
on December 23, 2009, PGRA filed articles of merger in the State of Colorado.
Pursuant to these articles of merger, the Company merged into PGRA and PGRA is
the legal surviving corporation.
F-80
INTEGRATED
FREIGHT CORPORATION
Notes
to Consolidated Financial Statements
Note
12. Subsequent
Events (continued)
The
Company acquired 401,559,467 shares of PGRA’s common stock, or 80.2 percent of
PGRA’s issued and outstanding common stock, as of May 1, 2009, for the purpose
of merging PGRA into the Company, with the Company being the surviving
corporation. Uncertainty as to when the Company could obtain an effective
registration statement on Form S-4 (which it filed and has now withdrawn) to
complete the merger caused delays in the Company obtaining debt and equity
funding and completing negotiations for additional acquisitions. On November 11,
2009, the Company and PGRA agreed to restructure the transaction to provide for
PGRA’s acquisition of more than ninety percent of the Company’s issued and
outstanding common stock and its merger into PGRA. Colorado corporation law
permits the merger of a subsidiary company owned ninety percent or more by a
parent company into the parent company without stockholder
approval.
In
furtherance of this change to the plan to combine the Company and PGRA,
20,228,246 shares of the Company’s outstanding common stock were transferred by
its stockholders to Jackson L. Morris, trustee for The Integrated Freight Stock
Exchange Trust, a Florida business trust (“Trust”). The company also transferred
the 401,559,467 shares of PGRA’s common stock it owned to the Trust. PGRA then
exchanged 1,406,284,229 shares of its unissued common stock for the 20,228,246
shares of the Company held in the Trust. As a result of this transfer and
exchange, the Trust now holds 1,807,842,696 of PGRA’s shares. The number of
shares of PGRA’s common stock that it exchanged for the number of shares of the
Company stock was not based on any financial or valuation considerations, but
solely on the number of shares of PGRA’s authorized but unissued shares in
relation to the percentage of the Company’s outstanding common stock included in
the exchange and the requirements of Colorado law that PGRA own ninety percent
or more of the Company in order to complete the merger without stockholder
approval.
The
Company avoided a contingent liability in the event it failed to develop a
public market for its common stock no later than December 31, 2009.
The
Company renegotiated its liabilities that were part of the transactions in which
the Company acquired its two subsidiaries in August and September
2008. These notes were renegotiated in the first half of
2010. The Company is no longer in default on these liabilities. The
terms to the agreement as follows:
(1)
The interest rate on the note is eight percent per annum. The
Company has paid $100,000 of the original principal amount of
$600,000 has been reduced to $500,000 by the cash payment of $100,000 in
January 2010. Payments of the balance of the note are as
follows: $25,000 on February 18, 2010; $125,000 on April 20,
2010 and $350,000 on May 1, 2010. Security for the note in
stock of Morris was terminated.
|
|
(2)
The notes and accrued interest are convertible at the election of Mr.
Morris into our common stock at $1 per share. In the event the
market price of our common stock is less than $1 per share one year after
conversion, then Mr. Morris will be entitled to receive additional shares
such that the aggregate market price of all shares received will equal the
dollar amount converted into common
stock.
|
(3) The
interest rate on the note is eight percent per annum. The
Company issued the note in lieu of cash payments we incurred at closing.
This note represents an aggregate of a $150,000 cash payment and a
$250,000 cash payment, both due by amendment on October 31, 2009, and is
due on May 1, 2010.
|
|
(4) The
two notes have been consolidated with payments to be made as follows:
$41,000-June 1, 2010; $100,000-September 1, 2010; $150,000-December 1,
2010; $250,000-February 1, 20111; and $400,000-May 1,
2011.
|
(5) Two
notes of $125,000, one payable to Mr. Smith and the other payable to Ms.
Smith, due by amendment on May 15, 2011. The notes are secured
by a pledge of the Smith Systems Transportation stock.
|
|
(6)
For the purpose of eliminating personal guaranties. At the present time,
there is no deadline by which personal guaranties must be eliminate, as
long as we are pursuing commercially reasonable mesa of doing
so.
|
F-81
FINANCIAL
STATEMENTS OF MORRIS TRANSPORTATION, INC.
(Predecessor
Company)
Page
|
||
Report
of Independent Registered Public Accounting Firm at and for the years
ended March 31, 2008 and 2007
|
F-83
|
|
Report of Independent Registered Public Accounting firm at and for the period ended August 31, 2008 | F-84 | |
Balance
Sheets at August 31, 2008, March 31, 2008 and 2007
|
F-85
|
|
Statements
of Operations for the five months ended August 31, 2008
|
||
and
years ended March 31, 2008 and 2007
|
F-86
|
|
Statement
of Changes in Stockholder’s Equity
|
||
for
the period from April 1, 2006 through August 31, 2008
|
F-87
|
|
Statements
of Cash Flows for the five months ended
|
||
August
31, 2008 and years ended March 31, 2008 and 2007
|
F-88
|
|
Notes
to Consolidated Financial Statements
|
F-89 |
F-82
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Shareholder
Morris
Transportation, Inc.
Hamburg,
Arkansas
We have
audited the accompanying balance sheets of Morris Transportation, Inc. as of
March 31, 2008 and 2007, and the related statements of operations, changes in
stockholders’ equity and cash flows for the years ended March 31, 2008 and 2007.
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 audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. 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, as well as evaluating the overall financial
statement 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 Morris Transportation, Inc. as of
March 31, 2008 and 2007, and the results of its operations and its cash flows
for the years ended March 31, 2008 and 2007 in conformity with accounting
principles generally accepted in the United States of America.
/s/
Cordovano and Honeck LLP
Cordovano
and Honeck LLP
Englewood,
Colorado
May 9,
2009
F-83
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Shareholder Morris
Transportation,
Inc.
Hamburg,
Arkansas
We have
audited the accompanying balance sheet of Morris Transportation, Inc. as of
August 31, 2008, and the related statements of operations, changes in
stockholders’ equity and cash flows for the period from April 1, 2008 through
August 31, 2008. 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 in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. 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, as well as evaluating the overall financial
statement presentation. We believe that our audit provides 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 Morris Transportation, Inc. as of
August 31, 2008, and the results of its operations and its cash flows for the
period from April 1, 2008 through August 31, 2008 in conformity with accounting
principles generally accepted in the United States of America.
/s/
Cordovano and Honeck LLP
Cordovano
and Honeck LLP
Englewood,
Colorado
September
9, 2009
F-84
Morris
Transportation Inc.
|
||||||||
Balance
Sheets at March 31, 2008 and 2007 and August 31, 2008
|
||||||||
March 31, | August 31, | |||||||
2008
|
2007
|
2008
|
||||||
Assets
|
||||||||
Current
assets:
|
||||||||
Cash
|
$
|
78,436
|
$
|
69,792
|
$58,252
|
|||
Trade
receivables, net of allowance for
|
||||||||
|
doubtful
accounts of $-0-, -0-, and $-0-, respectively
|
918,840
|
1,270,432
|
$1,104,423
|
||||
Other
current assets
|
37,661
|
36,982
|
||||||
|
||||||||
Total
current assets
|
1,034,937
|
1,377,206
|
$1,162,675
|
|||||
|
||||||||
Property
and equipment, net of accumulated
|
||||||||
depreciation
of $2,552,307, $1,749,700, and 2,918,388 respectively (Note
3)
|
5,005,351
|
5,263,056
|
$4,648,414
|
|||||
Total
assets
|
$
|
6,040,288
|
$
|
6,640,262
|
$5,811,089
|
|||
Liabilities
and Stockholder’s Equity
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$
|
77,855
|
$
|
113,716
|
$219,073
|
|||
Note
payable - related party (Note 4)
|
225,000
|
0
|
$225,000
|
|||||
Current
portion of notes payable (Note 5)
|
1,203,995
|
1,318,108
|
$1,282,896
|
|||||
Line
of credit (Note 5)
|
744,200
|
680,138
|
$853,728
|
|||||
Other
current liabilities
|
60,697
|
128,761
|
$92,560
|
|||||
Total
current liabilities
|
2,311,747
|
2,240,723
|
$2,673,257
|
|||||
|
||||||||
Long
term debt:
|
||||||||
Note
payable, less current portion (Note 5
|
3,293,094
|
3,558,033
|
$2,876,644
|
|||||
Total
liabilities
|
5,604,841
|
5,798,756
|
$2,876,644
|
|||||
Commitments
and contingencies (Note 7
|
—
|
—
|
||||||
Stockholder’s
equity (Note 6):
|
||||||||
Common
stock, $1.00 par value; 1,000 shares authorized,
|
||||||||
|
200 shares
issued and outstanding at March 31, 2008 and March 31,
2007
|
200
|
200
|
$200
|
||||
Retained
earnings
|
435,247
|
841,306
|
$260,988
|
|||||
|
||||||||
Total
stockholder’s equity
|
435,247
|
841,506
|
$261,188
|
|||||
|
||||||||
Total
liabilities and stockholder’s equity
|
$
|
6,040,288
|
$
|
6,640,262
|
$5,811,089
|
F-85
Morris
Transportation Inc.
|
||||||||||
Statements
of Operations for the years ended
|
||||||||||
March 31, 2008 and
2007
|
||||||||||
And
the five month period ended August 31, 2008
|
||||||||||
|
Years
Ended March 31,
|
Five
Months Ended
|
||||||||
2008
|
2007
|
August 31,
2008
|
||||||||
Operating
revenues, including fuel surcharges and rental
|
$ |
12,363,823
|
|
$ |
11,918,175
|
$ |
5,628,352
|
|||
Operating
expenses:
|
||||||||||
Rents
and purchased transportation
|
3,626,272
|
3,801,066
|
1,003,769
|
|||||||
Salaries,
wages and employee benefit
|
3,122,724
|
2,781,105
|
1,429,191
|
|||||||
Fuel
and fuel taxes
|
3,576,765
|
3,581,861
|
2,446,291
|
|||||||
Depreciation
and amortization
|
899,267
|
818,235
|
366,071
|
|||||||
Insurance
and claims
|
392,418
|
292,474
|
55,385
|
|||||||
Operating
taxes and licenses
|
115,153
|
68,563
|
39,310
|
|||||||
General
and administrative expenses
|
222,095
|
159,392
|
261,007
|
|||||||
Total
operating expenses
|
11,954,694
|
11,502,696
|
5,601,024
|
|||||||
Operating
income
|
409,129
|
415,479
|
27,328
|
|||||||
Other
income/(expense):
|
||||||||||
Interest
expense
|
(378,135)
|
(261,154)
|
(159,983)
|
|||||||
Loss
on disposition of equipment
|
(71,387)
|
(119,125)
|
||||||||
Total
other income/(expense)
|
(449,522)
|
(380,279)
|
(159,983)
|
|||||||
Loss
before income taxes
|
(40,393)
|
35,200
|
(132,655)
|
|||||||
Provision
for income taxes
|
—
|
—
|
||||||||
Net
loss
|
$ |
(40,393)
|
|
$ |
35,200
|
$ |
(132,655)
|
|||
Pro
forma adjustments (Note 1):
|
||||||||||
Officer/shareholder
distributions
|
140,666
|
234,707
|
57,649
|
|||||||
Income
taxes
|
(46,000)
|
(89,000)
|
(20,177)
|
|||||||
Pro forma net loss | $ | 54,273 | $ | 180,907 | $ | (95,183) | ||||
F-86
Morris
Transportation Inc.
|
||||||||||
Statement
of Changes in Stockholder’s Equity
|
||||||||||
for
the period from April 1, 2006 through August 31, 2008
|
||||||||||
Common
Stock
|
Retained
|
|||||||||
Shares
|
Par
Value
|
Earnings
|
Total
|
|||||||
Balance
at April 1, 2006
|
200
|
|
$ |
200
|
|
$ |
1,040,813
|
|
$ |
1,041,013
|
Owner
distributions
|
—
|
—
|
(234,707)
|
(234,707)
|
||||||
Net
income
|
—
|
—
|
35,200
|
35,200
|
||||||
Balance
at March 31, 2007
|
200
|
200
|
841,306
|
841,506
|
||||||
Owner
distributions
|
—
|
—
|
(365,666)
|
(365,666)
|
||||||
Net
income
|
—
|
—
|
(40,393)
|
(40,393)
|
||||||
Balance
at March 31, 2008
|
200
|
|
$ |
200
|
|
$ |
435,247
|
|
$ |
435,247
|
Owner
distributions
|
(57,649)
|
(57,649)
|
||||||||
Net
income
|
(132,655)
|
(132,655)
|
||||||||
Balance
at August 31, 2008
|
200
|
200
|
244,943
|
244,943
|
||||||
F-87
Morris
Transportation Inc.
|
||||||||||||||||||
Statements
of Cash Flows for the years ended
|
||||||||||||||||||
March 31, 2008 and
2007
|
||||||||||||||||||
and
for the five month period ended August 31, 2008
|
||||||||||||||||||
|
Years
Ended March 31,
|
Five
Months Ended
|
||||||||||||||||
2008
|
2007
|
August 31,
2008
|
||||||||||||||||
Cash
flows from operating activities:
|
||||||||||||||||||
Net
loss
|
$
|
(40,393)
|
$
|
35,200
|
$
|
(132,655)
|
||||||||||||
Adjustments
to reconcile net income to net cash
|
||||||||||||||||||
used
by operating activities:
|
||||||||||||||||||
Depreciation
and amortization
|
899,267
|
818,235
|
366,071
|
|||||||||||||||
Loss
on asset dispositions
|
71,387
|
119,125
|
0
|
|||||||||||||||
Changes
in operating assets and liabilities:
|
||||||||||||||||||
(Increase)/decrease
in accounts receivable
|
351,592
|
(38,386)
|
(185,583)
|
|||||||||||||||
(Increase)/decrease
in other current assets
|
(679)
|
(10,799)
|
37,661
|
|||||||||||||||
Increase/(decrease)
in accounts payable
|
(35,861)
|
59,110
|
173,081
|
|||||||||||||||
Increase/(decrease)
in other current liabilities
|
(68,064)
|
17,383
|
109,528
|
|||||||||||||||
Net
cash provided by (used in)
|
||||||||||||||||||
operating
activities
|
1,177,249
|
999,868
|
368,103
|
|||||||||||||||
Cash
flows from investing activities:
|
||||||||||||||||||
Acquisitions
of property and equipment
|
(712,949)
|
(1,734,452)
|
(9,144)
|
|||||||||||||||
Net
cash provided by (used in)
|
||||||||||||||||||
investing
activities
|
(712,949)
|
(1,734,452)
|
(9,144)
|
|||||||||||||||
Cash
flows from financing activities:
|
||||||||||||||||||
Proceeds
from notes payable
|
225,000
|
948,233
|
1,367
|
|||||||||||||||
Repayment
of notes payable
|
(314,990)
|
—
|
(322,861)
|
|||||||||||||||
Distributions
paid to common shareholders
|
(365,666)
|
(234,707)
|
(57,649)
|
|||||||||||||||
Net
cash provided by (used in)
|
||||||||||||||||||
financing
activities
|
(455,656)
|
713,526
|
(379,143)
|
|||||||||||||||
Net
change in cash
|
8,644
|
(21,058)
|
(20,184)
|
|||||||||||||||
Cash,
beginning of year
|
69,792
|
90,850
|
78,436
|
|||||||||||||||
Cash,
end of year
|
$
|
78,436
|
$
|
69,792
|
$
|
58,252
|
||||||||||||
Supplemental
disclosure of cash flow information:
|
||||||||||||||||||
Cash
paid during the year for:
|
||||||||||||||||||
Income
taxes
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||||||||
Interest
|
$
|
378,135
|
$
|
261,154
|
$
|
159,983
|
||||||||||||
F-88
Morris
Transportation Inc.
Notes to Financial
Statements
March 31, 2008 and 2007and August 31,
2008
Note
1. Nature of Operations and Summary of Significant Accounting
Policies
Nature
of Business
Morris
Transportation, Inc. (an Arkansas corporation) and subsidiaries (the
“Company”) is a closely held S corporation operating as a short to
medium-haul truckload carrier of dry van materials headquartered in Hamburg,
Arkansas.. The Company also has service centers located throughout the United
States. The Company is subject to regulation by the Department of
Transportation, OSHEA and various state regulatory authorities.
Note 2.Uses of Estimates
The
financial statements contained in this report have been prepared in conformity
with accounting principles generally accepted in the United States of America.
The preparation of these statements requires us to make estimates and
assumptions that directly affect the amounts reported in such statements and
accompanying notes. The Company evaluates these estimates on an ongoing basis
utilizing historical experience, consulting with experts and using other methods
the Company considers reasonable in the particular circumstances.
Nevertheless, actual results may differ significantly
from estimates.
The
Company believes that certain accounting policies and estimates are of more
significance in its financial statement preparation process than others. The
Company believes the most critical accounting policies and estimates include the
economic useful lives and salvage values of assets, provisions for
uncollectible accounts receivable, and estimates of exposures under the
Company's insurance and claims plans. To the extent that actual, final outcomes
are different than the Company's estimates, or additional facts and
circumstances cause us to revise the Company's estimates, its earnings during
that accounting period will be affected.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. The Company had no
cash equivalents at March 31, 2008 and the period ended August 31,
2008.
Accounts
Receivable Allowance
The
Company trade accounts receivable includes accounts receivable from brokers and
the various clients for whom the Company offer its for-hire transportation
services. The Company has experienced minimal losses from the
Company's inability to collect bad debts and accordingly, the Company has not
made any allowances for uncollectible accounts and revenue adjustments as of
March 31, 2008 and the period ended August 31 2008.
Impairment
of Long-lived Assets
In
accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, long-lived assets and certain identifiable
intangible assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
evaluated by a comparison of the carrying amount of assets to estimated
undiscounted net cash flows expected to be generated by the assets. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amounts of the assets exceed the
fair value of the assets. There has been no impairment as of March 31, 2008 and
the period ended August 31, 2008.
F-89
Morris
Transportation Inc.
Notes to Financial
Statements
March 31, 2008 and 2007and August 31,
2008
Revenue
Recognition
The
Company recognizes revenues on the date the shipments are delivered to the
customer. Revenue includes transportation revenue, fuel surcharges,
loading and unloading activities, equipment detention, and other accessorial
services. Revenue is recorded on a gross basis, without deducting
third party purchased transportation costs, as the Company acts as a principal
with substantial risks as primary obligor.
Advertising
Costs
The
Company charges advertising costs to expense as incurred. During the years ended
March 31, 2008 and 2007, and period ended August 31, 2008 advertising expense
was approximately $5,000 and $5,000, $2000 respectively.
Income
Taxes
Income
Taxes and Related Pro Forma Adjustments
The
Company elects to be taxed as an S corporation. As such, there is no
provision for income taxes in the accompanying financial statements. As an S
corporation, the Company makes distributions to the Company's shareholders
annually and charge those distributions to retained earnings.
The
accompanying statements of income include pro forma adjustments to reflect as
salaries distributions to shareholders and to reflect an estimated provision for
income taxes. The effective income tax rate used on the pro forma adjustments is
that estimated had the Company been a C corporation.
Stock-based
Compensation
The
Company has not issued any further stock since inception, but would apply the
fair value recognition provisions of Financial Accounting Standards Board
(FASB), Statement of Financial Accounting Standards, Share-Based Payment, or SFAS
No. 123(R), using the modified prospective application method. Under
SFAS No. 123R, stock-based compensation expense is measured at the
grant date based on the value of the option or restricted stock and is
recognized as expense, less expected forfeitures, over the requisite service
period.
Concentrations
of Credit Risk
Financial
instruments, which potentially subject us to concentrations of credit risk,
include cash and trade receivables. For the years ended March 31, 2008 and 2007,
and the period ended August 31, 2008 the Company's top four customers, based on
revenue, accounted for approximately 40% and 36% and 38%, of total revenue,
respectively. The Company's top four customers, based on revenue, accounted for
approximately 30% and 26% and 29% of the Company's total trade accounts
receivable at March 31, 2008 and 2007, and the period ended August 31, 2008
respectively.
Financial
instruments with significant credit risk include cash. The Company deposits its
cash with high quality financial institutions in amounts less than the federal
insurance limit of $250,000 in order to limit credit risk. As of March 31, 2008,
and the period ended August 31, 2008 the Company’s bank deposits did not
exceeded insured limits.
F-90
Morris
Transportation Inc.
Notes to Financial
Statements
March 31, 2008 and 2007and August 31,
2008
Fair
Value of Financial Instruments
The carrying amounts of cash, accounts
receivable and accounts payable approximate fair value because of their short
maturities. At March 31, 2008, and the period ended August 31, 2008 the Company
has $5,097,699 and
$ 5,004,227 respectively outstanding under promissory notes with
various lenders. The fair value of notes payable to various lenders is based on
current rates at which the Company could borrow funds with similar remaining
maturities.
Claims
Accruals
Losses
resulting from personal liability, physical damage, workers’ compensation, and
cargo loss and damage are covered by insurance subject to deductible, per
occurrence. Losses resulting from uninsured claims are recognized when such
losses are known and can be estimated. The Company estimates and accrues a
liability for the Company's share of ultimate settlements using all available
information. The Company accrues for claims reported, as well as for claims
incurred but not reported, based upon past experience. Expenses depend on
actual loss experience and changes in estimates of settlement amounts for open
claims which have not been fully resolved. These accruals are based
on evaluation of the nature and severity of the claim and estimates of
future claims development based on historical trends. Insurance and claims
expense will vary based on the frequency and severity of claims and the premium
expense. At March 31, 2008, and the period ended August 31, 2008 management
estimated $-0- in claims accrual.
Earnings
per Share
The Company calculates earnings per
share in accordance with SFAS No. 128, “Earnings per
Share.” Basic income per
share is computed by dividing the net income by the weighted-average number of
common shares outstanding during the period. The Company has no warrants or
stock option plan that would be dilutive. At March 31, 2008, and the period
ended August 31, 2008 there was no effect between the basic and diluted loss per
share.
Recent
Accounting Pronouncements
In May
2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles (“SFAS No. 162”). SFAS No.
162 identifies the source of accounting principles and the framework for
selecting the principles used in the preparation of financial statements that
are presented in accordance with accounting principles generally accepted in the
United States. This statement will be effective 60 days following the Securities
and Exchange Commission’s approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity
with Generally Accepted Accounting Principles.” The Company does not
expect the adoption of SFAS No. 162 to have a material impact on the
Company’s financial condition, results of operations, and
disclosures.
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities (“SFAS No. 161”). This standard revises the presentation of
and requires additional disclosures to an entity’s derivative instruments,
including how derivative instruments and related hedged items are accounted for
under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, and how derivative instruments and related hedged items affect its
financial position, financial performance and cash flows. The provisions of SFAS
No. 161 are effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. The Company is currently
evaluating the impact of adopting of SFAS No. 161 on its consolidated financial
statements.
F-91
Morris
Transportation Inc.
Notes to Financial
Statements
March 31, 2008 and 2007and August 31,
2008
In
December 2007, the FASB issued SFAS No. 160, No controlling Interests in
Consolidated Financial Statements – an Amendment of ARB 51 (“SFAS No. 160”).
This statement amends ARB 51 and revises accounting and reporting requirements
for no controlling interests (formerly minority interests) in a subsidiary and
for the deconsolidation of a subsidiary. Upon the adoption of SFAS No. 160 on
April 1, 2009, any no controlling interests will be classified as equity, and
income attributed to the no controlling interest will be included in the
Company’s income. The provisions of this standard are applied retrospectively
upon adoption.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations, (“SFAS No. 141(R)”). SFAS No. 141(R) clarifies and amends the
accounting guidance for how an acquirer in a business combination recognizes and
measures the assets acquired, liabilities assumed, and any no controlling
interest in the acquire. The provisions of SFAS No. 141(R) are effective for the
Company for any business combinations occurring on or after January 1,
2009.
In
December 2008, the FASB issued FSP No. FAS 140-4 and FIN 46(R)-8, which amends
SFAS No. 140, to require additional disclosures about transfers of financial
assets. The FSP also amended FASB Interpretation No. 46(R), to provide
additional disclosures about entities’ involvement with variable interest
entities. The FSP’s scope is limited to disclosure only and is not expected to
have an impact on the Company’s consolidated financial position or results of
operations.
Note
3. Property and Equipment
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation. Depreciation of
property and equipment is calculated on the straight-line method over the
following estimated useful lives:
Years
|
|
Land
improvements
|
7-
10
|
Buildings
/ improvements
|
20
– 30
|
Furniture
and fixtures
|
3 –
5
|
Shop
and service equipment
|
2 –
5
|
Revenue
equipment
|
3-5
|
Leasehold
improvements
|
1 –
5
|
The
Company expenses repairs and maintenance as incurred. The Company periodically
reviews the reasonableness of its estimates regarding useful lives and salvage
values for revenue equipment and other long-lived assets based upon, among other
things, the Company’s experience with similar assets, conditions in the used
revenue equipment market, and prevailing industry practice. Salvage values are
typically 3% to 6% for tractors and trailing equipment and consider any
agreements with tractor suppliers for residual or trade-in values for certain
new equipment. The Company capitalizes tires placed in service on new revenue
equipment as a part of the equipment cost. Replacement tires and costs for
recapping tires are expensed at the time the tires are placed in service. Gains
and losses on the sale or other disposition of equipment are recognized at the
time of the disposition.
F-92
Morris
Transportation Inc.
Notes to Financial
Statements
March 31, 2008 and 2007, and August 31,
2008
Property
and equipment consist of the following at March 31, 2008 and 2007, and August
31, 2008:
March
31,
|
|||||
2008
|
2007
|
||||
Cost
|
$
|
7,557,658
|
$
|
7,012,756
|
|
Accumulated
Depreciation
|
(2,552,307)
|
(1,749,700)
|
|||
Net
Carrying Value
|
$
|
5,005,351
|
$
|
5,263,056
|
Depreciation
Expense for the years ended March 31, 2008 and 2007, and the period ended August
31, 2009 was $899,267 and $818,235, and $366,071 respectively.
Note
4. Note Payable - Related Parties
Notes
payable owed by the Company to related parties at March 31, 2008 and the period
ended August 31, 2008 is as follows:
8.5%
note payable to shareholder, due on demand
|
$
|
225,000
|
$ |
225,000
|
$
|
225,000
|
$ |
225,000
|
Note
5. Notes Payable
Line
of credit with interest rate of 8.5%, $800,000 limit, secured by company
receivables maturing August 2008
|
$744,200
|
$853,728
|
Various
notes payable to Chrysler Financial payable in monthly installments
ranging from $569 to $5,687 including interest through May 2013 with
interest rate ranging from 5.34% to 8.07% secured by
equipment
|
$2,376,667
|
$2,388,994
|
Various
notes payable to First Continental Bank payable in monthly installments
ranging from $1,805 to $5,829 including interest through June 2010 with
interest rate ranging from 5.9% to 7.25% secured by
equipment
|
$179,028
|
$147,502
|
Various
notes payable to GE Financial payable in monthly installments ranging from
$2,999 to $7,535 including interest through April 2013 with interest rate
ranging from 6.69% to 8.53% secured by equipment
|
$1,726,436
|
$1,401,891
|
6.9%
note payable to a GMAC Financial in installments of $667 including
interest, through August 2013 secured by a vehicle
|
$15,112
|
$12,266
|
8.59%
note payable to a Wells Fargo Bank payable in monthly installments of
$4,271 including interest, through October 2011 secured by
equipment
|
$199,846
|
$199,846
|
The
carrying amount of assets pledged as collateral for the installment notes
payable totaled $4,371,885 at December 31, 2008
|
$5,004,227
|
F-93
Morris
Transportation Inc.
Notes to Financial
Statements
March 31, 2008 and 2007, and August 31,
2008
Note
6. Shareholder’s Equity
Common
Stock
The
Company has not issued any of its common stock or granted any options or
warrants since inception.
Note
7. Commitments and Contingencies
Operating
Leases
The
Company has no office space under non-cancellable lease agreements. The Company
only has informal month to month leases.
The
Company leases vehicles and trailers under various non-cancelable operating
leases expiring through November 2009. Vehicle and trailer lease expense for the
period ended December 31, 2008 totaled $209,975
Purchase
Commitments
The
Company’s purchase commitments for revenue equipment are currently under
negotiation. Upon execution of the purchase commitments, the Company anticipates
that purchase commitments under contract will have a net purchase price of
approximately $300,000 and will be paid throughout 2010.
Claims
and Assessments
The
Company is involved in certain claims and pending litigation arising from
the normal conduct of business. Based on the present knowledge of the facts and,
in certain cases, opinions of outside counsel, the Company believes the
resolution of these claims and pending litigation will not have a material
adverse effect on the Company's financial condition, results of operations
or liquidity.
Contingent
Consideration
The
Company has no contingent liabilities at this time.
Note 8.Subsequent Events
On August
28, 2008, all of the Company’s stock was acquired by Integrated Freight Systems,
Inc. (“IFG”), a Florida-based company under the terms of a Stock Exchange
Agreement, resulting in a change in control. The accounting date of the
acquisition was September 1, 2008 and the transaction was accounted for under
the purchase method in accordance with SFAS 141.
F-94
FINANCIAL STATEMENTS OF SMITH SYSTEMS TRANSPORTATION, INC.
(Predecessor
Company)
Page
|
||
Report
of Independent Registered Public Accounting Firm at and for the years
ended March 31, 2008 and 2007
|
F-96
|
|
Report of Independent Registered Public Accounting Firm at and for the period ended August 31, 2008 | F-97 | |
Consolidated
Balance Sheets at August 31, 2008, March 31, 2008 and 2007
|
F-98
|
|
Consolidated
Statements of Operations for the five months ended August 31,
2008
|
||
and
years ended March 31, 2008 and 2007
|
F-99
|
|
Consolidated
Statement of Changes in Stockholder's Equity/(Deficit)
|
||
for
the period from April 1, 2006 through August 31, 2008
|
F-100
|
|
Consolidated
Statements of Cash Flows for the five months ended
|
||
August
31, 2008 and years ended March 31, 2008 and 2007
|
F-101
|
|
Notes
to Consolidated Financial Statements
|
F-102
|
F-95
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders
Smith
Systems Transportation, Inc.
Scottsbluff,
Nebraska
We have
audited the accompanying consolidated balance sheets of Smith Systems
Transportation, Inc. as of March 31, 2008 and 2007, and the related consolidated
statements of operations, changes in stockholders’ deficit and cash flows for
the years ended March 31, 2008 and 2007. 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 audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. 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, as well as evaluating the overall financial
statement 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 Smith Systems Transportation, Inc.
as of March 31, 2008 and 2007, and the results of their operations and cash
flows for the years ended March 31, 2008 and 2007 in conformity with accounting
principles generally accepted in the United States of America.
/s/
Cordovano and Honeck LLP
Cordovano
and Honeck LLP
Englewood,
Colorado
May 9,
2009
F-96
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders
Smith
Systems Transportation, Inc.
Scottsbluff,
Nebraska
We have
audited the accompanying consolidated balance sheet of Smith Systems
Transportation, Inc. as of August 31, 2008, and the related consolidated
statements of operations, changes in stockholders’ deficit and cash flows for
the period from April 1, 2008 through August 31, 2008. 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 in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. 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, as well as evaluating the overall financial
statement presentation. We believe that our audit provides 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 Smith Systems Transportation, Inc.
as of August 31, 2008, and the results of their operations and cash flows for
the period from April 1, 2008 through August 31, 2008 in conformity with
accounting principles generally accepted in the United States of
America.
/s/ Cordovano
and Honeck LLP
Cordovano
and Honeck LLP
Englewood,
Colorado
September
9, 2009
F-97
Smith
Systems Transportation Inc.
|
||||||||||||||
Consolidated
Balance Sheets at March 31, 2008 and 2007, and August 31,
2008
|
||||||||||||||
|
March
31,
|
|||||||||||||
2008
|
2007
|
August
31, 2008
|
||||||||||||
Assets
|
||||||||||||||
Current
assets:
|
||||||||||||||
Cash
|
$
|
356
|
$
|
46,926
|
96,454
|
|||||||||
Trade
receivables, net of allowance for
|
||||||||||||||
doubtful
accounts of $-0- and $-0-, respectively
|
1,775,854
|
2,713,436
|
2,009,274
|
|||||||||||
Other
receivables
|
109,189
|
155,438
|
||||||||||||
Prepaid
expenses
|
405,380
|
532,976
|
255,545
|
|||||||||||
Other
current assets
|
40,947
|
81,665
|
—
|
|||||||||||
Total
current assets
|
2,331,726
|
3,530,441
|
2,361,273
|
|||||||||||
|
||||||||||||||
Property
and equipment, net of accumulated
|
||||||||||||||
depreciation
of $3,041,567, $3,173,875, and 3,261,177 respectively (Note
3)
|
2,157,471
|
2,867,722
|
1,917,881
|
|||||||||||
Other
assets
|
—
|
64
|
40,000
|
|||||||||||
|
||||||||||||||
Total
assets
|
$
|
4,489,197
|
$
|
6,398,227
|
4,319,154
|
|||||||||
|
||||||||||||||
Liabilities
and Stockholders' Equity/(Deficit)
|
||||||||||||||
Current
liabilities:
|
||||||||||||||
Bank
overdraft
|
$
|
264,529
|
101,968
|
468,784
|
||||||||||
Accounts
payable
|
212,633
|
226,684
|
136,051
|
|||||||||||
Current
portion of notes payable (Note 4)
|
1,162,935
|
3,249,946
|
3,404,261
|
|||||||||||
Current
portion of capital lease obligations (Note 5)
|
34,612
|
32,223
|
||||||||||||
Accrued
liabilities
|
304,916
|
351,405
|
321,943
|
|||||||||||
Total
current liabilities
|
1,979,625
|
3,962,226
|
4,331,039
|
|||||||||||
Long
term debt:
|
||||||||||||||
Earned
escrow
|
106,051
|
277,219
|
—
|
|||||||||||
Note
payable, less current portion (Note 4)
|
3,934,616
|
2,237,254
|
1,783,525
|
|||||||||||
Capital
lease obligations, less current portion (Note 5)
|
—
|
34,611
|
||||||||||||
|
||||||||||||||
Total
liabilities
|
6,020,292
|
6,511,310
|
6,114,564
|
|||||||||||
Commitments
and contingencies (Note 8)
|
—
|
—
|
||||||||||||
Minority
interest (Note 9)
|
303,392
|
265,566
|
284,778
|
|||||||||||
Stockholders'
equity/(deficit) (Note 7):
|
||||||||||||||
Common
stock, $10.00 par value; 1,000 shares authorized,
|
||||||||||||||
100
and 100 shares issued and outstanding, respectively
|
1,000
|
1,000
|
1,000
|
|||||||||||
Additional
paid-in capital
|
30,036
|
30,036
|
30,036
|
|||||||||||
Retained
earnings
|
(1,865,523)
|
(409,685)
|
(2,111,224)
|
|||||||||||
Total
stockholders' equity/(deficit)
|
(1,834,487)
|
(378,649)
|
(2,080,188)
|
|||||||||||
Total
liabilities and stockholders' equity/(deficit)
|
$
|
4,489,197
|
6,398,227
|
4,319,154
|
F-98
Smith
Systems Transportation Inc.
|
|||||||||
Consolidated
Statements of Operations for the years ended
|
|||||||||
March
31, 2008 and 2007, and August 31, 2008
|
|||||||||
|
Years
Ended March 31,
|
|
|||||||
2008
|
2007
|
August 31, 2008 | |||||||
Operating
revenues, including fuel surcharges and rentals
|
$
|
12,557,762
|
$
|
15,232,314
|
$ |
4,203,117
|
|||
Operating
expenses:
|
|||||||||
Rents
and purchased transportation
|
7,316,521
|
9,436,439
|
1,266,949
|
||||||
Salaries,
wages and employee benefits
|
2,509,202
|
2,547,178
|
971,195
|
||||||
Fuel
and fuel taxes
|
1,924,647
|
1,658,548
|
1,157,531
|
||||||
Depreciation
and amortization
|
543,010
|
572,799
|
219,610
|
||||||
Insurance
and claims
|
779,176
|
849,979
|
208,357
|
||||||
Operating
taxes and licenses
|
146,602
|
144,990
|
35,565
|
||||||
General
and administrative expenses
|
932,779
|
586,546
|
360,297
|
||||||
Total
operating expenses
|
14,151,937
|
15,796,479
|
4,219,504
|
||||||
Operating
income
|
(1,594,175)
|
(564,165)
|
(16,387)
|
||||||
Other
income/(expense):
|
|||||||||
Interest
income
|
594
|
4,123
|
—
|
||||||
Interest
expense
|
(279,162)
|
-359,338
|
(297,014)
|
||||||
Gain
on disposition of equipment
|
56,121
|
60,729
|
—
|
||||||
Other
income
|
415,994
|
769,447
|
83,088
|
||||||
Total
other income/(expense)
|
193,547
|
474,961
|
(213,926)
|
||||||
Loss
before minority interest
|
(1,400,628)
|
(89,204)
|
(230,313)
|
||||||
|
|||||||||
Minority
interest
|
(55,210)
|
(128,655)
|
(15,388)
|
||||||
|
|||||||||
Net
loss
|
$
|
(1,455,838)
|
$
|
(217,859)
|
$ |
(245,701)
|
|||
|
|||||||||
F-99
|
Smith
Systems Transportation Inc.
|
|||||||||
Consolidated
Statement of Changes in Stockholder's Equity/(Deficit)
|
|||||||||
for
the period from April 1, 2006 through August 31, 2008
|
|||||||||
Additional
|
|||||||||
Common
Stock
|
Paid-in
|
Retained
|
|||||||
Shares
|
Par
Value
|
Capital
|
Earnings
|
Total
|
|||||
Balance
at April 1, 2006
|
100
|
$
|
1,000
|
$
|
30,036
|
$
|
(141,826)
|
$
|
(110,790.00)
|
Owner
distributions
|
—
|
—
|
—
|
(50,000)
|
(50,000.00)
|
||||
Net
income
|
—
|
—
|
—
|
(217,859)
|
(217,859.00)
|
||||
Balance
at March 31, 2007
|
100
|
1,000
|
30,036
|
(409,685)
|
(378,649.00)
|
||||
Net
income
|
—
|
—
|
—
|
(1,455,838)
|
(1,455,838.00)
|
||||
Balance
at March 31, 2008
|
100
|
$
|
1,000
|
$
|
30,036
|
$
|
(1,865,523)
|
$
|
(1,834,487.00)
|
Net
Income
|
---
|
---
|
---
|
(245,701)
|
(245,701.00)
|
||||
Balance
at August 31, 2008
|
100
|
1,000
|
30,036
|
(2,111,224)
|
(2,080,188.00)
|
||||
F-100
Smith
Systems Transportation Inc.
|
||||||||||||||||||||||
Consolidated
Statements of Cash Flows for the years ended
|
||||||||||||||||||||||
March
31, 2008 and 2007, and August 31, 2008
|
||||||||||||||||||||||
|
Years
Ended March 31,
|
August
31, 2008
|
||||||||||||||||||||
2008
|
2007
|
|||||||||||||||||||||
Cash
flows from operating activities:
|
||||||||||||||||||||||
Net
loss
|
$
|
(1,455,838)
|
$
|
(217,859)
|
(245,701)
|
|||||||||||||||||
Adjustments
to reconcile net income to net cash
|
||||||||||||||||||||||
used
by operating activities:
|
||||||||||||||||||||||
Depreciation
and amortization
|
543,010
|
572,799
|
219,610
|
|||||||||||||||||||
Gain
on asset dispositions
|
(56,121)
|
(60,729)
|
—
|
|||||||||||||||||||
Minority
interest in earnings of subsidiary
|
55,210
|
128,655
|
15,388
|
|||||||||||||||||||
Changes
in operating assets and liabilities:
|
||||||||||||||||||||||
(Increase)/decrease
in accounts receivable
|
937,582
|
(92,386)
|
(124,231)
|
|||||||||||||||||||
(Increase)/decrease
in prepaid expenses
|
127,596
|
3,562
|
135,823
|
|||||||||||||||||||
(Increase)/decrease
in other current assets
|
40,718
|
(364)
|
947
|
|||||||||||||||||||
Increase/(decrease)
in bank overdraft
|
162,561
|
(95,830)
|
204,255
|
|||||||||||||||||||
Increase/(decrease)
in accounts payable
|
(14,051)
|
5,560
|
(76,582)
|
|||||||||||||||||||
Increase/(decrease)
in other current liabilities
|
59,562
|
27,480
|
2,223,741
|
|||||||||||||||||||
Increase/(decrease)
in earned escrow
|
(277,219)
|
277,113
|
(106,051)
|
|||||||||||||||||||
Net
cash provided by (used in) operating activities
|
123,010
|
548,001
|
2,247,199
|
|||||||||||||||||||
|
||||||||||||||||||||||
Cash
flows from investing activities:
|
||||||||||||||||||||||
Acquisitions
of property and equipment
|
(113,945)
|
—
|
—
|
|||||||||||||||||||
Proceeds
from asset dispositions
|
337,307
|
72,738
|
—
|
|||||||||||||||||||
Collection
of Accounts Receivable, Officer
|
46,249
|
18,316
|
—
|
|||||||||||||||||||
Other
|
64
|
—
|
—
|
|||||||||||||||||||
Net
cash provided by (used in) investing activities
|
269,675
|
91,054
|
—
|
|||||||||||||||||||
Cash
flows from financing activities:
|
||||||||||||||||||||||
Proceeds
from notes payable
|
4,392,975
|
2,604,198
|
||||||||||||||||||||
Repayment
of notes payable
|
(4,814,846)
|
(3,078,401)
|
(2,151,091)
|
|||||||||||||||||||
Distributions
paid to common shareholders
|
—
|
(50,000)
|
—
|
|||||||||||||||||||
Distributions
paid to minority interest
|
(17,384)
|
(68,326)
|
—
|
|||||||||||||||||||
Net
cash provided by (used in)
|
||||||||||||||||||||||
financing
activities
|
(439,255)
|
(592,529)
|
(2,151,091)
|
|||||||||||||||||||
Net
change in cash
|
(46,570)
|
46,526
|
96,108
|
|||||||||||||||||||
Cash,
beginning of year
|
46,926
|
400
|
346
|
|||||||||||||||||||
Cash,
end of year
|
$
|
356
|
$
|
46,926
|
96,454
|
|||||||||||||||||
Supplemental
disclosure of cash flow information:
|
||||||||||||||||||||||
Cash
paid during the year for:
|
||||||||||||||||||||||
Income
taxes
|
$
|
—
|
$
|
—
|
||||||||||||||||||
Interest
|
$
|
694,564
|
$
|
968,129
|
297,014
|
|||||||||||||||||
F-101
Smith
Systems Transportation Inc.
Notes to Consolidated Financial
Statements
March 31, 2008 and 2007and August 31,
2008
Note
1. Nature of Operations and Summary of Significant Accounting
Policies
Nature
of Business
Smith
Systems Transportation (a Nebraska corporation) and subsidiaries (the “Company”)
is a closely held corporation operating as a short to medium-haul truckload
carrier of hazardous waste headquartered in Scottsbluff, Nebraska. The Company
also has service centers located throughout the United States. The
Company is subject to regulation by the Department of Transportation, OSHEA and
various state regulatory authorities.
Principles
of Consolidation
The
consolidated financial statements include the financial statements of Smith
Systems Transportation, Inc. (“Smith”). Smith holds a 60% ownership interest in
SST Financial Group, LLC (“SSTFG”). All significant intercompany balances and
transactions within the Company have been eliminated upon
consolidation.
Use
of Estimates
The
financial statements contained in this report have been prepared in conformity
with accounting principles generally accepted in the United States of
America. The preparation of these statements requires us to make estimates
and assumptions that directly affect the amounts reported in such statements and
accompanying notes. The Company evaluates these estimates on an ongoing
basis utilizing historical experience, consulting with experts and using other
methods the Company considers reasonable in the particular circumstances.
Nevertheless, the Company's actual results may differ significantly from the
Company's estimates.
The
Company believes that certain accounting policies and estimates are of more
significance in the Company's financial statement preparation process than
others. The Company believes the most critical accounting policies and
estimates include the economic useful lives and salvage values of the Company's
assets, provisions for uncollectible accounts receivable, and estimates of
exposures under the Company's insurance and claims plans. To the extent
that actual, final outcomes are different than the Company's estimates, or
additional facts and circumstances cause the Company to revise
the estimates, the earnings during that accounting period will be
affected.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. The Company had no
cash equivalents at March 31, 2008, and the period ended August 31,
2008.
Accounts
Receivable Allowance
The
Company's trade accounts receivable includes accounts receivable from brokers
and the various clients for whom the Company offers its for-hire
transportation services. The Company has experienced minimal losses
from its inability to collect bad debts and accordingly, the Company
has not made any allowances for uncollectible accounts and revenue adjustments
as of March 31, 2008 and the period ended August 31, 2008.
F-102
Smith
Systems Transportation Inc.
Notes to Consolidated Financial
Statements
March 31, 2008 and 2007 and August
31, 2008
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation. Depreciation of
property and equipment is calculated on the straight-line method over the
following estimated useful lives:
Years
|
|
Land
improvements
|
7-
10
|
Buildings
/ improvements
|
20
- 30
|
Furniture
and fixtures
|
3 –
5
|
Shop
and service equipment
|
2 –
5
|
Revenue
equipment
|
3-5
|
Leasehold
improvements
|
1 –
5
|
The
Company expenses repairs and maintenance as incurred. The Company periodically
reviews the reasonableness of its estimates regarding useful lives and salvage
values for revenue equipment and other long-lived assets based upon, among other
things, the Company's experience with similar assets, conditions in the used
revenue equipment market, and prevailing industry practice. Salvage values are
typically 3% to 6% for tractors and trailing equipment and consider any
agreements with tractor suppliers for residual or trade-in values for certain
new equipment. The Company capitalizes tires placed in service on new
revenue equipment as a part of the equipment cost. Replacement tires and
costs for recapping tires are expensed at the time the tires are placed in
service. Gains and losses on the sale or other disposition of equipment
are recognized at the time of the disposition.
Impairment
of Long-lived Assets
In
accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, long-lived assets and certain identifiable
intangible assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
evaluated by a comparison of the carrying amount of assets to estimated
undiscounted net cash flows expected to be generated by the assets. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amounts of the assets exceed the
fair value of the assets. There has been no impairment as of March 31, 2008 and
the period ended August 31, 2008.
Revenue
Recognition
The
Company recognizes revenues on the date the shipments are delivered to the
customer. Revenue includes transportation revenue, fuel surcharges,
loading and unloading activities, equipment detention, and other accessorial
services. Revenue is recorded on a gross basis, without deducting
third party purchased transportation costs, as the Company acts as a principal
with substantial risks as primary obligor.
Advertising
Costs
The
Company charges advertising costs to expense as incurred. During the years
ended March 31, 2008 and 2007, and the period ended August 31, 2008 advertising
expense was approximately $5,000 and $5,000, and
$2,000respectively.
F-103
Smith
Systems Transportation Inc.
Notes to Consolidated Financial
Statements
March 31, 2008 and 2007and August 31,
2008
Income
Taxes
The
Company accounts for income taxes under the asset and liability method, which
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements. Under this method, deferred tax assets and liabilities are
determined based on the differences between the financial statements and tax
basis of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. The effect of a
change in tax rates on deferred tax assets and liabilities is recognized in
income in the period that includes the enactment date.
The
Company records net deferred tax assets to the extent it believes these assets
will more likely than not be realized. In making such determination, the Company
considers all available positive and negative evidence, including scheduled
reversals of deferred tax liabilities, projected future taxable income, tax
planning strategies and recent financial operations.
The
Company recognizes a tax benefit from an uncertain tax position when it is
more likely than not that the position will be sustained upon examination,
including resolutions of any related appeals or litigation processes, based on
the technical merits.
Stock-based
Compensation
The
Company has not issued any further stock since inception, but would apply the
fair value recognition provisions of Financial Accounting Standards Board
(FASB), Statement of Financial Accounting Standards, Share-Based Payment, or SFAS
No. 123(R), using the modified prospective application method. Under
SFAS No. 123R, stock-based compensation expense is measured at the
grant date based on the value of the option or restricted stock and is
recognized as expense, less expected forfeitures, over the requisite service
period.
Concentrations
of Credit Risk
Financial
instruments, which potentially subject us to concentrations of credit risk,
include cash and trade receivables. For the years ended March 31, 2008 and
2007, and the period ended August 31, 2008 the Company's top four customers,
based on revenue, accounted for approximately 40% and 26% and 32%, of total
revenue, respectively.
Financial
instruments with significant credit risk include cash. The Company deposits its
cash with high quality financial institutions in amounts less than the federal
insurance limit of $250,000 in order to limit credit risk. As of March 31, 2008,
and the period ended August 31, 2008 the Company's bank deposits did not
exceeded insured limits.
Fair
Value of Financial Instruments
The
carrying amounts of cash, accounts receivable and accounts payable approximate
fair value because of their short maturities. At March 31, 2008, and the period
ended August 31, 2008 the Company had $5,097,551 and $5,370,166 outstanding
under promissory notes with various lenders. The fair value of notes payable to
various lenders is based on current rates at which the Company could borrow
funds with similar remaining maturities.
F-104
Smith
Systems Transportation Inc.
Notes to Consolidated Financial
Statements
March
31, 2008 and 2007 and August 31, 2008
Claims
Accruals
Losses
resulting from personal liability, physical damage, workers' compensation, and
cargo loss and damage are covered by insurance subject to deductible, per
occurrence. Losses resulting from uninsured claims are recognized when such
losses are known and can be estimated. The Company estimates and accrues a
liability for its share of ultimate settlements using all available information.
The Company accrues for claims reported, as well as for claims incurred but not
reported, based upon its past experience. Expenses depend on actual loss
experience and changes in estimates of settlement amounts for open claims which
have not been fully resolved. These accruals are based on the Company's
evaluation of the nature and severity of the claim and estimates of future
claims development based on historical trends. Insurance and claims expense will
vary based on the frequency and severity of claims and the premium expense. At
March 31, 2008, and the period ended August 31, 2008 management estimated $-0-
in claims accrual.
Recent
Accounting Pronouncements
In May
2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles (“SFAS No.
162”). SFAS No. 162 identifies the source of accounting principles
and the framework for selecting the principles used in the preparation of
financial statements that are presented in accordance with accounting principles
generally accepted in the United States. This statement will be
effective 60 days following the Securities and Exchange Commission’s approval of
the Public Company Accounting Oversight Board amendments to AU Section 411, “The
Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles.” The Company does not expect the adoption of SFAS No. 162
to have a material impact on the Company’s financial condition, results of
operations, and disclosures.
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities (“SFAS No. 161”). This standard revises the
presentation of and requires additional disclosures to an entity’s derivative
instruments, including how derivative instruments and related hedged items are
accounted for under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, and how derivative instruments and related hedged items
affect its financial position, financial performance and cash
flows. The provisions of SFAS No. 161 are effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008. The Company is currently evaluating the impact of adopting
of SFAS No. 161 on its consolidated financial statements.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements – an Amendment of ARB 51 (“SFAS No.
160”). This statement amends ARB 51 and revises accounting and
reporting requirements for noncontrolling interests (formerly minority
interests) in a subsidiary and for the deconsolidation of a
subsidiary. Upon the adoption of SFAS No. 160 on April 1, 2009, any
noncontrolling interests will be classified as equity, and income attributed to
the noncontrolling interest will be included in the Company’s
income. The provisions of this standard are applied retrospectively
upon adoption.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations, (“SFAS No. 141(R)”). SFAS No. 141(R) clarifies and
amends the accounting guidance for how an acquirer in a business combination
recognizes and measures the assets acquired, liabilities assumed, and any
noncontrolling interest in the acquiree. The provisions of SFAS No.
141(R) are effective for the Company for any business combinations occurring on
or after January 1, 2009.
In
December 2008, the FASB issued FSP No. FAS 140-4 and FIN 46(R)-8, which amends
SFAS No. 140, to require additional disclosures about transfers of financial
assets. The FSP also amended FASB Interpretation No. 46(R), to
provide additional disclosures about entities’ involvement with variable
interest entities. The FSP’s scope is limited to disclosure only and
is not expected to have an impact on the Company's consolidated financial
position or results of operations.
F-105
Smith
Systems Transportation Inc.
Notes to Consolidated Financial
Statements
March 31, 2008 and 2007and August 31,
2008
Note
2. Related Party Transactions
From time
to time, the company’s 60% owned subsidiary Smith Systems Financial Group
advances operating capital to the parent to accommodate operating cash
deficiencies. As of March 31, 2008, and the period ended August 31, 2008 SST
Financial had advanced $1,034,857 and $1,274,518. These advances are repaid when
availability of funds from the parent company are received. There are no terms
on these advances and are eliminated in the presentation of consolidated
statements.
Note
3. Property and Equipment
Property
and equipment consist of the following at March 31, 2008 and the period ended
August 31, 2008:
SST
|
SST
Financial
|
Consolidated
|
||||
March 31
|
August
31
|
March31
|
August
31
|
March
31
|
August
31
|
|
Property
Plant and Equipment
|
5,189,058
|
5,189,058
|
9,980
|
9,980
|
5,199,038
|
5,199,038
|
Less:
accumulated depreciation)
|
(3,033,084)
|
(3,252,694)
|
(8,483)
|
8,483
|
(3,041,567)
|
(3,261,177)
|
Total
|
2,155,974
|
1,936,364
|
1,497
|
1,497
|
2,157,471
|
1,937,861
|
Depreciation
expense totaled $543,010 and $ 572,799, and $219,610 respectively, for the years
ended March 31, 2008 and 2007 and the period ended August 31, 2008.
Note
4. Notes Payable
Notes
payable owed by Smith consisted of the following as of March 31, 2008 and the
period ended August 31, 2008 respectively:
Notes
payable to bank, due Dec 2012, payable in monthly installments of
$65,000.00 @ 9% collateralized by substantially all of the Company's
assets
|
...
$2,692,667
|
...
$2,939,447
|
Various
notes payable to the bank for revolving credit, due May 2009, with monthly
interest payments with interest at 9% collateralized by substantially all
of the Company's assets
|
$1,874,490
|
$2,357,890
|
Note
payable to Platte Valley National Bank, due Dec 2010, payable in monthly
installments of $1422.57, with interest at 9.5% collateralized by one unit
#525
|
$
41,393
|
$–
|
Various
notes payable to Daimler Chrysler, due 2010, payable in monthly
installments of $10,745.41, ranging from 8-9%, collateralized by 6
units
|
$222,010
|
$127,587
|
One
parts note payable to Floyds, due 2010, payable in monthly installments of
$2663.81, with interest at 8.5% unsecured
|
$136,340
|
$9,564
|
One
note payable to General Motors Acceptance Corp, due November 2009, payable
in monthly installments of $778.12, with interest at 8%, secured by a
vehicle
|
$14,081
|
$4,744
|
One
note payable to Nissan Motor Corp., due June 2011, payable in monthly
installments of $505.35, with interest at 36.9%, secured by a
vehicle.
|
$
20,380
|
$15,278
|
One
Note payable to Colorado Holdings Company, payable in 2 monthly payments
of $1250.00 each, this Note has not interest rate and is
unsecured
|
$65,190
|
$32,690
|
One
note payable to Arvada Land & Development, due September 2008, payable
in monthly installments of $2500.00
|
$31,000
|
$–
|
Totals
|
$5,097,551
|
$5,487,200
|
F-106
Smith
Systems Transportation Inc.
Notes to Consolidated Financial
Statements
March 31, 2008 and 2007and August 31
2008
The
carrying amount of assets pledged as collateral for the installment notes
payable totaled $4,463,485 and $5,444,946 at March 31, 2008 and
August 31, 2008 respectively.
Note
5. Capital Lease Obligations
The
Company leases operating equipment under a capital lease which expires in March,
2009. Information concerning the capital lease is as shown in the tables
below.
|
March
31
|
|||||||
2008
|
2007
|
August 31, 2008 | ||||||
Cost
|
$
|
223,617
|
$
|
223,617
|
$
|
223,617
|
||
Accumulated
Depreciation
|
(89,446)
|
(67,085)
|
(98,763)
|
|||||
Net
Book Value
|
$
|
134,171
|
$
|
156,532
|
$
|
124,854
|
The above
are included in Property, Plant, and Equipment on the Balance Sheet at March 31,
2008 and 2007 and the period ended August 31, 2008 respectively.
Minimum
future lease payments under this lease are as follows:
March
31
|
|||||
2008
|
2007
|
||||
2008
|
$
|
–
|
$
|
35,964
|
|
2009
|
35,964
|
35,964
|
|||
35,964
|
71,928
|
||||
Less
Amount Representing Interest
|
(1,352)
|
(5,094)
|
|||
Capital
Lease Obligation
|
$
|
34,612
|
$
|
66,834
|
The above
debt amounts are included in the Balance Sheet in the respective short-term and
long-term capital lease obligations at March 31, 2008 and 2009,
respectively.
Note
6 - Income Taxes
The
Company accounts for income taxes under SFAS 109, which requires use of the
liability method. SFAS 109 provides that deferred tax assets and liabilities are
recorded based on the differences between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes,
referred to as temporary differences.
F-107
Smith
Systems Transportation Inc.
Notes to Consolidated Financial
Statements
March 31, 2008 and 2007and August
31, 2008
Deferred
tax assets and liabilities at the end of each period are determined using the
currently effective tax rates applied to taxable income in the periods in which
the deferred tax assets and liabilities are expected to be settled or realized.
The reconciliation of enacted rates the years ended March 31, 2008 and March 31,
2007, and the period ended August 31, 2008 is as follows:
March 31, | |||||
2008
|
2007
|
August
31,2008
|
|||
Federal
|
34%
|
34%
|
34%
|
||
State
|
0%
|
0%
|
0%
|
||
Net
operating loss carryforward
|
-
|
-
|
|||
Increase
in valuation allowance
|
(34%)
|
(34%)
|
(34%)
|
||
-
|
-
|
At March
31, 2008, and August 31, 2008 the Company had a net operating loss
carry forward of approximately $2,495,205.00 and $2,740,906 respectively that
may be offset against future taxable income subject to limitations imposed by
the Internal Revenue Service. This carryforward is subject to review by the
Internal Revenue Service and, if allowed, may be offset against taxable income
through 2028. A portion of the net operating loss carryovers begin expiring in
2019.
|
Deferred
tax assets are as follows:
|
2008
|
2007
|
August
31, 2008
|
|||
Deferred
tax asset due to net operating loss
|
$
448,082
|
331,936
|
$531,620
|
||
Valuation
allowance
|
(448,082)
|
(331,936)
|
(531,620)
|
||
Net
Asset less liability
|
-0
-
|
-0
-
|
-0-
|
The
deferred tax asset relates principally to the net operating loss carryforward. A
valuation allowance was established at March 31, 2008 and March 31, 2007 to
eliminate the deferred tax benefit that existed at that time since it is
uncertain if the tax benefit will be realized. The deferred tax asset (and the
related valuation allowance) increased by $373,000 and $270,000 for the years
ended March 31, 2008 and March 31, 2007, respectively.
Effective
October 1, 2007 the Company must adopt the provisions of Financial
Interpretation 48 (FIN 48), “Accounting for Uncertainty in Income Taxes.”
Management does not believe the adoption will have a material impact on future
results of operations.
Note
7. Shareholder’s Equity
Common
Stock
The
Company has not issued any of its common stock or granted any options or
warrants since inception.
F-108
Smith
Systems Transportation Inc.
Notes to Consolidated Financial
Statements
March 31, 2008 and 2007 and August
31, 2008
Note
8. Commitments and Contingencies
Operating
Leases
The
Company has no office space under non-cancellable lease agreements. The Company
only has informal month to month leases.
The
Company leases vehicles and trailers under various non-cancelable operating
leases expiring through November 2009. Vehicle and trailer lease expense for the
period ended March 31, 2008, and the period ended August 31, 2008 respectively
totaled $209,975 and $141,186.
Purchase
Commitments
The
Company’s purchase commitments for revenue equipment are currently under
negotiation. Upon execution of the purchase commitments, the Company anticipates
that purchase commitments under contract will have a net purchase price of
approximately $300,000 and will be paid throughout 2010.
Claims
and Assessments
The
Company is involved in certain claims and pending litigation arising from the
normal conduct of business. Based on the present knowledge of the facts
and, in certain cases, opinions of outside counsel, the Company believes the
resolution of these claims and pending litigation will not have a material
adverse effect on the Company's financial condition, results of operations
or liquidity.
Note
9. Business Combinations
Smith
Financial Group, LLC is a factoring company which is 60% owned by Smith Systems
Transportation Corp. Smith
Financial Group LLC is reported on a consolidated basis, the minority interest
of 40% is reported in the mezzanine section of the balance sheet.
Contingent
Consideration
The
Company has no contingent liabilities at this time.
Note
10. Subsequent Events
On August
28, 2008, all of the Company’s stock was acquired by Integrated Freight Systems,
Inc. (“IFG”), a Florida-based company under the terms of a Stock Exchange
Agreement, resulting in a change in control. The accounting date of the
acquisition was September 1, 2008 and the transaction was accounted for under
the purchase method in accordance with SFAS 141.
F-109
PRO FORMA FINANCIAL
INFORMATION
|
||
Page
|
||
Introductory Statement | F-111 | |
Pro
Forma Balance Sheet at September 30, 2009
|
F-112
|
|
Pro Forma Balance Sheet at March 31, 2009 | F-113 | |
Pro
Forma Statement of Operations for the six months ended September 30,
2009
|
F-114
|
|
Pro Forma Statement of Operations for the year ended March 31, 2009 | F-115 | |
Notes
to Pro Forma Financial Information
|
F-116
|
F-110
INTEGRATED
FREIGHT CORPORATION.
Pro
Forma Financial Information.
SELECTED
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
Introductory
Statement
The
following unaudited pro forma condensed balance sheets give effect to Integrated
Freight Corporation’s (“IFS”) acquisitions of PlanGraphics, Inc., as of March
31, 2009 and September 30, 2009. The acquisition of eighty percent of
PlanGraphics, Inc.'s common stock was completed as of May 1,
2009. Integrated Freight Corporation has a fiscal year end of March
31, 2009 and PlanGraphics has a fiscal year end of September 30,
2009. In computing the September 30, 2009 results for PlanGraphics,
the net loss of $228,682 from the March 31, 2009 10-Q was subtracted from the
$498,952 operating loss from discontinued operations on the September 30, 2009
10-K. The net loss from discontinued operations for the pro forma
period is $270,270. This amount is included with additional items in
the other income/expense total.
The pro
forma condensed statements of operations are presented as if the transaction was
consummated at the beginning of the period presented.
The pro
forma condensed statements of operations should be read in conjunction with the
accompanying notes and the separate audited and unaudited financial statements
and notes thereto of each of the companies included in the pro forma as of the
balance sheet date and their respective year- and period-end dates.
These pro
forma statements are presented for illustrative purposes only. The
pro forma adjustments are based upon preliminary information available at the
time of this document and on assumptions that management believes are
reasonable. The final adjustments may vary materially from the pro
forma adjustments presented herein. The unaudited pro forma
condensed financial statements do not purport to represent what the result
of operations or financial position of the Company would actually have been if
the acquisition had in fact occurred on the beginning of the period presented,
nor do they purport to project results of operations or financial position of
the Company for any future period or as of any date. The unaudited
pro forma condensed financial statements should be read in conjunction with the
Company’s historical financial statements included in its Annual Report on Form
10-K.
F-111
Integrated Freight Corporation | ||||||||||||
Pro Forma Balance Sheet | ||||||||||||
September 30, 2009 | ||||||||||||
IFC
|
Pro
Forma
|
Consolidated
|
||||||||||
ASSETS
|
(Parent)
|
PlanGraphics
|
Note
|
Adjustments
|
Total
|
|||||||
Current
Assets
|
||||||||||||
Cash
|
$ 29,610
|
$ -
|
$ -
|
$ 29,610
|
||||||||
Trade
receivables, net
|
2,689,454
|
-
|
-
|
2,689,454
|
||||||||
Prepaid,
etc
|
220,916
|
269,977
|
(269,977)
|
220,916
|
||||||||
Total
Current Assets
|
2,939,980
|
269,977
|
(269,977)
|
2,939,980
|
||||||||
Property
and equipment, net
|
6,396,001
|
-
|
-
|
6,396,001
|
||||||||
Intangible
assets & other assets
|
1,948,311
|
107,533
|
(107,533)
|
1,948,311
|
||||||||
TOTAL
ASSETS
|
$ 11,284,292
|
$ 377,510
|
$ (377,510)
|
$ 11,284,292
|
||||||||
LIABILITIES
|
||||||||||||
Current
Liabilities
|
||||||||||||
Accounts
payable, accrued and
|
|
|||||||||||
other
liabilities
|
$ 1,538,310
|
$ 3,477,443
|
1
|
$ (3,477,443)
|
$ 1,538,310
|
|||||||
Line
of credit & current debts
|
5,583,045
|
-
|
-
|
5,583,045
|
||||||||
Total
Current Liabilities
|
7,121,355
|
3,477,443
|
(3,477,443)
|
7,121,355
|
||||||||
Long
term Liabilities, net of current
|
4,706,613
|
-
|
-
|
4,706,613
|
||||||||
Total
Liabilities
|
11,827,968
|
3,477,443
|
(3,477,443)
|
11,827,968
|
||||||||
Minority
Interest in Subsidiary
|
287,173
|
-
|
-
|
287,173
|
||||||||
Stockholder
deficit
|
||||||||||||
Common
stock & paid in capital
|
2,309,757
|
21,368,578
|
(21,368,578)
|
2,309,757
|
||||||||
Retained
deficit
|
(3,140,606)
|
(24,468,511)
|
24,468,511
|
(3,140,606)
|
||||||||
Total
stockholder deficit
|
(830,849)
|
(3,099,933)
|
3,099,933
|
(830,849)
|
||||||||
Total
liabilities & stockholder deficit
|
11,284,292
|
377,510
|
(377,510)
|
11,284,292
|
||||||||
See notes to pro forma financial information |
F-112
Integrated Freight Corporation | |||||||||||||||
Pro Forma Balance Sheet | |||||||||||||||
March 31, 2009 | |||||||||||||||
IFC
|
Pro
Forma
|
Consolidated
|
|||||||||||||
ASSETS
|
(Parent)
|
Morris
|
Smith
|
PlanGraphics
|
Note
|
Adjustments
|
Total
|
||||||||
Cash
|
$ 158,442
|
$ 58,252
|
$ 96,454
|
$ 40,173
|
$ (40,173)
|
$ 313,148
|
|||||||||
Trade
receivables, net
|
2,061,297
|
1,104,423
|
2,009,274
|
534,921
|
(534,921)
|
5,174,994
|
|||||||||
Prepaid
|
322,695
|
-
|
255,545
|
10,782
|
(10,782)
|
578,240
|
|||||||||
2,542,434
|
1,162,675
|
2,361,273
|
585,876
|
(585,876)
|
6,066,382
|
||||||||||
7,193,426
|
4,648,414
|
1,917,881
|
17,855
|
(17,855)
|
13,759,721
|
||||||||||
1,360,061
|
-
|
40,000
|
140,628
|
(140,628)
|
1,400,061
|
||||||||||
TOTAL
ASSETS
|
$ 11,095,921
|
$
5,811,089
|
$
4,319,154
|
$ 744,359
|
$ (744,359)
|
$ 21,226,164
|
|||||||||
LIABILITIES
|
|||||||||||||||
Accounts
payable, accrued and
|
|||||||||||||||
other
liabilities
|
$ 1,475,293
|
$ 311,633
|
$ 926,778
|
$ 4,091,290
|
1
|
$ (4,091,290)
|
$ 2,713,704
|
||||||||
Line
of credit & current debts
|
5,647,784
|
2,361,624
|
3,404,261
|
75,083
|
(75,083)
|
11,413,669
|
|||||||||
7,123,077
|
2,673,257
|
4,331,039
|
4,166,373
|
(4,166,373)
|
14,127,373
|
||||||||||
4,184,293
|
2,876,644
|
1,783,525
|
-
|
-
|
8,844,462
|
||||||||||
11,307,370
|
5,549,901
|
6,114,564
|
4,166,373
|
(4,166,373)
|
22,971,835
|
||||||||||
Common
stock & paid in capital
|
1,059,074
|
200
|
31,036
|
20,706,005
|
(20,706,005)
|
1,090,310
|
|||||||||
Retained
deficit
|
(1,573,916)
|
260,988
|
(2,111,224)
|
(24,128,019)
|
24,128,019
|
(3,424,152)
|
|||||||||
303,393
|
-
|
284,778
|
-
|
-
|
588,171
|
||||||||||
(211,449)
|
261,188
|
(1,795,410)
|
(3,422,014)
|
-
|
3,422,014
|
(1,745,671)
|
|||||||||
11,095,921
|
5,811,089
|
4,319,154
|
744,359
|
-
|
(744,359)
|
21,226,164
|
|||||||||
See notes to pro forma financial information |
F-113
Integrated Freight Corporation | |||||||||||
Pro Forma Statements of Operations | |||||||||||
For the Six Months Ended September 30, 2009 | |||||||||||
IFC
|
Pro
Forma
|
Consolidated
|
|||||||||
(Parent)
|
PlanGraphics
|
Note
|
Adjustments
|
Total
|
|||||||
Revenue
|
$ 8,832,631
|
$ -
|
$ -
|
$ 8,832,631
|
|||||||
Operating
expenses
|
|||||||||||
Operating
expenses
|
3,006,417
|
-
|
-
|
3,006,417
|
|||||||
Wages,
salaries & benefits
|
2,949,320
|
64,876
|
(64,876)
|
2,949,320
|
|||||||
Fuel
and fuel taxes
|
1,911,444
|
-
|
-
|
1,911,444
|
|||||||
General,
administrative and other
|
2,073,615
|
121,151
|
1
|
(121,151)
|
2,073,615
|
||||||
Total
operating expenses
|
9,940,796
|
186,027
|
(186,027)
|
9,940,796
|
|||||||
Other
(income) expenses
|
512,051
|
97,251
|
(97,251)
|
512,051
|
|||||||
Net
loss before minority interest
|
$ (1,620,216)
|
$ (283,278)
|
$ 283,278
|
$ (1,620,216)
|
|||||||
Minority
interest share of subsidiary net income
|
16,220
|
-
|
-
|
16,220
|
|||||||
Net
Income
|
$ (1,603,996)
|
$ (283,278)
|
$ 283,278
|
$ (1,603,996)
|
|||||||
See notes to pro forma financial information |
F-114
Integrated Freight Corporation | |||||||||||||||
Pro Forma Statements of Operations | |||||||||||||||
For the Year Ended March 31, 2009 | |||||||||||||||
IFC
|
Pro
Forma
|
Consolidated
|
|||||||||||||
(Parent)
|
Morris
|
Smith
|
PlanGraphics
|
Note
|
Adjustments
|
Total
|
|||||||||
Revenue
|
$ 10,460,113
|
$ 5,628,352
|
$ 4,203,117
|
$ 2,753,625
|
$
(2,753,625)
|
$ 20,291,582
|
|||||||||
Operating
expenses
|
|||||||||||||||
Operating
expenses
|
2,060,175
|
1,003,769
|
1,266,949
|
1,400,240
|
(1,400,240)
|
4,330,893
|
|||||||||
Wages,
salaries & benefits
|
3,294,275
|
1,429,191
|
971,195
|
1,031,111
|
(1,031,111)
|
5,694,661
|
|||||||||
Fuel
and fuel taxes
|
3,430,465
|
2,446,291
|
1,157,531
|
-
|
-
|
7,034,287
|
|||||||||
General,
administrative and other
|
2,721,707
|
721,773
|
823,829
|
779,941
|
1
|
(751,941)
|
4,295,309
|
||||||||
Total
operating expenses
|
11,506,622
|
5,601,024
|
4,219,504
|
3,211,292
|
(3,183,292)
|
21,355,150
|
|||||||||
Other
(income) expenses
|
406,441
|
159,983
|
213,926
|
(26,200)
|
26,200
|
780,350
|
|||||||||
Net
loss before minority interest
|
$ (1,452,950)
|
$ (132,655)
|
$ (230,313)
|
$ (431,467)
|
$ 403,467
|
$ (1,843,918)
|
|||||||||
Minority
interest share of subsidiary net income
|
(18,615)
|
-
|
(15,388)
|
-
|
-
|
(34,003)
|
|||||||||
Net
Income
|
$ (1,471,565)
|
$ (132,655)
|
$ (245,701)
|
$ (431,467)
|
$ 403,467
|
$ (1,877,921)
|
|||||||||
See notes to pro forma financial information |
F-115
INTEGRATED
FREIGHT CORPORATION
Pro
Forma Financial Information.
Business
Combinations
Integrated
Freight Corporation, Inc. purchases PlanGraphics, Inc. stock
On May 1,
2009 the Integrated Freight Corporation (IFC) purchased 500 shares of
PlanGraphics, Inc. (PlanGraphics) 12% redeemable preferred stock, no par value,
in exchange for 1,307,822 shares of the IFC’s common stock and a $167,000
promissory note due in one year from the date of closing. As part of this
transaction IFC also issued to PlanGraphics 177,170 shares of common stock and
two year warrants to purchase another 177,170 shares of common stock with an
exercise price of $0.50 per share. On June 2, 2009, these preferred shares were
converted into 401,599,467 shares of common stock, which gave the Company voting
control over approximately 80% of PlanGraphics’ outstanding shares.
Also on
May 1, 2009, PlanGraphics transferred all operating assets and liabilities
(except for $28,000 of audit fees) to a subsidiary created in the state of
Maryland also called PlanGraphics, Inc. (PGI Maryland). PlanGraphics sold to
their previous management 100% of the shares of PGI Maryland in exchange for a
release from all obligations under their employment agreements. Management also
received from IFC 134,579 shares of IFC common stock and warrants to purchase
another 134,579 shares of IFC common stock at $0.50 per share, with a term of
two years.
Assumptions
in the Pro Forma
The
public company, PlanGraphics, completes a reverse stock split of 244.8598 shares
converted to one share as described in Proposal No. 1 of this prospectus,
leaving a total of 2,044,918 under the new consolidated entity.
We have
assumed that IFC and PlanGraphics have merged as specified by Proposal No. 3 of
this prospectus.
Note 1
Since all
of PlanGraphics’ operations were transferred to PGI Maryland, which was
subsequently sold to the previous management team, all assets, liabilities,
equity, revenue and expenses of PlanGraphics have been adjusted out via pro
forma adjustment. However, $28,000 of audit fee expense and liability were added
back since they were retained as specified by contract.
F-116
(b)
Exhibits
Exhibit
Number
|
Description
of Exhibit
|
2.1
|
Stock
Purchase Agreement dated as of May 1, 2009 among PlanGraphics, Inc., John
C. Antenucci and others.
|
3.1
|
Amended
and Restated Articles of Incorporation (filed with our Definitive Proxy
Statement dated May 3, 1991 and incorporated herein by
reference).
|
3.2
|
Articles
of Amendment to the Articles of Incorporation dated May 02, 2002 changing
the name to PlanGraphics, Inc. (filed with our Annual Report on Form
10–KSB on December 30, 2002 and incorporated herein by
reference).
|
3.3
|
Amended
and Restated Bylaws of PlanGraphics, Inc. adopted by the Board of
Directors on October 7, 2002 (filed with our Annual Report on Form 10–KSB
on December 30, 2002 and incorporated herein by
reference).
|
3.4
|
Amendment
to Articles of Incorporation filed August 18, 2006 (filed on Form 8–K,
dated August 16, 2006, and incorporated herein by
reference).
|
3.5
|
Articles
of Merger filed December 23, 2009.
|
4.1
|
Specimen
Stock Certificate of PlanGraphics, Inc. (filed with our Annual Report on
Form 10–KSB on December 30, 2002 and incorporated herein by
reference).
|
5.1 | Consolidated, Amended and Restated Promissory Note dated April 19, 2010 payable to Mr. Morris. |
5.2 | Sample of the Third Amended Promissory Note dated April 19, 2010 payable to MR. & Mr. Smith. |
14.1
|
Code
of Ethics for Senior Financial Officers implemented by Board Decision on
October 7, 2002 (filed with our Annual Report on Form 10–KSB on December
30, 2002, and incorporated herein by reference).
|
21
|
List
of Subsidiaries.
|
31.1
|
Sarbanes–Oxley
Certification for the principal executive officer, dated January 13,
2010.
|
31.2
|
Sarbanes–Oxley
Certification for the principal financial officer, dated January 13,
2010.
|
32.1
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes–Oxley Act of 2002 which is dated January 13,
2010.
|
32.2
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes–Oxley Act of 2002 which is dated January 13,
2010.
|
37
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
PlanGraphics,
Inc.
By: /s/
Paul A. Henley
Principal
Executive Officer and
Principal
Accounting and Financial Officer
Date:
June 21, 2010
Signature and Name:
|
Capacity in which signed:
|
Date:
|
/s/ John E. Bagalay |
Director
|
June
21, 2010
|
John
E. Bagalay
|
||
/s/
Paul A. Henley
|
Director,
Principal Executive Officer
|
June
21, 2010
|
Paul
A. Henley
|
Principal
Accounting and Financial Officer
|
|
/s/
Henry P. Hoffman
|
Director
|
June
21, 2010
|
Henry
P. Hoffman
|
||
/s/
T. Mark Morris
|
Director
|
June
21, 2010
|
T.
Mark Morris
|
||
/s/
Monte W. Smith
|
Director
|
June
21, 2010
|
Monte
W. Smith
|
||
Craig
White
|
Director (beginning May 5, 2010) |
38