SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 5, 2002
CORPORATE VISION, INC.
(Exact name of registrant as specified in its charter)
Oklahoma | 0-18824 | 73-1380820 |
(State or other jurisdiction of incorporation) | (Commission file number) | (I.R.S. Employer Identification Number) |
3 Broad Street, Suite 300
Charleston, South Carolina 29401
(Address of principal executive offices) (Zip Code)
(843) 534-1330
(Registrant's telephone number, including area code)
Item 1. Changes in Control of Registrant.
On March 5, 2002, Corporate Vision, Inc. (the "Company") acquired all of the issued and outstanding common stock of Stony's Trucking Co. ("Stony's"), and subsidiaries thereof, pursuant to an Agreement and Plan of Merger and Reorganization (the "Merger Agreement") dated March 5, 2002. Prior to the acquisition of Stony's, Gregory J. Gibson was the owner and holder of all of the common stock of Stony's. The acquisition of Stony's occurred by the merger of Stony's Acquisition Corp., a wholly-owned subsidiary of the Company, with and into Stony's (the "Merger"). As a result of the Merger, all of the issued and outstanding common stock of Stony's was exchanged for $50,000 cash, a note for $150,000 due thirty days after the Merger, and 20,000,000 shares of common stock (the "CVIA Shares") of the Company, which resulted in Stony's becoming a wholly-owned subsidiary of the Company. In addition, the Company could be obligated to issue up to an additional 2,468,458 shares of common stock in the event the Com pany is obligated to issue more shares upon conversion of its Series A Non-Cumulative Convertible Preferred Stock than expected.
The number of CVIA Shares is subject to adjustment six and twelve months (an "Adjustment Date") after the acquisition date based on the future market price of the CVIA Shares. Specifically, in the event the CVIA Shares held by Mr. Gibson on each Adjustment Date do not have a fair market value equal to or greater than $2,000,000, then the Company shall be obligated to issue Mr. Gibson additional shares of Company common stock sufficient to result in the fair market value of the CVIA Shares held by Mr. Gibson on the Adjustment Date, plus the additional shares issued as of the Adjustment Date, having a total value equal to $2,000,000. At each Adjustment Date, the fair market value of the Company's common stock shall be the average of the closing price for the common stock on the Adjustment Date. In addition, neither Mr. Gibson nor the Company or its officers, directors or any affiliates may purchase or sell shares of the Company's common stock during the twenty (20) business days prior to an Adjustment Da te.
Pursuant to the Merger Agreement, the parties executed the following additional, material agreements:
- A Right of Rescission Agreement, under which the Company has the right to rescind the Merger in the event Stony's is not able to obtain an unqualified audit opinion of its financial statements (other than a going concern qualification) or Key Bank accelerates its loan to Stony's, and Gibson has the right to rescind the Merger until December 31, 2002, subject to early termination of this rescission right if the Company's common stock trades at or above $0.50 per share for twenty-one consecutive days;
- An Employment Agreement, under which the Company agreed to employ Gibson as chief executive officer for a five year period;
- Management and Operations Agreement, under which the Company contracted for GJG Management, LLC, a company wholly-owned by Gibson, to manage Stony's and its subsidiaries through the earlier to occur of December 31, 2002 or the termination of Gibson's right of rescission, with GJG Management, LLC being entitled to a monthly management fee of $10 per month;
- A Stockholders' Agreement, under which Gibson and Global Eco-Logical Services, Inc. ("GECL") agreed,inter alia, that Gibson would vote his shares of common stock in the Company in favor of GECL's nominee for director, GECL would vote its shares of common stock in the Company in favor of Gibson's nominee for director, Gibson and GECL each would not approve certain major corporate actions without the consent of the other, and GECL would agree not to sell, except under certain conditions, 15,000,000 shares of common stock it holds in the Company;
- A Pledge Agreement, under which the Company pledged its shares of common stock in Stony's to secure its obligations under the Merger Agreement and under the $150,000 note due thirty days after the Merger.
In the event Mr. Gibson or the Company exercise their right of rescission under the Right of Rescission Agreement, then Mr. Gibson shall be obligated to return all consideration that he received under the Merger Agreement (unless the rescission is exercised by Mr. Gibson solely as remedy for nonpayment of the $150,000 note, in which event Mr. Gibson shall not be obligated to return $50,000 cash which he received in the Merger), the Company shall be obligated to convey all shares of common stock in Stony's to Mr. Gibson, Mr. Gibson's Employment Agreement shall terminate without any further liability on the part of the Company to Mr. Gibson (except that Mr. Gibson shall be entitled to retain all consideration paid to him thereunder through the date of termination), the Management and Operations Agreement shall terminate and the Stockholders' Agreement shall terminate.
Pursuant to the Merger Agreement, Mr. Gibson was appointed the chief executive officer of the Company. Mr. Gibson was formerly the president and sole shareholder and director of Stony's. Further, pursuant to the Merger Agreement, the Company agreed to reduce the number of voting directors to two, who will be Mr. Gibson and Richard D. Tuorto, Sr. The existing directors of the Company have executed irrevocable resignations from the Board, which will be effective upon the Company's compliance with Rule 14f-1 under the Securities Exchange Act of 1934 (hereinafter, "Rule 14f-1") by the mailing of this notice to shareholders. A. Leon Blaser, the former chairman of the board of the Company, will remain as a nonvoting, advisory director.
Prior to the acquisition of Stony's, the Company had 52,715,336 shares of common stock issued and outstanding, and 74,798,669 shares immediately following the reorganization. In addition, to the shares issued to Mr. Gibson, the Company issued 1,333,333 shares of common stock to Richard D. Tuorto, Sr. as a finder's fee and for services rendered in negotiating and closing the Merger.
A copy of the Merger Agreement and the other material contracts executed pursuant thereto are filed with the U.S. Securities and Exchange Commission (the "Commission") as an exhibit to this Form 8-K, and the foregoing description of the transaction is qualified by such reference.
Item 2. Acquisition Or Disposition Of Assets
As described in Item 1 herein, on March 5, 2002, the Company acquired all of the issued and outstanding common stock of Stony's. Stony's and its subsidiaries operate as a common and contract carrier transporting goods and commodities, and are headquartered at 492 McClurg Road, Youngstown, Ohio 44512. Stony's trucking operations service the lower forty-eight states, as well as Canada and Mexico. Stony's fleet consists of approximately 400 trucks and 475 trailers. Stony's employs approximately 416 drivers, of which 16 are employees and the remaining 400 are independent contractors. Stony's concentrates on the shipment of steel building materials and construction and demolition waste. Its major competition consists of ARL, Inc., R and R Trucking, Inc. and Mason-Dixon Transport, Inc.
Item 3. Bankruptcy or Receivership.
Not applicable.
Item 4. Changes in Registrant's Certifying Accountant.
Not applicable.
Item 5. Other Events.
Not applicable.
Item 6. Resignations Of Directors And Executive Officers.
As disclosed in Item 1, pursuant to the Merger Agreement, the Company's voting directors -- A. Leon Blaser, Gary Mays, William Tuorto and Ted Fenn -- agreed to resign effective as of the Companys' compliance with Rule 14f-1 under the Securities Exchange Act of 1934. Richard D. Tuorto, Sr. and Gregory J. Gibson will become the sole directors of the Company. The Company's nonvoting advisory directors -- Cynthia Cox and Curtis Swart -- will be removed, and A. Leon Blaser will become the sole nonvoting, advisory director.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired: Attached hereto as Exhibit A are audited financial statements for Stony's Trucking Co. as of December 31, 2001 and 2000, and for the years ended December 31, 2001 and 2000.
(b) Pro Forma Financial Information: The following pro forma financial statements are attached hereto as Exhibit B:
(i) Pro forma balance sheet of Corporate Vision, Inc. giving effect to the acquisition of Stony's Trucking Co. as of December 31, 2001, the most recent balance sheet filed by Corporate Vision, Inc. prior to the acquisition pursuant to Item 310(a) or (b);
(ii) Pro forma statement of operations of Corporate Vision, Inc. for the year ended December 31, 2001 as if the acquisition of Stony's Trucking Co. had occurred on January 1, 2001.
(c) Exhibits:
Regulation S-B Number | Exhibit |
2* | Agreement and Plan of Merger and Reorganization dated March 5, 2002 |
10.1* | Right of Rescission Agreement among Corporate Vision, Inc. and Gregory J. Gibson |
10.2* | Management and Operations Agreement by and among Corporate Vision, Inc., Stony's Trucking Co. and GJG Management, LLC |
10.3* | Stockholders' Agreement Concerning Corporate Vision, Inc. |
10.4* | Employment Agreement of Gregory J. Gibson |
10.5* | Letter Agreement between |
10.6* | Cognovit Promissory Note |
10.7* | Pledge Agreement |
24 | Consent of Packer Thomas |
* Documents incorporated by reference to the Form 8-K filed on March 20, 2002.
Item 8. Change in Fiscal Year.
Not applicable.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: September 9, 2002 | CORPORATE VISION, INC. /s/ Gregory J. Gibson Gregory J. Gibson, Chief Executive Officer |
CONTENTS
REPORT OF INDEPENDENT AUDITORS | 2 |
CONSOLIDATED FINANCIAL STATEMENTS | |
Consolidated balance sheets | 3 |
Consolidated statements of operations | 4 |
Consolidated statements of stockholder's equity (deficit) | 5 |
Consolidated statements of cash flows | 6 |
Consolidated notes to financial statements | 7-13 |
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND THE STOCKHOLDER OF
STONY'S TRUCKING COMPANY AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of Stony's Trucking Company and Subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, stockholder's equity (deficit), and cash flows for the years then ended. These 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated 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 Stony's Trucking Company and Subsidiaries as of December 31, 2001 and 2000, and the consolidated results of their operations and 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. As discussed in note 9 to the consolidated financial statements, the Company has suffered recurring losses from operations, has a deficiency in working capital and stockholder's equity, and is in violation of certain debt covenants, which raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters are also described in note 9. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Packer Thomas
PACKER THOMAS
Youngstown, Ohio
August 14, 2002
Stony's Trucking Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS | December 31, |
| 2001 | 2000 |
CURRENT ASSETS | | |
Cash | $ 30,328 | $ 14,412 |
Accounts receivable--trade, net of allowance for doubtful accounts of $1,445,345 and $876,660 in 2001 and 2000, respectively | 3,623,033 | 6,013,334 |
Advances to related party - NOTE 7 | 90,000 | - |
Accounts receivable--employees, net of allowance for doubtful accounts of $90,522 and $113,477 in 2001 and 2000, respectively | 75,319 | 54,132 |
Accounts receivable--broker/agents, net of allowance for doubtful accounts of $1,003,440 and $751,690 in 2001 and 2000, respectively | 427,518 | 554,075 |
Prepaid expenses | 56,474 | 227,666 |
Deferred federal income taxes - NOTE 4 | 14,000 | 16,000 |
Recoverable federal income tax - NOTE 4 | 542,982 | 392,000 |
| | |
TOTAL CURRENT ASSETS | 4,859,654 | 7,271,619 |
| | |
PROPERTY AND EQUIPMENT | | |
Leasehold improvements | 474,737 | 485,646 |
Vehicles | 1,427,220 | 1,399,420 |
Office equipment | 637,103 | 637,103 |
| | |
TOTAL PROPERTY AND EQUIPMENT | 2,539,060 | 2,522,169 |
Less accumulated depreciation | 1,903,303 | 1,794,136 |
NET PROPERTY AND EQUIPMENT | 635,757 | 728,033 |
| | |
OTHER ASSETS | 118,519 | 85,094 |
| | |
TOTAL ASSETS | $ 5,613,930 | $ 8,084,746 |
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) | December 31, |
| 2001 | 2000 |
CURRENT LIABILITIES | | |
Accounts payable--trade | $ 1,016,602 | $ 1,151,945 |
Line of credit - NOTE 3 | 4,856,596 | 4,857,896 |
Interest rate swap - NOTE 3 | 99,542 | 26,800 |
Note payable--related party - NOTE 7 | 713,133 | 130,256 |
Current portion of long-term debt - NOTE 3 | 782,056 | 1,117,614 |
Accrued other liabilities | 950,320 | 1,624,588 |
Accrued loss contingencies | 481,216 | 114,175 |
TOTAL CURRENT LIABILITIES | 8,899,465 | 9,023,274 |
| | |
LONG-TERM LIABILITIES | | |
Deferred federal income taxes - NOTE 4 | 14,000 | 16,000 |
Long-term debt--related party - NOTE 7 | 535,953 | 606,570 |
TOTAL LONG-TERM LIABILITIES | 549,953 | 622,570 |
TOTAL LIABILITIES | 9,449,418 | 9,645,844 |
| | |
COMMITMENTS AND CONTINGENCIES -NOTES 3, 4, AND 6 | | |
| | |
STOCKHOLDER'S EQUITY (DEFICIT) | | |
Common stock | 10,000 | 10,000 |
Retained earnings (deficit) | (3,745,946) | (1,544,298) |
Accumulated other comprehensive income | (99,542) | (26,800) |
TOTAL STOCKHOLDER'S EQUITY (DEFICIT) | (3,835,488) | (1,561,098) |
| | | |
| | | |
| TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) | $ 5,613,930 | $ 8,084,746 |
Stony's Trucking Company and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
| Years ended |
| December 31, |
| 2001 | 2000 |
REVENUE | $ 40,505,330 | $ 48,656,392 |
| | |
OPERATING EXPENSES | 31,130,231 | 32,944,536 |
| | |
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | 12,068,474 | 17,278,813 |
| | |
OTHER INCOME AND (EXPENSES) | | |
Investment income | 48,780 | 40,237 |
Interest expense | (708,162) | (672,216) |
Miscellaneous income (expense)--net | 1,078,949 | 356,515 |
| | |
TOTAL OTHER INCOME AND (EXPENSES)--NET | 419,567 | (275,464) |
| | |
LOSS BEFORE INCOME TAXES | (2,273,808) | (1,842,421) |
| | |
PROVISION (BENEFIT) FOR INCOME TAXES -NOTE 4 | (72,160) | (392,000) |
| | |
NET LOSS | $ (2,201,648) | $ (1,450,421) |
| | |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | 100 | 100 |
| | |
BASIC AND DILUTED LOSS PER COMMON SHARE | $ (22,016.48) | $ (14,504.21) |
Stony's Trucking Company and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
| | | Accumulated | |
| | Retained | Other | |
| | Earnings | Comprehensive | |
| Common Stock | (Deficit) | Income | Total |
BALANCE--December 31, 1999 | $ 10,000 | $ (93,877) | $ 21,007 | $ (62,870) |
| | | | |
Net (loss) for the year | - | (1,450,421) | - | (1,450,421) |
| | | | |
Interest rate swaps | - | - | (47,807) | (47,807) |
Total comprehensive loss | | | | (1,498,228) |
| | | | |
BALANCE--December 31, 2000 | 10,000 | (1,544,298) | (26,800) | (1,561,098) |
| | | | |
Net (loss) for the year | - | (2,201,648) | - | (2,201,648) |
| | | | |
Interest rate swaps | - | - | (72,742) | (72,742) |
Total comprehensive loss | | | | (2,274,390) |
| | | | |
BALANCE--December 31, 2001 | $ 10,000 | $ (3,745,946) | $ (99,542) | $ (3,835,488) |
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Years ended |
| December 31, |
| 2001 | 2000 |
CASH FLOWS FROM OPERATING ACTIVITIES | | |
Net (loss) | $ (2,201,648) | $ (1,450,421) |
Adjustments to reconcile net (loss) to cash | | |
provided by operating activities: | | |
Provision for depreciation | 116,582 | 242,728 |
Loss on disposal of assets | 4,369 | - |
Provision for losses on accounts receivable | 2,539,307 | 1,741,827 |
Increase (decrease) in cash due to changes in: | | |
Accounts receivable--trade | 944,956 | (791,945) |
Accounts receivable--employees | (111,709) | (141,610) |
Accounts receivable--broker/agents | (876,883) | (657,894) |
Advances to related party | (90,000) | - |
Prepaid expenses | 171,192 | (50,103) |
Recoverable federal income tax | (150,982) | (392,000) |
Other assets | (33,425) | 349 |
Accounts payable | (135,343) | 306,615 |
Note payable--related party | 582,877 | (237,774) |
Accrued other liabilities | (674,268) | 262,682 |
Accrued loss contingencies | 367,041 | 80,000 |
| | |
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | 452,066 | (1,087,546) |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES | | |
Purchase of property, plant and equipment | (28,675) | (67,798) |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | | |
Net (payments) proceeds on short-term debt | (1,300) | 1,378,896 |
Payments on long-term debt | (406,175) | (290,375) |
| | |
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | (407,475) | 1,088,521 |
| | |
NET INCREASE (DECREASE) IN CASH | 15,916 | (66,823) |
| | |
CASH AT BEGINNING OF YEAR | 14,412 | 81,235 |
| | |
CASH AT END OF YEAR | $ 30,328 | $ 14,412 |
| | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | |
Cash paid during the year for: | | |
Interest | $ 726,804 | $ 664,648 |
Income taxes | $ 62,500 | $ 150,000 |
Stony's Trucking Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 1-ORGANIZATION AND DESCRIPTION OF BUSINESS
Stony's Trucking Company and Subsidiaries (the Company) are engaged in local and long-distance hauling of various products under operating authorities granted by the Interstate Commerce Commission.
NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts and results of operations of the Company and its wholly-owned subsidiaries, B-Right Trucking Company, B-Right Intermodal Transport, and B-Right International. Intercompany transactions and balances have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Concentration of Credit Risks
The Company sells services and extends credit based on an evaluation of the customer's financial condition, without requiring collateral. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses.
Property and Equipment
Property and equipment are recorded at cost and are depreciated on a straight-line basis over the estimated useful life of the asset, from 5 to 39 years. Depreciation expense for the year ended December 31, 2001 and 2000 was $116,581 and $242,728, respectively.
Revenue and Expense Recognition
The Company recognizes transportation revenue as earned on the date of freight delivery to consignee. Related expenses are recognized as incurred.
Fair Value of Financial Instruments and Derivatives
The carrying value of financial instruments approximate their fair value. The primary derivative financial instruments the Company uses are interest rate swaps as part of its overall risk management policy. The Company does not use derivative financial instruments for trading or speculative purposes.
Derivatives and Hedging Activities
The Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The Statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The adoption of Statement No. 133 on January 1, 2000 resulted in no cumulative effect adjustment in the Company's financial statements.
The Company holds derivative financial instruments for the purpose of hedging the risks of certain identifiable and anticipated transactions. In general, the type of risk hedged is related to the variability of future earnings caused by changes in interest rates. The Company hedges its exposure to interest rate fluctuations through the use of interest rate swaps. Net amounts paid or received under swap arrangements are reflected as adjustments to interest expense.
Derivatives are held only for the purpose of hedging such risks, not for speculation. Generally, the Company enters into hedging relationships such that changes in the fair values or cash flows of items and transactions being hedged are expected to be offset by corresponding changes in the values and cash flows of the derivatives. At December 31, 2001 and 2000, hedging relationships exist for long-term indebtedness.
Income Taxes
Income taxes are accounted for using the asset and liability method under which deferred income taxes are recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and operating losses and tax credit carryforwards by applying enacted statutory tax rates applicable to future years. The effect on deferred taxes for a change in tax rates is recognized in income in the period that includes the enactment date. Management provides valuation allowances against the deferred tax asset for amounts which are considered "more likely than not" to be realized.
Use of Estimates
The process of preparing the Company's consolidated financial statements in conformity with generally accepted accounting principles requires management to use estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.
Advertising Cost
The Company maintains a policy of expensing advertising costs when incurred. Amounts charged against advertising expense for the years ended December 31, 2001 and 2000 were $137,960 and $75,561, respectively.
Earnings Per Share
Basic earnings (loss) per common share is based on net (loss) attributable to common shares divided by weighted average number of common shares outstanding during the period.
New Accounting Pronouncements
In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Intangible Assets." SFAS No. 141 requires the use of the purchase method of accounting for business combinations and prohibits the use of the pooling of interests method. SFAS No. 141 also refines the definition of intangible assets acquired in a purchase business combination. As a result, the purchase price allocation of future business combinations may be different than the allocation that would have resulted under the old rules. Business combinations must be accounted for using SFAS No. 141 beginning on July 1, 2001.
SFAS No. 142 eliminates the amortization of goodwill, requires annual impairment testing of goodwill and introduces the concept of indefinite life intangible assets. It was adopted on January 1, 2002. the new rules also prohibit the amortization of goodwill associated with business combinations that closed prior to June 30, 2001.
NOTE 3-DEBT AND LEASE OBLIGATIONS
The Company has a $5,000,000 revolving line of credit available as of December 31, 2001 and 2000. As of December 31, 2001 and 2000, the Company had outstanding $4,856,596 and $4,857,896 under this agreement, respectively. The principal sum is payable on demand with accrued unpaid interest payable on the first day of each month. The revolving line of credit bears interest at a variable rate equal to the bank's prime lending rate plus 0.25%. The interest rate in effect at December 31, 2001 and 2000 were 5.00% and 9.75%, respectively. The line of credit is secured by all the Company's assets and the personal guarantee of the sole stockholder. The Company was in default on this line at December 31, 2001 and 2000.
Additionally, the Company has two term loans with the bank which are secured by all assets of the Company. The first, having a balance outstanding at December 31, 2001 and 2000 of $600,000 and $900,000, respectively. This loan is payable in monthly installments of $25,000 plus interest at the bank's prime rate plus .25%. The interest rate in affect at December 31, 2001 and 2000 was 5.00% and 9.75%, respectively. The second, having a balance outstanding at December 31, 2001 and 2000 of $182,056 and $197,122, respectively. This loan is payable in monthly installments of $1,256 plus interest at a fixed interest rate of 8.25% annually.
As a result of the default, the interest rate was increased to the bank's prime plus 3.25% effective April 2002.
Additionally, the Company entered into interest rate swap agreements to reduce the impact of changes in interest rates on its floating rate debt. At December 31, 2001 and 2000, the Company had outstanding interest rate swap agreements with commercial banks, having a combined notional amount of $2,100,000 and $2,400,000, respectively. Those agreements effectively change the Company's interest rate exposure on its floating rate notes to a fixed rate of 9.23% and 9.45%, respectively. The interest rate swap agreements mature at the time the related notes mature. The Company is exposed to a credit loss in the event of nonperformance by the counterparties to the interest rate swap agreements. However, the Company does not anticipate nonperformance by the counterparties.
Loan agreements contain various covenants including cash flow, current ratio, interest coverage, EBIDA, and the maintenance of collateral. At December 31, 2001, the Company is in breach of loan covenants. Under the terms of the agreement, the bank may call the loan. As of August 14, 2002, the bank has not waived the collateral requirement, nor have they called the loans. Accordingly, the term loans and the related interest rate swaps have been included in current liabilities.
The Company leases four operating facilities and six tractors, including related party leases, under operating leases expiring in various years through 2004. See Note 7 Related Parties.
Minimum future rental payments under non-cancelable operating lease as of December 31, 2001 were:
December | | Amount |
2002 | | $ 250,897 250,897 |
2003 | | 177,397 |
2004 | | 45,559 |
| Total minimum future rental payments: | $ 473,853 |
The above operating leases provide for renewal options for periods from 2002 to 2004. In the normal course of business, operating leases are generally renewed or replaced by other leases. Rental expense amounted to $245,444 and $210,503 in 2001 and 2000, respectively.
NOTE 4-INCOME TAXES
A reconciliation of income tax at the statutory rate to the company's effective rate is as follows:
| Year Ended |
| December 31, |
| 2001 | 2000 |
Computed at expected statutory rate | $ (773,000) | $ (626,500) |
Disallowed travel and entertainment | 20,000 | 2,700 |
Decrease in valuation allowance | 660,350 | 186,200 |
Other | 20,490 | 45,600 |
Income tax benefit | $ (72,160) | $ (392,000) |
Effective income tax rate | (3)% | (21)% |
The following temporary differences gave rise to the deferred tax assets and liabilities at December 31, 2001 and 2000:
| December 31, |
| 2001 | 2000 |
Deferred tax assets: | | |
Allowance for doubtful accounts | $ 863,364 | $ 592,221 |
Health claims | 8,243 | 19,907 |
Contingency accruals | 163,613 | 38,820 |
Net Operating loss carryforward | 274,432 | - |
Net deferred assets before valuation allowance | 1,309,652 | 650,948 |
Valuation allowance | 1,295,652 | 634,948 |
Net deferred tax asset | $ 14,000 | $ 16,000 |
Deferred tax liability: | | |
Excess tax over financial accounting depreciation | $ 14,000 | $ 16,000 |
Amounts for deferred tax assets and liabilities are as follows:
| December 31, |
| 2001 | 2000 |
Deferred tax asset - current | $ 14,000 | $ 16,000 |
Deferred tax liability - non-current | $ 14,000 | $ 16,000 |
A valuation allowance has been recognized for federal loss carryforwards and future deductible items as cumulative losses create uncertainty about the realization of tax benefits in future years. The net increase in the valuation allowance for the year ended December 31, 2001 was $660,704.
At December 31, 2001, the Company has available unused net operating loss carryforwards of approximately $800,000 that may be used to offset future taxable income and that expire in 2016.
NOTE 5-PENSION PLANS
The Company has a profit sharing plan that covers employees who have completed one year of service and have attained 21 years of age. Contributions to the plan are at the discretion of management. During 2001 and 2000, no profit sharing contributions were made to the Plan.
The Company's profit sharing plan also includes a 401(k) feature. Participants may contribute a percentage of compensation, but not in excess of the maximum allowed under the Internal Revenue Code. The current Plan does provide for matching contributions equal to a discretionary percentage of the participants salary deferral, which percentage will be determined by management each year. As of December 31, 2001 and 2000, matching contributions to the Plan charged to operations were $16,257 and $67,325, respectively.
NOTE 6-COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is a defendant in several lawsuits that arise out of, and are incidental to the conduct of business. These suits concern issues such as contract disputes and property damage. At December 31, 2001 and 2000 the consolidated balance sheet includes a current liability of $481,216 and $114,175, respectively for litigation and claims. These amounts represent management's best estimate of the losses related to litigation and claims. While it is not feasible to predict the ultimate outcome of all pending suits and claims, the resolution of these matters could have a material effect upon the financial position of the Company, and the resolution of any of the matters during a specific period could have a material effect on the quarterly or annual operating results for that period.
NOTE 7-RELATED PARTY TRANSACTIONS
The Company leases two operating facilities, under noncancelable leases, and a condominium in North Carolina, under a cancelable lease, from the Company's sole stockholder. Minimum future rental payments to related parties under non-cancelable operating lease as of December 31, 2001 which are included in lease commitments in Note 3 were:
December 31, | Amount |
2002 | $ 90,000 |
2003 | 40,500 |
2004 | 21,000 |
Total minimum future rental payments: | $ 151,500 |
The above operating leases provide for renewal options for periods 2003 and 2004 at the time of renewal. In the normal course of business, operating leases are generally renewed or replaced by other leases. During 2001 and 2000 the Company made rental payments totaling $156,000 and $168,000, respectively. Of the total expenses paid for these leases during 2001 and 2000, $66,000 and $60,000 were paid in excess of the amounts stipulated in the leases to the sole stockholder of the Company.
The Company has a long-term note payable to the sole stockholder's mother for the purchase of stock of the Company as follows:
| | December 31, |
| | 2001 | 2000 |
Note payable -- unsecured, interest at 8.0%, due in 140 monthly installments of $9,716 | $ 606,570 | $ 671,775 |
Less principal payments due within one year | 70,617 | 65,205 |
NET LONG-TERM DEBT | $ 535,953 | $606,570 |
Maturities of this debt for each of the years succeeding December 31, 2001 are as follows:
Year | | Long-term Debt |
2002 | | $ 70,617 |
2003 | | 76,478 |
2004 | | 82,825 |
2005 | | 89,700 |
2006 | | 97,145 |
Thereafter | | 189,805 |
| | TOTAL LONG-TERM DEBT: | $ 606,570 |
The amount of interest expense incurred for this debt was $51,386 in 2001 and $56,383 in 2000, all of which was charged to operations.
The Company owed its sole stockholder $579,824 and $65,051 on December 31, 2001 and 2000, respectively. In lieu of paying interest on these advances the Company pays the interest on personal notes of its sole stockholder with a bank. Interest expense paid on this debt amounted to $32,142 and $18,012 in 2001 and 2000, respectively. Additionally, in 2001 the Company forgave advances to its sole stockholder of $51,077.
The Company also has guaranteed a $500,000 line of credit of the Company's sole stockholder.
As of December 31, 2001, the Company had a net amount due from an affiliated entity in the amount of $44,100. This consisted of an advance to this affiliated entity in the amount of $90,000 and an advance from this affiliated entity in the amount of $45,900.
The Company loaned varying amounts to a joint venture with the former controller's brother. The unpaid balance of $155,000 at December 31, 2001 was deemed uncollectible and charged to expense.
NOTE 8-SUBSEQUENT EVENTS
In March 2002, Corporate Vision, Inc acquired the Company by means of a purchase transaction pursuant to which all of the outstanding common stock of the Company was exchanged for 20,000,000 shares of Corporate Vision, Inc. common stock.
NOTE 9-GOING CONCERN
The Company's financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company incurred net operating losses for the years ended December 31, 2002 and 2001, had a deficit in working capital and shareholder's equity, significant unpaid accounts payable and accrued liabilities, and is in default on certain debt due the principal lender to the Company's trucking operations. These factors create an uncertainty about the Company's ability to continue as a going concern. The Company's management has developed a plan to raise additional capital, improve operating results, expand the business, and refinance their debt. The ability of the Company to continue as a going concern is dependent on the success of this plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
EXHIBIT B
CORPORATE VISION, INC. AND SUBSIDIARIES
PRO FORMA BALANCE SHEET AS OF DECEMBER 31, 2001
ASSUMING PURCHASE OF STONY'S ON JANUARY 1, 2001
| | Corporate Vision, Inc. | Stony's Trucking Company | Pro Forma Adjustments | Corporate Vision (Pro Forma) |
| | | | | |
Assets | | | | |
Current Assets | | | | |
Cash | $ 3,439 | $ 30,328 | | $ 33,767 |
Accounts Receivable-Trade | 265,284 | 3,623,033 | | 3,888,317 |
Advances to Related Parties | | 90,000 | | 90,000 |
Accounts Receivable-Employees | | 75,319 | | 75,319 |
Accounts Receivable-Brokers/Agents | | 427,518 | | 427,518 |
Prepaid Expenses | 3,109 | 56,474 | | 59,583 |
Deferred Federal Income Taxes | | 14,000 | | 14,000 |
Recoverable Federal Income Taxes | -- | 542,982 | | 542,982 |
Total Current Assets | 271,832 | 4,859,654 | | 664,570 |
| | | | | |
Property and Equipment | | | | |
Leasehold Improvements | | 474,737 | | 474,737 |
Vehicles | 251,598 | 1,427,220 | | 1,678,818 |
Heavy Equipment | 39,843 | | | 39,843 |
Computers and Office Equipment | 44,325 | 637,103 | | 681,428 |
Furniture and Fixtures | 21,416 | -- | | 21,416 |
Total Property and Equipment | 357,182 | 2,539,060 | | 2,896,242 |
Less: Accum. Dep. | (75,704) | (1,903,303) | | (1,979,007) |
Net Property and Equipment | 281,478 | 635,757 | | 917,235 |
| | | | | |
Other Asset | | | | |
Investments | 15,000 | | | 15,000 |
Goodwill | 1,541,534 | 0 | 0(1) | 1,541,534 |
Deposits | -- | 118,519 | -- | 118,519 |
Total Other Assets | 1,529,534 | 118,519 | 0 | 1,648,053 |
| | | | | |
Total Assets | $ 2,082,844 | $ 5,613,930 | $ 0 | $ 7,696,774 |
CORPORATE VISION, INC. AND SUBSIDIARIES
PRO FORMA BALANCE SHEET AS OF DECEMBER 31, 2001
ASSUMING PURCHASE OF STONY'S ON JANUARY 1, 2001
| | Corporate Vision, Inc. | Stony's Trucking Company | Pro Forma Adjustments | Corporate Vision (Pro Forma) |
Liabilities and Stockholders' Deficit | | | | |
Current Liabilities | | | | |
Accounts payable | $ 439,921 | $ 1,016,602 | | $ 1,456,523 |
Line of Credit | 8,009 | 4,856,596 | | 4,864,605 |
Note Payable-Related Party | 50,000 | 713,133 | | 763,133 |
Current Portion of LT Debt | 43,152 | 782,056 | | 825,208 |
Obligations under Capital Leases | 4,976 | | | 4,976 |
Accrued Interest Payable | 4,178 | 99,542 | | 103,720 |
Accrued Payroll | 280,245 | | | 280,245 |
Accrued Payroll Taxes | 40,953 | | | 40,953 |
Accrued Management Fees | 7,342 | | | 7,342 |
Accrued Liability to Seller | | | 200,000(2) | 200,000 |
Other Accrued Liabilities | 70,760 | 950,320 | | 1,021,080 |
Deferred Revenue | 5,000 | | | 5,000 |
Accrued Loss Contingencies | 95,000 | 481,216 | -- | 576,216 |
Total Current Liabilities | 1,049,536 | 8,899,465 | 200,000 | 10,149,001 |
| | | | | |
Long Term Liabilities | | | | |
Deferred Federal Income Taxes | | 14,000 | | 14,000 |
Long Term Debt-Related Party | | 535,953 | | 535,953 |
Long Term Debt | 72,272 | -- | -- | 72,272 |
Long Term Liabilities | 72,272 | 549,953 | 0 | 622,225 |
| | | | | |
Total Liabilities | 1,121,808 | 9,449,418 | 200,000 | 10,771,226 |
| | | | | |
Stockholders' deficit | | | | |
Preferred Stock | 1,529 | 0 | | 1,529 |
Common Stock | 431,056 | 10,000 | 205,833 | 646,889 |
Paid in capital | 10,391,900 | 0 | 3,621,667 | 14,013,567 |
Retained Earnings (Deficit) | (9,863,449) | (3,845,488) | (4,027,500) | (17,736,437) |
Total Stockholders' Equity | 961,036 | (3,835,488) | (200,000) (3) | (3,074,452) |
| | | | | |
Total Liabilities and Stockholders' Equity | $ 2,082,844 | $ 5,613,930 | $ 0 | $ 7,696,774 |
(1) Goodwill was recorded at the excess of the market value of the common stock issued in the transaction over the value of the assets acquired net of liabilities as follows:
Cash Disbursed | $ 50,000 |
Value of Stock Issued | 3,837,500 |
Liabilities Assumed | 150,000 |
Total Purchase Price | 4,037,500 |
Assets Acquired | 6,492,508 |
Less liabilities | 9,620,566 |
Net Assets Acquired | (3,128,058) |
Goodwill | $ 7,165,558 |
Upon adoption of FAS 141 and 142, the Company recorded a one-time noncash charge of $7,165,558 to reduce the carrying value of its goodwill for Stony's Trucking Company.
(2) The Company disbursed $50,000 in cash and issued a $150,000 cognovit note to the Seller as part fo the purchase price.
(3) The Company issued 20,000,000 shares of its common stock, par value $0.01 per share, which was valued at market value at the time of the transaction. An additional 1,583,333 shares were issued for legal and consulting services related to this transaction.
CORPORATE VISION, INC. AND SUBSIDIARIES
PRO FORMA INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2001
ASSUMING PURCHASE OF STONY'S ON JANUARY 1, 2001
| | Corporate Vision, Inc. | Stony's Trucking Company | Pro Forma Adjustments | Corporate Vision (Pro Forma) |
| | | | | |
Operating Revenue | $ 986,142 | $ 40,505,330 | | $ 41,491,472 |
Operating Expenses | 1,844,445 | 31,130,231 | | 32,974,676 |
Selling, General and Administrative Expenses | -- | 12,068,474 | | 12,068,474 |
Operating Loss | ($ 858,303) | (2,693,375) | | (3,551,678) |
| | | | | |
Other Income (Expenses) | | | | |
Interest Expense | (16,102) | (708,162) | | (724,264) |
Gain From Sale of Securities | 17,480 | | | 17,480 |
Impairment of Available Securities | (974,321) | | | (974,321) |
Investment Income | | 48,780 | | 48,780 |
Miscellaneous Income (Expense), net | | 1,078,949 | | 1,078,949 |
Impairment of Goodwill | -- | -- | (7,165,558) | (7,165,558) |
Total Other Income (Expenses) | (972,943) | 419,567 | (7,165,558) | (7,718,934) |
| | | | | |
Loss Before Income Taxes | (1,831,246) | (2,273,808) | (7,165,558) | 11,270,612) |
Provision (Benefit) For Income Taxes | -- | (72,160) | -- | (72,160) |
Net loss | ($ 1,831,246) | ($ 2,201,648) | ($ 7,165,558) | ($ 11,198,452) |
