EXHIBIT 99.1
CERTIFIED TRANSPORT, INC. AND
VENTURE LOGISTICS, INC.
AND SUBSIDIARIES
COMBINED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
December 31, 1997 and 1996
CERTIFIED TRANSPORT, INC. AND VENTURE LOGISTICS, INC.
AND SUBSIDIARIES
CONTENTS
Page
Independent Auditors' Report 1
Combined Balance Sheets 2
Combined Statements of Income and Retained Earnings 3
Combined Statements of Cash Flows 4
Notes to Combined Financial Statements 5-9
Independent Auditors' Report
Board of Directors
Certified Transport, Inc. and Venture Logistics, Inc.
We have audited the accompanying combined balance sheets of Certified
Transport, Inc. and Venture Logistics, Inc. and Subsidiaries as of December 31,
1997 and 1996, and the related combined statements of income and retained
earnings and cash flows for the years then ended. These combined financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Certified
Transport, Inc. and Venture Logistics, Inc. and Subsidiaries at December 31,
1997 and 1996, and the results of their operations and their cash flows for the
years then ended, in conformity with generally accepted accounting principles.
As explained in Notes 1 and 8 to the combined financial statements, effective
January 1, 1997, Certified Transport, Inc. and Venture Logistics, Inc.
reorganized. The Companies transferred substantially all of their net assets to
their new wholly-owned subsidiaries, Certified Transport, LLC and Venture
Logistics, LLC. The 1996 financial statements have been restated to give effect
to the reorganization as if it had occurred on January 1, 1996.
As explained in Note 9 to the combined financial statements, on March 24,
1998, Certified Transport, Inc. and Venture Logistics, Inc. signed a letter of
intent to be acquired by The Transit Group, Inc.
KATZ, SAPPER & MILLER, LLP
Certified Public Accountants
Indianapolis, Indiana
March 5, 1998, except for
Note 9, as to which the date
is March 24, 1998
CERTIFIED TRANSPORT, INC. AND VENTURE LOGISTICS, INC.
AND SUBSIDIARIES
COMBINED BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
Restated-
Note 8
1997 1996
CURRENT ASSETS
Cash and equivalents $ 382,261 $ 208,302
Accounts receivable-trade, less allowance for doubtful
accounts of $142,000 in 1997-Note 3 2,456,919 1,492,368
Accounts receivable-related parties-Note 2 123,800 111,170
Prepaid expenses and other assets 274,025 49,609
--------- ---------
Total Current Assets 3,237,005 1,861,449
--------- ---------
PROPERTY AND EQUIPMENT-Note 3
Tractors and trailers 9,599,991 9,143,169
Leasehold improvements 9,972 10,361
Buildings 105,000
Furniture and fixtures 234,109 202,447
--------- ---------
9,844,072 9,460,977
Less: Accumulated depreciation 5,277,837 4,033,932
--------- ---------
Total Property and Equipment 4,566,235 5,427,045
--------- ---------
OTHER ASSETS
Notes and accounts receivable-related parties-Note 2 603,029 352,863
Deposits 72,534 69,045
-------- ---------
Total Other Assets 675,563 421,908
-------- ---------
TOTAL ASSETS $8,478,803 $7,710,402
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 615,685 $ 234,182
Accrued payroll and payroll taxes 85,944 109,461
Other accrued expenses and taxes 269,360 223,383
Notes payable-bank-Note 3 700,000 650,000
Current maturities of long-term debt-Note 3 1,328,883 1,529,679
--------- ---------
Total Current Liabilities 2,999,872 2,746,705
LONG-TERM DEBT
Equipment obligations, less current maturities-Note 3 1,637,144 1,951,068
--------- ---------
Total Liabilities 4,637,016 4,697,773
--------- ---------
STOCKHOLDERS' EQUITY-Note 7
Common stock 3,000 3,000
Additional paid-in capital 170,682 170,682
Retained earnings 3,668,105 2,838,947
--------- ---------
Total Stockholders' Equity 3,841,787 3,012,629
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,478,803 $7,710,402
========== ==========
See Accompanying Notes to the Combined Financial Statements.
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
Years Ended December 31, 1997 and 1996
Restated-
Note 8
1997 1996
OPERATING REVENUE-Note 6 $20,953,120 $16,635,491
----------- -----------
OPERATING EXPENSES
Salaries and fringes-drivers 1,980,135 1,988,767
Salaries and fringes-other 2,211,018 1,843,196
Contract hauling 5,233,637 2,349,269
Fuel, maintenance and supplies 3,381,489 3,382,792
Operating supplies and expense 1,162,486 1,102,869
General supplies and expense 782,498 654,883
Depreciation and amortization 1,688,411 1,710,225
Insurance 541,398 445,932
Taxes and licenses 512,012 425,710
Rent 333,147 220,740
Revenue equipment leasing 91,989 252,906
Purchased transportation 1,648,394 1,570,454
---------- ----------
Total Operating Expenses 19,566,614 15,947,743
---------- ----------
Net Operating Income 1,386,506 687,748
---------- ----------
OTHER INCOME (EXPENSE)
Gain on sales of equipment 99,952 48,628
Net other income 42,747 105,570
Interest expense (408,952) (443,686)
--------- ---------
Other Income (Expense)-Net (266,253) (289,488)
--------- ---------
NET INCOME 1,120,253 398,260
DISTRIBUTIONS TO STOCKHOLDERS (291,095) (162,620)
RETAINED EARNINGS
Beginning of Year 2,838,947 2,603,307
---------- ----------
End of Year $ 3,668,105 $ 2,838,947
=========== ===========
See Accompanying Notes to the Combined Financial Statements.
COMBINED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997 and 1996
Restated-
Note 8
1997 1996
OPERATING ACTIVITIES
Net income $ 1,120,253 $ 398,260
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of property and equipment 1,688,411 1,709,843
Amortization of intangible assets 406
(Gain) on sales of equipment (99,952) (48,628)
(Increase) decrease in certain current assets:
Accounts receivable (964,551) 126,823
Prepaid expenses and other assets (267,882) 5,135
Increase (decrease) in certain current liabilities:
Accounts payable, accrued expenses and taxes 403,961 (247,410)
--------- ---------
Net Cash Provided by Operating Activities 1,880,240 1,944,429
--------- ---------
INVESTING ACTIVITIES
Cash paid for purchases of equipment (105,411) (176,366)
Proceeds from sales of equipment 399,021 249,359
(Increase) decrease in accounts and notes
receivable-related parties (219,329) 101,772
(Increase) in deposits and other assets (3,489) (2,100)
--------- ---------
Net Cash Provided by Investing Activities 70,792 172,665
--------- ---------
FINANCING ACTIVITIES
Principal payments on long-term debt (1,535,978) (2,019,594)
Proceeds of short-term bank borrowings 100,000 300,000
Principal payments on short-term bank debt (50,000) (75,000)
Distributions to stockholders (291,095) (162,620)
----------- ----------
Net Cash (Used) by Financing Activities (1,777,073) (1,957,214)
----------- ----------
NET INCREASE IN CASH AND EQUIVALENTS 173,959 159,880
CASH AND EQUIVALENTS
Beginning of Year 208,302 48,422
----------- ----------
End of Year $ 382,261 $ 208,302
=========== ===========
SUPPLEMENTAL DISCLOSURES
Cash paid for interest $ 415,010 $ 426,441
Noncash investing and financing activities:
Debt incurred for the acquisition of revenue
Equipment 1,021,274 734,106
Refinancing of long-term debt 27,466
See Accompanying Notes to the Combined Financial Statements.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Principles of Combination: The accompanying combined
financial statements include the balances and transactions of
Certified Transport,Inc.and Venture Logistics, Inc. and their
wholly-owned subsidiaries, Certified Transport, LLC and Venture
Logistics, LLC (together, the "Company"). All material intercompany
balances and transactions have been eliminated in the combination
(see Note 8).
Effective January 1, 1997 Certified Transport, Inc. and Venture
Logistics, Inc. agreed to create a full-service freight carrier.
Certified Transport, LLC,a new Indiana limited liability company,
was capitalized with substantially all of the net assets of Certified
Transport, Inc. and Venture Logistics, Inc. Certified Transport, LLC
then transferred the net assets of Venture Logistics, Inc. into Venture
Logistics, LLC, a 99%-owned Indiana limited liability company of
Certified Transport, LLC. Certified Transport, Inc. received a 2/3
interest in Certified Transport,LLC and 2/3 of 1% interest in Venture
Logistics, LLC. Venture Logistics, Inc.received a 1/3 interest in
Certified Transport, LLC and 1/3 of 1% interest in Venture Logistics,
LLC. The reorganization was accounted for in a manner similar to a
"pooling of interests".
The Company is primarily engaged in the long haul transportation over
the road business and also engages in freight brokerage, shipping and
warehouse services and grants credit to customers located throughout
the United States and Canada.
Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities,
and the reported amounts of revenues and expenses. Actual results could
differ from those estimates.
Property and Equipment are recorded at cost. Depreciation is provided
over the estimated useful lives of the assets using the straight-line
method. The estimated useful lives are as follows:
Tractors and trailers 3-5 years
Leasehold improvements 15 years
Buildings 31 years
Furniture and fixtures 7-10 years
Cash and Equivalents: For purposes of the statement of cash flows, cash
equivalents may include bank time deposits, money market fund shares
and all highly liquid debt instruments with original maturities of
three months or less. The Company maintains its cash in bank deposit
accounts which, at times, may exceed federally insured limits. The
Company has not experienced any losses from these accounts.
Advertising Costs are expensed as incurred and totaled $8,462 in 1997
and $7,801 in 1996.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes: There is no provision for state and federal income taxes
reflected in the combined financial statements because the stockholders
of Certified Transport, Inc. and Venture Logistics,Inc. have elected to
be taxed under the provisions of Subchapter S of the Federal Internal
Revenue Code wherein corporate income is taxable directly to the
stockholders.
Certified Transport, LLC and Venture Logistics, LLC, which are
wholly-owned limited liability companies, are treated as partnerships
for federal and state income tax purpose. A partnership is not a
taxpaying entity for federal or state income tax purposes. Accordingly,
no income tax expense has been recorded in the combined financial
statements as it relates to income generated by the limited liability
companies. Rather, all income or losses are reported on the income tax
returns of Certified Transport, Inc. and Venture Logistics, Inc.
NOTE 2 - RELATED PARTY TRANSACTIONS
The Company had the following balances and transactions with its
stockholders or companies controlled by its stockholders at December
31, 1997 and 1996, and during the years then ended:
1997 1996
Notes and accounts receivable $603,029 $352,863
Accounts receivable (trade and other) 123,800 111,170
Accounts payable 60,000 7,434
Equipment rental expense 44,710 74,346
The Company conducts the majority of its business from a building which
had been purchased and renovated by an entity with common ownership.
Rent expense of $165,561 in 1997 and $120,000 in 1996 was incurred to
the related entity. The lessor's cost of the property is approximately
$1,010,500. The property is pledged as collateral for a mortgage with a
balance of approximately $760,000 at December 31, 1997.
The Company paid rent aggregating $36,030 for the first five months of
1997 and $62,500 in 1996 to a related entity.
NOTE 3 - DEBT AND CREDIT AGREEMENTS
The Company has a revolving line of credit for short-term bank
borrowings of up to $825,000 maturing on July 31, 1998. Borrowings are
limited to 75% of certain eligible accounts receivable of the Company.
Interest on these borrowings is payable monthly at 1% over the Bank's
prime lending rate. The line of credit agreement restricts additional
borrowings, mergers, loans, investments or guarantees. The line is
secured by certain accounts receivable and equipment of the Company,
and by personal guaranties of the Company's stockholders. At December
31, 1997, $125,000 of the line of credit was unused.
NOTE 3 - DEBT AND CREDIT AGREEMENTS (CONTINUED)
The Company has an additional revolving line of credit for short-term
bank borrowings of up to $500,000 that matures on April 18, 1998.
Interest on these borrowings is payable at .75% over the Bank's prime
lending rate. The line is secured by certain accounts receivable and
equipment of the Company, and the personal guarantees of the Company's
stockholders. At December 31, 1997, the line of credit was unused.
At December 31, 1997 and 1996, long-term debt obligations of $2,966,027
and $3,480,747, respectively, were comprised of various installment
notes for equipment, with interest rates ranging from 7.99% to 10.52%.
The notes are payable in monthly installments and are secured by
tractors, trailers and personal guarantees of the Company's
stockholders.
At December 31, 1997, the aggregate long-term debt maturities were as
follows:
Payable In Principal
1998 $1,328,883
1999 854,120
2000 336,393
2001 281,856
2002 164,775
----------
$2,966,027
NOTE 4 - OPERATING LEASES
The Company leases various equipment and facilities under
noncancellable operating leases. Rent expense under these leases was
$822,761 in 1997 and $830,746 in 1996. Minimum future lease payments
required by these leases at December 31, 1997 are as follows:
Payable In Rental Payments
1998 $ 847,805
1999 612,630
2000 99,724
----------
$1,560,159
NOTE 5 - RETIREMENT PLAN
The Company sponsors a defined contribution 401(k) retirement plan
covering substantially all of its employees who have completed one year
of service and have attained twenty-one years of age. The Plan permits
plan participant contributions of up to 15% of participant wages and
requires the Company to match up to 6% of the participant
contributions. In addition, the Company may make discretionary
contributions to the Plan. Contributions to the Plan by the Company
were $15,308 in 1997 and $11,246 in 1996.
NOTE 6 - MAJOR CUSTOMER
The Company engages in business with a national air freight corporation
with locations throughout the midwestern United States. The Company
performed long-haul transportation for seventeen individual profit
centers of this customer and conducted business individually with each
of these locations. Billings in the aggregate to this customer amounted
to 51% in 1997 and 49% in 1996 of total billings. In 1996, the Company
provided logistical and warehouse services to a customer for which
billings in the aggregate amounted to 11% of total billings.
NOTE 7 - STOCKHOLDERS' EQUITY
Combined stockholders' equity was comprised of the following at
December 31, 1997 and 1996:
Common Stock, Additional Retained Earnings
No Par Value Paid-in Capital 1997 1996
Certified Transport,
Inc. $2,000 $166,682 $2,797,342 $2,140,355
Venture Logistics,
Inc. 1,000 4,000 870,763 698,592
------ -------- ---------- ----------
$3,000 $170,682 $3,668,105 $2,838,947
====== ======== ========== ==========
Certified Transport, Inc. has 1,000 shares authorized with 600 shares
issued and outstanding. Venture Logistics, Inc. has 1,000 shares
authorized with 100 shares issued and outstanding.
NOTE 8 - REORGANIZATION AND RESTATEMENT OF FINANCIAL STATEMENTS
As described in Note 1, the accompanying 1997 combined financial
statements are based on the assumption that the companies were combined
for the full year and the 1996 financial statements have been restated
to give effect to the reorganization as if it had occurred on January
1, 1996. All intercompany transactions have been eliminated.
Summarized results of operations for 1996 and the summarized assets and
liabilities on January 1, 1997 (date of reorganization) of the separate
companies are as follows:
Certified Venture
Transport, Logistics,
Inc. Inc. Eliminations Combined
Operating revenue $12,993,726 $4,132,765 $491,000 $16,635,491
Expenses and other 13,049,038 3,692,005 491,000 16,237,231
----------- ---------- -------- -----------
Net Income (Loss) $ (55,312) $ 440,760 $ -0- $ 398,260
=========== ========== ======== ===========
Distributions to
Stockholders $ 162,620 $ 162,620
========== ===========
Current assets $ 1,257,990 $ 670,659 $ 67,200 $ 1,861,449
Property and equipment, net 5,174,149 252,896 5,427,045
Other assets 420,898 1,010 421,908
----------- ---------- -------- -----------
Total Assets $ 6,853,037 $ 924,565 $ 67,200 $ 7,710,402
=========== ========== ======== ===========
Current liabilities $ 2,622,323 $ 191,582 $ 67,200 $ 2,746,705
Long-term debt 1,921,677 29,391 1,951,068
Stockholders' equity 2,309,037 703,592 3,012,629
----------- ---------- -------- -----------
Total Liabilities and
Stockholders' Equity $ 6,853,037 $ 924,565 $ 67,200 $ 7,710,402
=========== ========== ======== ===========
Accounts receivable from stockholders in the amount of $48,997 have
been reclassified from current assets to other assets within the above
presentation to conform with the current year presentation.
NOTE 9 - SUBSEQUENT EVENT
Effective March 24, 1998, the Company signed a letter of intent to be
acquired by The Transit Group, Inc. for cash of $800,000 and $6,800,000
of the Transit Group, Inc.'s restricted common stock.