SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------------------------- FORM 10-Q Quarter Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 ---------------------------------------- For Quarter Ended September 30, 1998 Commission File Number 0-23360 COUNTRY WIDE TRANSPORT SERVICES, INC. (Exact name of registrant as specified in charter) DELAWARE 95-4105996 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 119 Despatch Drive, East Rochester, NY 14445 (Address of principal executive offices) (Zip Code) (716) 381-5470 (Registrant's telephone number, including area code) 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 ___ The number of shares of common stock outstanding as of October 30, 1998 was 4,248,100 COUNTRY WIDE TRANSPORT SERVICES, INC. and Consolidated Subsidiary Companies INDEX Part I - Financial Information Page - ------------------------------ ---- Item 1. Financial Statements: Condensed Consolidated Balance Sheets--September 30, 1998 and June 30, 1998 3 Condensed Consolidated Statements of Operations--Three Months Ended September 30, 1998 and 1997 4 Condensed Consolidated Statements of Cash Flows--Three Months Ended September 30, 1998 and 1997 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk 9 Part II - Other Information Item 5. Other Information 10 Item 6. Exhibits and reports on form 8K 10 Signatures 11 2 COUNTRY WIDE TRANSPORT SERVICES, INC. and Consolidated Subsidiary Companies Condensed Consolidated Balance Sheets (In Thousands) September 30, June 30, 1998 1998* ------------- -------- (Unaudited) ASSETS Current assets: Cash $ 12 $ 6 Accounts receivable, net 4,900 5,548 Accounts receivable, miscellaneous 91 112 Driver advances 17 13 Prepaid expenses 77 38 ------- ------- Total current assets 5,097 5,717 Property and equipment, net 281 263 Other assets: Deposits 34 34 Excess of purchase price over fair value of net assets acquired, net 2,489 2,518 ------- ------- Total Assets $ 7,901 $ 8,532 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 4,693 $ 5,088 Liabilities in excess of assets of discontinued subsidiary 127 150 ------- ------- Total current liabilities 4,820 5,238 Long-term debt, less current portion 2,090 2,514 ------- ------- Total liabilities 6,910 7,752 ------- ------- Stockholders' equity : Preferred stock, $.01 par value, 5,000,000 shares authorized, issuable in series, none issued -- -- Common stock, $.10 par value, 6,000,000 shares authorized, 4,248,100 shares issued and outstanding at Sept. 30, 98 and June 30, 1998, respectively 425 425 Additional paid-in capital 8,110 8,110 Accumulated deficit (7,544) (7,755) ------- ------- Total stockholders' equity 991 780 ------- ------- Total liabilities and stockholders' equity $ 7,901 $ 8,532 ======= ======= * Condensed from audited financial statements. The accompanying notes are an integral part of these condensed consolidated financial statements. 3 COUNTRY WIDE TRANSPORT SERVICES, INC. and Consolidated Subsidiary Companies Condensed Consolidated Statements of Operations (Unaudited) (In Thousands, except Per Share Data) Three Months Ended September 30, ---------------------------- 1998 1997 ----------- ----------- Revenue $ 9,381 $ 8,497 ----------- ----------- Operating costs and expenses: Purchased transportation 8,239 7,493 Salaries and related expenses 572 447 Operating expenses 39 44 General supplies and expenses 222 214 Depreciation and amortization 49 41 ----------- ----------- Total operating costs and expenses 9,121 8,239 ----------- ----------- Operating income 260 258 Other income (expense): Interest expense (52) (45) Other, net 3 -- ----------- ----------- Income before provision for income taxes 211 213 Income tax expense -- 20 ----------- ----------- Net income $ 211 $ 193 =========== =========== Earnings per common share: Basic $ 0.05 $ 0.05 =========== =========== Diluted $ 0.04 $ 0.04 =========== =========== Weighted average number of common shares 4,248,100 4,248,100 =========== =========== The accompanying notes are an integral part of these condensed consolidated financial statements. 4 COUNTRY WIDE TRANSPORT SERVICES, INC. and Consolidated Subsidiary Companies Condensed Consolidated Statements of Cash Flows (Unaudited) (In Thousands) Three Months Ended September 30, -------------------- 1998 1997 -------- -------- Cash flows from operating activities: Net income $ 211 $ 193 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 49 41 (Increase) decrease in: Accounts receivable 648 (1,353) Accounts receivable, miscellaneous 21 3 Drivers advances (4) 2 Prepaid expenses (39) (4) Deposits (1) -- Increase (decrease) in: Accounts payable and accrued liabilities (395) 358 Liabilities in excess of assets of discontinued subsidiaries (23) -- Liabilities in excess of assets of discontinued operations -- (48) -------- -------- Net cash provided by (used in) operating activities 467 (808) -------- -------- Cash flows from investing activities: Additions to property and equipment (37) (9) -------- -------- Net cash used in investing activities (37) (9) -------- -------- Cash flows from financing activities: Principal payments on borrowings $(10,163) $ (7,195) Proceeds from borrowings 9,739 8,012 -------- -------- Net cash provided by (used in) financing activities (424) 817 -------- -------- Increase in cash 6 -- Cash, beginning of period 6 10 -------- -------- Cash, end of period $ 12 10 ======== ======== Supplemental disclosure of cash flow information: Cash paid for: Interest $ 52 $ 45 ======== ======== Income taxes $ -- $ 16 ======== ======== The accompanying notes are an integral part of these condensed consolidated financial statements. 5 COUNTRY WIDE TRANSPORT SERVICES, INC. and Consolidated Subsidiary Companies Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Summary of Significant Accounting Policies The accounting policies followed by the Company are set forth in Note 1 to the Company's consolidated financial statements included in the Company's Annual Report to Stockholders for the year ended June 30, 1998 2. Statement of Information Furnished The accompanying unaudited consolidated financial statements have been prepared in accordance with Form 10-Q instructions and in the opinion of management contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of September 30, 1998, the results of operations for the three months ended September 30, 1998 and 1997 and the cash flows for the three months ended September 30, 1998 and 1997. The results of operations for the three month period ended September 30, 1998 and 1997 are not necessarily indicative of the results to be expected for the full year. These results have been determined on the basis of generally accepted accounting principles and practices applied consistently with those used in the preparation of the Company's audited consolidated financial statements for the year ended June 30, 1998. Certain information and footnote disclosures normally included in financial statements presented in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. 3. Property and Equipment Property and equipment consisted of the following (000 omitted): September 30, June 30, Estimated 1998 1998 Useful Lives ------------- ------- ------------ 4 to 5 years Furniture and office equipment $ 303 $ 268 life of lease Leasehold improvements 155 154 ----- ----- 458 422 Less accumulated depreciation and amortization (177) (159) ----- ----- $ 281 $ 263 ===== ===== 4. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consisted of the following (000 omitted): September 30, June 30 1998 1998 ------------- ------- Accounts payable $2,586 $2,913 Accrued purchased transportation 1,900 1,948 Other accrued expenses 207 227 ------ ------ $4,693 $5,088 ====== ====== 6 5. Earnings Per Share (In Thousands, Except Per Share Data) For the Three Months Ended September 30, -------------------------- 1998 1997 ----------- ----------- Basic Earnings per Share Net income $ 211,000 $ 193,000 Less - preferred stock dividends -- -- ---------- ---------- Net income applicable to common shareholders $ 211,000 $ 193,000 ========== ========== Weighted average number of common shares 4,248,100 4,248,100 ========== ========== Basic Earnings per Share 0.05 0.05 ========== ========== Diluted Earnings per Share Net income applicable to common shareholders 211,000 193,000 Add: preferred stock dividend -- -- ---------- ---------- Net income for diluted earnings per share 211,000 193,000 ========== ========== Weighted average number of shares use in calculating basic earnings per common share 4,248,100 4,248,100 Add-common equivalent shares (determined using the "treasury stock" method) representing shares issuable upon exercise of options 757,273 735,073 ---------- ---------- Weighted average number of shares used in calculation of diluted earnings per share 5,005,373 4,983,173 ========== ========== Diluted Earnings per Share 0.04 0.04 ========== ========== 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net income for the three month period ended September 30, 1998 amounted to $211,000 compared to net income of $193,000 for the prior year three month period ended September 30, 1997, an increase of 9.3%. The improved results were due to increased business levels at the Company's subsidiary, Vertex Transportation, Inc. Transportation revenue for the three months ended September 30, 1998, increased 10.4% to $9,381,000 from $8,497,000 for the prior year three month period ended September 30, 1997. Net revenue percentage, after purchased transportation, for the three months ended September 30, 1998 was 12.2% versus 11.8% for the comparable prior year period. Operating costs for the three month period ended September 30, 1998, increased 10.7% to $9,121,000 from $8,239,000 for the prior year three month period ended September 30, 1997. This increase was due to the increase in business levels coupled with additional investment in personnel levels to support future growth. As a percentage of sales, operating costs for the three month period ended September 30, 1998, increased 0.3% over the comparable prior year period as a result of increased personnel cost to support future growth. Depreciation and amortization expense for the three month period ended September 30, 1998, was $49,000 as compared to $41,000 for the comparable prior year period. Interest expense for the three month period ended September 30,1998, was $52,000 as compared to $45,000 for the comparable prior year period. LIQUIDITY AND CAPITAL RESOURCES On April 29, 1997, the Company, through its Vertex Transportation, Inc. subsidiary, secured new financing with a commercial bank. The new facility is a three year contract which allows for borrowing of up to $4,000,000 which is limited to 80% of eligible accounts receivable. The agreement bears an interest rate of the bank's prime rate plus 2 1/2%. At September 30, 1998 the Company had borrowings of $2,089,945 and unused borrowing capacity of $1,193,166. At September 30, 1998, the Company's ratio of current assets to current liabilities and its debt to equity were 1.06:1 and 7.0:1 respectively, as compared to 1.09:1 and 9.9:1 respectively at June 30, 1998. The Company ended the September 30, 1998 period with $12,000 of cash and working capital of $277,000. Based upon the Company's expected cash flow from operations and funds available as of September 30, 1998, from it's credit facility, management believes that the Company's capital resources are sufficient to meet its present and anticipated operating needs. Year 2000 Issues The Company believes that the general nature of its business operations limits its risks with respect to Year 2000 issues, with the state of readiness of its own computer system being the key consideration. Most of the Company's business is conducted by telephone, fax, e-mail, and mail communications with customers and transportation providers. The Company's computer system is independent of external computers, except for e-mail Internet communications. Generally orders are taken by phone, and shipping arrangements are made by phone, with subsequent written confirmations. The Company uses its internal computer system to keep track of orders and related expenses and billing information and eventually to provide accounting for the business transactions and the Company's financial statements. All data used by the computer is entered at the Company's offices by employees. The independent developer of the Company's customized software system has advised the Company that the system, including computer firmware, is Year 2000 compliant. In fall 1998 the Company will be administering testing scenarios. 8 If the computer system needed even major overhaul in order to become Year 2000 compliant, the Company believes that necessary expense and time will be allocated to do it. The Company believes that Year 2000 problems that its customers might experience are as likely to increase the Company's business and results of operations as they are to decrease them. If any customers whose shipping needs are significantly managed by computers do in fact experience Year 2000 problems, they probably would need to use freight forwarders more, in order to find available carriers who can make timely deliveries. Even with that increase in business, of course, problems with finding, negotiating, and managing the shipments and then billing and collecting for them could result in the Company experiencing higher costs and delayed receipts on billings, thereby negatively affecting margins on Company business. The Company believes that Year 2000 problems that the transportation providers might experience could generally impair the availability of transportation and the efficiency with which rolling stock is used. This problem, too, appears as likely to increase Company business and results of operations as to decrease them, with the carriers becoming more dependent on freight forwarders for finding and arranging ways to fill the rolling stock for various trips. With such a less efficient system, of course, the Company's overhead probably would increase, thereby negatively affecting margins on Company business. Lastly, the company also believes that it does not have significant exposure to embedded technology problems, except for possible problems that could have widespread effects. The Company's offices are in a stand-alone, single story building with basic utilities and HVAC and security systems, each which could be replaced without material expense to the Company. Thus, the Company's primary exposure to embedded technology problems appears to focus on communications and utilities. If electricity became unavailable or erratic, or if telephone, fax, e-mail, and/ or mail systems became unusable or erratic, the Company might have severe difficulties in maintaining its business operations. The Company does not have a contingency plan with respect to a possible loss of electricity, telephone, or mail systems. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 9 COUNTRY WIDE TRANSPORT SERVICES, INC. and Consolidated Subsidiary Companies Part II. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Reports on Form 8-K: 1. None. (B) Exhibits: 1. None 10 COUNTRY WIDE TRANSPORT SERVICES, INC. and Consolidated Subsidiary Companies SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on it's behalf by the undersigned thereunto duly authorized. COUNTRY WIDE TRANSPORT SERVICES, INC. Registrant DATED: November 9, 1998 /S/ Timothy Lepper Timothy Lepper, President Chief Executive Officer Chief Financial Officer and Principal Accounting Officer