SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
Quarter Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
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For Quarter Ended December 31, 1996 Commission File Number 0-23360
COUNTRY WIDE TRANSPORT SERVICES, INC.
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(Exact name of registrant as specified in charter)
DELAWARE 95-4105996
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
119 Despatch Drive, East Rochester, NY 14445
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(Address of principal executive offices) (Zip Code)
(716) 381-5470
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(Registrant's telephone number, including area code)
325 N. COTA STREET, CORONA, CA 91720
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(Former name, former address and formal fiscal year, if changed
since last report)
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
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The number of shares of common stock outstanding as of January 31, 1997 was
4,800,487.
1
COUNTRY WIDE TRANSPORT SERVICES, INC.
and Consolidated Subsidiary Companies
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets--December 31,
1996 and June 30, 1996 3
Condensed Consolidated Statements of Operations--
Three Months Ended December 31, 1996 and 1995,
and Six Months Ended December 31, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows--Six
Months Ended December 31, 1996 and 1995 7
Notes to Condensed Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 5. Other Information 13
Item 6. Exhibits and reports on form 8K 13
SIGNATURES 14
2
COUNTRY WIDE TRANSPORT SERVICES, INC.
and Consolidated Subsidiary Companies
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, June 30,
1996 1996*
-------- --------
(Unaudited)
ASSETS
Current assets:
Cash $ 5 $ 37
Accounts receivable, net 3,841 5,199
Accounts receivable, miscellaneous 52 85
Driver advances 14 203
Inventories -- 29
Prepaid expenses 15 380
-------- --------
Total current assets 3,926 5,933
Property and equipment, net 127 3,580
Other assets:
Deposits -- 270
Excess of purchase price over fair market value
of net assets acquired, net 2,699 4,825
-------- --------
Total Assets $ 6,753 $ 14,608
-------- --------
-------- --------
* Condensed from audited financial statements.
Continued
3
COUNTRY WIDE TRANSPORT SERVICES, INC.
and Consolidated Subsidiary Companies
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, June 30,
1996 1996*
--------- ---------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion of long-term debt $ 2,550 $ 4,329
Accounts payable and accrued liabilities 5,447 5,584
--------- ---------
Total current liabilities 7,997 9,913
Long-term debt, less current portion -- 2,616
Liabilities in excess of assets of discontinued subsidiary 1,056 --
Liabilities in excess of assets of discontinued operations 94 177
--------- ---------
Total liabilities 9,147 12,706
--------- ---------
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 5,000,000 shares authorized,
issuable in series, none issued -- --
Common stock, $.02 par value, 10,000,000 shares authorized, 4,801,000 shares
issued and outstanding at December 31, 1996 and June 30, 1996, respectively 96 96
Warrants 40 40
Additional paid-in capital 6,763 6,763
Retained earnings (9,293) (4,997)
--------- ---------
Total stockholders' equity (deficit) (2,394) 1,902
--------- ---------
Total liabilities and stockholders' equity (deficit) $6,753 $14,608
--------- ---------
--------- ---------
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 OPERATIONS
(Unaudited)
(In Thousands, except Per Share Data)
Three Months Ended Six Months Ended
December 31, December 31,
--------------------- --------------------
1996 1995 1996 1995
--------- --------- -------- --------
Transportation revenue $10,039 $12,449 $20,586 $25,399
--------- --------- -------- --------
Operating costs and expenses:
Purchased transportation 7,426 8,827 14,693 17,861
Salaries and related expenses 1,381 1,473 2,738 2,935
Operating expenses 1,530 1,168 2,374 2,337
Revenue equipment rentals 456 488 827 973
General supplies and expenses 536 561 921 1,120
Depreciation and amortization 2,291 340 2,550 671
--------- --------- -------- --------
Total operating costs and expenses 13,620 12,857 24,103 25,897
--------- --------- -------- --------
Operating (loss) (3,581) (408) (3,517) (498)
Other income (expense):
Interest expense (176) (187) (351) (345)
Interest income -- -- -- 33
Gain (loss) on disposition of assets (429) 120 (406) 141
--------- --------- -------- --------
(Loss) from continuing operations
before provision for income taxes and
discontinued operations (4,186) (475) (4,274) (669)
Provision for income taxes 13 -- 21 --
--------- --------- -------- --------
(Loss) from continuing operations (4,199) (475) (4,295) (669)
Continued
5
COUNTRY WIDE TRANSPORT SERVICES, INC.
and Consolidated Subsidiary Companies
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, except Per Share Data)
Three Months Ended Six Months Ended
December 31, December 31,
--------------------- ---------------------
1996 1995 1996 1995
--------- --------- --------- ---------
(Loss) from continuing operations $ (4,199) $ (475) $ (4,295) $ (669)
Discontinued operations:
(Loss) from operations of discontinued
business segments, net of applicable
income tax of $0 for the three and six
months ended December 31, 1995. -- (33) -- (795)
--------- --------- --------- ---------
Net (loss) before extraordinary item (4,199) (508) (4,295) (1,464)
Extraordinary item:
Gain on forgiveness of debt of discontinued
operations, net of applicable income tax
expense of $1,630 (note 5) -- -- -- 2,370
--------- --------- --------- ---------
Net income (loss) $ (4,199) $ (508) $ (4,295) $ 906
--------- --------- --------- ---------
--------- --------- --------- ---------
Income (loss) per common share:
Continuing operations $ (0.87) $ (0.10) $ (0.89) $ (0.14)
Discontinued operations -- (0.01) -- (0.17)
Extraordinary item -- -- -- .50
--------- --------- --------- ---------
Net income per common share $ (0.87) $ (0.11) $ (0.89) $ 0.19
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average number of common
shares 4,800,487 4,800,487 4,800,487 4,800,487
--------- --------- --------- ---------
--------- --------- --------- ---------
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Continued
6
COUNTRY WIDE TRANSPORT SERVICES, INC.
and Consolidated Subsidiary Companies
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Six Months Ended
----------------------
December 31,
1996 1995
-------- --------
Cash flows from operating activities:
Net (loss) from continuing operations $ (4,295) $ (669)
Adjustments to reconcile net (loss) to net cash provided by
operating activities:
Depreciation and amortization 2,550 671
(Gain) Loss on disposal of assets 406 (141)
Provision for uncollectible accounts receivable 3 56
(Increase) decrease in:
Accounts receivable 404 (443)
Accounts receivable, miscellaneous (61) (12)
Drivers advances 189 9
Inventories 7 2
Prepaid expenses 323 103
Deposits (56) (60)
Increase (decrease) in:
Accounts payable and accrued liabilities 1,386 1,388
Liabilities in excess of assets of discontinued operation (83) --
-------- --------
Net cash provided by operating activities from continuing operations 773 904
-------- --------
Net (loss) from discontinued operations -- (795)
Depreciation and amortization -- 8
Loss on disposition of assets -- 14
Changes in operating assets -- 164
-------- --------
Net cash (used in) operating activities from discontinued operations -- (609)
-------- --------
Cash flows from investing activities:
Increase in notes receivable -- (29)
Collections on notes receivable 1 --
Additions to property and equipment (113) (253)
Proceeds from disposal of property and equipment 93 1,821
-------- --------
Net cash provided by (used in) investing activities (19) 1,539
-------- --------
Continued
7
COUNTRY WIDE TRANSPORT SERVICES, INC.
and Consolidated Subsidiary Companies
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Six Months Ended
December 31,
---------------------
1996 1995
-------- --------
Cash flows from financing activities:
Principal payments on borrowings (22,307) (31,226)
Proceeds from borrowings 21,521 29,358
-------- --------
Net cash (used in) financing activities (786) (1,868)
-------- --------
(Decrease) in cash (32) (34)
Cash, beginning of period 37 57
-------- --------
Cash, end of period $ 5 $ 23
-------- --------
-------- --------
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 352 $ 305
-------- --------
-------- --------
Income taxes $ 16 $ 12
-------- --------
-------- --------
Noncash investing and financing transactions:
Purchase of property and equipment with debt or reduction of receivable $ -- $ 3,316
-------- --------
-------- --------
Net assets sold for assumption of debt and reduction of receivable $ 2,944 $ --
-------- --------
-------- --------
Net assets of CK Trucking sold for receivables $ -- $ 14
-------- --------
-------- --------
The accompanying notes are an integral part of these condensed
financial statements.
8
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, 1996.
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 December
31, 1996, the results of operations for the three months and six months
ended December 31, 1996 and 1995 and the cash flows for the six months
ended December 31, 1996 and 1995. The results of operations for the three
and six month periods ended December 31, 1996 and 1995 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 1996 Annual Report.
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):
December 31, June 30 Estimated
1996 1996 Useful Lives
------------ ------- ------------
Revenue equipment $ -- $ 3,834 5 to 7 years
Service cars -- 11 5 years
Furniture and office equipment 142 505 4 to 5 years
Leasehold improvements 69 137 Lease term
Machinery and equipment -- 29 5 years
------------ -------
211 4,516
Less accumulated depreciation
and amortization 84 936
------------ -------
$ 127 $ 3,580
------------ -------
------------ -------
9
COUNTRY WIDE TRANSPORT SERVICES, INC.
and Consolidated Subsidiary Companies
Notes to Condensed Consolidated Financial Statements
(Unaudited)
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following (000
omitted):
December 31, June 30
1996 1996
------------ ---------
Accounts payable $ 597 $ 1,390
Accrued insurance 664 469
Accrued purchased transportation 4,049 2,766
Other accrued expenses 137 959
------------ ---------
$ 5,447 $ 5,584
------------ ---------
------------ ---------
5. DISCONTINUED OPERATIONS
Having experienced significant losses in the produce sales segment, the
Company's Board of Directors decided on June 26, 1995 to discontinue the
entire segment through an orderly liquidation process which they estimated
would occur over the subsequent two month period. Immediately thereafter,
the Company commenced to close operations and on September 18, 1995 made a
General Assignment of all assets of its subsidiary, Nationwide Produce Co.,
for the pro rata benefit of all creditors of the subsidiary. Revenues
applicable to the discontinued product sales segment were approximately
$52,953,000, $22,723,000 and $20,053,000 for the years ended June 30, 1995,
1994, and 1993, respectively.
During the six months ended December 31, 1995, the Company recognized a net
gain to the extent of unpaid liabilities of Nationwide Produce Co. (not
guaranteed or assumed by the Company) in excess of assets and operating
losses from July 1, 1995 to date of liquidation amounting to $4,000,000
before income tax.
6. DISCONTINUED SUBSIDIARY
Having experienced significant losses in it's long-haul trucking operation,
the Company's Board of Directors decided on December 20, 1996 to
discontinued it's subsidiary, CW Truck, through an orderly liquidation
process.
On January 3, 1997, the Company made a General Assignment of all assets of
CW Truck for the pro rata benefit of all the creditors. In conjunction
with the General Assignment, the Company, on December 31, 1996, sold all of
its rolling stock assets for the outstanding debt on the equipment.
Revenues applicable to the discontinued subsidiary were approximately
$22,700,000, $29,100,000 and $29,000,000 for the years ended June 30, 1996,
1995 and 1994, respectively. Revenues applicable to the discontinued
subsidiary for the six months ended December 31, 1996 and 1995 were
$7,587,000 and $12,262,000, respectively.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net loss from continuing operations for the quarter and six months ended
December 31, 1996 amounted to $4,197,000 and $4,293,000 respectively compared to
net losses of $475,000 and $669,000 for the prior year periods. The increased
losses was primarily due to write offs and accruals associated with the
Company's discontinuance of it's subsidiary CW Truck and a reduction in
produce-related temperature-controlled freight in the California market area
during the three month period ended December 31, 1996. The Company's remaining
operation, Vertex Transportation, Inc., had net income before taxes of
approximately $143,000 and $382,000 for the three and six month periods ended
December 31, 1996 as compared to net income before taxes of $325,000 and
$596,000 for the comparable prior year periods.
Second quarter operating revenue decreased 19.3% to $10,041,000 from $12,449,000
for the second quarter of the previous fiscal year. The decrease reflects a
reduction in the Company's tractor fleet from 177 units at December 31, 1995 to
95 units up until December 31, 1996, at which time the units were sold, which
resulted in a decrease of loaded miles from 5,500,000 to 3,205,000 for the
period. The reduction in the number of units reflected the Company's efforts to
downsize the operation by concentrating it's freight lanes. Operating revenue in
the transportation logistics operation decreased $324,000 to $7,589,000 for the
second quarter ended December 31, 1996 from the comparable 1995 period. The
Company's remaining logistics operation, Vertex Transportation, Inc., increased
sales $100,000 to $7,589,000 from $7,489,000 for the comparable prior year
period.
During the six month period ended December 31, 1996, demand for the Company's
temperature-controlled truckload services weakened due to reduced availability
of produce-related freight while pricing remained relatively consistent with the
prior period. Operating revenue decreased 18.9% for the six month period ended
December 31, 1996 to $20,588,000 from $25,399,000 for the prior period,
reflecting a decrease in loaded miles for the truckload operation from
11,499,000 to 6,986,000 for the period.
Operating costs for the three month period ending December 31, 1996 increased
by $763,000 and decreased $1,794,000 for the six months ended December 31, 1996
from the prior year periods, respectively. As a percentage of sales, operating
costs for the three and six month periods ending December 31, 1996 increased
32.3% and 15.1% from the prior year periods, respectively. The increase is
primarily attributable a $2,028,000 write of goodwill, a $659,000 cargo claim
liability, and a 3% percentage of sales increase in the cost of purchased
transportation during the three month period ended December 31, 1996. as
compared to the prior year period.
Loss on sale of assets for the three and six month periods ending December 31,
1996 was $429,000 and $406,000 as compared to a gain of $120,000 and $141,000
for the comparable prior year periods. The loss reflects a loss of $449,000
associated with the sale of the revenue generating assets and the lease
abandonment of Country Wide Truck Service, Inc. in conjunction with the General
Assignment.
Having experienced significant losses in the produce segment, the Company's
board of Directors decided on June 26, 1995 to wind down and discontinue the
entire product sales segment through an orderly liquidation which was estimated
to occur over the subsequent two month period. Immediately thereafter, the
Company commenced to close the operations and on September 18, 1995 made a
General Assignment of all assets of its subsidiary, Nationwide Produce Co., for
the pro rata benefit of all creditors of the subsidiary. During the three and
six months ended December 31, 1995, the Company's product sales segment
generated a net loss of $33,000 and $795,000, respectively. Results of operation
for the product sales segment have been classified as discontinued operations in
the Company's financial statements for all periods presented.
During the six months ended December 31, 1995, the Company recognized a net gain
to the extent of unpaid liabilities of Nationwide Produce Co. (not guaranteed or
assumed by the Company) in excess of assets and operating losses from July 1,
1995 to the date of liquidation amounting to $4,000,000 before income tax.
11
Having experienced significant losses in it's long-haul trucking operation, the
Company's Board of Directors decided on December 20, 1996 to discontinued it's
subsidiary, CW Truck, through an orderly liquidation process. On January 3,
1997, the Company made a General Assignment of all assets of CW Truck for the
pro rata benefit of all the creditors. In conjunction with the General
Assignment, the Company, on December 31, 1996, sold all of its rolling stock
assets for the outstanding debt on the equipment. Revenues applicable to the
discontinued subsidiary for the six months ended December 31, 1996 and 1995 were
$7,587,000 and $12,262,000, respectively. During the three and six month periods
ended December 31, 1996 CW Truck generated a net loss of $4,230,000 and
$4,442,000, respectively. Results of operation for CW Truck have been classified
as continuing operations in the Company's financial statements for all periods
presented.
LIQUIDITY AND CAPITAL RESOURCES
Pursuant to a loan agreement with a commercial bank dated June 30, 1996 the
Company utilizes a credit facility which provides for maximum borrowings of
$3,700,000. Borrowings are limited to 80% of eligible accounts receivable and at
December 31, 1996 the outstanding indebtedness under the credit facility was
$2,496,000 and is classified as a current liability in the Company's financial
statements. The agreement bears interest at the banks prime rate plus 3% and
expires on February 28, 1997. At December 31, 1996 the Company was in violation
of certain covenants of the agreement and management is negotiating with the
bank for an extension and has also commenced negotiations with other lending
institutions in order to put alternative financing in place upon expiration of
the extension agreement with it's current lender. At December 31, 1996 the
Company's subsidiary CW Truck facility had an outstanding indebtedness to the
bank of $724,000 bearing interest at the banks prime rate plus 3% which is
cross-guaranteed and cross-collateralized by the Company's logistical
transportation subsidiary, Vertex which will assume the remaining debt, if any,
after the assets of CW Truck. are liquidated by the trustee. The bank has
reserved $100,000 of the amount of the obligation against Vertex's credit
facility, which the Company feels should not have an material adverse affect on
its financial position or continuing operations. On February 21, 1996 the bank
was fully paid on it's obligation by the trustee for CW Truck.
The loan covenant violations, combined with the inability of the Company to
obtain waivers and restated covenants for future periods, along with losses from
operations and negative working capital at June 30, 1996 caused the Company's
independent auditors to question the Company's ability to continue as a going
concern.
At December 31, 1996, the Company's ratio of current assets to current
liabilities and its debt to equity were 0.5:1 and (3.8).1 respectively, as
compared to 0.6:1 and 6.7:1 respectively at June 30, 1996.
The Company ended the December 31, 1996 period with $5,000 of cash and negative
working capital of $4,070,000. Based upon the Company's expected cash flow from
operations and funds available under existing or substitute credit facilities,
management believes that the Company's capital resources are sufficient to meet
its presently anticipated operating needs. However, should these sources prove
inadequate or unavailable, the Company may be required to seek financing through
capital investment.
EFFECTS OF INFLATION
Inflation can be expected to have an impact on the Company's operating costs. A
prolonged period of inflation would cause interest rates, fuel costs and other
operating costs to increase and would adversely affect the Company's results of
operation unless freight rates could be increased. The effect of inflation has
been minimal over the previous three years.
SEASONALITY
In the transportation industry generally, results of operations show a seasonal
pattern because customers reduce shipments during or after the winter holiday
season and because weather variations during winter months. The Company's
operating expenses have been historically higher in the winter months primarily
due to decreased fuel efficiency and increased maintenance costs in colder
weather.
12
COUNTRY WIDE TRANSPORT SERVICES, INC.
and Consolidated Subsidiary Companies
Part II. Other Information
ITEM 1. LEGAL PROCEEDINGS
During the month of September 1995 the Company's transportation
subsidiary, CW Truck, had a cargo claim that approximated $600,000
filed against it by one of it's customers. The insurance carrier
citing certain exceptions in the cargo policy declined to pay the
claim and referred the issue to litigation on February 27, 1996. The
Company initiated legal action against the issuance carrier and its
agent. The customer additionally filed a cross claim against the
Company. Management has fully reserved this claim in it's financial
statements at December 31, 1996.
ITEM 5. OTHER INFORMATION
During the quarter ended June 30, 1995, the Company discontinued it's
product sales segment which was operated by the Company's Wholly owned
subsidiary, Nationwide Produce Co. since July 1992 when the Company
acquired all of the outstanding stock of Nationwide from Martrade,
Ltd. The Company's discontinuance of the product sales segment
culminated in the filing of a General Assignment during September 1995
of all assets of Nationwide Produce Co. for the pro rata benefit of
all creditors of the subsidiary.
During the quarter ended December 31, 1996 the Company discontinued
all operations relating to it's wholly owned subsidiary, CW Truck. On
January 3, 1997 the Company made a General Assignment of all the
assets of CW Truck for the pro rata benefit of all creditors of the
subsidiary. In conjunction with the General Assignment the Company,
on December 31, 1996, sold all the rolling stock assets of the company
for all the outstanding debt on the equipment.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None.
(b) Reports on Form 8-K:
1. Report dated September 23, 1996 regarding the letter of
intent for the acquisition of the Company by Continental
American Transport, Inc.
2. Report dated January 3, 1997 regarding the General
Assignment of CW Truck and change of corporate address.
13
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 its behalf by the
undersigned thereunto duly authorized.
COUNTRY WIDE TRANSPORT SERVICES, INC.
-------------------------------------
Registrant
DATED: February 24, 1996 S/TIMOTHY LEPPER
-------------------------------------
Timothy Lepper
President and Chief Financial Officer
14