EXHIBIT 99.2
CONWELL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
December 31, 1998 and 1997
1998 1997
---- ----
Money market fund $ 24,880 $ 3,405
Frozen Food Express Industries, Inc.
common stock 818,370 1,013,670
Due from related trust 97,283 100,091
Receivable from employer -- 16
Other receivables 159 --
-------- ----------
Total assets 940,692 1,117,182
Less:
Benefits payable 196,792 274,614
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Net assets available for plan benefits $743,900 $ 842,568
======== ==========
See accompanying notes and report of independent public accountants.
130
CONWELL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
---- ---- ----
Investment income:
Dividend income $ 13,096 $ 15,072 $ 14,324
Interest income 593 1,678 1,759
--------- ---------- ----------
Net investment income 13,689 16,750 16,083
Net unrealized (depreciation)
Appreciation in market value of
Investments (122,284) (16,495) 12,757
Realized (loss) gain on sale of stock (11,212) 1,436 99
Total (reductions) additions (119,807) 1,691 28,939
Increase (decrease) in fair market
value
Of plan benefits payable to
Participants 21,139 (125,881) (108,539)
--------- ---------- ----------
Net decrease (98,668) (124,190) (79,600)
Net assets available for plan
benefits at beginning of year 842,568 966,758 1,046,358
--------- ---------- ----------
Net assets available for plan
benefits at end of year $ 743,900 $ 842,568 $ 966,758
========= ========== ==========
See accompanying notes and report of independent public accountants.
131
CONWELL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. Description of the Plan
-----------------------
The Conwell Corporation Employee Stock Ownership Plan (the "Conwell Plan") is
a defined contribution plan designed to provide retirement income to
employees of Conwell Corporation (the "Employer") in compliance with the
Employee Retirement Income Security Act of 1974 ("ERISA"). The Conwell Plan
is designed to invest primarily in stock of Frozen Food Express Industries,
Inc. ("FFEX"), the parent corporation of the Employer. Participants should
refer to the Conwell Plan agreement for a more complete description of the
Conwell Plan's provisions.
Contributions - Contributions by the Employer are at the discretion of its
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Board of Directors. No participant shall be required or permitted to make
contributions.
Eligibility - Employees become eligible for participation in the Conwell
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Plan as of the first entry date, as defined, concurrent with or next
following the employees' completion of 1,000 hours of service.
Benefits and vesting - Participants are entitled to vested benefits upon
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attainment of normal retirement age, early retirement age, disability, or
other termination of employment, whether voluntary or involuntary.
Participants' beneficiaries are entitled to benefits if the participant was
vested at the time of death. Participants' benefits from company
contributions begin to vest subsequent to completion of three years of
credited service and vest 100% at completion of seven years of credited
service, as defined by the Conwell Plan.
Participants' accounts - A separate account is maintained for each
----------------------
participant. If no restrictions apply, the participant's account is adjusted
annually for the participant's allocable share of employer contributions,
earnings on employer contributions, plan forfeitures, realized and unrealized
gains and losses, and any amounts distributed to the participant or
participant's beneficiary from such account. Allocation of employer
contributions and plan forfeitures are based on annual compensation. Conwell
Plan earnings are allocated based on participants' account balances.
Administration - The Conwell Plan is administered by a committee appointed by
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the Board of Directors of FFEX. Administrative expenses not paid by the
Employer are paid by the Conwell Plan.
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Termination of the Plan - Although no Employer contributions were made during
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the year ended December 31, 1998, the Employer has not expressed any intent
to permanently discontinue its contributions. The Conwell Plan provides that
the Employer may suspend, terminate, or completely discontinue contributions.
In the event the Conwell Plan is terminated or contributions are permanently
discontinued:
(a) ERISA provides that each participant's interest in the trust becomes
fully vested.
(b) The Conwell Plan provides that the net assets of the Conwell Plan shall
be allocated among the participants and beneficiaries of the Conwell Plan
as provided by ERISA.
Tax status - The United States Treasury Department has advised that the
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Conwell Plan constitutes a qualified trust under Section 401(a) of the
Internal Revenue Code (the "Code") and is therefore exempt from federal
income tax under provisions of Section 501(a) of the Code. Employer
contributions and plan earnings are not includable in the participant's
taxable income until such amounts are distributed to the participant or to
the participant's beneficiary.
2. Summary of significant accounting policies
------------------------------------------
Basis of accounting - The financial statements of the Conwell Plan are under
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the accrual method of accounting.
Accounting estimates - The preparation of financial statements in conformity
--------------------
with generally accepted accounting principles requires the Conwell Plan
Committee to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue
and expenses during the reported period. Actual outcomes may vary from these
estimates.
Valuation of investments - Investment in FFEX common stock, consisting of
------------------------
103,920 and 112,630 shares at December 31, 1998 and 1997, respectively, is
valued at the quoted market price on the last day of the year.
133
3. Net unrealized (depreciation) appreciation in market value of investments
-------------------------------------------------------------------------
The 1998, 1997 and 1996 net unrealized depreciation in market value of
investments was determined as follows:
For the Year Ended
----------------------------------------
1998 1997 1996
---------- ---------- ----------
Investment at market $ 818,370 $1,013,670 $1,181,592
Investment at cost (605,479) (678,495) (829,921)
---------- ---------- ----------
Unrealized appreciation at end of year 212,891 335,175 351,671
Unrealized appreciation at
beginning of year (335,175) (351,670) (338,914)
---------- ---------- ----------
Net unrealized (depreciation)
appreciation in market value
of investments during the year $ (122,284) $ (16,495) $ 12,757
========== ========== ==========
4. Trust Agreement
---------------
As of 12/31/98 pursuant to a trust agreement, Chase Bank of Texas, N.A. held
all investment assets of the Conwell Plan and executed all transactions
therein.
134
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
The Administrative Committee of the Conwell Corporation
Employee Stock Ownership Plan:
We have audited the accompanying statements of net assets available for plan
benefits of the Conwell Corporation Employee Stock Ownership Plan (the "Plan")
as of December 31, 1998 and 1997, and the related statements of changes in net
assets available for plan benefits for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Plan's management. Our responsibility is to express an opinion on these
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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of the Conwell
Corporation Employee Stock Ownership Plan, as of December 31, 1998 and 1997, and
the changes in net assets available for plan benefits for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules on the
following pages are presented for the purpose of additional analysis and are not
a required part of the basic financial statements but are supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. The supplemental schedules on the following pages have been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, are fairly stated in all material respects in relation to
the basic financial statements taken as a whole.
/s/ Waters, Murray & Associates
June 28, 1999
135
CONWELL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
ITEM 27a - SCHEDULE OF ASSETS HELD
FOR INVESTMENT PURPOSES
December 31, 1998
(a) (b) Identity of Issue (c) Description of Investment (d) Cost (e) Current Value
----------------- ------------------------- -------- -------------
Texas Commerce Bank, NA Money Market Fund $ 24,880 $ 24,880
* FFEX 103,920 shares common stock $605,479 $ 818,370
* Party-in-interest to the plan.
137
CONWELL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
ITEM 27a - SCHEDULE OF ASSETS ACQUIRED AND SOLD
December 31, 1998
(a) Identity of Issue (b) Description of Investment (c) Cost (d) Proceeds
----------------- ------------------------- ------- --------
FFEX *6,842 shares common stock $73,943 $ 62,901
* These are total shares sold within the plan year, not necessarily just those
shares acquired and disposed within the plan year.
All other investment assets which were both acquired and disposed of during
the plan year were interests issued by money market funds. Therefore, these
transactions are excluded from this schedule in accordance with the Specific
Instructions for Form 5500.
138
CONWELL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
Years Ended December 31, 1998 and 1997
Purchases
------------------------------
Shares/ Market
Identity of Party Involved Description Units Cost Value
- --------------------------- ----------------------- -------------- -------------- --------------
1998
- ----
None N/A N/A N/A N/A
1997
- ----
FFEX N/A N/A N/A N/A
139