SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20540
FORM 10-K
|X| Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended June 30, 1999
Commission File No. 0-23360
COUNTRY WIDE TRANSPORT SERVICES, INC.
-------------------------------------
(Name of Registrant as specified in its charter)
Delaware 95-4105996
-------- ----------
(State or Other Jurisdiction (I.R.S. Employer
of Organization) identification No.)
119 Despatch Drive, East Rochester, N.Y. 14445
---------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (716) 381-5470
--------------
Securities registered pursuant to Name of Each Exchange
Section 12(b) of the Exchange Act: on Which Registered
None -------------------
None
Securities registered pursuant to Section 12(g) of the Exchange Act (The Company
has filed a Form 15 for termination of Section 12(g)):
Title of Each Class
-------------------
Common Stock, $.10
Indicate by check whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (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 ninety (90) days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers, pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K or any
amendment to this Form 10-K |_|
As of September 17, 1999 there were 5,098,100 shares of the Company's
Common Stock, $.10 par value, outstanding. The aggregate market value of the
voting stock held by non-affiliates of the registrant on September 17, 1999 was
$546,105.
Documents incorporated by reference:
Annual Proxy Statement dated July 30, 1999
PART I
ITEM 1. BUSINESS
Introduction
Country Wide Transport Services, Inc. (the "Company") was a non-asset
based, full service domestic freight forwarder. Operating entirely through its
wholly-owned subsidiary, Vertex Transportation, Inc. ("Vertex"), the Company
provided customers with a complete range of transportation services, including
truckload, less-than-truckload (LTL), consolidation and distribution, logistics
management, intermodal, and international.
On June 21, 1999, the Company entered into an Asset Purchase Agreement with C.H
Robinson Company to sell substantially all of the assets of Vertex. On July 30,
1999, the stockholders of the Company approved the sale as well as a Plan of
Liquidation and Dissolution to be implemented subsequent to the sale. The Plan
of Liquidation and Dissolution is contained in the Company's annual proxy
statement dated July 30, 1999, and hereby incorporated by reference. As a
result, the Company is a liquidating, non-operating entity. For further details
see "Discontinued Operations" below in this Item 1.
Forward Looking Information
This Annual Report on Form 10-K and the documents incorporated herein by
reference contain certain "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which represent the Company's expectations or
beliefs, including, but not limited to, statements concerning industry
performance, the Company's operations, performance, financial condition, growth
and acquisition strategies, margins and growth in sales of the Company's
products. For this purpose, any statements contained in this Annual Report on
Form 10-K that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the generality of the foregoing,
words such as "may," "will," "expect," "believe," "anticipate," "intend,"
"could," "estimate" or "continue" or the negative or other variations thereof or
comparable terminology are intended to identify forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
certain of which are beyond the Company's control, and actual results may differ
materially depending on a variety of important factors, including those
described under the "Risk Factors" section below in this Item 1 and elsewhere in
this Annual Report on Form 10-K and the documents incorporated herein by
reference.
Business History and Developments
Country Wide Transport Services, Inc. ("CWTS") was incorporated in the
State of Delaware in 1987. As of June 30, 1999, the Company had discontinued all
of its operating segments.
Through its wholly owned subsidiary, Vertex Transportation, Inc.
("Vertex"), the Company operated a full service logistics company which provides
truckload, less-than truckload (LTL), intermodal, and international
transportation services. In June 1999, the entered into an Asset Purchase
Agreement to sell substantially all of Vertex's assets.
2
Through its wholly owned subsidiary, Country Wide Truck Service, Inc. ("CW
Truck"), an irregular-route, truckload common and contract carrier, the Company
transported a wide variety of commodities requiring temperature control
throughout the continental United States and Canada. Effective December 31,
1996, the Company discontinued CW Truck through an orderly liquidation process
as a result of significant losses within the subsidiary.
Discontinued Operations
CW Truck - Having experienced significant losses in CW Truck, the
Company's Board of Directors decided to discontinue the subsidiary through an
orderly liquidation. The Company closed the operations effective December 31,
1996 and made a General Assignment of all assets of its subsidiary, CW Truck,
for the pro rata benefit of all creditors of the subsidiary. At the date of the
assignment, CW Truck had liabilities in excess of assets in the amount of
$1,347,000. Included in this balance was $404,000, which CWTS believed it would
have to assume. As a result during the fiscal year ended June 30, 1997, the
Company realized a net gain to the extent of unpaid liabilities (not guaranteed
or accrued by CWTS) in excess of assets in the amount of $898,000.
Vertex - On June 21, 1999, the Company entered into an Asset Purchase
Agreement with C.H Robinson Company whereby the Company sold substantially all
of the assets of Vertex to C.H. Robinson Company for a purchase price equal to
the sum of (a) the tangible net book value of the assets acquired less the net
book value of the liabilities and obligations assumed, (b) cash of $6,500,000,
and (c) an earn-out equal to 50% of Vertex's Adjusted Pre-Tax Income for the
first twelve months following the Closing Date over $1,000,000, up to a maximum
payment of $500,000. The sale was approved by the stockholders at the annual
stockholders meeting on July 30, 1999 and closed on August 2, 1999 resulting in
a net gain of approximately $4,100,000.
On July 30,1999, the stockholders of the Company also approved a Plan of
Liquidation and Dissolution to be implemented subsequent to the sale of the
operating assets of Vertex. Pursuant to the Plan and after the payment of or
provision for the payment of liabilities, the Company will distribute all of its
remaining assets to its stockholders through cash distributions. If all of the
Company's assets are not sold or distributed prior to the second anniversary of
the approval of the Plan, the remaining assets not sold or distributed will be
transferred to a liquidating trust. On September 30, 1999, the Company made an
initial distribution of $3,039,485 or $0.60 per share.
Risk Factors
Outstanding Company Guarantee. In connection with the discontinuance of CW
Truck in December 1996, CW Truck sold its rolling stock to Mid-Cal Express,
Inc., a wholly owned subsidiary of U.S. Trucking, Inc., for the assumption of
the related equipment leases and notes payable. As part of that transaction the
creditors required that the Company guarantee these leases and notes. At June
30, 1999, the remaining balance on these obligations was approximately
$2,861,000. U.S. Trucking, Inc. reported net income of $122,000 for the year
ended December 31, 1998 and $314,000 for the six months ended June 30, 1999.
While the Company's management believes that U.S. Trucking, Inc., will be able
to meet its obligations on those notes and leases, there can be no assurance
that it will be able to do so, nor can there be any assurance that the Company
will not have to pay upon its guarantee. See Note 5 of the Company's audited
financial statements.
3
Material Dispositions of Assets. From September 1995 through July 1999 all
of the Company's subsidiaries made substantial dispositions of assets, and those
subsidiaries were liquidated. There can be no assurance that some unforeseen
liability of the liquidated subsidiaries will not affect the Company's assets or
liabilities in the future.
Liquidity and Market Price. The Company was de-listed from trading on The
Nasdaq SmallCap Market on August 13, 1996 due to its failure to maintain the
necessary equity and other criteria of The Nasdaq Stock Market. The OTC Bulletin
Board on which the Company's shares are now quoted must be viewed as having very
little liquidity, and any amount of purchasing or selling of Company shares on
that market could cause significant and abrupt price changes in the reported
market prices for the shares. The Company has filed for de-registration of its
common stock from the Securities Exchange Act of 1934 and will not be eligible
for quotation on the OTC Bulletin Board.
ITEM 2. PROPERTIES
At June 30,1999, the Company owned no rolling stock, but owned office,
computer and other equipment having a book value at approximately $197,000. The
Company leases the following facilities for the operation of Vertex
Transportation, Inc. All of these leases were assumed by C.H. Robinson in
conjunction with the sale of Vertex.
Locations Type Size Annual Rental
- --------- ---- ---- -------------
Victor, New York Warehouse 13,000 Sq. Ft $52,000
East Rochester Warehouse, Office 10,000 Sq. Ft $90,000
New York
(see Item 13. Certain Relationships and Related Transactions)
Buffalo, New York Office 400 Sq. Ft $ 2,400
ITEM 3. LEGAL PROCEEDINGS
With the closing of the trucking and transportation operations the amount
of litigation in which the Company has been involved has been substantially
reduced. The nature of the Company's business, however, results in litigation of
a derivative nature due to property damage or loss. The Company believes that
all pending litigation is adequately covered by insurance and any adverse
results in one or more of these matters will not have a material adverse effect
on its financial position.
During September 1995, the Company's transportation subsidiary, CW Truck
had a cargo loss that approximated $600,000 filed against it by one of its
customers, Eastman Kodak Company. The insurance carrier, National Union Fire
Insurance, citing certain exceptions in the cargo policy, declined to pay the
claim and referred the issue of coverage to litigation on February 27, 1996, in
New York State Supreme Court. The customer additionally filed a cross claim
against the Company. To preserve the relationship between the Company and the
customer, the Company has paid to the customer a sum of $509,000 as of June 30,
1997, and an additional $150,000 during the fiscal year ended June 30, 1998,
thereby having paid the customer in full for
4
its loss. Those payments were made out of the operating revenues of the Company.
The Company is pursuing legal action against the insurance carrier and its agent
for the collection of the $659,000. In July 1998, an Order and Judgment granting
the insurance carrier's Motion for Summary Judgment was filed. The Company has
filed an appeal for the right to proceed to trial. In addition, the claim
against the agent is still in litigation. It is management's belief that the
suit against the insurance carrier will be successful and will reimburse the
Company for substantially all funds paid to the customer.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 30, 1999 the Company's annual meeting was held. At the meeting,
Timothy Lepper was elected to serve as a director for a three-year term. The
term of office as a director of Wayne N. Parry continues until the 2001 annual
meeting, and the term of Mark T. Boyer continues until the annual meeting to be
held in 2000.
Also at the July 30, 1999 annual meeting, the shareholders ratified the
selection of Hein + Associates LLP as the independent accountants of the
Company.
Also at the July 30, 1999 annual meeting shareholders approved the sale of
substantially all of the assets of its only operating subsidiary to the C H
Robinson Company, and adopted a Plan of Liquidation and Dissolution for the
Company as outlined in the proxy statement dated July 30, 1999.
5
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
The Company's common stock was traded on the NASDAQ Small Cap Market under
the symbol CWTS until August 1996. Having failed to meet the listing
requirements of the NASDAQ Small Cap, the Company's shares have been traded on
the OTC Bulletin Board since August 1996. The following table presents high and
low prices for the Company's common stock published by the National Quotation
Service, Inc., as well as the range of closing high and low bid prices as so
reported. The quotations represent prices in the over-the-counter-market between
dealers in securities and do not include retail markup, markdown or commissions
and do not necessarily represent actual transactions. As a result of the
Company's one for five reverse stock split, the Company's stock symbol under
which the Company's shares are traded is CWTV. This change was effective May 19,
1997. Quarterly market price information for the Company's shares of common
stock is as follows:
Quarter Ending Bid Prices Ask Prices
---------------- ----------------
High Low High Low
---- --- ---- ---
September 30, 1997 1.125 0.750 1.500 1.000
December 31, 1997 1.060 0.530 1.375 0.500
March 31, 1998 1.430 0.900 1.560 1.125
June 30, 1998 2.250 1.125 2.438 1.156
September 30, 1998 1.560 0.781 1.810 0.875
December 30, 1998 1.531 1.031 1.981 1.125
March 31, 1999 1.438 0.688 1.500 0.813
June 30, 1999 0.688 0.344 0.813 0.406
Shareholders
As of June 30, 1999, the number of shareholders of record of common stock,
excluding the number of beneficial owners whose securities are held in street
name was approximately 162.
6
Dividend Policy
Pursuant to the Plan of Liquidation and Dissolution, the Company will
effectively distribute all of its remaining assets to its stockholders through
cash distributions. On September 30, 1999, the Company made an initial
distribution of $3,039,485 or $0.60 per share.
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is selected historical financial data of the Company and should
be read in conjunction with the respective consolidated financial statements and
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere herein.
Statement of Operations
(in thousands, except per share data)
For the Year Ended June 30,
---------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- ---------
Transportation revenue $ -- $ -- $ -- $ -- $ --
------- ------- ------- ------- ---------
Loss from continuing operations (663) (517) (507) (79) (100)
Income (loss) from discontinued
operations 1,323 1,457 (4,089) (3,761) (5,311)
Extraordinary Item -- -- 898 2,370 --
------- ------- ------- ------- ---------
Net income (loss) $ 660 $ 940 $(3,698) $(1,470) $ (5,411)
======= ======= ======= ======= =========
Basic and diluted net income (loss)
per common share
Continuing operations $ (0.15) $ (0.12) $ (0.33) $ (0.08) $ (0.10)
Discontinued operations 0.30 0.34 (2.63) (3.92) (5.56)
Extraordinary item -- -- 0.58 2.47 --
------- ------- ------- ------- ---------
Basic and diluted income (loss)
per common share $ 0.15 $ 0.22 $ (2.38) $ (1.53) $ (5.66)
======= ======= ======= ======= =========
Weighted average shares
outstanding 4,346 4,248 1,556 960 955
======= ======= ======= ======= =========
7
Balance Sheet Data
(in thousands)
For the Year Ending June 30,
--------------------------------------------------------
1999 1998 1997 1996 1995
------ -------- -------- -------- --------
Cash and cash equivalents $ 138 $ 6 $ 10 $ 37 $ 57
====== ======== ======== ======== ========
Working capital (deficit) $ (461) $ 479 $ (1,168) $ (4,157) $ (1,691)
====== ======== ======== ======== ========
Property and equipment, net $ -- $ 263 $ 110 $ 3,580 $ 4,069
====== ======== ======== ======== ========
Total assets $4,486 $ 8,532 $ 6,887 $ 14,608 $ 18,910
====== ======== ======== ======== ========
Long-term debt and capital leases
excluding current portion $2,055 $ 2,514 $ 1,748 $ 2,616 $ 1,579
====== ======== ======== ======== ========
Total liabilities $2,919 $ 7,752 $ 7,047 $ 12,706 $ 15,538
====== ======== ======== ======== ========
Total stockholders equity (deficit) $1,567 $ 780 $ (160) $ 1,902 $ 3,372
====== ======== ======== ======== ========
(See Item 7 below for information on dispositions of assets which affect the
year to year comparability of the information shown above.)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion provides information and analysis of the Company's
financial condition and results of operations for the years ended June 30, 1999,
1998 and 1997. The discussion should be read in conjunction with the Company's
audited financial statements and notes thereto and "Selected Financial Data"
included elsewhere herein.
Introduction
For the fiscal years ended June 30, 1999 and 1998, the Company derived revenue
from its transportation logistics operation. When practical, the Company
realized the benefit from administrative economics of scale by utilizing
centralized credit, personnel, and accounting functions for the benefit of the
consolidated group. The following analysis of the Company's financial condition
and results of operations for the fiscal year ended June 30, 1999, 1998, and
1997, should be read in conjunction with the Consolidated Financial Statements,
related notes thereto, and other information presented elsewhere in this Form
10-K. Average balances (including such balances used in calculating financial
and performance ratios), are generally a blend of month-end averages which
management believes are representative of the operations of the Company.
8
The Company's Board of Directors approved a plan to sell essentially all of the
assets of its only operating subsidiary, Vertex Transportation, in April 1999.
On June 21, 1999, the Company entered into an asset purchase agreement with the
C H Robinson Company, whereby the Company sold substantially all of the assets
of Vertex to the C H Robinson Company for a purchase price equal to the sum of
(a) the tangible net stock value of the assets acquired less the net book value
of the liabilities and obligations assumed, (b) cash of $6,500,000 and (c) and
earn-out equal to 50% of Vertex's adjusted pre-tax income over $1,000,000 for
the first twelve months following the closing date up to a maximum earn-out
payment of $500,000. The sale closed on August 2, 1999 resulting in a net gain
of approximately $4,100,000.
On July 30, 1999, the stockholders of the Company approved a Plan of Liquidation
and Dissolution to be implemented subsequent to the sale of the operating assets
of Vertex. Pursuant to the plan and after payment of or provision for the
payment of liabilities, the Company will be liquidated and the remaining assets
will be distributed to the Company's stockholders through cash distribution.
RESULTS OF OPERATIONS
Financial Information For The
Years Ended June 30, 1999 and 1998
Operating costs and expenses for the year ended June 30, 1999 increased 48.0% to
$475,000 from $321,000 for the year ended June 30, 1998. This increase is
primarily due to legal, accounting and other professional fees incurred in the
sale of substantially all of the assets of Vertex.
Loss from continuing operations for the year ended June 30, 1999 was $663,000
compared to $517,000 for the year ended June 30, 1998. This increase in loss is
primarily due to an increase in operating costs and expenses as described above.
Financial Information For The
Years Ended June 30, 1998 and 1997
Operating costs and expense for the year ended June 30, 1998 decreased 13.9% to
$321,000 from $373,000 for the year ended June 30, 1997. This decrease is
primarily due to a decrease in officer's salaries.
Interest expense for the year ended June 30, 1999 increased 51.5% to $197,000
from $130,000 for the year ended June 30, 1997. This increase is the result of
the Company obtaining a revolving credit line in April 1997.
Loss from continuing operations for the year ended June 30, 1998 was $517,000
compared to $507,000 for the year ended June 30, 1997. The increase is the
result of an increase in interest expense offset by a decrease in officer's
salaries.
Liquidity and Capital Resources
Pursuant to a loan agreement with a commercial bank dated the 30th day of April,
1997, as amended in March 1999, the Company utilizes a credit facility, which
provides for a maximum outstanding borrowing of $4
9
million. The agreement bears interest at a banks reference rate plus 1 1/2%.
This indebtedness was paid off on August 2, 1999 with the proceeds from the sale
of Vertex.
On July 30, 1999, the stockholders of the Company approved a plan of liquidation
and dissolution to be implemented subsequent to the sale of Vertex. Pursuant to
the plan, the Company will be liquidated and the remaining assets will be
distributed to the Company's stockholders through cash distribution. The Company
made on initial distribution of $3,039,485 on September 30, 1999.
The Company utilized $557,000 of cash flow from continuing operations and
provided $1,063,000 of cash flow from discontinued operations during the year
ended June 30, 1999. The Company utilized $42,000 to acquire property and
equipment. Net cash used in financing activities was $332,000. The Company
utilized $36,401,000 to reduce their revolving line-of-credit, which was offset
by additional borrowings of $35,942,000. The Company generated $127,000 from the
exercise of stock options by two directors. As of June 30, 1999 the Company had
total debt of $2,919,000. The Company's ratio of current assets to current
liabilities and its debt to equity were 5.2:1 and 1.9:1 respectively as compared
to 1.09:1 and 9.9:1 as of June 30, 1998.
Impact of Recently Issued Financial Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (FASB133), "Accounting for Derivative
Instruments and Hedging Activities." This statement is effective for fiscal
years beginning after June 15, 1999. However, in July 1999, FASB137 was issued
delaying the effective date of FASB133 for one year, to fiscal years beginning
after June 15, 2000. FASB133 requires that an entity recognize all derivatives
as assets or liabilities in the statement of financial position and measure
their instruments at fair value. The Company does not believe the adoption of
FASB133 will have a material impact on assets, liabilities, or equity. The
Company has not yet determined the impact of FASB133 on the income statement or
the impact on comprehensive income.
FASB132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits" and FASB134, "Accounting for Mortgage-Backed Securities Retained after
the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise" were issued in 1998. SFAS No. 135, "Rescission of FASB Statement No.
75 and Technical Corrections" and SFAS No. 136, "Transfers of Assets to a
Not-for-Profit Organization or Charitable Trust That Raises or Holds
Contributions for Others" were issued in 1999. These pronouncements are not
expected to impact the Company regarding future financial statement disclosures,
results of operations, or financial position.
Inflation
The Company does not believe that inflation will have a material impact on
future operations.
Year 2000 Issues
Pursuant to the Asset Purchase Agreement with C.H. Robinson, the Company sold
all of its hardware and software to C.H. Robinson. The Company has represented
to C.H. Robinson that the software and hardware transferred to them is Year 2000
Compliant, including date century recognition, calculations which accommodate
same century and multi-century formulas and date values that reflect the
century. During the summer of 1999, the Company completed its Year 2000 analysis
and the independent developer of the
10
Company's customized software system advised the Company that the system,
including computer firmware, is Year 2000 compliant. In addition, the Company
has represented to C.H. Robinson, that to the best of its knowledge, the ability
of its significant suppliers, customers, carriers and others with which it
conducts business to identify and resolve their own Year 2000 issues will not
have a material impact on the Business. The Company believes that any remaining
Year 2000 issues relating to the liquidation and dissolution of the Company will
have a minimal impact on the Company.
Forward Looking Information
See Item 1. Business above in this annual report on form 10-K for important
comments about forward looking information contained in this annual report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 (a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OR ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names and ages of all directors and executive
officers of the Company, all positions and offices with the Company held by each
person, each person's term of office as a Director and their business experience
for each of the past five years.
Name Age Position
- ---- --- --------
Timothy Lepper 51 Chairman, Chief Executive Officer, and President -
of the Company
Wayne N. Parry 48 Director, Secretary of the Company
President, Vertex Transportation, Inc.
(subsidiary of the Company)
Mark T. Boyer 42 Director
On July 30, 1999 the Company's annual meeting was held. At the meeting,
Timothy Lepper was elected to serve as a director for a three-year term. The
term of office as a director of Wayne N. Parry continues until the 2001 annual
meeting, and the term of Mark T. Boyer continues until the annual meeting to be
held in 2000.
Set forth below is certain information with respect to the directors, executive
officers and key employees of the Company.
Timothy Lepper - Chairman, Chief Executive Officer and President - Country Wide
Transport Service, Inc. graduated in 1973 from Brockport State College. From
1971-1974 he was employed as a salesman for REA Express and later promoted to
District Sales Manager, Rochester and Buffalo, NY. From 1974-1978 he was
employed by Time D.C. as Terminal Manager in Rochester and Buffalo, NY. In 1978,
Mr. Lepper was Terminal Manager for Transcon Lines, Rochester, NY. In 1978 he
co-founded Vertex Transportation, Inc. Mr. Lepper served as President of Vertex
from 1978 until its acquisition by CW Truck on July 1, 1994. Effective July 1,
1994 Mr. Lepper was appointed to the post of President of Country Wide Truck
Service, Inc. until September 1995 when he was appointed President and CEO of
Country Wide Transport Services, Inc.
Wayne N. Parry - Director and President of Vertex Transportation (a subsidiary
of the Company) graduated in 1973 cum laude from Niagara University with a B.S.
in Transportation. In 1973 he joined the management training program at Red Star
Express Lines, Buffalo, NY and became Customer Service Manager. In 1975 he was
employed with Mobil Chemical Company, Macedon, NY as a Transportation Manager
and in 1977 was promoted to Customer Service/Distribution Manager. In 1978 he
co-founded Vertex Transportation Inc. Mr. Parry served as Vice President and
Secretary of Vertex from 1978 until its acquisition by CW Truck on July 1, 1994.
Since this date Mr. Parry has served as President of Vertex.
12
Mark Boyer - Director, has spent the majority of his working career in the
investment business. Since July, 1992, Mr. Boyer has been the president and a
director of ROI Capital Management. During the preceding year, Mr. Boyer managed
his personal securities portfolio. From February 1988 to July 1991, he was
general partner and portfolio manager with Volpe, Welty & Company, in San
Francisco, California, and from May 1982 to February 1988, he was an analyst and
fund manager with Fidelity Management Research, Inc., in Boston, Massachusetts.
Mr. Boyer received his BA degree, magna cum laude, in finance, accounting, and
computer sciences from American University in 1980 and his MBA degree in finance
and accounting from Columbia University in 1982.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth base compensation paid to the Chief Executive
Officer and the Executive Officers of the Company and its subsidiaries for
services rendered to the Company and its subsidiaries during the fiscal year
ended June 30, 1996, whose total cash compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
Fiscal
Name and Principal Position Year Salary Bonus Compensation
- --------------------------- ---- ------ ----- ------------
Timothy Lepper(1)(2) 1997 $201,930 - -
President CEO 1998 $156,697 - -
1999 $163,020 - -
Wayne N. Parry(1)(2) 1997 $201,930 - -
President - Vertex 1998 $156,697 - -
Transportation 1999 $163,020
(1) Aggregate value of perquisites and other personal benefits was less than 10%
of total salary and bonus.
(2) As discussed under Item 13 of this Annual Report on Form 10-K, Messrs.
Lepper and Parry are the partners of the partnership that is the Company's
landlord at its offices at 119 Despatch Drive, East Rochester, New York, for
which a total rent of $90,000 was paid by the Company during the fiscal year
ended June 30, 1998.
The officers participate in ordinary employee benefits made available to the
Company's other employees. Except for participation in the Company's 401(k)
retirement savings plan, the Company does not have any retirement program for
officers or other employees.
Director Compensation
The Company's Board of Directors presently consists of three members. Two
directors hold salaried positions with the Company and receive no additional
compensation. Outside Directors receive $500.00 per meeting.
13
Stock Options
During the fiscal year ended June 30, 1999, no options were granted to officers
or directors of the Company and 850,000 options held by two directors and
officers were exercised.
Benefit Plans
Effective April 1, 1993, the Company adopted a Deferred Compensation 401K Plan
(the "Plan") covering all full-time employees of itself and its subsidiaries. To
be eligible to participate in the plan, employees, with the exception of
drivers, must have been employed by the Company for 90 days; drivers are
eligible to participate following one year of service. Employees involved in the
Plan may contribute up to 20% of their compensations, on a pre-tax basis,
subject to statutory and Internal Revenue Service guidelines. Contributions to
the Plan are invested at the direction of the participant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of June 30, 1999 by (i) each director of the
Company, (ii) each person nominated to become a director of the Company, (iii)
each of the executive officers named in the Summary Compensation Table above,
(iv) all directors and executive officers of the Company as a group, and (v)
each person known by the Company to own beneficially more than five (5%) percent
of the Common Stock.
Amount and
Title of Class Name and Address of Nature of
Percent of Class Beneficial Ownership Beneficial Ownership
- ---------------- -------------------- ---------- ---------
Common Timothy Lepper 521,960 10.23%
18 Kilkenny Court
Fairport, NY 14450
Common Wayne N. Parry 499,400 9.79%
27 Fall Meadow Dr.
Pittsford, NY 14534
Common Mark Boyer 665,500 (1) 13.25%
o/o ROI Partners
17 East Francis Drake, Suite 225
Larkspur, CA 94939
Common Special Situation Funds 1,593,000 (2) 31.25%
153 East 53rd Street
New York, NY 10022
Common Salcott Holding Limited 570,000 11.18%
o/o Arabella privatim Finance Ag
Waldmann Strasse 6
14
Zurich, Switzerland CH-8024
Common All Directors and Officers as a 1,686,860(1)(2) 33.09%
group (3 individuals)
(1) 578,000 of the shares attributed to Mr. Boyer are owned by ROI Partners,
ROI & Lane L.P. or accounts controlled by ROI Partners. Mr. Boyer is a
general partner of ROI Partners.
(2) Stock owned by Special Situation Funds is held in three specific funds:
Special Situations Cayman Fund L.P. Special
Situations Private Equity Fund L.P.
Special Situations Fund III, L.P.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a brief description of each transaction, or series of similar
transactions, since the beginning of the Company's fiscal year ended June 30,
1999, or any currently proposed transaction, or series of similar transactions,
to which the Company or its subsidiary, Vertex, was or is to be a party, in
which the amount involved exceeds $60,000 and in which any of the following
persons had, or will have, a direct or indirect material interest: any director
or executive officer of the Company, any nominee for election as a director, any
security holder who is known to the Company to own of record or beneficially
more than 5% of the Company's Common Stock, and any member of the immediate
family of any of the foregoing persons.
As of July 1, 1994 CW Truck, a former subsidiary of the Company (see Item 1 of
this Annual Report on Form 10-K) entered into a five year lease of office space
and warehouse facilities in East Rochester, NY with Vertex Investment Partners,
a partnership whose partners are Timothy Lepper (now the President and Chief
Executive Officer of the Company) and Wayne N. Parry (now the President of the
Company's subsidiary, Vertex). The lease provides for annual rental payments of
$90,000. The basic lease term has been extended and will expire as of June 30,
2000.
During the years ended June 30, 1999, 1998 and 1997, the Company received
management fees from a company controlled and 49% owned by two officers of the
Company totaling $11,000, $57,000 and $89,000, respectively.
None of the persons covered by this Item 13 (and no trust or estate in which any
of them has any beneficial interest or serves as trustee or in any similar
capacity) has been indebted to the Company since the beginning of the Company's
fiscal year ended June 30, 1999 other than for ordinary advances for travel or
other expenses in the ordinary course of business.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a)1. Financial Statements
The financial statements listed on the accompanying Index to
Financial Statements and Financial Statement Schedule Covered by
Report of Independent Auditors are filed as part of this report.
15
2. Schedule
The schedule listed on the accompanying Index to Financial
Statements and Financial Statement Schedule Covered by Report of
Independent Auditors is filed as part of this report.
3. Exhibits
None
(b)1. Reports on Form 8-K
Form 8-K was filed on August 13, 1999, relative to sale of assets of
Vertex Transportation and adoption of plan of liquidation and
dissolution of Country Wide Transport Services, Inc.
16
SIGNATURES
Pursuant to the Requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized on October 12, 1999.
Country Wide Transport Services, Inc.
By: /s/ Timothy Lepper
-------------------------------------
Timothy Lepper, President
Chief Executive Officer
Chief Financial Officer
and Principal Accounting Officer
17
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on behalf of the registrant by the following persons
constituting a majority of the directors of the registrant on October 12, 1999.
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ Timothy Lepper Chairman, President October 12, 1999
- ----------------------- CEO, Director
Timothy Lepper
/s/ Mark Boyer Director October 12, 1999
- -----------------------
Mark Boyer
/s/ Wayne N. Parry Secretary, Director October 12, 1999
- -----------------------
Wayne N. Parry
18
COUNTRY WIDE TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
JUNE 30, 1999, 1998 AND 1997
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditor's Report ............................................ F-2
Consolidated Balance Sheets - June 30, 1999 and 1998 .................... F-3
Consolidated Statements of Operations - For the Years Ended June 30,
1999, 1998 and 1997 .................................................. F-4
Consolidated Statement of Stockholders' Equity (Deficit) - For the Period
from July 1, 1996 through June 30, 1999 .............................. F-5
Consolidated Statements of Cash Flows - For the Years Ended June 30,
1999, 1998 and 1997 .................................................. F-6
Notes to Consolidated Financial Statements .............................. F-7
Schedule II ............................................................. S-1
F-1
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
Country Wide Transport Services, Inc.
East Rochester, New York
We have audited the consolidated balance sheets of Country Wide Transport
Services, Inc. and subsidiaries as of June 30, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the years in the three year period ended June 30, 1999. These
financial statements are the responsibility of the Company'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 audit 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Country Wide
Transport Services, Inc. and subsidiaries as of June 30, 1999 and 1998 and the
results of their operations and their cash flows for each of the years in the
three year period ended June 30, 1999 in conformity with generally accepted
accounting principles.
Our audits referred to above include audits of the financial statement schedule
listed under Item 14(a)(2) of Form 10-K. In our opinion, the financial statement
schedule presents fairly, in all material respects, in relation to the
consolidated financial statements taken as a whole, the information required to
be stated therein.
\s\ HEIN + ASSOCIATES LLP
HEIN + ASSOCIATES LLP
Certified Public Accountants
Orange, California
August 18, 1999
COUNTRY WIDE TRANSPORT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30,
------------------------
ASSETS 1999 1998
---------- ----------
CURRENT ASSETS:
Cash $ 138,000 $ 6,000
Accounts receivable, net -- 5,548,000
Accounts receivable, officers and employees 4,000 4,000
Accounts receivable, other 121,000 108,000
Carrier advances -- 13,000
Prepaid expenses 12,000 38,000
Net assets held for sale 4,203,000 --
---------- ----------
Total current assets 4,478,000 5,717,000
PROPERTY AND EQUIPMENT, net -- 263,000
OTHER ASSETS:
Deposits 8,000 34,000
Excess of purchase price over fair value of net assets
acquired, net -- 2,518,000
---------- ----------
TOTAL ASSETS $4,486,000 $8,532,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 737,000 $5,088,000
Liabilities in excess of assets of discontinued
operation 127,000 150,000
---------- ----------
Total current liabilities 864,000 5,238,000
LONG-TERM DEBT 2,055,000 2,514,000
---------- ----------
TOTAL LIABILITIES 2,919,000 7,752,000
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 4, 5, and 6)
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01 par value, 1,000,000 shares
authorized, issuable in series, none issued -- --
Common stock, $.10 par value, 6,000,000 shares
authorized, 5,098,000 and 4,248,000 shares issued
and outstanding at June 30, 1999 and 1998,
respectively 510,000 425,000
Additional paid-in capital 8,152,000 8,110,000
Retained earnings (deficit) (7,095,000) (7,755,000)
---------- ----------
Total stockholders' equity (deficit) 1,567,000 780,000
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $4,486,000 $8,532,000
========== ==========
See accompanying notes to consolidated financial statements.
F-3
COUNTRY WIDE TRANSPORT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
NET REVENUES:
Transportation revenue $ -- $ -- $ --
----------- ----------- -----------
OPERATING COSTS AND EXPENSES:
Salaries and related expenses 171,000 163,000 222,000
Operating expenses -- 10,000 3,000
General supplies and expenses 304,000 148,000 148,000
----------- ----------- -----------
Total operating costs and expenses 475,000 321,000 373,000
----------- ----------- -----------
OPERATING INCOME (LOSS) (475,000) (321,000) (373,000)
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense, net (188,000) (197,000) (130,000)
Other, net -- (1,000) --
----------- ----------- -----------
Total other income (expense) (188,000) (198,000) (130,000)
----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
PROVISION FOR INCOME TAXES, DISCONTINUED
OPERATIONS AND EXTRAORDINARY ITEM (663,000) (519,000) (503,000)
PROVISION FOR INCOME TAX BENEFIT (EXPENSE) -- 2,000 (4,000)
----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS (663,000) (517,000) (507,000)
DISCONTINUED OPERATIONS:
Income (loss) from discontinued business segments,
net of applicable income tax benefit (expense) of
($9,000), $49,000 and ($58,000) for the years
ended June 30, 1999, 1998 and 1997, respectively 1,323,000 1,457,000 (4,089,000)
----------- ----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 660,000 940,000 (4,596,000)
Gain on forgiveness of debt of discontinued operations,
net of applicable income tax expense of $0 (Note 5) -- -- 898,000
----------- ----------- -----------
NET INCOME (LOSS) $ 660,000 $ 940,000 $(3,698,000)
=========== =========== ===========
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE:
Continuing operations $ (0.15) $ (0.12) $ (0.33)
Discontinued operations 0.30 0.34 (2.63)
Extraordinary item -- -- 0.58
----------- ----------- -----------
Basic and diluted income (loss) per common share $ 0.15 $ 0.22 $ (2.38)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 4,346,000 4,248,000 1,556,000
=========== =========== ===========
See accompanying notes to consolidated financial statements.
F-4
COUNTRY WIDE TRANSPORT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM JULY 1, 1996 THROUGH JUNE 30, 1999
COMMON STOCK
-------------------------- ADDITIONAL RETAINED TOTAL
NUMBER OF PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT WARRANTS CAPITAL (DEFICIT) EQUITY (DEFICIT)
----------- ----------- ----------- ----------- ----------- -----------
BALANCES, July 1, 1996 960,000 $ 96,000 $ 40,000 $ 6,763,000 $(4,997,000) $ 1,902,000
Stock issued in private
placement, net of costs 3,288,000 329,000 -- 1,307,000 -- 1,636,000
Expiration of warrants -- -- (40,000) 40,000 -- --
Net (Loss) -- -- -- -- (3,698,000) (3,698,000)
----------- ----------- ----------- ----------- ----------- -----------
BALANCES, June 30, 1997 4,248,000 425,000 -- 8,110,000 (8,695,000) (160,000)
Net Income -- -- -- -- 940,000 940,000
----------- ----------- ----------- ----------- ----------- -----------
BALANCES, June 30, 1998 4,248,000 425,000 -- 8,110,000 (7,755,000) 780,000
Exercise of stock options 850,000 85,000 -- 42,000 -- 127,000
Net Income -- -- -- -- 660,000 660,000
----------- ----------- ----------- ----------- ----------- -----------
BALANCES, June 30, 1999 5,098,000 $ 510,000 $ -- $ 8,152,000 $(7,095,000) $ 1,567,000
=========== =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
F-5
COUNTRY WIDE TRANSPORT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30,
----------------------------------------------
1999 1998 1997
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $ (663,000) $ (517,000) $ (507,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
(Increase) decrease in:
Accounts receivable -- (1,540,000) 2,000
Accounts receivable - officers and employees -- 35,000 --
Accounts receivable - others (13,000) (100,000) --
Carriers advances -- 3,000 (43,000)
Prepaid expenses 26,000 10,000 40,000
Deposits 20,000 (25,000) (8,000)
Increase (decrease) in:
Accounts payable and accrued liabilities 73,000 476,000 655,000
------------ ------------ ------------
Net cash provided by (used in) operating activities from
continuing operations (557,000) (1,658,000) 139,000
------------ ------------ ------------
Net income (loss) from discontinued operations 1,323,000 1,457,000 (4,089,000)
Depreciation and amortization 227,000 173,000 2,632,000
Loss on disposition of assets -- -- 508,000
Provision made for uncollectible accounts
receivable -- -- 9,000
Changes in operating assets (487,000) (377,000) 451,000
------------ ------------ ------------
Net cash provided by (used in) operating activities from
discontinued operations 1,063,000 1,253,000 (489,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (42,000) (206,000) (130,000)
Proceeds from disposal of property and equipment -- -- 175,000
------------ ------------ ------------
Net cash provided by (used in) investing activities (42,000) (206,000) 45,000
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on borrowings (36,401,000) (33,096,000) (45,619,000)
Cash borrowings from line of credit 35,942,000 33,703,000 44,261,000
Exercise of stock options 127,000 -- --
Sale of common stock, net -- -- 1,636,000
------------ ------------ ------------
Net cash provided by (used in) financing activities (332,000) 607,000 278,000
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 132,000 (4,000) (27,000)
CASH AND CASH EQUIVALENTS, at beginning of year 6,000 10,000 37,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, at end of year $ 138,000 $ 6,000 $ 10,000
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for:
Interest $ 220,000 $ 288,000 $ 451,000
============ ============ ============
Income Taxes $ -- $ 38,000 $ 45,000
============ ============ ============
Non-cash investing and financing transactions:
Property and equipment sold for the assumption of
notes payable $ -- $ -- $ 2,544,000
============ ============ ============
Net liabilities surrendered in connection with disposal of
subsidiary $ -- $ -- $ 943,000
============ ============ ============
See accompanying notes to consolidated financial statements.
F-6
COUNTRY WIDE TRANSPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Country Wide Transport Services, Inc. ("CWTS") was incorporated in the
State of Delaware in 1987. As of June 30, 1999, the Company had
discontinued all of its operating segments.
Through its wholly-owned subsidiary, Vertex Transportation, Inc.
("Vertex"), the Company operated a full service logistics company which
provides truckload, less-than truckload (LTL), intermodal, and
international transportation services. In April 1999, the Board of
Directors approved a plan to sell substantially all of Vertex's assets
(See Note 5).
Through its wholly-owned subsidiary, Country Wide Truck Service, Inc. (CW
Truck"), an irregular-route, truckload common and contract carrier, the
Company transported a wide variety of commodities requiring temperature
control throughout the continental United States and Canada. Effective
December 31, 1996, the Company discontinued CW Truck through an orderly
liquidation process as a result of significant losses within the
subsidiary (See Note 5).
Principles of Consolidation - The consolidated financial statements
include the accounts of CWTS and subsidiaries ("the Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Carrier Advances - The Company periodically advances funds to carriers
during the normal course of business. Carriers are advanced funds for
expenses incurred during trips. All such advances are offset against total
amounts due upon settlement with the carriers.
Property and Equipment - Property and equipment are stated at cost.
Provision for depreciation and amortization on property and equipment is
calculated using the straight-line and accelerated methods over the
estimated useful lives of the assets. Leasehold improvements are amortized
over the shorter of the useful life or term of the lease.
When assets are retired or otherwise disposed of, the cost and related
accumulated depreciated are removed from the accounts, and any resulting
gain or loss is recognized in income for the period. The cost of
maintenance and repairs is charged to income as incurred whereas
significant renewals and betterments are capitalized.
Intangible Assets - The excess of the aggregate purchase price over the
fair value of net assets of businesses acquired is included in the
accompanying balance sheet as "Excess of purchase price over fair value of
net assets acquired" ("Goodwill") and is being amortized over 25 years
using the straight-line method. Goodwill amounts are reported net of
accumulated amortization of $600,000, and $480,000 at June 30, 1999 and
1998, respectively. At June 30, 1999, net goodwill is included in net
assets held for sale (See Note 5). The carrying value of goodwill is
evaluated at least annually. The Company considers current facts and
circumstances related to purchased entities, including expected future
operating income, to determine whether it is probable that impairment has
occurred.
Impairment of Long-Lived Assets - In the event that facts and
circumstances indicate that the costs of long-lived assets may be
impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the asset's carrying amount
to determine if a write-down to market value or discounted cash flow value
is required.
F-7
COUNTRY WIDE TRANSPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition - Transportation revenues and related expenses are
recognized using a method which approximates recognition of both revenue
and direct costs when shipment is completed.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary difference are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that included
the enactment date.
Stock Based Compensation - The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB25) and related interpretations in accounting for its
employee stock options. In accordance with FASB Statement No. 123
"Accounting for Stock-Based Compensation" (FASB123), the Company will
disclose the impact of adopting the fair value accounting of employee
stock options. Transactions in equity instruments with non-employees for
goods or services have been accounted for using the fair value method as
prescribed by FASB123.
Earnings per Share - Basic earnings per share excludes dilution and is
computed by dividing income available to common stockholders by the
weighted average number of shares of common stock outstanding for the
period. Diluted earnings per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. All such
securities or other contracts were anti-dilutive for all periods presented
and, therefore, excluded from the computation of earnings per share.
Statement of Cash Flows - For purposes of the statement of cash flows, the
company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Use of Estimates - The preparation of the Company's consolidated financial
statements in conformity with generally accepted principles requires the
Company's management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes.
Actual results could differ from those estimates.
The Company's financial statements are based upon a number of significant
estimates, including the allowance for doubtful accounts, the estimated
useful lives for property and equipment, realizability of deferred tax
assets and recoverability of goodwill. Due to the uncertainties inherent
in the estimation process, it is at least reasonably possible that these
estimates will be further revised in the near term and such revisions
could be material.
F-8
COUNTRY WIDE TRANSPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Concentrations of Credit Risk - Credit risk represents the accounting loss
that would be recognized at the reporting date if counterparties failed
completely to perform as contracted. Concentrations of credit risk
(whether on or off balance sheet) that arise from financial instruments
exist for groups of customers or groups of counterparties when they have
similar economic characteristics that would cause their ability to meet
contractual obligations to be similarly effected by changes in economic or
other conditions described below. In accordance with FASB Statement No.
105, "Disclosure of Information abut Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of
Credit Risk," the credit risk amounts shown do not take into account the
value of any collateral or security.
The Company operated primarily in one industry segment and a geographic
concentration existed because the Company's customers were generally
located in the United States. Financial instruments that subject the
Company to credit risk consist principally of accounts receivable.
As of June 30 1999, the Company maintained cash in banks that was
approximately $38,000 in excess of the federally insured limit.
Fair Value of Financial Instruments - The estimated fair values for
financial instruments under SFAS No. 107, "Disclosure about Fair Value of
Financial Instruments," are determined at discrete points in time based on
relevant market information. These estimates involve uncertainties and
cannot be determined with precision. The estimated fair values of the
Company's financial instruments, which includes all cash, accounts
receivable, accounts payable, long-term debt, and other debt approximates
the carrying value in the consolidated financial statements at June 30,
1999 and 1998.
Impact of Recently Issued Standards - In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 133 (FASB133), "Accounting for Derivative Instruments and
Hedging Activities." This statement is effective for fiscal years
beginning after June 15, 1999. However, in July 1999, FASB137 was issued
delaying the effective date of FASB133 for one year, to fiscal years
beginning after June 15, 2000. FASB133 requires that an entity recognize
all derivatives as assets or liabilities in the statement of financial
position and measure their instruments at fair value. The Company does not
believe the adoption of FASB133 will have a material impact on assets,
liabilities, or equity. The Company has not yet determined the impact of
FASB133 on the income statement or the impact on comprehensive income.
FASB132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits" and FASB134, "Accounting for Mortgage-Backed Securities Retained
after the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise" were issued in 1998. SFAS No. 135, "Rescission of FASB
Statement No. 75 and Technical Corrections" and SFAS No. 136, "Transfers
of Assets to a Not-for-Profit Organization or Charitable Trust That Raises
or Holds Contributions for Others" were issued in 1999. These
pronouncements are not expected to impact the Company regarding future
financial statement disclosures, results of operations, or financial
position.
Reclassification - Certain reclassifications have been made to the prior
years consolidated financial statements to conform with the current
presentation. Such reclassifications are primarily the result of
discontinued operations and had no effect on net income (loss).
F-9
COUNTRY WIDE TRANSPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
JUNE 30,
---------------------- ESTIMATED
1999 1998 USEFUL LIVES
--------- --------- -------------
Furniture and office equipment $ -- $ 268,000 4 to 5 years
Leasehold improvements -- 154,000 Life of lease
--------- ---------
-- 422,000
Less accumulated depreciation and
amortization -- (159,000)
--------- ---------
$ -- $ 263,000
========= =========
During the years ended June 30, 1999, 1998 and 1997, the Company recorded
depreciation expense of $107,000, $53,000 and $446,000, respectively, all
of which is included in discontinued operations.
3. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consisted of the following:
JUNE 30,
-------------------------
1999 1998
---------- ----------
Accounts payable $ 504,000 $2,913,000
Accrued purchased transportation -- 1,948,000
Other accrued expenses 233,000 227,000
---------- ----------
$ 737,000 $5,088,000
========== ==========
4. LONG-TERM DEBT:
Long-term debt consisted of the following:
JUNE 30,
-------------------------
1999 1998
---------- ----------
Note payable to bank under a revolving
credit agreement due on April 30, 2002,
bearing interest at the bank's prime rate
plus 1 1/2% (9.25% at June 30, 1999),
collateralized by substantially all assets
of Vertex Transportation $2,055,000 $2,514,000
========== ==========
F-10
COUNTRY WIDE TRANSPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The $2,055,000 note at June 30, 1999 arises from a credit agreement with a
commercial bank for Vertex which provides for maximum outstanding
borrowings aggregating $4 million and maturing on April 30, 2002. The
aggregate amount of advances under the revolving credit agreement is
limited to 80% of the eligible accounts receivable, less unbilled
receivables and any reserves the bank elects to establish, not to exceed
the aggregate principal amount. The obligation is collateralized by
substantially all of the assets of the company. Under the terms of the
agreement, the borrower is restricted from paying dividends on any classes
of its stock and the Company is required to maintain certain ratios and be
in compliance with other covenants. At June 30, 1999, the Company was in
compliance with all covenants. Subsequent to year end, the Company paid
off the note with proceeds from the sale of Vertex.
5. DISCONTINUED OPERATIONS:
CW Truck - Having experienced significant losses in CW Truck, the
Company's Board of Directors decided to discontinue the subsidiary through
an orderly liquidation. The Company closed the operations effective
December 31, 1996 and made a General Assignment of all assets of its
subsidiary, CW Truck, for the pro rata benefit of all creditors of the
subsidiary. At the date of the assignment, CW Truck had liabilities in
excess of assets in the amount of $1,347,000. Included in this balance was
$404,000 which CWTS believed it would have to assume. As a result during
the fiscal year ended June 30, 1997, the Company realized a net gain to
the extent of unpaid liabilities (not guaranteed or accrued by CWTS) in
excess of assets in the amount of $898,000.
In conjunction with the discontinuance of CW Truck, the Company sold
equipment of CWTS and CW Truck to Mid-Cal Express, Inc., a wholly-owned
subsidiary of U.S. Trucking, Inc., for the assumption of the related notes
payable and leases. All such notes payable and leases are guaranteed by
the Company. As of June 30, 1999, the remaining balance on these
obligations is approximately $2,861,000 and expire through April 30, 2001.
U.S. Trucking, Inc. reported net income of $314,000 and $122,000 for the
six months ended June 30, 1999 and the year ended December 31, 1998,
respectively. As of June 30, 1999, Mid-Cal Express, Inc. was delinquent on
payments on the notes and leases totaling $91,000. The Company's
management believes that Mid-Cal Express, Inc. will be able to meet its
obligations related to the notes payable and leases.
Revenues for CW Truck for the years ended June 30, 1997 were $7,590,000
and operating losses for the same period were $4,532,000.
Vertex - On June 21, 1999, the Company entered into an Asset Purchase
Agreement with C.H Robinson Company whereby the Company sold substantially
all of the assets of Vertex to C.H. Robinson Company for a purchase price
equal to the sum of (a) the tangible net book value of the assets acquired
less the net book value of the liabilities and obligations assumed, (b)
cash of $6,500,000, and (c) an earn-out equal to 50% of Vertex's Adjusted
Pre-Tax Income for the first twelve months following the Closing Date over
$1,000,000, up to a maximum payment of $500,000. The sale closed on August
2, 1999 resulting in a net gain of approximately $4,100,000.
F-11
COUNTRY WIDE TRANSPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On July 30,1999, the stockholders of the Company approved a Plan of
Liquidation and Dissolution to be implemented subsequent to the sale of
Vertex. Pursuant to the Plan, the Company will effectively distribute all
of its remaining assets to its stockholders through cash distributions. If
all of the Company's assets are not sold or distributed prior to the
second anniversary of the approval of the Plan, the remaining assets not
sold or distributed will be transferred to a liquidating trust.
The assets and liabilities attributed to this transaction have been
classified in the consolidated balance sheet as net assets held for sale.
The amounts included in the financial statements at June 30,1999 consists
of the following:
ASSETS
Accounts receivable, net $5,120,000
Carrier advances 15,000
Property and equipment, net 197,000
Goodwill, net 2,399,000
Deposits 4,000
----------
Total assets 7,735,000
----------
LIABILITIES
Accounts payable and accrued liabilities 3,532,000
----------
Total liabilities 3,532,000
----------
NET ASSETS HELD FOR SALE $4,203,000
==========
During the years ended June 30, 1999, 1998 and 1997, Vertex generated
operating income of $1,298,000, $1,328,000 and $812,000, respectively, as
follows:
FOR THE YEARS ENDED JUNE 30,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
REVENUE $35,702,000 $34,283,000 $28,365,000
----------- ----------- -----------
EXPENSES
Purchased transportation 30,830,000 30,068,000 24,924,000
Salaries and related expenses 2,146,000 1,820,000 1,609,000
Operating expenses 236,000 197,000 182,000
General supplies and expenses 965,000 697,000 674,000
Depreciation and amortization 227,000 173,000 164,000
----------- ----------- -----------
Total expenses 34,404,000 32,955,000 27,553,000
----------- ----------- -----------
Operating Income $ 1,298,000 $ 1,328,000 $ 812,000
=========== =========== ===========
F-12
COUNTRY WIDE TRANSPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. COMMITMENTS AND CONTINGENCIES
Lease Commitments - Subsequent to year end, all noncancellable operating
lease agreements were assumed by C. H. Robinson (See Note 5).
Rental expense for all operating leases, all of which is included in
discontinued operations, consisted of the following:
YEAR ENDED JUNE 30,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
Revenue equipment rentals $ 116,000 $ 37,000 $ 833,000
Terminal, warehouse and
office rentals 145,000 104,000 215,000
Other equipment rentals 19,000 9,000 21,000
---------- ---------- ----------
$ 280,000 $ 150,000 $1,069,000
========== ========== ==========
Litigation - The nature of the Company's business routinely results in
litigation, primarily claims for personal injury and property damage
incurred in the transportation of freight. The Company believes that all
pending litigation of this type is adequately covered by insurance and
that adverse results in one or more of these matters would not have a
material adverse effect on its financial position or results of
operations.
During September 1995, the Company's transportation subsidiary, CW Truck,
had a cargo claim that approximated $600,000 filed against it by one of
its 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 customer additionally filed a cross
claim against the Company. On February 24, 1997, the Company agreed to pay
the customer and entered into a promissory note for $659,000. As of June
30, 1998, the Company had paid off the note. The Company is pursuing legal
action against the insurance carrier and its agent for the collection of
the $659,000. In July 1998, an Order and Judgment granting the insurance
carrier's Motion for Summary Judgment was filed. The Company has filed an
appeal for the right to proceed to trial. In addition, the claim against
the agent is still in litigation.
7. STOCKHOLDERS' EQUITY:
Effective March 19, 1997, the Company increased the number of authorized
common shares to 30,000,000 and immediately thereafter declared a 1 for 5
reverse stock split and reduced the number of authorized common shares to
6,000,000. All shares and earnings per common share have been
retroactively restated for all periods presented.
During the fiscal year ending June 30, 1997, the Company completed the
sale, in a private offering, of 3,288,000 shares of common stock for net
proceeds of $1,636,000.
On May 19, 1997, the Company granted options for 850,000 shares with an
exercise price of $0.15 per share to two officers of the Company. All
options were immediately exercisable and expire on May 1, 2002. The excess
of the fair market value over the option price of $17,000 has been treated
as compensation to the recipients in the accompanying consolidated
financial statements. In May 1999, the two officers exercised the options.
F-13
COUNTRY WIDE TRANSPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
No stock options were granted in 1998 or 1999.
The following table summarizes all stock option activity:
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
Balance, July 1, 1996 83,900 $ 18.93
Granted 850,000 0.15
Canceled 23,900 16.25
------- ---------
Balance June 30, 1997 910,000 1.46
Granted -- --
Canceled -- --
Expired 10,000 20.00
------- ---------
Balance, June 30, 1998 900,000 1.25
Granted -- --
Exercised 850,000 0.15
Expired 50,000 20.00
------- ---------
Balance, June 30, 1999 -- $ --
======= =========
PRO FORMA INFORMATION
As stated in Note 1, the Company has not adopted the fair value accounting
prescribed by FAS123 for employees. Had compensation cost for stock
options issued to employees been determined based on the fair value at
grant date for awards in fiscal year ending June 30, 1997 consistent with
the provisions of FAS123, the Company's net loss and net loss per share
would have been adjusted to the proforma amounts indicated below:
JUNE 30,
-------------
1997
-------------
Net loss $ (3,842,000)
=============
Loss per common share $ (2.47)
=============
During the fiscal years ending June 30, 1999 and 1998, the company did not
grant options. As a result there would be no effect on the Company's net
income or net income per share.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model using the following assumptions:
expected volatility of 430%, an expected life of two years, no dividends
would be declared during the expected term of the options, a risk free
interest rate of 6.2%.
The weighted average fair value of the options on the grant dates was
$0.17 per share.
F-14
COUNTRY WIDE TRANSPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES
Income tax benefit (expense) for the years ended June 30, 1999, 1998, and
1997 are comprised of the following:
CURRENT DEFERRED TOTAL
-------- -------- --------
Year ended June 30, 1999
Federal $ 6,000 $ -- $ 6,000
State 3,000 -- 3,000
-------- -------- --------
$ 9,000 $ -- $ 9,000
======== ======== ========
Year ended June 30, 1998
Federal $ (2,000) $ -- $ (2,000)
State 53,000 -- 53,000
-------- -------- --------
$ 51,000 $ -- $ 51,000
======== ======== ========
Year ended June 30, 1997
Federal $ -- $ -- $ --
State (63,000) -- (63,000)
-------- -------- --------
$(63,000) $ -- $(63,000)
======== ======== ========
The actual income tax benefit (expense) differs from the "expected" tax
benefit (expense) (computed by applying the U.S. Federal corporate income
tax rate of 34% for each period) as follows:
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- ----------------------
AMOUNT % AMOUNT % AMOUNT %
----------- ----- ----------- ----- ----------- ----
Computed "expected" tax
benefit (expense) $ (227,000) (34.0) $ (323,000) (34.0) $ 1,236,000 34.0
State income taxes, net of
Federal income tax
benefit (1,000) (0.1) (6,000) (.6) (42,000) (1.2)
Refundable credits -- -- -- -- (3,000) (.1)
Non-deductible expenses (9,000) (1.3) (9,000) (.9) (730,000) (20.0)
Effect of alternative
minimum tax (6,000) (0.9) (2,000) (.2) -- --
State tax refund -- 21,000 2.2 -- --
Change in valuation
allowance due to
liquidation of
subsidiary -- -- -- -- (524,000) (14.4)
Effect of valuation
allowance 234,000 35.0 370,000 38.9 -- --
----------- ----- ----------- ----- ----------- ----
$ (9,000) (1.3) $ 51,000 5.4 $ (63,000) (1.7)
=========== ===== =========== ===== =========== ====
F-15
COUNTRY WIDE TRANSPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the net deferred tax asset recognized as of June 30,
1999 and 1998, are as follows:
JUNE 30,
---------------------------
1999 1998
----------- -----------
Current Deferred Tax Assets (Liabilities)
Insurance reserve $ 2,000 $ 2,000
Vacation accrual reserve 7,000 7,000
Other 4,000 1,000
Bad debt reserve 30,000 30,000
Accrued assessment and claims 81,000 74,000
Prepaid insurance (2,000) (3,000)
----------- -----------
122,000 111,000
Valuation allowance (122,000) (111,000)
----------- -----------
Net current deferred tax asset $ -- $ --
=========== ===========
Long-Term Deferred Tax Assets (Liabilities)
Depreciation $ 32,000 $ 11,000
Amortization (201,000) (173,000)
AMT tax credit carryforward 35,000 27,000
Net operating loss carryforward 4,091,000 4,408,000
----------- -----------
Valuation allowance 3,957,000 4,273,000
Net long-term deferred tax asset (3,957,000) (4,273,000)
----------- -----------
$ -- $ --
=========== ===========
Deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities for financial reporting purposes and
as measured by tax laws and regulations, principally related to net
operating losses and expense accruals and reserves for financial reporting
purposes not deductible for tax purposes.
As of June 30, 1999, the Company has available net operating loss
carryforwards for federal and state purposes of $10,778,000 and
$4,745,000, respectively. The net operating losses begin to expire in 2005
for federal and 2012 for New York. The benefit of the operating loss to
offset future taxable income is subject to reduction or limitation of use
as a result of certain consolidated return filing regulations and
additional limitations relating to a 50% change in ownership which
occurred during 1992.
9. RELATED PARTY TRANSACTIONS:
Transactions with related parties and stockholders consist of the
following:
During the years ended June 30, 1999, 1998 and 1997, the Company paid rent
to a company controlled by officers of the Company totaling $90,000,
$90,000 and $95,000, respectively. The basic lease term was extended
through June 2002.
During the years ended June 30, 1999, 1998 and 1997, the Company received
management fees from a company controlled and 49% owned by two officers of
the Company totaling $11,000, $57,000 and $89,000 respectively.
F-16
COUNTRY WIDE TRANSPORT SERVICES, INC. AND SUBSIDIARIES
10. EMPLOYEE DEFINED CONTRIBUTION PLAN AND TRUST:
Effective April 1, 1993, the Company adopted a Deferred Compensation
401(k) Plan ("the Plan") covering all full-time employees. To be eligible
to participate in the Plan, employees, with the exception of drivers, must
have been employed by the company for 90 days; drivers are eligible to
participate following one year of service. Employees involved in the Plan
may contribute up to 20% of their compensation, on a pre-tax basis,
subject to statutory and Internal Revenue Service guidelines.
Contributions to the Plan are invested, at the direction of the
participant. Under one investment option, the Company makes matching
contributions to the Plan. Insignificant contributions were made by the
Company to this plan during the years ended June 30, 1999, 1998 and 1997
11. MAJOR CUSTOMERS:
The Company had sales to unaffiliated customers, which individually
represented more than 10% of the Company's transportation sales as
follows:
CUSTOMER 1999 1998 1997
-------- ---- ---- ----
A 25% 31% 25%
B -- 11% 10%
At June 30, 1999, approximately $2,200,000 or 43% of the Company's
accounts receivable, included in net assets held for sale, were due from
two customers.
12. SUBSEQUENT EVENTS (Unaudited):
Pursuant to the Plan of Liquidation and Dissolution, on September 30,
1999, the Company made an initial distribution of $3,039,485 or $0.60 per
share.
F-17
COUNTRY WIDE TRANSPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Schedule II
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND AT END OF
CLASSIFICATION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- -------------------------------- ---------- ---------- ---------- ---------
For the year ended June 30, 1999:
Accumulated amortization -
Goodwill $480,000 $ -- $ 480,000 $ --
======== ========== ========== ========
Allowance for doubtful accounts $ 75,000 $ -- $ 75,000 $ --
======== ========== ========== ========
For the year ended June 30, 1998:
Accumulated amortization -
Goodwill $360,000 $ 120,000 $ -- $480,000
======== ========== ========== ========
Allowance for doubtful accounts $ 75,000 $ -- $ -- $ 75,000
======== ========== ========== ========
For the year ended June 30, 1997:
Accumulated amortization -
Goodwill $599,000 $2,187,000 $2,426,000 $360,000
======== ========== ========== ========
Allowance for doubtful accounts $122,000 $ 31,000 $ 78,000 $ 75,000
======== ========== ========== ========
S-1