-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WtvuFxrS1uLVcv7NaSFtwSDzSEPA3UVOKWozlQqUV+YHDLf+2aM5suDemBsarU90 M3hnUvZ9nxo+iBPF7hDQUw== 0000724051-99-000004.txt : 19990430 0000724051-99-000004.hdr.sgml : 19990430 ACCESSION NUMBER: 0000724051-99-000004 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990210 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990413 DATE AS OF CHANGE: 19990429 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHANCELLOR CORP CENTRAL INDEX KEY: 0000724051 STANDARD INDUSTRIAL CLASSIFICATION: 7359 IRS NUMBER: 042626079 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-11663 FILM NUMBER: 99593047 BUSINESS ADDRESS: STREET 1: 210 SOUTH STREET CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 6177288500 MAIL ADDRESS: STREET 1: 210 SOUTH STREET CITY: BOSTON STATE: MA ZIP: 02111 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K/A AMENDMENT NO. 1 TO CURRENT REPORT ON FORM 8-K PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report: Date of Earliest Event Reported: April 13, 1999 February 10, 1999 COMMISSION FILE NUMBER 0-11663 CHANCELLOR CORPORATION (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2626079 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 210 SOUTH STREET BOSTON, MASSACHUSETTS 02111 (Address of principal executive offices and zip code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 368-2700 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS The registrant filed on February 12, 1999 a current report on Form 8-K relating to its acquisition of MRB, Inc., a Georgia corporation d/b/a Tomahawk Truck and Trailer Sales; Tomahawk Truck & Trailer Sales, Inc., a Florida corporation; Tomahawk Truck and Trailer Sales of Virginia, Inc., a Virginia corporation; and Tomahawk Truck and Trailer Sales of Missouri, Inc., a Missouri corporation (collectively "Tomahawk"). The purpose of this amendment is to provide the financial statement and information required by Item 7 of the Form 8-K. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS Exhibit 99.1 filed herewith contains the following financial statements of Tomahawk as required by and for the periods specified in Rule 3-05(b) of regulation S-X: (a) Financial Statements of Business Acquired: Independent Certified Public Accountants' Report Combined Balance Sheets as of July 31, 1998 (unaudited), December 31, 1998, 1997 and 1996 Combined Statement of Earnings and Retained Earnings for the seven months ended July 31, 1998 (unaudited) Combined Statements of Earnings for years ended December 31, 1998, 1997 and 1996 Combined Statements of Shareholders' Equity as of December 31, 1998, 1997 and 1996 Combined Statements of Cash Flows for the seven months ended July 31, 1998 (unaudited), and the years ended December 31, 1998, 1997 and 1996 Notes to Combined Financial Statements (b) Pro Forma Financial Information (unaudited): Exhibit 99.2 filed herewith contains the following pro forma condensed financial statements as required by Article 11 of Regulation S-X: Pro Forma Balance Sheet as of December 31, 1998 Pro Forma Statements of Operations for the years ended December 31, 1998 and 1997 (c) Exhibits: Exhibit 23 Consent of Metcalf, Rice, Fricke and Davis Exhibit 99.1 The audited financial statements of MRB, Inc. and affiliates as of and for the year ended December 31, 1998, 1997 and 1996, with interim financial statements as of and for the seven months ended July 31, 1998 (unaudited). Exhibit 99.2 The unaudited pro forma condensed balance sheet as of December 31, 1998, and statements of operations for the years ended December 31,1998 and 1997. 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. CHANCELLOR CORPORATION By: /s/ Franklyn E. Churchill______ ---------------------------------------- Franklyn E. Churchill, President Date: April 13, 1999 EXHIBIT INDEX Exhibit No. Description 23 Consent of Metcalf ,Rice, Fricke and Davis 99.1 The audited financial statements of MRB, Inc. and affiliates as of and for the year ended December 31, 1998, 1997 and 1996, with auditor's interim financial statements as of and for the seven months ended July 31, 1998 (unaudited). 99.2 The unaudited pro forma condensed balance sheet as of December 31, 1998, and statements of operations for the years ended December 31, 1998 and 1997. EX-23 2 Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports dated March 12, 1999, on the financial statements of MRB, Inc. and affiliates, as of and for the seven months ended July 31, 1998 (unaudited), and the combined financial statements of MRB, Inc., as of and for the years ended December 31, 1998, 1997 and 1996, included in this Form 8-K. /s/ METCALF, RICE, FRICKE AND DAVIS Atlanta, Georgia April 13, 1999 EX-99.1 3 FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS MRB, INC. & AFFILIATES DECEMBER 31, 1998, 1997 AND 1996 Report of Independent Certified Public Accountants -------------------------------------------------- Board of Directors and Shareholders MRB, Inc. & Affiliates d/b/a Tomahawk Truck and Trailer Sales We were engaged to audit the accompanying combined balance sheets of MRB, INC. & AFFILIATES as of December 31, 1998, 1997 and 1996, and the related combined statements of earnings, shareholders' equity and cash flows for the years then ended. 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. Except as discussed in the following paragraph, 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. The physical inventories were counted on December 31, 1998, 1997 and 1996, and inventory quantities are stated in the accompanying financial statements at $10,721,462, $3,977,167 and $2,059,530, respectively. However, since we were not initially engaged as auditors until substantially after the physical inventories were counted in 1997 and 1996 and we were not able to apply alternative auditing procedures to satisfy ourselves as to inventory quantities as of December 31, 1996, the scope of our work was not sufficient to enable us to express, and we do not express an opinion on the financial statements referred to above for 1996 and on the combined statements of earnings and cash flows for the year ended December 31, 1997. In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary had we been able to observe inventory in 1997 and 1996 as referred to in the previous paragraph, the combined financial statements referred to above present fairly, in all material respects, the financial position of MRB, INC. & AFFILIATES as of December 31, 1998, 1997 and 1996, and the results of their operations and cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Atlanta, Georgia March 12, 1999
MRB, Inc. & Affiliates COMBINED BALANCE SHEETS December 31, 1998 1997 1996 ----------- ---------- ---------- ASSETS CURRENT ASSETS Cash (note A6) $ 31,809 $ 639,795 $ 289,458 Accounts receivable Trade (note A3) 207,654 473,510 365,624 Due from related parties (note B) 167,300 - - ----------- ---------- ---------- 374,954 473,510 365,624 Inventory (notes A7 and C) 10,721,462 3,977,167 2,059,530 Deposits 2,700 18,004 42,573 Prepaid expenses 57,752 25,780 19,349 ----------- ---------- ---------- Total current assets 11,188,677 5,134,256 2,776,534 FURNITURE, FIXTURES AND EQUIPMENT (note A2) 259,971 199,804 212,201 Less accumulated depreciation 68,908 68,707 75,915 ----------- ---------- ---------- 191,063 131,097 136,286 OTHER ASSETS Organization costs, less accumulated amortization of $14,547, $8,005 and $2,734 in 1998, 1997 and 1996, respectively (note A9) 88,090 18,420 9,039 ----------- ---------- ---------- $11,467,830 $5,283,773 $2,921,859 =========== ========== ========== LIABILITIES CURRENT LIABILITIES Current maturities of long-term obligations $ 24,936 $ 100,750 $ 19,271 Notes payable - other (notes B and C) 426,852 730,756 353,859 Notes payable - floor plan (note C) 9,062,635 3,602,232 1,901,055 Accounts payable Trade 685,780 221,290 151,527 Payroll and sales taxes 58,818 55,869 29,661 ----------- ---------- ---------- 744,598 277,159 181,188 Accrued expenses 537,847 106,397 31,711 Customer deposits 21,208 4,000 - ----------- ---------- ---------- Total current liabilities 10,818,076 4,821,294 2,487,084 LONG-TERM OBLIGATIONS, less current maturities (note C) 75,877 57,791 38,541 DUE TO SHAREHOLDERS (note B) 300,000 35,755 - COMMITMENTS AND CONTINGENT LIABILITIES (notes E, H, and I) SHAREHOLDERS' EQUITY Common stock and additional contributed capital (note G) 80,100 80,000 80,000 Retained earnings 193,777 288,933 316,234 ----------- ---------- ---------- 273,877 368,933 396,234 ----------- ---------- ---------- $11,467,830 $5,283,773 $2,921,859 =========== ========== ==========
The accompanying notes are an integral part of these combined balance sheets.
MRB, Inc. & Affiliates COMBINED STATEMENTS OF EARNINGS Year ended December 31, 1998 1997 1996 ------------ ------------ ------------ Revenues (note A4) $39,073,588 $27,331,970 $19,192,724 Cost of goods sold 32,752,949 22,603,639 16,052,856 ------------ ------------ ------------ Gross profit 6,320,639 4,728,331 3,139,868 Operating expenses Administrative expenses 3,720,485 2,394,372 1,633,416 Selling and marketing expenses 1,770,326 1,812,462 1,147,432 Depreciation and amortization (notes A2 and A9) 39,521 47,280 36,427 ------------ ------------ ------------ 5,530,332 4,254,114 2,817,275 Operating earnings 790,307 474,217 322,593 Other income (expenses) Other income (expense) 4,454 (13,783) 1,170 Interest expense (449,917) (392,561) (255,229) (445,463) (406,344) (254,059) ------------ ------------ ------------ Earnings before income taxes 344,844 67,873 68,534 Income taxes (note F) - - - ------------ ------------ ------------ NET EARNINGS $ 344,844 $ 67,873 $ 68,534 ============ ============ ============
The accompanying notes are in integral part of these combined financial statements.
MRB, Inc. & Affiliates COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY Years ended December 31, 1998, 1997, and 1996 Retained Common stock and additional contributed capital earnings Total ------------------------------------------------ ---------- ---------- Balance at January 1, 1996 $ 30,000 $ 333,930 $ 363,930 Issuance of common stock 50,000 - 50,000 Distribution to shareholders - (86,230) (86,230) Net earnings for the year - 68,534 68,534 ------------------------------------------------ ---------- ---------- Balance at December 31, 1996 80,000 316,234 396,234 Distribution to shareholders - (95,174) (95,174) Net earnings for the year - 67,873 67,873 ------------------------------------------------ ---------- ---------- Balance at December 31, 1997 80,000 288,933 368,933 Issuance of common stock 100 - - Distribution to shareholders - (440,000) (440,000) Net earnings for the year - 344,844 344,844 ------------------------------------------------ ---------- ---------- Balance at December 31, 1998 $ 80,100 $ 193,777 $ 273,877 ================================================ ========== ==========
The accompanying notes are an integral part of this combined statement.
MRB, Inc. & Affiliates COMBINED STATEMENTS OF CASH FLOWS Year ended December 31, 1998 1997 1996 ------------ ------------ ---------- Increase (Decrease) in Cash Cash flows from operating activities Net earnings for the year $ 344,844 $ 67,873 $ 68,534 Adjustments to reconcile net earnings to net cash Provided by operating activities: Depreciation and amortization 39,521 47,280 36,427 Loss on sale of equipment - 13,783 - Changes in assets and liabilities: Decrease (increase) in accounts receivable 98,556 (107,886) (332,792) Increase in inventory (6,744,295) (1,917,637) (91,667) Decrease (increase) in deposits 15,304 24,569 (42,573) (Increase) decrease in other assets (108,183) (18,728) 10,814 Increase (decrease) in accounts payable and accrued expenses 916,097 174,657 (50,590) ------------ ------------ ---------- (5,783,000) (1,783,962) (470,381) Net cash used in operating activities (5,438,156) (1,716,089) (401,847) Cash flows from investing activity Purchase of furniture, fixtures and equipment (92,946) (52,958) (72,878) Cash flows from financing activities Proceeds from notes payable - net 5,098,771 2,178,803 714,658 Distribution to shareholders (440,000) (95,174) (86,230) Proceeds from shareholders 264,245 35,755 - Proceeds from stock issuance 100 - 50,000 ------------ ------------ ---------- Net cash provided by financing activities 4,923,116 2,119,384 678,428 ------------ ------------ ---------- Net (decrease) increase in cash (607,986) 350,337 203,703 Cash at beginning of year 639,795 289,458 85,755 ------------ ------------ ---------- Cash at end of year $ 31,809 $ 639,795 $ 289,458 ============ ============ ========== Cash paid during the year for: - - --------------------------------------------------- Interest $ 426,062 $ 376,118 $ 240,457
The accompanying notes are an integral part of these combined financial statements. MRB, Inc. & Affiliates NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1998, 1997, and 1996 NOTE A - SUMMARY OF ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying combined financial statements follows. 1. Principles of Combination and Nature of Business MRB, Inc. & Affiliates, (the "Company") consists of four Corporations owned by the same shareholders and under common management, which collectively do business under the name of Tomahawk Truck & Trailer Sales (Tomahawk). MRB, Inc. was incorporated in July 1991. Tomahawk Truck & Trailer Sales, Inc. was incorporated in November 1995. Tomahawk Truck & Trailer Sales of Virginia, Inc. was incorporated in November 1996. Tomahawk Truck & Trailer Sales of Missouri, Inc. was incorporated in October 1998. Because of these relationships, the combined financial statements have been prepared as if they were a single entity. All inter-company transactions have been eliminated from the combined financial statements. The Company is engaged in the sale of used trucks and trailers primarily in the Southeastern and Midwestern United States. The Company's telemarketing department finds and secures equipment for major carriers throughout the United States, which is unique to the industry. 2. Furniture, Fixtures and Equipment Property and equipment consists of office furniture and fixtures, vehicles and leasehold improvements, which are stated at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives of five to seven years for office furniture and fixtures, five years for vehicles, and 10 to 15 years for leasehold improvements. The straight-line method of depreciation is followed for substantially all assets for financial reporting purposes, while statutory methods are used for income tax purposes. Depreciation expense was $32,980, $44,364 and $36,427 for the years ended December 31, 1998, 1997 and 1996, respectively. 3. Accounts Receivable Accounts receivable consist of amounts due on open customer contracts financed by the Company on an interim basis and completed sales contracts to be funded by outside finance companies. The Company considers all accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required. If amounts become uncollectible, they will be charged to operations when that determination is made. 4. Revenue Recognition Revenue and related costs of trucks are recognized on the accrual basis of accounting and income is then recognized in the period in which the related truck or trailer sale is completed and title passes to the customer. MRB, Inc. & Affiliates NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1998, 1997, and 1996 NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued 5. Advertising The Company expenses advertising costs as they are incurred. 6. Cash - Concentration of Credit Risk Each company maintains their cash balances in demand deposits at financial institutions, which at times may exceed Federally insured limits. The Company has not experienced any losses in such accounts and believes there is no significant credit risk exposure on cash. 7. Inventory All inventories are valued at the lower of cost or market. The cost of vehicles including reconditioning parts and other direct costs is determined using the specific identification method. 8. Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 9. Organization Costs Costs of organizing the Company have been capitalized and are being amortized to operations over a 60-month period. Additionally, pre-acquisition costs incurred during 1998 in connection with the stock sale are included and amortized over 25 years beginning August 1, 1998. 10. Risk Management The Company is exposed to risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; material disasters; and product liability. The Company carries commercial insurance for risks of loss. MRB, Inc. & Affiliates NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1998, 1997, and 1996 NOTE B - RELATED PARTY TRANSACTIONS The Company leases its facilities in Conley, Georgia from related parties under an operating lease. The lease requires the Company to pay all maintenance, insurance, and taxes on the leased property. The following schedule shows the future minimum lease payments including the option period required by year under the operating lease, which was revised in January 1999 in connection with the stock purchase agreement of the Company. Years ended December 31, 1999 $ 102,000 2000 102,000 2001 102,000 2002 102,000 2003 102,000 2004 and thereafter 600,000 ------------ $ 1,110,000 =========== The lease contains an option to purchase the property by the parent company which expires July 31, 1999 (unless renewed by both parties). Rental expense for the lease was $193,274, $180,000 and $158,053 for the years ended December 31, 1998, 1997 and 1996, respectively. During the normal course of operations, the Company's shareholders advanced money to and received payments from the Company. The amount outstanding at December 31, 1998 and 1997 was $300,000 and $35,755, respectively. During the normal course of operations, individuals or companies controlled by employees and relatives of employees made bridge loans to the Company to finance vehicle purchases on an interim basis. The amounts outstanding to these individuals are shown in note C. During the normal course of operations, the Company placed inventory on consignment with a subsidiary company of the parent company, which purchased Tomahawk (see note I). The balance of these consigned items was $167,300 at December 31, 1998. MRB, Inc. & Affiliates NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1998, 1997, and 1996 NOTE C - NOTE PAYABLE AND LONG-TERM OBLIGATIONS
Long-term obligations consist of the following: 1998 1997 1996 ----------- ----------- ----------- Various notes payable to a financial institution, payable in monthly installments of $2,753 including interest at rates of 9 and 10 percent per annum, due from September 2001 to May 2003 secured by automobiles and equipment. $ 100,813 $ - $ - Various notes payable to financial institutions at rates of 9 and 10 percent per annum, secured by automobiles and equipment. - 158,541 57,812 Less current maturities (24,936) (100,750) (19,271) Total long-term obligations $ 75,877 $ 57,791 $ 38,541 =========== =========== =========== CURRENT NOTES PAYABLE Current portion of long-term obligations $ 24,936 $ 100,750 $ 19,271 Unsecured notes payable to individuals due on demand including interest payable at 10 percent. 255,950 403,696 160,000 Note payable to a financial institution, payable in monthly installments of $4,135 including interest at a rate of 10 percent per annum, due February 15, 1999 secured by automobiles and equipment. 8,164 - - Revolving bridge loan payable to a financial institution whereby the Company can borrow up to $400,000 for operating purposes. The remaining principle balance on the current note is due on March 27, 1999. 162,738 327,060 193,859 During 1994, the Company entered into a revolving line of credit agreement with a financial institution whereby the Company can borrow up to $7,500,000 to floor plan inventory. The maximum amount outstanding during 1998 was $7,500,000. Interest is accrued monthly at the financial institution's prime rate plus between .75 percent and 1.5 percent depending upon floor planned inventory amounts. The effective rate of interest at December 31, 1998 was 9.7 percent. This note is personally guaranteed by the shareholders of the Company. 5,573,235 3,602,232 1,901,055 During 1998, the Company entered into a financing agreement with the aforementioned financial institution to floor plan inventory from a specific buyer. Interest is accrued monthly at the financial institution's prime rate plus between .75 percent and 1.5 percent. The effective rate of interest at December 31, 1998 was 9.7 percent. This note is personally guaranteed by the shareholders of the Company. 3,489,400 - - Total current notes payable $9,514,423 $4,433,738 $2,274,185 =========== =========== ===========
MRB, Inc. & Affiliates NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1998, 1997, and 1996 NOTE C - NOTE PAYABLE AND LONG-TERM OBLIGATIONS - Continued Aggregate maturities of notes payable and long-term obligations are as follows
1999 $9,514,423 2000 27,405 2001 26,891 2002 15,585 2003 5,996 ---------- 9,590,300 ==========
NOTE D - CONCENTRATION OF CREDIT RISK Sales and credit receivables have significant concentrations of risk due to fluctuations affecting the trucking industry. However, concentrations of credit risk with respect to trade receivables is limited because the Company's client base is made up of a large number of geographically diverse clients and financing is provided primarily from outside parties with limited or no recourse. NOTE E - COMMITMENTS The Company conducts a substantial portion of its operations utilizing leased facilities, consisting of offices, equipment and vehicles over periods of 12 to 60 months. Most of the operating leases provide that the Company pay taxes, maintenance, insurance and other expenses applicable to the leased property. Lease payments and related expenses amounted to $449,966, $328,042 and $245,636 for the years ended December 31, 1998, 1997 and 1996, respectively. The minimum rental commitments under operating leases are as follows:
Year ended December 31, 1999 $179,300 2000 168,100 2001 102,000 2002 102,000 2003 102,000 653,400
MRB, Inc. & Affiliates NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1998, 1997, and 1996 NOTE F - INCOME TAXES The income taxes on the net earnings of the Company are payable personally by the shareholders pursuant to an election as an S corporation under the Internal Revenue Code not to have the Company taxed as a corporation. The income taxes assumed payable had this election not been made amount to $131,385, $15,022 and $15,218 in 1998, 1997 and 1996, respectively. NOTE G - COMMON STOCK AND ADDITIONAL CONTRIBUTED CAPITAL Ownership of the four entities under common ownership and control are as follows:
1998 1997 1996 ------- ------- ------- MRB, Inc. (of Georgia) Authorized, 10,000 shares of $1.00 par value; issued 5,000 shares $10,000 $10,000 $10,000 Tomahawk Truck & Trailer Sales, Inc. (of Florida) Authorized, 7,500 shares of $1.00 par value; issued 100 shares 20,000 20,000 20,000 Tomahawk Truck & Trailer Sales of Virginia, Inc. Authorized, 1,000 shares of no par value; Issued 100 shares 50,000 50,000 50,000 Tomahawk Truck & Trailer Sales of Missouri, Inc. Authorized, 30,000 shares of $1.00 par value; Issued 100 shares 100 - - ------- ------- ------- $80,100 $80,000 $80,000 ======= ======= =======
NOTE H - CONTINGENT LIABILITIES The Company is engaged in two lawsuits as a defendant involving alleged breach of contract from the sale of used trucks sold during 1996 through 1998. In the opinion of management, based upon advice of counsel, the ultimate outcome of these lawsuits is unknown as of the date of this report. The Company has insurance against certain liability claims; however, a reserve for estimated expenses to defend these claims and possible losses in the amount of approximately $47,000 was accrued as of the date of this report. Additionally, the Company's new parent has accrued approximately $37,500 to defend these claims. MRB, Inc. & Affiliates NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1998, 1997, and 1996 NOTE I - CHANGE IN MANAGEMENT AND OWNERSHIP During August 1998, the Company's board of directors and shareholders entered into a management agreement effective August 1, 1998, with a subsidiary of a publicly traded company. A related stock purchase agreement closed in January 1999 which included an exchange of MRB, Inc. & Affiliates' common stock for stock in the parent; earn out payments in the form of cash and/or shares of common stock based on quarterly operating performance; cash consideration; and contingent shares of the parent in the form of loans. Employment agreements, lease agreements on business real estate and certain indemnity agreements were signed with certain key employees of MRB, Inc. FINANCIAL STATEMENTS AND ACCOUNTANTS' REVIEW REPORT MRB, INC. & AFFILIATES JULY 31, 1998 Report of Independent Certified Public Accountants -------------------------------------------------- Board of Directors and Shareholders MRB, Inc. & Affiliates We have reviewed the accompanying combined balance sheet of MRB, INC. & AFFILIATES as of July 31, 1998, and the related combined statements of earnings and retained earnings, and cash flows for the seven months then ended. All information included in these financial statements is the representation of the management of MRB, INC. & AFFILIATES. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of making inquires of Company personnel and applying analytical procedures to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying combined financial statements in order for them to be in conformity with generally accepted accounting principles. Atlanta, Georgia March 12, 1999
MRB, Inc. & Affiliates COMBINED BALANCE SHEET July 31, 1998 (See Accountants' Review Report) ASSETS CURRENT ASSETS Cash (note A7) $ 397,653 Accounts receivable trade (note A4) 222,100 Inventory (notes A8 and C) 5,574,462 Deposits 25,000 Prepaid expenses 21,000 ----------- Total current assets 6,240,215 FURNITURE, FIXTURES AND EQUIPMENT (note A2) 190,744 Less accumulated depreciation and amortization 52,559 ----------- 138,185 OTHER ASSETS Organization costs, less accumulated amortization of $11,080 (note A10) 65,941 ----------- $6,444,341 =========== LIABILITIES CURENT LIABILITIES Current maturities of long-term obligations (note C) $ 4,600 Notes payable - others (note C) 517,033 Note payable - floor plan (note C) 4,452,114 Accounts payable - trade 589,481 Payroll and sales taxes 81,220 Accrued expenses 313,123 ----------- Total current liabilities 5,957,571 LONG-TERM OBLIGATIONS, less current maturities (note C) 21,434 DUE TO SHAREHOLDERS (note B) 435,403 COMMITMENTS AND CONTINGENT LIABILITIES (notes E and G) SHAREHOLDERS' EQUITY Common stock and additional contributed capital (note F) $ 80,000 Retained earnings (50,067) 29,933 ----------- ------ $6,444,341 ===========
The accompanying notes are an integral part of this balance sheet.
MRB, Inc. & Affiliates COMBINED STATEMENT OF EARNINGS AND RETAINED EARNINGS Seven months ended July 31, 1998 (See Accountant's Review Report) Revenues (note A5) $20,143,295 Cost of goods sold 16,668,331 ------------ Gross profit 3,474,964 Operating expenses Administrative expenses $ 2,193,574 Selling and marketing expenses 856,344 Depreciation and amortization (notes A2 and A10) 20,436 3,070,354 ------------ --------- Operating earnings 404,610 Other expense - interest 303,610 ------------ Earnings before income taxes 101,000 Income taxes (note A3) - ------------ NET EARNINGS 101,000 Retained earnings at beginning of period 288,933 Distribution to shareholders (440,000) ------------ Retained earnings at end of period $ (50,067) ============
The accompanying notes are an integral part of this statement.
MRB, Inc. & Affiliates COMBINED STATEMENT OF CASH FLOWS Seven months ended July 31,1998 (See Accountants' Review Report) Increase (Decrease) in Cash Cash flows from operating activities Net earnings for the period $ 101,000 Adjustments to reconcile net earnings to net cash Provided by operating activities: Depreciation and amortization $ 20,436 Changes in assets and liabilities: Decrease in accounts receivable 251,410 Increase in inventory (1,597,295) Increase in deposits (6,996) Increase in other assets (47,029) Increase in accounts payable and accrued expenses 596,268 (783,206) ------------ --------- Net cash used in operating activities (682,206) Cash flows from investing activity Purchase of furniture, fixtures, and equipment (23,236) Cash flows from financing activities Proceeds from notes payable - net 503,652 Distributions to shareholders (440,000) Proceeds from shareholders - loans 399,648 ------------ Net cash provided by financing activities 463,300 ------------ Net decrease in cash (242,142) Cash at beginning of period 639,795 ------------ Cash at end of period $ 397,653 ============ Cash paid during the period for: - - --------------------------------------------------------- Interest $ 295,374
The accompanying notes are an integral part of this statement. MRB, Inc. & Affiliates NOTES TO COMBINED FINANCIAL STATEMENTS July 31, 1998 (See Accountants' Review Report) NOTE A - SUMMARY OF ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying combined financial statements follows. 1. Principles of Combination and Nature of Business MRB, Inc. & Affiliates (the "Company") consists of three corporations owned by the same shareholders and under common management, which collectively do business under the name of Tomahawk Truck & Trailer Sales (Tomahawk). MRB, Inc. was incorporated in July 1991. Tomahawk Truck & Trailer Sales, Inc. was incorporated in November 1995. Tomahawk Truck & Trailer Sales of Virginia, Inc. was incorporated in November 1996. Because of these relationships, the combined financial statements have been prepared as if they were a single entity. All inter-company transactions have been eliminated from the combined financial statements. The Company is engaged in the sale of used trucks and trailers primarily in the Southeastern and Midwestern United States. The Company's telemarketing department finds and secures equipment for major carriers throughout the United States, which is unique to the industry. 2. Furniture, Fixtures and Equipment Furniture, fixtures and equipment consists of office furniture and fixtures, vehicles and leasehold improvements which are stated at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives of five to seven years for office furniture and fixtures, five years for vehicles and 10 to 15 years for leasehold improvements. The straight-line method of depreciation is followed for substantially all assets for financial reporting purposes, while statutory methods are used for income tax purposes. 3. Income Taxes The income taxes on the net earnings of the Company are payable personally by the shareholders pursuant to an election as an S corporation under the Internal Revenue Code not to have the Company taxed as a corporation. The income taxes assumed payable had this election not been made amount to $22,640 for the seven month period ended July 31, 1998. MRB, Inc. & Affiliates NOTES TO COMBINED FINANCIAL STATEMENTS July 31, 1998 (See Accountants' Review Report) NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued 4. Accounts Receivable Accounts receivable consists of amounts due on open customer contracts financed by the Company on an interim basis and completed sales contracts to be funded by outside finance companies. The Company considers all accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required. If amounts become uncollectible, they will be charged to operations when that determination is made. 5. Revenue Recognition Revenue and related costs of trucks are recognized on the accrual basis of accounting, and income is then recognized in the period in which the related truck or trailer sale is completed and title passes to the customer. 6. Advertising The Company expenses advertising costs as they are incurred. 7. Cash - Concentration of Credit Risk Each company maintains their cash balances in demand deposits at one financial institution, which at times may exceed Federally insured limits. The Company has not experienced any losses in such accounts and believes there is no significant credit risk exposure on cash. 8. Inventory All inventories are valued at the lower of cost or market. The cost of vehicles and parts is determined using the specific identification method. 9. Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. MRB, Inc. & Affiliates NOTES TO COMBINED FINANCIAL STATEMENTS July 31, 1998 (See Accountants' Review Report) NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued 10. Organization Costs Costs of organizing the Company have been capitalized and are being amortized to operations over a 60-month period. 11. Risk Management The Company is exposed to risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; material disasters; and product liability. The Company carries commercial insurance for risks of loss. NOTE B - RELATED PARTY TRANSACTIONS The Company leases its facilities in Conley, Georgia from a related party under an operating lease. The lease requires the Company to pay all maintenance, insurance, and taxes on the leased property. The following schedule shows the future minimum lease payments required by year under the operating lease, which was revised in January 1999 in connection with the sale of the Company. See note H.
Periods ended July 31, 1999 $ 93,000 2000 102,000 2001 102,000 2002 102,000 2003 102,000 -------- 501,000 =======================
Rental expense for the lease was $108,500 for the seven months ended July 31, 1998. During the normal course of operations, the Company's shareholders advanced money to and received repayments from the Company. At July 31, 1998, $435,403 is owed to shareholders, of which $135,403 was repaid by December 31, 1998. NOTE C - NOTES PAYABLE AND LONG-TERM OBLIGATIONS Notes payable-other includes a bridge loan payable to a financial institution whereby the Company can borrow up to $400,000 for operating purposes. Interest is payable monthly at a rate of 10.5 percent. Remaining principle balance is due on March 27, 1999. The outstanding balance on this loan is $291,083 at July 31, 1998. Also included in notes payable-other is $225,950 in amounts due to various individuals. These notes are unsecured, bear interest at a rate of 10 percent and are due on demand. MRB, Inc. & Affiliates NOTES TO COMBINED FINANCIAL STATEMENTS July 31, 1998 (See Accountants' Review Report) NOTE C - NOTES PAYABLE AND LONG-TERM OBLIGATIONS - Continued During 1994, the Company entered into a revolving line of credit agreement with a financial institution, whereby the Company can borrow up to $7,500,000 to floor plan inventory. Borrowing outstanding on this line of credit was $4,452,114 at July 31, 1998. Interest is accrued monthly at the institution's prime rate plus 1.75 percent. The effective rate of interest at July 31, 1998 was 10.25 percent. This note is personally guaranteed by the shareholders of the Company.
Long-term obligations consist of the following at July 31, 1998: Notes payable to a financial institution, payable in monthly installments of $563 including interest at 9.5% per annum over 60 months, due June 1998 to May 2003 secured by an automobile. $26,034 Less: current portion due (4,600) -------- Long-term notes payable $21,434 ========
Aggregate maturities of notes payable and long-term obligations for the five years following July 31, 1998 are as follows:
Periods ended July 31, 1999 $4,600 2000 5,031 2001 5,503 2002 6,019 2003 4,881 ------ 26,034 =======================
NOTE D - CONCENTRATION OF CREDIT RISK Sales and credit receivables have significant concentrations of risk due to fluctuations affecting the trucking industry. However, concentrations of credit risk with respect to trade receivables is limited because the Company's client base is made up of a large number of geographically diverse clients and financing is provided primarily from outside parties with limited or no recourse. MRB, Inc. & Affiliates NOTES TO COMBINED FINANCIAL STATEMENTS July 31, 1998 (See Accountants' Review Report) NOTE E - COMMITMENTS The Company conducts a substantial portion of its operations utilizing leased facilities, consisting of offices, equipment and vehicles leased over periods of 12 to 60 months. Most of the operating leases provide that the Company pay taxes, maintenance, insurance and other expenses applicable to the leased property. Lease payments and related expenses amounted to $272,295 for the period ended July 31, 1998. The minimum rental commitments under operating leases excluding the related party lease disclosed in note B are as follows:
Periods ended July 31, 1999 $179,300 2000 168,000 2001 102,000 2002 102,000 2003 102,000 -------- 653,300 =======================
NOTE F - COMMON STOCK AND ADDITIONAL CONTRIBUTED CAPITAL Ownership of the three entities under common ownership and control are as follows at July 31, 1998.
MRB, Inc. (Georgia) Authorized, 10,000 shares of $1.00 par value; issued 5,000 shares $10,000 Tomahawk Truck & Trailer Sales, Inc. (Florida) Authorized, 7,500 shares of $1.00 par value; issued 100 shares 20,000 Tomahawk Truck & Trailer Sales of Virginia, Inc. Authorized, 1,000 shares of no par value; issued 100 shares 50,000 ------- $80,000 =======
MRB, Inc. & Affiliates NOTES TO COMBINED FINANCIAL STATEMENTS July 31, 1998 (See Accountants' Review Report) NOTE G - CONTINGENT LIABILITIES The Company is engaged in two alleged breach of contract lawsuits as a defendant from the sale of used trucks during 1996 through 1998. In the opinion of management, based upon advice of counsel, the ultimate outcome of these lawsuits is unknown as of the date of this report. The Company has insurance against certain liability claims; however, a reserve for estimated expenses to defend these claims and possible losses in the amount of approximately $47,000 was accrued as of the date of this report. Additionally, the Company's new parent has accrued approximately $37,500 to defend these claims. NOTE H - SUBSEQUENT EVENTS Subsequent to July 31, 1998, the Company's board of directors and shareholders entered into a stock purchase agreement with a subsidiary of a publicly traded company. A management agreement was entered into whereby significant management control of the Company was passed to the acquiring company in August 1998. The stock purchase agreement included an exchange of MRB, Inc. & Affiliates common stock for stock in the parent, earn out payments in the form of cash and/or shares of common stock based on quarterly operating performance; cash consideration; and contingent shares of the parent in the form of loans. The sale was closed in January 1999. Employment agreements, lease agreements on business real estate and certain indemnity agreements were signed by certain key employees of Tomahawk. Subsequent to July 31, 1998 the Company opened a retail operation in Kansas City, Missouri under the name of Tomahawk Truck & Trailer Sales of Missouri, Inc. EX-99.2 4 Exhibit 99.2
CHANCELLOR CORPORATION AND SUBSIDIARIES PRO FORMA COMBINED BALANCE SHEETS (In Thousands, Except Share Data) DECEMBER 31, 1998 -------------- ASSETS Cash and cash equivalents $ 644 Receivables, net 3,255 Inventory 10,758 Net investment in direct finance leases 359 Equipment on operating lease, net of accumulated depreciation Of $2,351 702 Residual values, net 219 Furniture and equipment, net of accumulated depreciation Of $1,290 999 Other investments 3,681 Intangibles, net 7,541 Other assets, net 1,411 -------------- $ 29,569 ============== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued expenses $ 6,366 Deferred reimbursable expenses 1,068 Indebtedness: Revolving credit line 9,063 Notes payable 942 Nonrecourse 889 Recourse 4,234 Total liabilities 22,562 -------------- Commitments and contingencies Stockholders' equity: Prefered Stock, $.01 par value, 20,000,000 shares authorized: Convertible Series AA, 5,000,000 shares issued and outstanding 50 Convertible Series B, 2,000,000 shares authorized, None issued and outstanding --- Common stock, $.01 par value; 75,000,000 shares authorized, 43,044,380 shares issued and outstanding 430 Additional paid-in capital 34,217 Accumulated deficit (27,690) 7,007 -------------- $ 29,569 ==============
CHANCELLOR CORPORATION AND SUBSIDIARIES PRO FORMA COMBINED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Data) DECEMBER 31, 1998 1997 ------------- ------------ Revenues: Transportation equipment sales $ 45,239 $ 27,332 Rental income 942 870 Lease underwriting income 74 293 Direct finance lease income 110 272 Interest income 195 44 Gains from portfolio remarketing 1,374 801 Fees from remarketing activities 1,407 1,488 Other income 441 665 49,782 31,765 ------------- ------------ Costs and expenses: Cost of transportation equipment sales 38,399 22,604 Selling, general and administrative 9,104 10,619 Interest expense 647 687 Depreciation and amortization 681 506 48,831 34,416 ------------- ------------ Income (loss) before extraordinary item and Provision (benefit) for income tax 951 (2,651) Provision (benefit) for income tax ---- 13 ------------- ------------ Income (loss) before extraordinary item 951 (2,664) Extraordinary item - gain on debt forgiveness ---- 930 ------------- ------------ Net income (loss) $ 951 ( $1,734) ============= ======= Basic net income (loss) per share: Income (loss) before extraordinary item $ .03 $ .17 Extraordinary item ---- (.06) Net income (loss) $ .03 ( $ .11) ============= ======= Diluted net income (loss) per share: Income (loss) before extraordinary item $ .02 $ .17 Extraordinary item ---- (.06) Net income (loss) $ .02 ( $ .11) ============= ======= Shares used in computing basic net income (loss) Per share 36,695,162 15,224,432 ============= ============ Shares used in computing diluted net income (loss) Per share 52,941,579 15,224,432 ============= ============
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