UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

___________________________________________________________________

FORM 8-K/A
(Amendment No. 2)

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):
April 26, 2023

___________________________________________________________________

graphic
COVENANT LOGISTICS GROUP, INC.
(Exact name of registrant as specified in its charter)


Nevada
000-24960
88-0320154
(State or other jurisdiction
of incorporation)
(Commission
File Number)
(IRS Employer
  Identification No.)

400 Birmingham Hwy., Chattanooga, TN
37419
(Address of principal executive offices)
(Zip Code)

(423) 821-1212
(Registrant's telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
☐
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
☐
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
☐
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
$0.01 Par Value Class A common stock
CVLG
NASDAQ

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
   
Emerging growth company  ☐
   
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   [   ]


Explanatory Note:
 
On April 26, 2023, Covenant Logistics Group, Inc., a Nevada corporation (the “Company”), completed the acquisition of Lew Thompson & Son Trucking, Inc. and related entities (collectively, “Lew Thompson & Son”). This Amendment No. 2 to the Current Report on Form 8-K originally filed by the Company with the Securities and Exchange Commission on April 27, 2023 (the “Original Form 8-K”) and amended on August 3, 2023 (the “Amendment No. 1”), is being filed to amend Item 9.01 to present certain combined financial statements of Lew Thompson & Son and to present certain unaudited pro forma consolidated financial statements of the Company in connection with the Company’s acquisition of Lew Thompson & Son. All of the other information in the Original Form 8-K, as amended by Amendment No. 1, remains unchanged.
 
Item 9.01
Financial Statements and Exhibits.
   
 
(a)
Financial statements of businesses or funds acquired.
     
   
The audited combined financial statements of Lew Thompson & Son as of and for the year ended December 31, 2022, the notes thereto, and the report of Grant Thornton, LLP are filed as Exhibit 99.2 and are incorporated in their entirety herein by reference.
 
The unaudited combined financial statements for Lew Thompson & Son as of and for the three months ended March 31, 2023 and the notes thereto, are filed as Exhibit 99.3 and are incorporated in their entirety herein by reference.
     
 
(b)
Pro forma financial information.
     
   
The unaudited pro forma consolidated financial statements of the Company as of and for the three months ended March 31, 2023 and for the year ended December 31, 2022 giving effect to the acquisition of Lew Thompson & Son, are filed as Exhibit 99.4 and are incorporated in their entirety herein by reference. Such unaudited pro forma consolidated financial statements are not necessarily indicative of the operating results and financial position that actually would have been achieved if the acquisition had been in effect on the dates indicated or that may be achieved for future periods, and should be read in conjunction with the financial statements of the Company and Lew Thompson & Son.
     
 
(d)
Exhibits.
     
 
EXHIBIT
NUMBER
EXHIBIT DESCRIPTION
     
 
Consent of Independent Certified Public Accountants — Grant Thornton, LLP
 
 
Lew Thompson & Son Trucking, Inc. and Related Entities Audited Combined Financial Statements as of and for the year ended December 31, 2022, the notes thereto, and the report of Grant Thornton, LLP.
 
 
Lew Thompson & Son Trucking, Inc. and Related Entities Unaudited Combined Financial Statements as of and for the three months ended March 31, 2023 and the notes thereto.
 
 
Unaudited Pro Forma Consolidated Financial Statements of Covenant Logistics Group, Inc. as of and for the three months ended March 31, 2023 and for the year ended December 31, 2022 and the notes thereto.
 
 
104
Cover Page Interactive Data File

SIGNATURE

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 hereunto duly authorized.

 
COVENANT LOGISTICS GROUP, INC.
 
(Registrant)
  
     
Date: November 15, 2023
By:
/s/ James S. Grant
   
James S. Grant
   
Executive Vice President and Chief Financial Officer


Exhibit 23.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
 
We have issued our report dated November 15, 2023, with respect to the combined financial statements of Lew Thompson & Son Trucking, Inc., Lew Thompson & Son Dedicated, Inc., Josh Thompson Trucking, Inc., Lew Thompson & Son Dedicated Leasing, Inc., and Lew Thompson & Son Leasing, Inc. as of and for the year ended December 31, 2022 and the notes thereto, which report appears in this Form 8-K/A of Covenant Logistics Group, Inc. We consent to the incorporation by reference of said report in the Registration Statements of Covenant Logistics Group, Inc. on Forms S-8 (File No. 333-2654, File No. 033-88686, File No. 333-37356, File No. 333-134939, File No. 333-174582, File No. 333-189060, File No. 333-231390 and File No. 333-239724) and Form S-3 (File No. 333-266826).
 
/s/ Grant Thornton LLP
 
Charlotte, North Carolina
November 15, 2023

Exhibit 99.2

 
 
Lew Thompson & Son Trucking, Inc.,
Lew Thompson & Son Dedicated Inc.,
Josh Thompson Trucking, Inc.,
Lew Thompson & Son Dedicated Leasing, Inc.,
and
Lew Thompson & Son Leasing Inc.

Combined Financial Statements

For the year ended December 31, 2022 with Report of Independent Certified Public Accountants
Table of Contents
 
 
 
Report of Independent Certified Public Accountants
 1
   
Combined Financial Statements
 
 
Combined Balance Sheet
2
 
Combined Statement of Operations
3
 
Combined Statement of Changes in Stockholders' Equity
4
 
Combined Statement of Cash Flow
5
 
Notes to Combined Financial Statements
6
Report of Independent Certified Public Accountants

Board of Directors
Lew Thompson & Son Trucking, Inc.
Lew Thompson & Son Dedicated, Inc.
Josh Thompson Trucking, Inc.
Lew Thompson & Son Dedicated Leasing, Inc.
Lew Thompson & Son Leasing, Inc.
Opinion
We have audited the combined financial statements of Lew Thompson & Son Trucking, Inc., Lew Thompson & Son Dedicated, Inc., Josh Thompson Trucking, Inc., Lew Thompson & Son Dedicated Leasing, Inc., and Lew Thompson & Son Leasing, Inc. (an Arkansas corporation) which comprise the combined balance sheet as of December 31, 2022, and the related combined statement of operations, changes in stockholders’ equity, and cash flows for the year then ended, and the related notes to the financial statements.
In our opinion, the accompanying combined financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for opinion
We conducted our audits of the combined financial statements in accordance with auditing standards generally accepted in the United States of America (US GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of management for the financial statements
Management is responsible for the preparation and fair presentation of the combined financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the combined financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date the financial statements are issued.

Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the combined financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with US GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the combined financial statements.
In performing an audit in accordance with US GAAS, we:
•
Exercise professional judgment and maintain professional skepticism throughout the audit.
•
Identify and assess the risks of material misstatement of the combined financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
•
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed.
•
Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the combined financial statements.
•
Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
/s/ GRANT THORNTON LLP
Charlotte, North Carolina
November 15, 2023
1

LEW THOMPSON & SON TRUCKING, INC., LEW THOMPSON & SON DEDICATED, INC., JOSH THOMPSON TRUCKING, INC.,
LEW THOMPSON & SON DEDICATED LEASING, INC., AND LEW THOMPSON & SON LEASING, INC.
COMBINED BALANCE SHEET
DECEMBER 31, 2022
 
ASSETS
      
Current assets:
      
Cash and cash equivalents
  
$
6,055,273
  
Accounts receivable
    
5,916,792
  
Drivers' advances and other receivables
    
475,696
  
Inventory and supplies
    
1,014,890
  
Prepaid expenses
    
881,571
  
Other short-term assets
    
125,097
  
Total current assets
    
14,469,319
  
 
        
Property and equipment, net
    
34,803,272
  
Right of use assets, net
    
2,104,030
  
 
        
Total assets
  
$
51,376,621
  
LIABILITIES AND STOCKHOLDERS' EQUITY
        
Current liabilities:
        
Accounts payable
    
551,005
  
Accrued expenses
    
1,343,821
  
Current portion of operating lease obligations
    
442,851
  
Insurance and claims accrual
    
95,763
  
Total current liabilities
    
2,433,440
  
 
        
Long-term portion of operating lease obligations
    
1,661,179
  
Total liabilities
    
4,094,619
  
         
Commitments and contingencies
    
-
  
Stockholders' equity:
        
Lew Thompson & Son Trucking, Inc. Class A common stock, $1.00 par value; 100,000 shares authorized; 1,000 shares issued and outstanding
    
1,000
  
Lew Thompson & Son Dedicated, Inc. Class A common stock, $1.00 par value; 100,000 shares authorized; 300 shares issued and outstanding
    
300
  
Josh Thompson Trucking, Inc. Class A common stock, $25.00 par value; 2,000 shares authorized; 12 shares issued and outstanding
    
300
  
Lew Thompson & Son Dedicated Leasing, Inc. Class A common stock, $1.00 par value; 100,000 shares authorized; 20,000 shares issued and outstanding
    
20,000
  
Lew Thompson & Son Leasing, Inc. Class A common stock, $1.00 par value; 250 shares authorized; 100 shares issued and outstanding
    
100
  
Additional paid-in-capital
    
5,094,254
  
Retained earnings
    
42,166,048
  
Total stockholders' equity
    
47,282,002
  
Total liabilities and stockholders' equity
  
$
51,376,621
  
 
The accompanying notes are an integral part of these combined financial statements.
2

LEW THOMPSON & SON TRUCKING, INC., LEW THOMPSON & SON DEDICATED, INC., JOSH THOMPSON TRUCKING, INC.,
LEW THOMPSON & SON DEDICATED LEASING, INC., AND LEW THOMPSON & SON LEASING, INC.
COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2022
 
 
  
 
Revenues
      
Freight revenue
  
$
53,867,823
  
Fuel surcharge revenue
    
10,778,411
  
Total revenue
  

64,646,234
  
 
        
Operating expenses:
        
Salaries, wages, and related expenses
    
19,820,370
  
Fuel expense
    
16,399,600
  
Operations and maintenance
    
4,578,202
  
Operating taxes and licenses
    
896,435
  
Insurance and claims
    
1,435,079
  
Communications and utilities
    
109,425
  
General supplies and expenses
    
1,356,940
  
Depreciation and amortization
    
5,296,635
  
Other expenses
    
1,556
  
Gain on disposition of property and equipment, net
    
(1,427,650
)
Total operating expenses
    
48,466,592
  
Operating income
    
16,179,642
  
Other income
    
694,208
  
Income before income taxes
    
16,873,850
  
Income tax expense
    
536,990
  
Net income
  
$
16,336,860
  
 
        
 
The accompanying notes are an integral part of these combined financial statements
3

LEW THOMPSON & SON TRUCKING, INC., LEW THOMPSON & SON DEDICATED, INC., JOSH THOMPSON TRUCKING, INC.,
LEW THOMPSON & SON DEDICATED LEASING, INC., AND LEW THOMPSON & SON LEASING, INC.
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2022
 
 
  
Common Stock – Lew Thompson & Son Trucking, Inc.
    
Common Stock – Lew Thompson & Son Dedicated, Inc.
    
Common Stock – Josh Thompson Trucking, Inc.
    
Common Stock – Lew Thompson & Son Dedicated Leasing, Inc.
    
Common Stock – Lew Thompson & Son Leasing, Inc.
    
Additional Paid-In
    
Retained
    
Total Stockholders'
  
 
  
Class A
    
Class A
    
Class A
    
Class A
    
Class A
    
Capital
    
Earnings
    
Equity
  
Balances at December 31, 2021
  
$
1,000
    
$
300
    
$
300
    
$
20,000
    
$
100
    
$
5,094,254
    
$
32,574,212
    
$
37,690,166
  
Contributions from stockholders
    
-
      
-
      
-
      
-
      
-
      
-
      
3,079,951
      
3,079,951
  
Distributions to stockholders
    
-
      
-
      
-
      
-
      
-
      
-
      
(9,824,975
)
    
(9,824,975
)
Net income
    
-
      
-
      
-
      
-
      
-
      
-
      
16,336,860
      
16,336,860
  
Balances at December 31, 2022
  
$
1,000
    
$
300
    
$
300
    
$
20,000
    
$
100
    
$
5,094,254
    
$
42,166,048
    
$
47,282,002
  
 
The accompanying notes are an integral part of these combined financial statements.
4
LEW THOMPSON & SON TRUCKING, INC., LEW THOMPSON & SON DEDICATED, INC., JOSH THOMPSON TRUCKING, INC,.
LEW THOMPSON & SON DEDICATED LEASING, INC., AND LEW THOMPSON & SON LEASING, INC.
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2022
 
Cash flows from operating activities:
      
Net income
  
$
16,336,860
  
Adjustments to reconcile net income to net cash provided by operating activities:
        
Depreciation and amortization
    
5,296,635
  
Gain on disposition of property and equipment
    
(1,424,650
)
Changes in operating assets and liabilities:
        
Receivables and advances
    
(1,532,208
)
Inventory and supplies
    
(998,407
)
Prepaid expenses and other assets
    
(512,974
)
Accounts payable and accrued expenses
    
904,897
  
Net cash flows provided by operating activities
    
18,070,153
  
 
        
Cash flows from investing activities:
        
Acquisition of property and equipment

(11,801,664
)
Proceeds from disposition of property and equipment
    
3,201,901
  
Net cash flows used in investing activities
    
(8,599,763
)
 
        
Cash flows from financing activities:
        
Contributions from shareholders
    
3,079,951
  
Distributions to shareholders
    
(9,824,975
)
Net cash flows used in financing activities
    
(6,745,024
)
 
        
Net change in cash and cash equivalents
    
2,725,366
  
 
        
Cash and cash equivalents at beginning of year
    
3,329,907
  
Cash and cash equivalents at end of year
  
$
6,055,273
  
 
        
Supplemental disclosure of cash flow information:
        
Cash paid during the year for:
        
Income taxes
   $
65,540
  
 
The accompanying notes are an integral part of these combined financial statements. 
5
LEW THOMPSON & SON TRUCKING, INC., LEW THOMPSON & SON DEDICATED, INC., JOSH THOMPSON TRUCKING, INC,.
LEW THOMPSON & SON DEDICATED LEASING, INC., AND LEW THOMPSON & SON LEASING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2022
 
 
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Company Description and Principles of Combination
 
These combined financial statements include the accounts Lew Thompson & Son Trucking, Inc., an Arkansas corporation, Lew Thompson and Son Dedicated, Inc., an Arkansas corporation, Josh Thompson Trucking, Inc., an Arkansas corporation, Lew Thompson & Son Dedicated Leasing, Inc., an Arkansas corporation, and Lew Thompson & Son Leasing, Inc., an Arkansas corporation. References in this report to "we," "us," "our," the "Company," and similar expressions refer to the combined financial statements of the aforementioned companies.

All intercompany accounts and transactions have been eliminated in combination. The Company operates as a dedicated contract carrier primarily transporting poultry related feed and live haul freight within the United States.
    
Revenue Recognition
 
Revenue, drivers' wages, and other direct operating expenses are recognized proportionally as the transportation service is performed based on the percentage of miles completed as of the period end. Revenue is recognized on a gross basis at amounts charged to our customers because we control and are primarily responsible for the fulfillment of the promised service. Revenue includes transportation revenue, fuel surcharges, loading and unloading activities, equipment detention, and other accessorial services.
 
Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make decisions based upon estimates, assumptions, and factors we consider as relevant to the circumstances. Such decisions include the selection of applicable accounting principles and the use of judgment in their application, the results of which impact reported amounts and disclosures. Changes in future economic conditions or other business circumstances may affect the outcomes of our estimates and assumptions. Accordingly, actual results could differ from those anticipated.
 
Cash and Cash Equivalents
 
We consider all highly liquid investments with a maturity of three months or less at acquisition to be cash equivalents. Additionally, we are also subject to concentrations of credit risk related to deposits in banks in excess of the Federal Deposit Insurance Corporation limits. For the year ended December 31, 2022, we maintained cash in one bank that exceeded the FDIC limit of $250,000.
 
Accounts Receivable and Concentration of Credit Risk
 
We extend credit to our customers in the normal course of business, which are generally due within 30-45 days of the services performed. We perform ongoing credit evaluations and generally do not require collateral. Trade accounts receivable are recorded at their invoiced amounts reduced by an allowance for doubtful accounts, if necessary, which reflects management’s best estimate of the amounts that will not be collected. Receivable balances are written off when collection is deemed unlikely.
 
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of trade accounts receivable. For the year ended December 31, 2022 three customers accounted for 10% or more of total accounts receivable at 46.4%, 27% and 11.4% and two customers accounted for 10% or more of total revenues at 45.8% and 41.1%, respectively.

The carrying amount reported in the combined balance sheet for accounts receivable approximates fair value due to the short collection period for receivables.
  
Inventories and Supplies
 
Inventories and supplies consist of parts, tires, fuel, and supplies. Tires on new revenue equipment are capitalized as a component of the related equipment cost when the tractor or trailer is placed in service and recognized through depreciation over the life of the vehicle. Replacement tires and parts on hand at year end are recorded at the lower of cost or net realizable value with cost determined using the first-in, first-out (FIFO) method. Replacement tires are expensed when placed in service.
6
Property and Equipment
 
Property and equipment is stated at cost less accumulated depreciation. Depreciation is determined using the straight-line method over the estimated useful lives of the assets to an estimated salvage value. We annually review the reasonableness of our estimates regarding useful lives and salvage values of our revenue equipment and other long-lived assets based upon, among other things, our experience with similar assets, conditions in the used revenue equipment market, and prevailing industry practice. Changes in the useful life or salvage value estimates, or fluctuations in market values that are not reflected in our estimates, could have a material effect on our results of operations. 
  
Pursuant to applicable accounting standards, revenue equipment and other long-lived assets are tested for impairment whenever an event occurs that indicates impairment may exist. Undiscounted expected future cash flows are used to analyze whether an impairment has occurred. If the sum of expected undiscounted cash flows is less than the carrying value of the long-lived asset, then an impairment loss is recognized. We measure the impairment loss by comparing the fair value of the asset to its carrying value. Fair value is determined based on a discounted cash flow analysis or the appraised value of the assets, as appropriate. There were no impairment events during the year ended December 31, 2022.
     
Insurance and Other Claims
 
Given the nature of the Company’s operating environment, the Company has, and in the future may, become subject to vehicle liability claims. The Company maintains insurance for individual vehicle claims (including related bodily injury and property damage claims) exceeding $50,000. The Company also maintains insurance coverage for health insurance claims over a certain amount per claim and is fully insured for all workers’ compensation claims.

The Company remains liable, subject to the limits discussed above, for vehicle liability claims incurred. The amount of loss reserves and loss adjustment expenses related to these claims is determined based on an estimation process that uses information obtained from Company-specific data. The estimation process requires management to continuously monitor and evaluate the life cycle of these outstanding claims and estimate the ultimate settlement costs of these claims.
 
Income Taxes
 
For federal and state income tax returns, the combined entities of the Company have elected to be taxed as an S corporation under the Internal Revenue Code. Under this election, taxable income of these entities is allocated to its shareholders and no income tax is payable by the Company, except in certain states that do not recognize this election. Some of the states allow a pass-through entity to elect to be taxed at the entity level and allow owners to exclude from their taxable income any income which is taxed directly by the pass-through entity, and the company records income tax similar to entity-level tax for ASC 740 (Income Taxes) purposes. For 2022, the Company recognized pass-through entity income tax in the amount of $536,990.

For fiscal year ended December 31, 2022, the Company determined that there were no uncertain tax positions as a result of applying the guidance in ASC 740, Income Taxes. Accordingly, there was no provision for any uncertain tax positions in the consolidated financial statements for the year ended December 31, 2022, and the Company recognized no interest or penalties during those periods. In the event that an uncertain tax position would require the Company to recognize interest and penalties, these expenses would be recognized in interest expense and operating expenses, respectively. Tax years 2018 through 2022 remain open to examination by the tax authorities under the statute of limitations.
 
Lease Accounting
 
At the commencement date of a new lease agreement with contractual terms longer than twelve months, we recognize an asset and a lease liability on the balance sheet and categorize the lease as either finance or operating. Certain lease agreements have lease and non-lease components, and we have elected to account for these components separately.
 
Right-of-use assets and lease liabilities are initially recorded based on the present value of lease payments over the term of the lease. When the rate implicit in the lease is readily determinable, this rate is used for calculating the present value of remaining lease payments; otherwise, our incremental borrowing rate is used. The incremental borrowing rate represents an estimate of the interest rate we would incur at the lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease. Options to extend or terminate a lease agreement are included in or excluded from the lease term, respectively, when those options are reasonably certain to be exercised. Right-of-use assets are tested for impairment in the same manner as long-lived assets.
  
Operating lease right-of-use assets are amortized over the lease term on a straight-line basis, and the lease liability is measured at the present value of the remaining lease payments. Operating lease costs are recognized on a straight-line basis over the term of the lease within operating expenses.
7
Recent Accounting Pronouncements
 
Accounting Standards adopted
 
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, which establishes Topic 842 to replace Topic 840 regarding accounting for leases. Topic 842 requires lessees to recognize a right-of-use asset and a lease liability for most leases on the balance sheet. Leases that were previously described as capital leases are now called finance leases, and operating leases with a term of at least twelve months are now required to be recorded on the balance sheet. We adopted this standard on January 1, 2022 using the modified retrospective approach.

In July 2018, FASB issued ASU 2018-11, which provides an optional transition method allowing application of Topic 842 as of the adoption date and recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, with no restatement of comparative prior periods. We have adopted the standard using this optional transition method.
 
Within Topic 842, FASB has provided a number of practical expedients for applying the new lease standard in relation to leases that commenced prior to the standard's effective date. We have elected the package of practical expedients which allowed us, among other things, to carry forward the operating and finance lease classifications from Topic 840 to the new operating and finance lease classifications under Topic 842.
 
The adoption of this ASU resulted in the initial recognition of operating lease assets of $2,592,000 and liabilities totaling $2,592,000.
 
There are no other new accounting pronouncements that are expected to have a significant impact on our combined financial statements.
   
2.
PROPERTY AND EQUIPMENT
 
A summary of property and equipment, at cost, as of December 31, 2022 is as follows:
 
   
Estimated Useful Lives (Years)
    
2022
  
Revenue equipment
    
3 - 10
    
$
53,335,566
  
Communications equipment
    
5 - 10
      
50,403
  
Land and improvements
    
0 - 15
      
46,805
  
Buildings and leasehold improvements
    
7 - 40
      
7,733
  
Other
    
2 - 10
      
2,212,729
  
 
          
$
55,653,236
  
Less accumulated depreciation
            
20,849,964
  
           
$
34,803,272
  
 
Depreciation expense was $5,296,635 million in 2022. This depreciation expense excludes net gains on the sale of property and equipment totaling $1,427,650 million in 2022.

3.
LEASES
 
Our operating lease obligations do not typically include residual value guarantees or material restrictive covenants.
8
A summary of our lease obligations for the twelve months ended December 31, 2022 are as follows:
 
   
Twelve Months Ended
  
 
  
December 31, 2022
  
 
      
Operating lease cost
  
$
648,000
  
 
        
Total lease cost
  
$
648,000
  
 
        
Other information
        
Cash paid for amounts included in the measurement of lease liabilities:
        
Operating cash flows from operating leases
  
$
397,950
  
Right-of-use assets obtained in exchange for new operating lease liabilities
  
$
-
  
Weighted-average remaining lease term—operating leases
  
4.0 years
  
Weighted-average discount rate—operating leases
    
11.2
%
 
At December 31, 2022, we had right-of-use assets of $2,104,030 for operating leases in our combined balance sheet. Operating lease right-of-use asset amortization is included in general supplies and expenses in the combined statement of operations. 
 
Our future minimum lease payments as of December 31, 2022, are as follows:
 
   
Operating
  
2023
  
$
648,000
  
2024
    
648,000
  
2025
    
648,000
  
2026
    
648,000
  
Total minimum lease payments
  
$
2,592,000
  
Less: amount representing interest
    
(487,970
)
Present value of minimum lease payments
  
$
2,104,030
  
Less: current portion
    
(442,851
)
Lease obligations, long-term
  
$
1,661,179
  
 
4.
EMPLOYEE BENEFIT PLANS
 
401k Deferral Plan
 
We have a deferred 401k plan under which all of our employees with at least 90 days of service are eligible to participate. Employees may contribute a percentage of their annual compensation up to the maximum amount allowed by the Internal Revenue Code. We may make discretionary contributions as determined by the owners. No discretionary contributions were made in 2022. We made contributions of $53,414 in 2022 to the 401k deferral plan.
9
5.
RELATED PARTY TRANSACTIONS

Summary of Related Party Transactions

During the year ended December 31, 2022, the Company. engaged in the following related party transactions:

•
The Company leases certain properties from Lew Thompson and Son Real Estate, Inc., Josh Thompson Properties, LLC and Lew Thompson and Son Trucking, Inc. The Company’s leasing activities resulted in the initial recognition of operating lease assets of $2,592,000 and liabilities totaling $2,592,000, comprised of $442,851 of current operating lease obligations and $1,661,179 million of long-term operating lease obligations.
•
Thompson QOZB Ozark, LLC is owned by the major shareholders and has property leased by the Company for $0 which the Company uses to park excess equipment in Arkansas.
•
Lew Thompson & Son Petroleum, Inc. is owned by the major shareholders and Office Manager and has property leased by the Company for $0 which the Company uses to park excess equipment in Arkansas.
•
Thompson Poultry Bedding, LLC is owned by the major shareholders and paid the Company approximately $86,420 for maintenance services provided by the Company during 2022.
•
Thompson Ready Mix, Inc. is owned by the major shareholder’s and paid the Company approximately $89,315 for maintenance services provided by the Company during 2023.


6.
COMMITMENTS AND CONTINGENT LIABILITIES
 
From time-to-time, we are a party to ordinary, routine litigation arising in the ordinary course of business, most of which involves claims for personal injury and/or property damage incurred in connection with the transportation of freight. The Company’s insurance coverage for individual vehicle claims (including related bodily injury and property damage claims) provides for insurance levels with primary and excess coverage which management believes to be sufficient to adequately protect the Company from catastrophic claims. The Company maintains insurance for individual vehicle claims (including related bodily injury and property damage claims) exceeding $50,000, and has a casualty reserve in the amount of $40,000 accrued for payment of estimated claims, along with a $45,000 reserve for group health insurance claims at December 31, 2022.

In the normal course of business, the Company is also involved in various additional lawsuits, claims and other legal matters. The Company is of the opinion that the outcome of such lawsuits, claims and other legal matters will not have a material impact on the Company’s future financial position, results of operations, or cash flows.

7.
SUBSEQUENT EVENT

On April 26, 2023, the Company completed the sale of Lew Thompson & Son Trucking, Inc., Lew Thompson & Son Dedicated, Inc., Josh Thompson Trucking, Inc., Lew Thompson & Son Dedicated Leasing, Inc., and Lew Thompson & Son Leasing Inc. to Covenant Logistics Group, Inc., a Nevada Corporation.  Under the terms of the agreement, the Company sold 100% of the outstanding stock of the aforementioned companies in exchange for a closing enterprise value of approximately $100 million plus an earnout of up to $30 million depending on the results achieved by the business over the three following calendar years. The Company’s tax status changed as a result of the acquisition, however, this change did not have a material impact to the financial statements of the Company.

Subsequent events were evaluated through the date the financial statements were issued on November 15, 2023.
 
10

Back to Form 8-K/A
Exhibit 99.3
 
Lew Thompson & Son Trucking, Inc.,
Lew Thompson & Son Dedicated Inc.,
Josh Thompson Trucking, Inc.,
Lew Thompson & Son Dedicated Leasing, Inc.,
and
Lew Thompson & Son Leasing Inc.

Combined Financial Statements

For the period ended March 31, 2023
Table of Contents
 
 
 
Combined Financial Statements
 
 
Combined Balance Sheet
1
 
Combined Statement of Operations
2
 
Combined Statement of Changes in Stockholders' Equity
3
 
Combined Statement of Cash Flow
4
 
Notes to Combined Financial Statements
5
 

LEW THOMPSON & SON TRUCKING, INC., LEW THOMPSON & SON DEDICATED, INC., JOSH THOMPSON TRUCKING, INC.,
LEW THOMPSON & SON DEDICATED LEASING, INC., AND LEW THOMPSON & SON LEASING, INC.
COMBINED BALANCE SHEET
MARCH 31, 2023

 
  
2023
  
ASSETS
      
Current assets:
      
Cash and cash equivalents
  
$
6,710,074
  
Accounts receivable, net of allowance of $12,000
    
4,765,583
  
Drivers' advances and other receivables
    
487,194
  
Inventory and supplies
    
1,014,890
  
Prepaid expenses
    
810,621
  
Income taxes receivable
    
132,305
  
Other short-term assets
    
120,299
  
Total current assets
    
14,040,966
  
 
        
Property and equipment, net
    
34,573,865
  
Right of use assets, net
    
1,997,072
  
         
 
        
Total assets
  
$
50,611,903
  
LIABILITIES AND STOCKHOLDERS' EQUITY
        
Current liabilities:
        
Accounts payable
    
253,989
  
Accrued expenses
    
1,679,432
  
Current portion of operating lease obligations
    
454,459
  
Insurance and claims accrual
    
95,763
  
Total current liabilities
    
2,483,643
  
 
        
Long-term portion of operating lease obligations
    
1,542,613
  
Total liabilities
    
4,026,256
  
         
Commitments and contingencies
    
-
  
Stockholders' equity:
        
Lew Thompson & Son Trucking, Inc. Class A common stock, $1.00 par value; 100,000 shares authorized; 1,000 shares issued and outstanding
    
1,000
  
Lew Thompson & Son Dedicated, Inc Class A common stock, $1.00 par value; 100,000 shares authorized; 300 shares issued and outstanding
    
300
  
Josh Thompson Trucking, Inc Class A common stock, $25.00 par value; 2,000 shares authorized; 12 shares issued and outstanding
    
300
  
Lew Thompson & Son Dedicated Leasing, Inc Class A common stock, $1.00 par value; 100,000 shares authorized; 20,000 shares issued and outstanding
    
20,000
  
Lew Thompson & Son Leasing, Inc Class A common stock, $1.00 par value; 250 shares authorized; 100 shares issued and outstanding
    
100
  
Additional paid-in-capital
    
5,094,254
  
Retained earnings
    
41,469,693
  
Total stockholders' equity
    
46,585,647
  
Total liabilities and stockholders' equity  
$
50,611,903
  
 
The accompanying notes are an integral part of these combined financial statements.
1
LEW THOMPSON & SON TRUCKING, INC., LEW THOMPSON & SON DEDICATED, INC., JOSH THOMPSON TRUCKING, INC.,
LEW THOMPSON & SON DEDICATED LEASING, INC., AND LEW THOMPSON & SON LEASING, INC.
COMBINED STATEMENT OF OPERATIONS
PERIOD ENDED MARCH 31, 2023
 
 
  
2023
  
Revenues
      
Freight revenue
  
$
14,584,113
  
Fuel surcharge revenue
    
2,823,170
  
Total revenue
  
$
17,407,283
  
 
        
Operating expenses:
        
Salaries, wages, and related expenses
    
5,937,648
  
Fuel expense
    
3,308,707
  
Operations and maintenance
    
2,106,668
  
Operating taxes and licenses
    
54,983
  
Insurance and claims
    
322,072
  
Communications and utilities
    
75,266
  
General supplies and expenses
    
294,328
  
Depreciation and amortization
    
1,373,079
  
Other expenses
    
5,345
  
Gain on disposition of property and equipment, net
    
(141,500
)
Total operating expenses
    
13,336,596
  
Operating income
    
4,070,687
  
Other income
    
116,415
  
Income before income taxes
    
4,187,102
  
Income tax expense
    
123,550
  
Net income
  
$
4,063,552
  
 
        
 
The accompanying notes are an integral part of these combined financial statements
2
LEW THOMPSON & SON TRUCKING, INC., LEW THOMPSON & SON DEDICATED, INC., JOSH THOMPSON TRUCKING, INC.,
LEW THOMPSON & SON DEDICATED LEASING, INC., AND LEW THOMPSON & SON LEASING, INC.
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED MARCH 31, 2023
 
 
  
Common Stock – Lew Thompson & Son Trucking, Inc.
    
Common Stock – Lew Thompson & Son Dedicated, Inc.
    
Common Stock – Josh Thompson Trucking, Inc.
    
Common Stock – Lew Thompson & Son Dedicated Leasing, Inc.
    
Common Stock – Lew Thompson & Son Leasing, Inc.
    
Additional Paid-In
    
Retained
    
Total Stockholders'
  
 
  
Class A
    
Class A
    
Class A
    
Class A
    
Class A
    
Capital
    
Earnings
    
Equity
  
Balances at December 31, 2022
  
$
1,000
    
$
300
    
$
300
    
$
20,000
    
$
100
    
$
5,094,254
    
$
42,166,048
    
$
47,282,002
  
Distributions to stockholders
    
-
      
-
      
-
      
-
      
-
      
-
      
(4,759,907
)
    
(4,759,907
)
Net income
    
-
      
-
      
-
      
-
      
-
      
-
      
4,063,552
      
4,063,552
  
Balances at March 31, 2023
  
$
1,000
    
$
300
    
$
300
    
$
20,000
    
$
100
    
$
5,094,254
    
$
41,469,693
    
$
46,585,647
  
 
The accompanying notes are an integral part of these combined financial statements.
3
LEW THOMPSON & SON TRUCKING, INC., LEW THOMPSON & SON DEDICATED, INC., JOSH THOMPSON TRUCKING, INC,.
LEW THOMPSON & SON DEDICATED LEASING, INC., AND LEW THOMPSON & SON LEASING, INC.
COMBINED STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED MARCH 31, 2023
 
 
  
2023
  
Cash flows from operating activities:
      
Net income
  
$
4,063,552
  
Adjustments to reconcile net income to net cash provided by operating activities:
        
Depreciation and amortization
    
1,373,079
  
Gain on disposition of property and equipment
    
(141,500
)
Changes in operating assets and liabilities:
        
Receivables and advances
    
1,442,946
  
Inventory and supplies
    
191,195
  
Prepaid expenses and other assets
    
(56,556
)
Accounts payable and accrued expenses
    
(221,662
)
Net cash flows provided by operating activities
    
6,651,054
  
 
        
Cash flows from investing activities:
        
Acquisition of property and equipment
    
(1,377,846
)
Proceeds from disposition of property and equipment
    
141,500
  
Net cash flows used in investing activities
    
(1,236,346
)
 
        
Cash flows from financing activities:
        
Distributions to shareholders
    
(4,759,907
)
Net cash flows used in financing activities
    
(4,759,907
)
 
        
Net change in cash and cash equivalents
    
654,801
  
 
        
Cash and cash equivalents at beginning of period
    
6,055,273
  
Cash and cash equivalents at end of period
  
$
6,710,074
  
 
        
Supplemental disclosure of cash flow information:
        
Cash paid during the period for:
        
Interest
  
$
33,458
  
         
 
The accompanying notes are an integral part of these combined financial statements.
4
LEW THOMPSON & SON TRUCKING, INC., LEW THOMPSON & SON DEDICATED, INC., JOSH THOMPSON TRUCKING, INC,.
LEW THOMPSON & SON DEDICATED LEASING, INC., AND LEW THOMPSON & SON LEASING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 2023
 
 
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Company Description and Principles of Combination
 
These combined financial statements include the accounts Lew Thompson & Son Trucking, Inc., an Arkansas corporation, Lew Thompson and Son Dedicated, Inc., an Arkansas corporation, Josh Thompson Trucking, Inc., an Arkansas corporation, Lew Thompson & Son Dedicated Leasing, Inc., an Arkansas corporation, and Lew Thompson & Son Leasing, Inc., an Arkansas corporation. References in this report to "we," "us," "our," the "Company," and similar expressions refer to the combined financial statements of the aforementioned companies.

All intercompany accounts and transactions have been eliminated in combination. The Company operates as a dedicated contract carrier primarily transporting poultry related feed and live haul freight within the United States.
    
Revenue Recognition
 
Revenue, drivers' wages, and other direct operating expenses are recognized proportionally as the transportation service is performed based on the percentage of miles completed as of the period end. Revenue is recognized on a gross basis at amounts charged to our customers because we control and are primarily responsible for the fulfillment of the promised service. Revenue includes transportation revenue, fuel surcharges, loading and unloading activities, equipment detention, and other accessorial services.
 
Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make decisions based upon estimates, assumptions, and factors we consider as relevant to the circumstances. Such decisions include the selection of applicable accounting principles and the use of judgment in their application, the results of which impact reported amounts and disclosures. Changes in future economic conditions or other business circumstances may affect the outcomes of our estimates and assumptions. Accordingly, actual results could differ from those anticipated.
 
Cash and Cash Equivalents
 
We consider all highly liquid investments with a maturity of three months or less at acquisition to be cash equivalents. Additionally, we are also subject to concentrations of credit risk related to deposits in banks in excess of the Federal Deposit Insurance Corporation limits. For the period ended March 31, 2023, we maintained cash in one bank that exceeded the FDIC limit of $250,000.
 
Accounts Receivable and Concentration of Credit Risk
 
We extend credit to our customers in the normal course of business, which are generally due within 30-45 days of the services performed. We perform ongoing credit evaluations and generally do not require collateral. Trade accounts receivable are recorded at their invoiced amounts reduced by an allowance for doubtful accounts, if necessary, which reflects management’s best estimate of the amounts that will not be collected. Receivable balances are written off when collection is deemed unlikely.
 
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of trade accounts receivable. For the period ended March 31, 2023 three customers accounted for 10% or more of total accounts receivable at 46.4%, 27% and 11.4% and two customers accounted for 10% or more of total revenues at 45.8% and 41.1%, respectively.

The carrying amount reported in the combined balance sheet for accounts receivable approximates fair value due to the short collection period for receivables.
  
Inventories and Supplies
 
Inventories and supplies consist of parts, tires, fuel, and supplies. Tires on new revenue equipment are capitalized as a component of the related equipment cost when the tractor or trailer is placed in service and recognized through depreciation over the life of the vehicle. Replacement tires and parts on hand at period end are recorded at the lower of cost or net realizable value with cost determined using the first-in, first-out (FIFO) method. Replacement tires are expensed when placed in service.
5
Property and Equipment
 
Property and equipment is stated at cost less accumulated depreciation. Depreciation is determined using the straight-line method over the estimated useful lives of the assets to an estimated salvage value. We annually review the reasonableness of our estimates regarding useful lives and salvage values of our revenue equipment and other long-lived assets based upon, among other things, our experience with similar assets, conditions in the used revenue equipment market, and prevailing industry practice. Changes in the useful life or salvage value estimates, or fluctuations in market values that are not reflected in our estimates, could have a material effect on our results of operations. 
  
Pursuant to applicable accounting standards, revenue equipment and other long-lived assets are tested for impairment whenever an event occurs that indicates impairment may exist. Undiscounted expected future cash flows are used to analyze whether an impairment has occurred. If the sum of expected undiscounted cash flows is less than the carrying value of the long-lived asset, then an impairment loss is recognized. We measure the impairment loss by comparing the fair value of the asset to its carrying value. Fair value is determined based on a discounted cash flow analysis or the appraised value of the assets, as appropriate. There were no impairment events during the period ended March 31, 2023.
     
Insurance and Other Claims
 
Given the nature of the Company’s operating environment, the Company has, and in the future may, become subject to vehicle liability claims. The Company maintains insurance for individual vehicle claims (including related bodily injury and property damage claims) exceeding $50,000. The Company also maintains insurance coverage for health insurance claims over a certain amount per claim and is fully insured for all workers’ compensation claims.

The Company remains liable, subject to the limits discussed above, for vehicle liability claims incurred. The amount of loss reserves and loss adjustment expenses related to these claims is determined based on an estimation process that uses information obtained from Company-specific data. The estimation process requires management to continuously monitor and evaluate the life cycle of these outstanding claims and estimate the ultimate settlement costs of these claims.
 
Income Taxes
 
For federal and state income tax returns, Lew Thompson & Son Trucking, Inc. (the Company), an Arkansas corporation, including the accounts of the Company, Lew Thompson & Son Dedicated, Inc., Josh Thompson Trucking, Inc., Lew Thompson & Son Dedicated Leasing, Inc., and Lew Thompson & Son Leasing Inc. have elected to be taxed as an S corporation under the Internal Revenue Code. Under this election, taxable income of these entities is allocated to its shareholders and no income tax is payable by the Company, except in certain states that do not recognize this election. Some of the states allow a pass-through entity to elect to be taxed at the entity level and allow owners to exclude from their taxable income any income which is taxed directly by the pass-through entity, and the company records income tax similar to entity-level tax for ASC 740 (Income Taxes) purposes. For the first quarter 2023, the company recognized pass-through entity income tax in the amount of $123,550.

For fiscal period ended March 31, 2023, the Company determined that there were no uncertain tax positions as a result of applying the guidance in ASC 740, Income Taxes. Accordingly, there was no provision for any uncertain tax positions in the consolidated financial statements for the period ended March 31, 2023, and the Company recognized no interest or penalties during those periods. In the event that an uncertain tax position would require the Company to recognize interest and penalties, these expenses would be recognized in interest expense and operating expenses, respectively. Tax years 2018 through 2023 remain open to examination by the tax authorities under the statute of limitations.
 
Lease Accounting
 
At the commencement date of a new lease agreement with contractual terms longer than twelve months, we recognize an asset and a lease liability on the balance sheet and categorize the lease as either finance or operating. Certain lease agreements have lease and non-lease components, and we have elected to account for these components separately.
 
Right-of-use assets and lease liabilities are initially recorded based on the present value of lease payments over the term of the lease. When the rate implicit in the lease is readily determinable, this rate is used for calculating the present value of remaining lease payments; otherwise, our incremental borrowing rate is used. The incremental borrowing rate represents an estimate of the interest rate we would incur at the lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease. Options to extend or terminate a lease agreement are included in or excluded from the lease term, respectively, when those options are reasonably certain to be exercised. Right-of-use assets are tested for impairment in the same manner as long-lived assets.
6
Operating lease right-of-use assets are amortized over the lease term on a straight-line basis, and the lease liability is measured at the present value of the remaining lease payments. Operating lease costs are recognized on a straight-line basis over the term of the lease within operating expenses.
   
2.
PROPERTY AND EQUIPMENT
 
A summary of property and equipment, at cost, as of March 31, 2023 is as follows:
 
   
Estimated Useful Lives (Years)
    
2023
  
Revenue equipment
    
3 - 10
    
$
53,556,376
  
Communications equipment
    
5 - 10
      
50,403
  
Land and improvements
    
0 - 15
      
46,805
  
Buildings and leasehold improvements
    
7 - 40
      
7,733
  
Other
    
2 - 10
      
2,212,729
  
 
          

55,874,046
  
Less accumulated depreciation
            
21,300,181
  
           
$
34,573,865
  
 
Depreciation expense was $1,373,079 million in 2023. This depreciation expense excludes net gains on the sale of property and equipment totaling $141,500 million in 2023.
  
3.
LEASES
 
Our operating lease obligations do not typically include residual value guarantees or material restrictive covenants.
7
A summary of our lease obligations for the three months ended March 31, 2023 are as follows:
 
   
Three Months Ended
  
 
  
March 31, 2023
  
 
      
Operating lease cost
  
$
162,000
  
 
        
Total lease cost
  
$
162,000
  
 
        
Other information
        
Cash paid for amounts included in the measurement of lease liabilities:
        
Operating cash flows from operating leases
  
$
106,958
  
Right-of-use assets obtained in exchange for new operating lease liabilities
  
$
-
  
Weighted-average remaining lease term—operating leases
  
3.8 years
  
Weighted-average discount rate—operating leases
    
11.2
%
 
At March 31, 2023, we had right-of-use assets of $1,997,072 for operating leases in our combined balance sheet. Operating lease right-of-use asset amortization is included in general supplies and expenses in the combined statement of operations. 
 
Our future minimum lease payments as of March 31, 2023, are as follows:
 
   
Operating
  
2023
  
$
486,000
  
2024
    
648,000
  
2025
    
648,000
  
2026
    
648,000
  
Total minimum lease payments
  
$
2,430,000
  
Less: amount representing interest
    
(432,928
)
Present value of minimum lease payments
  
$
1,997,072
  
Less: current portion
    
(454,459
)
Lease obligations, long-term
  
$
1,542,613
  
 
4.
EMPLOYEE BENEFIT PLANS
 
401k Deferral Plan
 
We have a deferred 401k plan under which all of our employees with at least 90 days of service are eligible to participate. Employees may contribute a percentage of their annual compensation up to the maximum amount allowed by the Internal Revenue Code. We may make discretionary contributions as determined by the owners. No discretionary contributions were made in 2023. We made contributions of $10,995 in 2023 to the 401k deferral plan.
8
5.
RELATED PARTY TRANSACTIONS

Summary of Related Party Transactions

During the period ended March 31, 2023, Lew Thompson & Son Trucking, Inc. engaged in the following related party transactions:

•
The Company leases certain properties from Lew Thompson and Son Real Estate, Inc., Josh Thompson Properties, LLC and Lew Thompson and Son Trucking, Inc.
•
Thompson QOZB Ozark, LLC is owned by the major shareholder’s and has property leased by the Company for $0 which the Company uses to park excess equipment in Arkansas.
•
Lew Thompson & Son Petroleum, Inc. is owned by the major shareholder’s and Office Manager and has property leased by the Company for $0 which the Company uses to park excess equipment in Arkansas.
•
Thompson Poultry Bedding, LLC is owned by the major shareholder’s and paid the Company approximately $28,072 for maintenance services provided by the Company during the first quarter of 2023.
•
Thompson Ready Mix, Inc. is owned by the major shareholder’s and paid the Company approximately $20,839 for maintenance services provided by the Company during the first quarter of 2023.


6.
COMMITMENTS AND CONTINGENT LIABILITIES
 
From time-to-time, we are a party to ordinary, routine litigation arising in the ordinary course of business, most of which involves claims for personal injury and/or property damage incurred in connection with the transportation of freight. The Company’s insurance coverage for individual vehicle claims (including related bodily injury and property damage claims) provides for insurance levels with primary and excess coverage which management believes to be sufficient to adequately protect the Company from catastrophic claims. The Company maintains insurance for individual vehicle claims (including related bodily injury and property damage claims) exceeding $50,000, and has a casualty reserve in the amount of $40,000 accrued for payment of estimated claims, along with a $45,000 reserve for group health insurance claims at March 31, 2023.

In the normal course of business, the Company is also involved in various additional lawsuits, claims and other legal matters. The Company is of the opinion that the outcome of such lawsuits, claims and other legal matters will not have a material impact on the Company’s future financial position, results of operations, or cash flows.

7.
SUBSEQUENT EVENT

On April 26, 2023, the Company completed the sale of Lew Thompson & Son Trucking, Inc., Lew Thompson & Son Dedicated, Inc., Josh Thompson Trucking, Inc., Lew Thompson & Son Dedicated Leasing, Inc., and Lew Thompson & Son Leasing Inc. to Covenant Logistics Group, Inc., a Nevada Corporation.  Under the terms of the agreement, the Company sold 100% of the outstanding stock of Lew Thompson & Son in exchange for a closing enterprise value of approximately $100 million plus an earnout of up to $30 million depending on the results achieved by the business over the three following calendar years. The Company’s tax status changed as a result of the acquisition, however, this change did not have a material impact to the financial statements of the Company.

Subsequent events were evaluated through the date the financial statements were issued on November 15, 2023.

9

Back to Form 8-K/A
Exhibit 99.4
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

On April 26, Covenant Logistics Group, Inc., a Nevada corporation (the "Company”), acquired 100% of the outstanding stock of Lew Thompson & Son Trucking, Inc. and related entities (collectively, “LTST”). The acquisition date fair value of the consideration transferred was $109.9 million. The Stock Purchase Agreement includes an earnout component of up to an aggregate of $30.0 million based on LTST's adjusted earnings before interest, taxes, depreciation, and amortization reported for the first, second, and third calendar years following closing. The total purchase, including any earnout achieved, is expected to range from $109.9 million to $129.9 million depending on the results achieved by LTST. The purchase price is subject to further adjustments, including finalization of the gross up payment to the sellers related to the Internal Revenue Code Section 338(h)(10) election. The Stock Purchase Agreement provided the Company the option to make an Internal Revenue Code Section 338(h)(10) election, which the Company plans to make within the next 30 days. The Stock Purchase Agreement contains customary representations, warranties, covenants, and indemnification provisions.
The unaudited pro forma condensed consolidated financial information is based on the assumptions set forth in the notes to such information. These adjustments are provisional and subject to further adjustment as additional information becomes available, additional analyses are performed, and as warranted by changes in current conditions and future expectations. The unaudited pro forma adjustments made in the compilation of the unaudited pro forma financial information are based upon available information and assumptions that the Company considers to be reasonable, and have been made solely for purposes of developing such unaudited pro forma financial information for illustrative purposes in compliance with the disclosure requirements of the Securities and Exchange Commission (“SEC”).

The pro forma adjustments have been made solely for informational purposes. The actual results reported by the consolidated company in periods following the acquisition may differ significantly from that reflected in these unaudited pro forma condensed consolidated financial statements for a number of reasons, including but not limited to cost savings from operating efficiencies, synergies and the impact of the incremental costs incurred in integrating the two companies. As a result, the unaudited pro forma consolidated information is not intended to represent and does not purport to be indicative of what the combined company’s financial condition or results of operations would have been had the acquisition been completed on the applicable dates of this unaudited pro forma condensed consolidated financial information. In addition, the unaudited pro forma condensed consolidated financial information does not purport to project the future financial condition and results of operations of the consolidated company.

The unaudited pro forma condensed consolidated financial statements are based on various assumptions, including assumptions relating to the consideration paid and the allocation thereof to the assets acquired and liabilities assumed from LTST based on preliminary estimates of fair value. The pro forma assumptions and adjustments are described in the accompanying notes presented on the following pages. Pro forma adjustments are those that are directly attributable to the transaction, are factually supportable and, with respect to the unaudited pro forma condensed consolidated statements of operations, are expected to have a continuing impact on the consolidated results. The final purchase price and the allocation thereof and other purchase accounting items may differ materially from that reflected in the pro forma condensed consolidated financial statements after final purchase accounting adjustments.

The unaudited pro forma consolidated statements of operations included herein do not reflect any potential cost savings or other operating efficiencies that may result from the integration of the companies.

These unaudited pro forma condensed consolidated financial information and the accompanying notes should be read together with (1) the Company’s audited consolidated financial statements and accompanying notes, as of and for the fiscal year ended December 31, 2022, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on February 28, 2023 and (2) the Company’s unaudited consolidated financial statements and accompanying notes as of and for the three months ended March 31, 2023 and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2023, which was filed with the SEC on May 5, 2023, (3) LTST’s audited combined financial statements for the year ended December 31, 2022, included as Exhibit 99.2 to this Form 8-K/A, and (4) LTST’s unaudited combined financial statements for the three months ended March 31, 2023, included as Exhibit 99.3 to this Form 8-K/A.

The actual operating results for LTST will be consolidated with the Company’s operating results for all periods subsequent to the closing of the acquisition on April 26, 2023.

The unaudited pro forma consolidated statement of operations of the Company and LTST for the year ended December 31, 2022 gives effect to the acquisition of LTST by the Company as if it had occurred effective January 1, 2022, the beginning of the Company’s 2022 fiscal year.

The unaudited pro forma consolidated statement of operations of the Company and LTST for the three months ended March 31 2023 gives effect to the acquisition of LTST by the Company as if it had occurred effective January 1, 2023, the beginning of the Company’s 2023 fiscal year.

    The unaudited pro forma consolidated balance sheet of the Company and LTST as of March 31, 2023 gives effect to the acquisition of LTST by the Company as if it had occurred effective March 31, 2023.
1
COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
  
   
March 31, 2023
  
 
ASSETS
  
Covenant Logistics
Group
    
LTST
    
Pro Forma Adjustments
  
Notes
  
Pro Forma Consolidated
  
Current assets:
                          
Cash and cash equivalents
  
$
54,584
    
$
6,710
      
(45,726
)
(A)
    
15,568
  
Accounts receivable, net of allowance
    
122,153
      
4,765
      
-
        
126,918
  
Drivers' advances and other receivables, net of allowance
    
3,496
      
487
      
-
        
3,983
  
Inventory and supplies
    
3,308
      
1,015
      
-
        
4,323
  
Prepaid expenses
    
13,264
      
811
      
-
        
14,075
  
Assets held for sale
    
7,748
      
-
      
-
        
7,748
  
Income taxes receivable
    
-
      
132
      
-
        
132
  
Other short-term assets
    
436
      
121
      
-
        
557
  
Total current assets
    
204,989
      
14,041
      
(45,726
)
      
173,304
  
                                   
Property and equipment, net of accumulated depreciation
    
388,524
      
36,571
      
(9,459
)
(B)
    
415,636
  
Goodwill
    
58,217
      
-
      
10,729
  
(C)
    
68,946
  
Other intangibles, net
    
47,049
      
-
      
52,870
  
(D)
    
99,919
  
Other assets, net
    
65,101
      
-
      
-
        
65,101
  
Noncurrent assets of discontinued operations
    
975
                        
975
  
Total assets
  
$
764,855
      
50,612
      
8,414
        
823,881
  
                                   
LIABILITIES AND STOCKHOLDERS' EQUITY
                                  
Current liabilities:
                                  
Accounts payable
    
28,290
      
254
      
-
        
28,544
  
Accrued expenses
    
53,277
      
1,679
      
-
        
54,956
  
Current maturities of long-term debt
    
21,369
      
-
      
-
        
21,369
  
Current portion of finance lease obligations
    
1,972
      
-
      
-
        
1,972
  
Current portion of operating lease obligations
    
13,431
      
454
                  13,885  
Current portion of insurance and claims accrual
    
20,701
      
96
      
-
        
20,797
  
Other short-term liabilities
    
-
      
-
      
-
        
-
  
Total current liabilities
    
139,040
      
2,483
      
-
        
141,523
  
                                   
Long-term debt
    
95,788
      
-
      
55,000
  
(A)
    
150,788
  
Long-term portion of finance lease obligations
    
429
      
-
      
-
        
429
  
Long-term portion of operating lease obligations
    
39,844
      
1,543
                
41,387
  
Insurance and claims accrual
    
15,894
      
-
      
-
        
15,894
  
Deferred income taxes
    
96,753
      
-
      
-
        
96,753
  
Other long-term liabilities
    
2,045
      
-
      
-
        
2,045
  
Long-term liabilities of discontinued operations
    
3,900
                        
3,900
  
Total liabilities
    
393,693
      
4,026
      
55,000
        
452,719
  
Stockholders' equity:
                                  
Class A common stock
    
161
      
22
      
(22
)
(E)
    
161
  
Class B common stock
    
24
      
-
      
-
        
24
  
Additional paid-in-capital
    
152,921
      
5,094
      
(5,094
)
(E)
    
152,921
  
Treasury Stock at cost
    
(127,267
)
    
-
                
(127,267
)
Accumulated other comprehensive income
    
683
      
-
      
-
        
683
  
Retained earnings
    
344,640
      
41,470
      
(41,470
)
(E)
    
344,640
  
Total stockholders' equity
    
371,162
      
46,586
      
(46,586
)
      
371,162
  
Total liabilities and stockholders' equity
  
$
764,855
      
50,612
      
8,414
        
823,881
  

See the accompanying notes to unaudited pro forma condensed consolidated financial statements.
2
COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
  
   
Three Months Ended March 31, 2023
  
   
Covenant Logistics
Group
    
LTST
    
Pro Forma Adjustments
  
Notes
  
Pro Forma Consolidated
  
Revenue:
                          
Freight revenue
  
$
233,422
    
$
14,584
      
-
        
248,006
  
Fuel surcharge revenue
    
33,429
      
2,823
                
36,252
  
Total revenue
  
$
266,851
      
17,407
      
-
        
284,258
  
                                   
Operating expenses:
                                  
Salaries, wages, and related expenses
    
99,159
      
5,938
      
-
        
105,097
  
Fuel expense
    
34,091
      
3,309
      
-
        
37,400
  
Operations and maintenance
    
17,109
      
2,107
      
-
        
19,216
  
Revenue equipment rentals and purchased transportation
    
63,016
      
-
      
-
        
63,016
  
Operating taxes and licenses
    
3,463
      
55
      
-
        
3,518
  
Insurance and claims
    
12,693
      
322
      
-
        
13,015
  
Communications and utilities
    
1,284
      
75
      
-
        
1,359
  
General supplies and expenses
    
13,620
      
294
      
-
        
13,914
  
Depreciation and amortization
    
14,575
      
1,373
      
1,023
  
(F)
    
16,971
  
Gain on disposition of property and equipment, net
    
(9,791
)
    
(142
)
    
-
        
(9,933
)
Other expenses
    
-
      
5
      
-
        
5
  
Total operating expenses
    
249,219
      
13,336
      
1,023
        
263,578
  
Operating income
    
17,632
      
4,071
      
(1,023
)
      
20,680
  
Other income
    
-
      
(116
)
              
(116
)
Interest expense, net
    
769
      
-
      
-
        
769
  
Income from equity method investment
    
(5,943
)
    
-
      
-
        
(5,943
)
Income before income taxes
    
22,806
      
4,187
      
(1,023
)
      
25,970
  
Income tax (benefit) expense
    
6,321
      
124
      
(271
)
(I)
    
6,174
  
Income from continuing operations, net of tax
    
16,485
      
4,063
      
(752
)
      
19,796
  
Income from discontinued operations, net of tax
    
150
      
-
      
-
        
150
  
Net income
  
$
16,635
      
4,063
      
(752
)
      
19,946
  
                                   
Income per share:
                                  
Basic net income per share
                                  
Income from continuing operations
  
$
1.23
                        
$
1.08
  
Income from discontinued operations
    
0.01
                        
0.01
  
Net income
  
$
1.25
                        
$
1.09
  
Diluted net income per share
                                  
Income from continuing operations
  
$
1.19
                        
$
1.07
  
Income from discontinued operations
    
0.01
                        
0.01
  
Net income
  
$
1.20
                        
$
1.08
  
Basic weighted average shares outstanding
    
13,361
                        
18,334
  
Diluted weighted average shares outstanding
    
13,877
                        
18,424
  

See the accompanying notes to unaudited pro forma condensed consolidated financial statements.
3
COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
  
   
Year Ended December 31, 2022
  
   
Covenant Logistics
Group
    
LTST
    
Pro Forma Adjustments
  
Notes
  
Pro Forma Consolidated
  
Revenue:
                          
Freight revenue
  
$
1,046,396
    
$
53,868
      
-
        
1,100,264
  
Fuel surcharge revenue
    
170,462
      
10,778
      
-
        
181,240
  
Total revenue
  
$
1,216,858
    
$
64,646
      
-
        
1,281,504
  
                                   
Operating expenses:
                                  
Salaries, wages, and related expenses
    
402,276
      
19,820
      
-
        
422,096
  
Fuel expense
    
166,410
      
16,400
      
-
        
182,810
  
Operations and maintenance
    
79,051
      
4,578
      
-
        
83,629
  
Revenue equipment rentals and purchased transportation
    
325,624
      
-
      
-
        
325,624
  
Operating taxes and licenses
    
11,931
      
896
      
-
        
12,827
  
Insurance and claims
    
50,547
      
1,435
      
-
        
51,982
  
Communications and utilities
    
5,385
      
109
      
-
        
5,494
  
General supplies and expenses
    
37,762
      
1,357
      
-
        
39,119
  
Depreciation and amortization
    
57,512
      
5,297
      
4,092
  
(F)
    
66,901
  
Gains and losses on disposition of property and equipment
    
(40,322
)
    
(1,428
)
    

       
(41,750
)
Other expenses
    
-
      
2
      

       
2
  
Total operating expenses
    
1,096,176
      
48,466
      
4,092
        
1,148,734
  
Operating income
    
120,682
      
16,180
      
(4,092
)
      
132,770
  
Other income
    
-
      
(694
)
              
(694
)
Interest expense, net
    
3,083
      
-
      
853
  
(G)
    
3,936
  
Income from equity method investment
    
(25,193
)
    
-
      
-
        
(25,193
)
Income before income taxes
    
142,792
      
16,874
      
(4,945
)
      
154,721
  
Income tax (benefit) expense
    
34,860
      
537
      
(1,310
)
(H)
    
34,087
  
Income from continuing operations, net of tax
    
107,932
      
16,337
      
(3,635
)
      
120,634
  
Income from discontinued operations, net of tax
    
750
                        
750
  
Net income
  
$
108,682
      
16,337
      
(3,635
)
      
121,384
  
                                   
Income per share:
                                  
Basic net income per share
                                  
Income from continuing operations
  
$
7.19
                        
$
8.04
  
Income from discontinued operations
    
0.05
                        
0.05
  
Net income
  
$
7.24
                        
$
8.09
  
Diluted net income per share
                                  
Income from continuing operations
  
$
6.95
                        
$
7.77
  
Income from discontinued operations
    
0.05
                        
0.05
  
Net income
  
$
7.00
                        
$
7.82
  
Basic weighted average shares outstanding
    
15,006
                        
15,006
  
Diluted weighted average shares outstanding
    
15,524
                        
15,524
  

See the accompanying notes to unaudited pro forma condensed consolidated financial statements.
4
COVENANT LOGISTICS GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Summary of Transaction

On April 26, Covenant Logistics Group, Inc., a Nevada corporation (the "Company”), acquired 100% of the outstanding stock of Lew Thompson & Son Trucking, Inc. and related entities (collectively, “LTST”). The acquisition date fair value of the consideration transferred was $109.9 million. The Stock Purchase Agreement includes an earnout component of up to an aggregate of $30.0 million based on LTST's adjusted earnings before interest, taxes, depreciation, and amortization reported for the first, second, and third calendar years following closing. The total purchase, including any earnout achieved, is expected to range from $109.9 million to $129.9 million depending on the results achieved by LTST. The purchase price is subject to further adjustments, including finalization of the gross up payment to the sellers related to the Internal Revenue Code Section 338(h)(10) election. The Stock Purchase Agreement provided the Company the option to make an Internal Revenue Code Section 338(h)(10) election, which the Company plans to make within the next 30 days. The Stock Purchase Agreement contains customary representations, warranties, covenants, and indemnification provisions.

LTST is a dedicated contract carrier specializing in poultry feed and live haul transportation in Northwest Arkansas and surrounding areas and was acquired to expand the Dedicated reportable segment into this niche market.

Note 2 - Estimate of Assets Acquired and Liabilities Assumed

The acquisition date cash consideration paid by the Company was $100.7 million, not considering approximately $0.8 million of cash balances acquired. A summary of the preliminary purchase price allocation with the acquisition of LTST, as if the transaction occurred on April 26, 2023, is as follows:

   
(in thousands)
  
Cash paid
        
$
100,726
  
Contingent consideration
          
10,016
  
               
Allocated to:
              
Historical book value of LTST’s assets and liabilities
  
$
8,789
          
Adjustments to recognize assets and liabilities at acquisition-date fair value:
                
Property, plant, and equipment
    
39,009
          
Other assets
    
(655
)
        
Fair value of tangible net assets acquired
            
47,143
  
Identifiable intangibles at acquisition-date fair value
            
52,870
  
Excess of consideration transferred over the net amount of assets and liabilities recognized
          
$
10,729
  
                 
Cash paid pursuant to Stock Purchase Agreement
    
$
100,726
  
Cash acquired included in historical book value of LTST assets and liabilities
      
(839
)
Contingent consideration
      
10,016
  
Net purchase price
    
$
109,903
  

Deferred income taxes arising from the acquisition are estimated to be immaterial because of the expected election under the Internal Revenue Code Section 338(h)(10).
5
Note 3 - Intangible Assets
Based on the preliminary allocation of the purchase price, the following amounts have been allocated to identifiable intangible assets along with the respective amortization periods:
   
(in thousands)
    
Life (months)
  
Trade name
  
$
2,100
      
120
  
Non-Compete agreement
    
4,670
      
48
  
Customer relationships
    
46,100
      
204
  
   
$
52,870
          

These preliminary estimates of fair value and useful life could be different from the final acquisition accounting, and the difference could have a material impact on the accompanying pro forma financial statements. The combined effect of any such changes could then also result in a significant increase or decrease to the Company's estimate of associated amortization expense.
Note 4 - Pro Forma Adjustments
The pro forma adjustments in the unaudited pro forma condensed consolidated financial information are as follows:
(A) To reflect acquisition date cash consideration paid by the Company of $100.7 million in connection with the acquisition of LTST, not considering $0.8 million cash acquired.
(B) To reflect the adjustment of property and equipment values of LTST to acquisition date fair value based on preliminary appraisals performed.
(C) To reflect the excess of the total consideration transferred over the fair value of tangible and intangible net assets acquired (See Note 2).
(D) To reflect the estimated fair values of identifiable intangibles, $52.9 million, based on preliminary allocation of the purchase price (See Note 3).
(E) To reflect the elimination of the stockholders' equity accounts of LTST.
(F) To reflect the change in depreciation and amortization expense due to the amortization of identifiable intangibles with a finite life using the straight-line method over the assigned life of each intangible as detailed in Note 3, partially offset by a reduction in depreciation expense as a result of the reduction in fair value of property and equipment based on preliminary appraisals performed.
(G) To reflect the net increase in interest expense as the result of the financing obtained by the Company to fund the acquisition.
(H) To reflect the income tax effect of each of the pro forma adjustments and depreciation expense associated with LTST at an effective tax rate of 26.5%. The previous stockholders of LTST had elected to file federal income taxes using S corporation status. Under tax regulations for S corporations, LTST elected to have net income or losses reported on the tax returns of the individual stockholders. Accordingly, there was no provision for federal income taxes. After the acquisition, LTST is a C corporation and will be subject to federal and state income taxes.

6

Back to Form 8-K/A
v3.23.3
Document and Entity Information
Apr. 26, 2023
Cover [Abstract]  
Document Type 8-K/A
Amendment Flag false
Document Period End Date Apr. 26, 2023
Entity File Number 000-24960
Entity Registrant Name COVENANT LOGISTICS GROUP, INC.
Entity Central Index Key 0000928658
Entity Incorporation, State or Country Code NV
Entity Tax Identification Number 88-0320154
Entity Address, Address Line One 400 Birmingham Hwy
Entity Address, City or Town Chattanooga
Entity Address, State or Province TN
Entity Address, Postal Zip Code 37419
City Area Code 423
Local Phone Number 821-1212
Title of 12(b) Security $0.01 Par Value Class A common stock
Trading Symbol CVLG
Security Exchange Name NASDAQ
Entity Emerging Growth Company false
Written Communications false
Soliciting Material false
Pre-commencement Tender Offer false
Pre-commencement Issuer Tender Offer false
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