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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 (Fee Required) for the fiscal year ended June 30, 1996 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required) for the transition period from to .
Commission file number: 333-3613
AMERTRANZ WORLDWIDE HOLDING CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 11-3309110
- - - --------------------------------- --------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2001 Marcus Avenue, Lake Success, New York 11042
- - - ------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 326-9000
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of Each Exchange on Which Registered
None None
---- ----
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
--------------
Common Stock, $.01 par value
Redeemable Common Stock Purchase Warrants
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 17, 1996 was $16,776,095.
The number of shares of common stock outstanding as of September 17, 1996 was
5,926,504.
DOCUMENTS INCORPORATED BY REFERENCE
To the extent specified, Part III of this Form 10-K incorporates information by
reference to the Registrant's definitive proxy statement for its 1996 Annual
Meeting of Shareholders (to be filed).
AMERTRANZ WORLDWIDE HOLDING CORPORATION
1996 ANNUAL REPORT ON FORM 10-K
Table of Contents
Page
PART I
Item 1. Business 1
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders and
Executive Officers of the Registrant 5
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 7
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 8
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures 11
PART III
Item 10. Directors and Executive Officers of the Registrant 12
Item 11. Executive Compensation 12
Item 12. Security Ownership of Certain Beneficial Owners
and Management 12
Item 13. Certain Relationships and Related Transactions 12
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 13
PART I
ITEM 1. BUSINESS
--------
Background
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Amertranz Worldwide Holding Corp. ("Company") provides freight
forwarding services and logistics services, through its wholly owned
subsidiaries, Amertranz Worldwide, Inc. ("Amertranz") and Caribbean Air
Services, Inc. ("CAS"). The Company has a network of offices in 25 cities
throughout the United States and Puerto Rico. The Company believes that it is
one of the dominant freight forwarders between the continental United States and
Puerto Rico.
The Company was incorporated in Delaware in January 1996 as the
successor to operations commenced in 1970 as the "Wrangler Aviation" division of
Blue Bell, Inc., an apparel manufacturer. The Wrangler Aviation division
transported raw material to Blue Bell facilities in Puerto Rico and returned the
finished goods to its facilities in Greensboro, North Carolina. In 1988, new
owners of Blue Bell, Inc. separately incorporated the division in Delaware as
Wrangler Aviation, Inc. ("Wrangler"), and then sold Wrangler in October 1990. At
that time, Caribbean Freight System, Inc. ("CFS") was incorporated in Puerto
Rico as a wholly owned subsidiary of Wrangler to act as the marketing arm of
Wrangler.
In December 1991, the owners of Wrangler engaged a new management team
following the discovery of certain improprieties performed under the old
management. As a result of investigations by the new management, it was
determined to reorganize both Wrangler and CFS under Chapter 11 of the United
States Bankruptcy Code. CFS and Wrangler both successfully emerged from the
Chapter 11 proceedings in November 1992 and June 1993, respectively. In January
1994, Wrangler changed its name to TIA, Inc. ("TIA"). Thereafter, TIA and CFS
continued to specialize in the movement of large freight shipments for
manufacturers, and maintained sales and/ or full offices in Philadelphia, New
York, Chicago, Los Angeles, Hartford, and Greensboro, North Carolina, as well as
a network of sales persons in Puerto Rico.
Amertranz and its predecessor began operations in June 1985 as an
independently owned exclusive agent of a domestic and international air freight
forwarder. During the next eight years, Amertranz opened nine offices under its
exclusive agency arrangement.
In January 1994, Amertranz acquired the domestic air freight forwarding
business (i.e., the transport of freight which has both its point of origin and
its point of destination within the United States) of the freight forwarder for
which Amertranz was acting as an exclusive agent, as a result of the settlement
of a lawsuit. Thereafter, Amertranz owned and operated 20 offices primarily
focusing on the movement of domestic freight and, in its original nine offices,
international air freight. As an independent freight operation, Amertranz
established an internal infrastructure, including accounting, data processing
and communications departments, to support its 20 office network.
On February 7, 1996 pursuant to the terms of an Assets Exchange
Agreement, the Company acquired all of the issued and outstanding stock of
Amertranz and received the freight forwarding business of TIA and CFS, and
contributed the TIA and CFS freight forwarding business to CAS.
As a result Amertranz became a wholly-owned subsidiary of the Company
and continues to conduct Amertranz's freight forwarding and logistics services
businesses, and the freight forwarding business of TIA and CFS was transferred
to the Company and is conducted by CAS.
1
Description of Business
- - - -----------------------
The Company's freight forwarding services involve arranging for the
total transport of customers' freight from the shippers' location to the
designated recipients, including the preparation of shipping documents and the
providing of handling, packing and containerization services. The Company
concentrates on cargo shipments weighing more than 50 pounds and generally
requiring second-day delivery. The Company also assembles bulk cargo and
arranges for insurance. The Company has a network of offices in 24 cities
throughout the United States and Puerto Rico,including exclusive agency
relationships in two cities. The Company has international freight forwarding
operations consisting of strategic relationships in four countries. The Company
has recently begun to provide logistics services to manufacturers for the
movement of raw materials and finished goods.
Operations
- - - ----------
Movement of Freight. The Company does not own any airplanes or
significant trucking equipment and relies on independent contractors for the
movement of its cargo. The Company utilizes its expertise to provide forwarding
services that are tailored to meet customers' requirements. It arranges for
transportation of customers' shipments via commercial airlines and/or air cargo
carriers and, if delivery schedules permit, the Company makes use of lower cost
inter-city truck transportation services. The Company selects the carrier for
particular shipments on the basis of cost, delivery time and available cargo
capacity. Through the Company's advanced data processing system, it can provide,
at no additional cost to the customer, value-added services such as electronic
data interchange, computer based shipping and tracking systems and customized
computer generated reports. Additionally, the Company provides cargo assembly
and warehousing services.
The rates charged by the Company to its customers are based on
destination, shipments weight and required delivery time. The Company offers
graduated discounts for shipments with later scheduled delivery items and rates
generally decrease in inverse proportion to the increasing weight of shipments.
Due to the high volume of freight controlled by the Company, it is able to
obtain favorable contract rates from airlines and is often able to book freight
space at times when available space is limited. When possible, the Company
consolidates different customers' shipments to reduce its cost of
transportation.
Under the terms of the Cargo Aircraft Charter Agreement dated February
29, 1994, amended ("L-1011 Charter"), the Company has exclusive rights, until
June 30, 1998, to the use of a Lockheed L-1011 cargo aircraft that is operated
on behalf of Tradewinds Airlines, Inc. between the Company's Borinquen, Puerto
Rico location and its Greensboro, North Carolina and Hartford, Connecticut,
locations. The L-1011 aircraft carries a payload of 110,000 pounds. Under the
terms of the L-1011 Charter, the L-1011 aircraft must be available at all times
(except during scheduled maintenance) for use by the Company, as needed. While
the Company is guaranteed the use of the L-1011 aircraft as needed, the Company
pays only for its actual use of the aircraft at market rates. Freight
originating throughout the United States is generally transported by truck to
either Greensboro or Hartford for loading onto the aircraft. Similarly, freight
originating in Puerto Rico is flown on the L-1011 aircraft to either Greensboro
or Hartford, and then transported by truck to its destination.
Information Systems. An important component of the Company's business
strategy is to provide accurate and timely information to its management and
customers. Accordingly, the Company has invested, and will continue to invest,
substantial management and financial resources in developing these information
systems.
The Company leases an IBM AS 400 mainframe computer and has a
customized commercial (i.e., not proprietary to the Company) freight forwarding
software system which the Company has named "Amertrax". Amertrax is an
integrated freight forwarding and financial management data processing system.
It provides the Company with the information needed to manage its sourcing and
distribution activities by providing up-to-date information on the status of
shipments, both internally and to customers, through either printed or
electronic medium.
2
Specifically, the Amertrax system permits the Company to track the flow of a
particular shipment from the point of origin through the transportation process
to the point of delivery. The Company intends to continuously upgrade Amertrax
to enhance its ability to maintain a competitive advantage. The Company believes
that this will allow it and its customers to reduce transportation costs through
the automation of many parts of the shipping process. For example, the Company
expects shortly to offer customers the ability to receive shipping invoices
electronically. This will reduce the Company's costs of issuing invoices and the
customer's cost of processing these invoices and will reduce the time required
for transmittal.
International Operations. The Company has recently reduced its
international operations to re-focus its efforts on its domestic markets. The
Company's international freight forwarding accounted for less than 4% of the
Company's operating revenue.
Logistics Services. The Company recently began offering logistic
services to large manufacturing companies. These services consist of providing
the total transportation requirements for a customer, including shipment in and
out of warehouse, maintenance of warehousing of customer inventory, individual
order organizing for shipment and order packing and shipment. The Company
currently provides these services to a large computer hardware manufacturer. To
properly provide its logistics services to this customer, the Company has leased
a warehouse adjacent to this customer's manufacturing complex dedicated to the
customer and its suppliers. While the Company's logistics service is not
currently a major component of the Company's business, the Company intends to
increase this portion of its business.
Customers and Marketing
- - - -----------------------
The Company's principal customers include large manufacturers and
distributors of pharmaceuticals, computers and other electronic and
high-technology equipment, computer software and wearing apparel. The Company
currently has more than 2,000 accounts.
The Company markets its services through an organization of
approximately 30 full-time salespersons supported by the sales efforts of senior
management, the Company's five regional managers and the operations staff in the
Company's offices. The Company strongly promotes team selling, wherein the
salesperson is able to utilize expertise from other departments in the Company
to provide value-added services to gain a specific account. The Company has a
national account sales group that targets high-revenue national accounts with
multiple shipping locations. These industry specialists discern the specific
freight transportation requirements of the customers and are able to prepare
customized shipping programs to meet these specific requirements. The Company
staffs each office with operational employees to provide support for the sales
team, develop frequent contact with the customer's traffic department, and
maintain customer service. The Company believes that it is important to maintain
frequent contact with its customers to assure satisfaction and to immediately
react to resolve any problem as quickly as possible.
The Company has a specialized Fashion Air division for the garment
industry. This division targets customers from manufacturers to retail
establishments and provides specific expertise in handling fashion-related
shipments. Fashion Air specializes in the movement of wearing apparel for
manufacturing customers to their department store customers located throughout
the United States. This division accounted for approximately 8% of the Company's
operating revenues (on a combined consolidated pro forma basis) in 1995.
Many of the Company's customers utilize more than one air freight
transportation provider. In soliciting new accounts, the Company uses a strategy
of becoming an approved carrier in order to demonstrate the quality and
cost-effectiveness of its services. Using this approach, the Company has
advanced its relationships with several of its major customers, from serving as
a back-up freight services provider to primary freight forwarder.
3
Competition
- - - -----------
Although there are no weight restrictions on the Company's shipments,
the Company focuses primarily on cargo shipments weighing more than 50 pounds
and requiring second-day delivery. As a result, the Company does not directly
compete for most of its business with overnight couriers and integrated shippers
of principally small parcels, such as United Parcel Service of America, Inc.,
Federal Express Corporation, DHL Worldwide Express, Inc., Airborne Freight
Corporation and the United States Postal Service. However, some integrated
carriers, such as Emery Air Freight Corporation and Burlington Air Express,
Inc., primarily solicit the shipment of heavy cargo in competition with
forwarders. Most air freight forwarders do not compete with the major commercial
airlines, which to a certain extent depend on forwarders to procure shipments
and supply freight for the available cargo space on their scheduled flights.
There is intense competition within the freight forwarding industry.
While the industry is highly fragmented, the Company most often competes with a
relatively small number of forwarders who have nationwide networks and the
capability to provide a full range of service similar to that offered by the
Company. These include Eagle USA Air Freight, Inc., Pilot Air Freight, Inc., and
LEP Profit International, Inc. There is also competition from passenger and
cargo air carriers and trucking companies. On the international side of the
business, the Company competes with forwarders that have a predominantly
international focus, such as Fritz Companies, Inc., Air Express International
Corporation and Harper Group, Inc. All of these companies, as well as many other
competitors, have substantially greater facilities, resources and financial
capabilities than those of the Company. The Company also faces competition from
regional and local air freight forwarders, cargo sales agents and brokers,
surface freight forwarders and carriers and associations of shippers organized
for the purpose of consolidating their members' shipments to obtain lower
freight rates from carriers.
While the Company's logistics service is not currently a major
component of the Company's business, the Company intends to increase this
portion of its business. In logistics services, the Company competes with many
well established transportation and other firms, many of whom have facilities,
resources, and financial capabilities far greater than those of the Company.
Employees
- - - ---------
The Company and its subsidiaries had approximately 221 full-time
employees as of June 30, 1996. None of the Company's employees are currently
covered by a collective bargaining agreement. The Company has experienced no
work stoppages and considers its relations with its employees to be good.
Regulation
- - - ----------
The Company's freight forwarding business as an indirect air cargo
carrier is subject to regulation by the United States Department of
Transportation ("DOT") under the Federal Aviation Act. However, air freight
forwarders (including the Company) are exempted from most of such Act's
requirements by the Economic Aviation Regulations promulgated thereunder. The
Company's foreign air freight forwarding operations are subject to regulation by
the regulatory authorities of the respective foreign jurisdictions. The air
freight forwarding industry is subject to regulatory and legislative changes
which can affect the economics of the industry by requiring changes in operating
practices or influencing the demand for, and the costs of providing, services to
customers.
4
ITEM 2. PROPERTIES
----------
The Company leases terminal facilities consisting of office and
warehouse space in 24 cities located in the United States and Puerto Rico, and
also utilizes two offices operated by exclusive agents. The Company's
headquarters are located in Lake Success, New York, in 7,000 square feet of
leased office space. The Company's 23 facilities range in size from 1,000 square
feet to 26,000 square feet and consist of offices and warehouses with loading
bays. All of such properties are leased from third parties. In addition, the
Company leases approximately 40,000 square feet of warehouse space in Fort
Worth, Texas, for its logistics services business. Management believes that its
current facilities are underutilized. Accordingly, management believes that the
Company's facilities are more than sufficient for its planned growth. The
principal facilities are set forth in the following table:
Approximate Square Feet Lease
Location of Floor Space Expiration
- - - -------- ----------------------- ----------
Fort Worth, TX 46,720 July, 1997
Los Angeles, CA 17,400 February, 1998
Aquadilla, PR 45,000 Month-to-Month
The Company has an additional twenty-one terminal facilities in the
following locations.
Atlanta, Georgia Denver, Colorado Houston, Texas
Chicago, Illinois Detroit, Michigan Indianapolis, Indiana
Cincinnati, Ohio Greensboro, North Carolina Miami, Florida
Cleveland, Ohio Hartford, Connecticut Minneapolis, Minnesota
Dallas, Texas Newark, New Jersey New York, New York
Philadelphia, Pennsylvania San Diego, California San Juan, Puerto Rico
St. Louis, Missouri Kansas City, Missouri San Francisco, California
ITEM 3. LEGAL PROCEEDINGS
-----------------
Amertranz is a defendant in a lawsuit initiated by the trustee in
bankruptcy of Aeronautics Express, Inc. ("AEI"), a company with whom Amertranz
engaged in discussions concerning a prospective business combination during the
early spring of 1994. The complaint was filed in the United States Bankruptcy
Court for the Southern District of New York in December, 1995, and alleges that
Amertranz improperly obtained control over the assets of AEI, committed fraud in
connection with the business discussion, breached on agreement not to solicit
the business or customers of AEI, induced AEI to convey property to Amertranz
for less than fair value and failed to pay AEI compensation for services
rendered by AEI to Amertranz. The complaint seeks damages in excess of $11
million. The Company has reached an agreement with the trustee in bankruptcy to
settle the litigation for $50,000. This settlement is conditioned upon the
approval of the United States Bankruptcy Court.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
5
EXECUTIVE OFFICERS OF THE REGISTRANT
- - - ------------------------------------
Following is a listing of the executive officers of the Company. There
are no family relationships between any Directors and Officers of the Company.
NAME AGE POSITION
- - - ---- --- --------
Stuart Hettleman............. 46 President, Chief Executive
Officer, Chief Financial
Officer
Richard A. Faieta............ 50 Executive Vice President
Michael Barsa................ 51 Vice President and Secretary
STUART HETTLEMAN has been President, Chief Executive Officer, Chief
Financial Officer and a Director of the Company and a Director and Executive
Vice President of each of Amertranz and CAS, since February 7, 1996. Mr.
Hettleman is also an Executive Officer of several of the Company's predecessors.
Specifically, he has been Vice President of TIA since 1990 and is currently the
Executive Vice President of TIA; and has been Vice President of CFS since 1991
and is currently Executive Vice President of CFS.
RICHARD A. FAIETA has been Executive Vice President and a Director of the
Company, a director and President of CAS, and a Director and Chief Executive
Officer of Amertranz, since February 7, 1996. He has served as President and
Chief Executive Officer of each of TIA and CFS, the Company's predecessors,
since April 1992. From 1987 through 1991 he served as Vice President-Operations
of LEP Profit International Corporation, a domestic and international freight
forwarder.
MICHAEL BARSA has been Vice President, Secretary and a director of the
Company since February 7, 1996. Mr. Barsa served as Executive Vice President and
Chief Financial Officer of Amertranz from September 1994 until February 7, 1996.
From 1972 through September 1994, Mr. Barsa was employed by Allstate Legal
Supply Company, a privately owned legal stationary and supply company, where he
held successive positions as Controller, Chief Financial Officer and Senior Vice
President.
6
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
-------------------------------------------------------------
MATTERS
-------
The Company's initial public offering of its common stock, $.01 par
value (the "Common Stock") and Redeemable Common Stock Purchase Warrants (the
"Warrants") took place on June 28, 1996. Since that date both the Common Stock
and the Warrants have been listed on the NASDAQ SmallCap Market under the
symbols AMTZ and AMTZW, respectively;
The table below indicate the high and low prices of the Common Stock
and Warrants for the year ended June 30, 1996. There have been no dividends
declared.
COMMON STOCK WARRANTS
High - 7 High - 1 7/8
Low - 6 Low - 1
On September 17, 1996 there were 1631 shareholders of record of the
Company's Common Stock and 1415 warrant holders of record of the Company's
Warrants. The closing price of the Common Stock on that date was $5.375 per
share. The closing price of the warrant on that date was $1.625 per warrant.
ITEM 6. SELECTED FINANCIAL DATA
- - - ------- -----------------------
AMERTRANZ WORLDWIDE HOLDING CORP. AND SUBSIDIARIES (1)
(in thousands, except per share data)
Six Months
Years Ended December 31, Ended June 30,
-----------------------------------------------------------------------
1992 1993 1994 1995 1996
Statement of Operations Data:
Operating revenue $29,201 $32,671 $38,576 $38,211 $27,446
Cost of transportation 24,103 24,232 30,254 30,300 20,961
------- -------- -------- -------- --------
Gross profit 5,098 8,439 8,322 7,911 6,485
Selling, general &
administrative
expenses 6,354 6,505 4,634 4,513 8,772
------- -------- -------- -------- --------
Operating income (loss) (1,256) 1,934 3,688 3,398 (2,287)
Net income (loss) before taxes $(2,149) $ 869 $ 2,661 $ 2,366 $ (6,372)
Net loss per common share $ (1.84)
Balance Sheet Data:
Total assets $ 22,740
Working capital (deficit) (13,937)
Current liabilities 22,470
Long-term indebtedness 8,000
Stockholders' equity (deficit) $ (7,749)
(1) The amounts for the freight forwarding business of the Company represent the
historical operations associated with the freight forwarding business of TIA and
CFS contributed to the Company in the combination of these businesses. The
freight forwarding business of TIA and CFS did not operate as a separate legal
or reporting entity during the periods presented. The operations data for the
fiscal year ended December 31, 1993 and for the first two months of 1994 include
the effect of the aviation assets which TIA sold in March, 1994. Management
believes that if the operations data were restated to exclude the operation of
these aviation assets, costs of sales would be higher but would be more than
offset by a reduction in operating expenses.
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Overview
- - - --------
The Company was incorporated in January 1996 to continue the freight
forwarding business of TIA and CFS and acquire Amertranz. The Company generated
operating revenues of $27.4 million and had net losses before taxes of $6.4
million for the period January 1, 1996 through June 30, 1996. The loss included
a one time charge of $3.3 million for debt placement expense in connection with
financings prior to the Company's initial public offering which closed on July
3, 1996. The freight forwarding business of TIA and CFS generated operating
revenues of $38.6 million and $38.2 million and had net income before taxes of
$2.7 million and $2.4 million for the years ended December 31, 1994 and 1995,
respectively.
Historically, the CAS business has derived substantial operating
revenues from companies engaging in business in Puerto Rico who were taking
advantage of significant United States income tax benefits available to such
companies. In 1993, Congress reduced the tax benefits available to companies
doing business in Puerto Rico, and legislation enacted into law in August 1996
contains a 10-year phaseout of these tax benefits. This legislation, or in the
event that there is any further modification to these tax benefits available to
United States companies doing business in Puerto Rico, could result in these
companies reducing the level of the business they have been doing in Puerto
Rico, which could have a material adverse effect on the Company's operating
results.
While the freight forwarding business of TIA and CFS has been
historically profitable, Amertranz has incurred losses in the last two years.
Since the formation of the Company in February, 1996, in the combination of
Amertranz and the freight forwarding business of TIA and CFS, management has
attracted and hired additional experienced sales personnel for the domestic
freight forwarding operation and thereby increased its sales team by more than
30%. In addition, management has begun maximizing the synergies created by the
combination of its Amertranz and CAS businesses by (i) exploiting cross-selling
opportunities, and (ii) taking advantage of underutilized operations
infrastructure and purchased freight space.
Results of Operations
- - - ---------------------
Six Months Ended June 30, 1996
The Company began its existence as the holding company for the
combined operations of Amertranz and the freight forwarding business of TIA and
CFS on February 8, 1996. From and after February 8, 1996, the freight forwarding
business of TIA and CFS was operated through the Company's CAS subsidiary. Prior
to such date, the operations of Amertranz and the freight forwarding business of
TIA and CFS were independent of each other. The following discussion relates to
the combined results of the Company for the period February 8, 1996 through June
30, 1996 and only the operations of the freight forwarding business of TIA and
CFS for the period January 1, 1996 through February 7, 1996.
Operating Revenue. Operating revenue was $27.4 million for the period
January 1, 1996 through June 30, 1996.
Cost of Transportation. Cost of transportation was 76.4% of operating
revenue for the period.
Gross Profit. Gross profit for the period was 23.6% of operating
revenue.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the period was 32.0% of operating revenue.
8
Years Ended December 31, 1994 and 1995
Operating Revenue. Operating revenue decreased 1.0% to $38.2 million in
1995 from $38.6 million in 1994. While TIA and CFS experienced volume increases
from most major customers, there were several major accounts that had
significant decreases in revenue in 1995 compared to 1994 revenue. Sales to two
major customers decreased by an aggregate of approximately $2.0 million in 1995
compared to 1994, which offset the gain in revenue by other accounts.
Furthermore, several major accounts had large volume increases in 1994 due to
unusual situations which did not recur in 1995. As an example, a major
pharmaceutical firm instituted a recall which necessitated substantial
additional air freight needs over normal business operations. Also, due to
market conditions, several major retail suppliers had to use air freight in
substantially greater volume than those used in normal market conditions.
Operating revenue in 1995 show an annual compounded growth rate of 8% per year
for the two years of 1994 and 1995.
Cost of Transportation. Cost of transportation increased to 79.3% of
1995 operating revenue from 78.4% of 1994 operating revenue.
Gross Profit. As a result of the factors described in the preceding
paragraphs, gross profit for the year ended December 31, 1995 decreased to 20.7%
from 21.6% of operating revenue in the comparable period of 1994.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased slightly to 11.8% of operating revenue in the
year ended December 31, 1995 from 12.0% of operating revenue in the comparable
period in 1994.
Years Ended December 31, 1993 and 1994
Operating Revenue. Operating revenue increased 18.1% to $38.6 million
in 1994 from $32.7 million in 1993. Most major customers had volume increases in
1994, including several major accounts that had unusually large volume increases
in 1994 due to non-recurring situations.
Cost of Transportation. Cost of transportation increased to 78.4% of
1994 operating revenue from 74.2% of 1993 operating revenue. This increase
occurred because TIA and CFS chartered a fully-staffed and maintained aircraft
during the last ten months of 1994, while TIA operated a leased aircraft during
1993. This increase is more than offset by the corresponding decrease in
selling, general and administrative expense.
Gross Profit. As a result of the factors described in the preceding
paragraphs, gross profit for the year ended December 31, 1994 decreased to 21.6%
from 25.8% of operating revenue for the comparable period in 1993.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to 12.0% of operating revenue in the year
ended December 31, 1994 from 19.9% of operating revenue in the comparable period
in 1993. This decrease resulted from the cessation of TIA's operation of its
leased aircraft and the elimination of the expenses associated therewith.
Liquidity and Capital Resources
- - - -------------------------------
The Company used approximately $7.5 million of cash in operating activities
for the period January 1, 1996 through June 30, 1996. This cash was provided
primarily by cash on hand of approximately $4.9 million, the proceeds of a
revolver note of approximately $4.0 million and an increase in accounts payable
and accrued expenses of approximately $1.1 million. The cash used in operating
activities was primarily attributable to increases in the Company's accounts
receivable of approximately $3.6 million and a net loss incurred by the Company
of approximately $6.4 million during such period. The increase in accounts
receivable is due principally to an increase
9
in the trade receivables of the CAS operations from a zero balance at the
beginning of the period to approximately $4.5 million at the end of the period.
Prior to the combination with the freight forwarding business of TIA
and CFS on February 7, 1996 and the initial public offering of the Company's
securities on June 28, 1996 ("IPO"), Amertranz' internally generated cash flow
was not sufficient to finance trade receivables and business expansion or to
support operations. Amertranz met its capital requirements prior to that time
primarily through: (i) the private sales of $350,000 of equity and debt
securities between November, 1995 and January, 1996 ("Interim Financings"); (ii)
the private sales of $3.975 million of equity and debt securities in February
and May, 1996 ("Bridge Financings"); (iii) borrowings of $800,000 from TIA (see
below); (iv) borrowings under an accounts receivable financing facility (see
below); and (v) other private financings which were converted into equity as
part of the February 7, 1996 combination. In addition CAS has a credit facility
of up to $4 million from TIA and CFS under a revolving credit loan (see below).
Of the $12,414,000 net proceeds to the Company on its initial public
offering on June 28, 1996 (which closed on July 3, 1996), the Company applied
$4,137,000 to repay the outstanding principal and interest balance on the Bridge
Financings, $373,000 to repay the outstanding principal and interest balance on
the Interim Financing, and $2 million as partial payment on the Exchange Note
(see below). The $5,904,000 balance of proceeds from the IPO was retained by the
Company for working capital and general corporate purposes.
Fidelity Facility. In March 1995, Amertranz entered into an accounts
receivable Purchase and Sale Agreement ("Fidelity Facility") with Fidelity
Funding of California, Inc. ("Fidelity"), as amended July 5, 1995, October 25,
1995, and February 7, 1996. The Fidelity Facility expires in March 1997. Under
the agreement, as amended, the Company can borrow the lesser of $3.125 million
or 75% of eligible accounts receivable. Amertranz's borrowings under the
Fidelity Facility are secured by a first lien on all of Amertranz's assets and
are guaranteed by the Company. At June 30, 1996, the Company had outstanding
borrowings of approximately $1,641,347 under the Fidelity Facility which
represented the full amount available thereunder.
TIA Loan. In October 1995, Amertranz obtained a $500,000 subordinated
secured loan from TIA, which was increased to $800,000 in January 1996 ("TIA
Loan"). The TIA Loan bears interest at the rate of 12% per annum and is
repayable in 12 equal, consecutive monthly payments of principal and interest
commencing August 2, 1996. However, TIA has agreed to defer repayment of the TIA
Loan as described below. The TIA Loan is secured by a lien on all of the assets
of Amertranz subordinated only to the lien granted to Fidelity in connection
with the Fidelity Facility.
Revolver Note. As part of the combination of Amertranz and the freight
forwarding business of TIA and CFS, TIA and CFS agreed to advance to CAS, on a
revolving loan basis, the net collections of the accounts receivable of TIA and
CFS as of February 7, 1996 and additional amounts in the discretion of TIA and
CFS, up to an aggregate maximum of $4,000,000 outstanding at any time, pursuant
to the terms of a Revolving Credit Promissory Note ("Revolver Note"). Funds
advanced under the Revolver Note with respect to the TIA and CFS accounts
receivable do not bear interest prior to maturity. Discretionary advances under
the Revolver Note bear interest at the greater of (i) 1% per month, or (ii) a
fluctuating rate equal to the prime rate of interest as published in The Wall
Street Journal, plus 4%. Advances under the Revolver Note may be used only for
ordinary, current operating expenses of CAS unless TIA and CFS consent to
another use of such funds. The Revolver Note matured on July 6, 1996; however,
TIA and CFS have agreed to defer payment of the Revolver Note as described
below. All obligations under the Revolver Note are guaranteed by the Company and
Amertranz. All obligations under the Revolver Note and the guarantees thereof
are secured by a first priority lien on all of the issued and outstanding shares
of CAS, a first priority lien on all of the assets of the Company and CAS, and a
lien on the accounts receivable of Amertranz, subordinate only to the first
priority lien granted to Fidelity in connection with the Fidelity Facility and
the second position lien granted to TIA in connection with the TIA Loan. As of
June 30, 1996, the Company had outstanding borrowings of approximately
$3,954,989 under the Revolver Note.
10
Exchange Note. As part of the combination of Amertranz and the freight
forwarding business of TIA and CFS, the Company issued to TIA and CFS a
promissory note in the original principal amount of $10,000,000, which bears
interest at the rate of 8% per annum ("Exchange Note"). The Exchange Note is
payable in five consecutive monthly payments of principal and interest in the
amount of $80,000 each, commencing March 1, 1996, and, thereafter, monthly
payments of principal and interest in the amount of $166,667 each until the
Exchange Note has been paid in full. Prior to the IPO, TIA and CFS exchanged
$2,000,000 principal amount of the Exchange Note for 200,000 shares of the
Company's Class A Preferred Stock, and of the proceeds of the IPO, $2,000,000
was used to repay a portion of the Exchange Note. As of June 30, 1996, the
outstanding principal balance under the Exchange Note was $8 million. TIA and
CFS have agreed to defer the balance of payments on the Exchange Note as
described below.
Forbearance by TIA and CFS. Under the terms of the respective
obligations described above, payments on the TIA Loan would have commenced on
July 28, 1996, payments on the Exchange Note were due monthly commencing on
March 1, 1996, and the full outstanding balance of the Revolver Note was due on
July 6, 1996. TIA and CFS have agreed to defer each payment on the TIA Loan and
the Exchange Note to the extent the aggregate of the payments thereon then due
exceeds 80% of the Company's earnings before interest, taxes, depreciation and
amortization ('EBITDA') for the month in respect of which such aggregate
payments are due. During any deferral period, interest will continue to accrue
on these obligations in accordance with their respective terms. Such deferral
will continue until the earlier of (i) the date after which the Company's EBITDA
exceeds the sum of $600,000 for any consecutive two-month period, or (ii)
November 1, 1996. Furthermore, TIA and CFS have agreed that they will defer
collection of amounts due under the Revolver Note until the earlier of (i)
refinancing of Amertranz's and CAS's accounts receivable working capital
facilities, or (ii) December 31, 1996. TIA and CFS have further agreed that they
will not take any action to foreclose on their security interests in the assets
of the Company, Amertranz or CAS until June 27, 1997 unless any other secured
creditor of the Company, Amertranz or CAS takes action to foreclose on its
security interest or any creditor obtains a final judgement against the Company,
Amertranz or CAS in an amount of $50,000 or more which judgment is not stayed.
Working Capital Requirements. The Company believes that funds raised in
the IPO, cash flows generated from operations and available funds under its
existing loan facilities will be sufficient to finance its operations and
obligations for the foreseeable future.
Inflation
- - - ---------
The Company does not believe that the relatively moderate rates of
inflation in the United States in recent years have had a significant effect on
its operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The financial statements and supplementary data required by this Item 8
are included in the Company's Consolidated Financial Statements and set forth in
the pages indicated in Item 14(a) of this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURES
---------------------
None.
11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information with respect to the identity and business experience of
the directors of the Company and their remuneration in the Company's definitive
Proxy Statement to be filed pursuant to Regulation 14A and issued in conjunction
with the 1996 Annual Meeting of Shareholders, is incorporated herein by
reference. The information with respect to the identity and business experience
of executive officers of the Company is set forth in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required by this item is incorporated by reference from
the Company's definitive Proxy Statement to be issued in conjunction with the
1996 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required by this item is incorporated by reference from
the Company's definitive Proxy Statement to be issued in conjunction with the
1996 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by this item is incorporated by reference from
the Company's definitive Proxy Statement to be issued in conjunction with the
1996 Annual Meeting of Shareholders.
12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8 - K
-----------------------------------------------------------------
(a) 1. Financial Statements
--------------------
AMERTRANZ WORLDWIDE HOLDING CORP. PAGE
----
Report of Independent Public Accountants F-1
Consolidated Balance Sheet as of June 30, 1996 F-2
Consolidated Statement of Operations for the Six Months Ended June 30, 1996 F-3
Consolidated Statement of Stockholders' Deficit for the Six Month Period Ended June 30, 1996 F-4
Consolidated Statement of Cash Flows for the Six Months Ended June 30, 1996 F-5
Notes to Consolidated Financial Statements F-6
AMERTRANZ WORLDWIDE HOLDING CORP. (FORMERLY THE FREIGHT FORWARDING
BUSINESS OF TIA AND CFS)
Independent Auditors' Report F-12
Balance Sheets as of December 31, 1994 and 1995 F-13
Statements of Operations and Changes in Accumulated Deficit for the Years
December 31, 1993, 1994 and 1995 F-14
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 F-15
Notes to Financial Statements F-16
(a) 2. Financial Statement Schedules
-----------------------------
Report of Independent Public Accountants on Schedule S-1
Schedule II - Schedule of Valuation and Qualifying Accounts S-2
All other schedules are omitted because they are not applicable, are not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
(a) 3. Exhibits required to be filed by Item 601 of Regulation S-K
-----------------------------------------------------------
The following exhibits are filed herewith via EDGAR:
Exhibit No.
- - - -----------
3.2 Amendment to By-Laws of Amertranz Worldwide Holding Corp. and
complete By-Laws as amended
10.13 Employment Agreement dated June 24,1 996 between Amertranz
Worldwide Holding Corp. and Stuart Hettleman
10.14 Employment Agreement dated June 24, 1996 between Amertranz
Worldwide Holding Corp. and Richard A. Faieta
10.18 Debt restructuring letter agreement between Amertranz
Worldwide Holding Corp., TIA, Inc. and Caribbean Freight
System, Inc.
13
The following exhibits are incorporated by reference to Amertranz Worldwide
Holding Corp.'s Registration Statement on Form S-1, Registration No. 333-03613
Exhibit No.
- - - -----------
3.1 Certificate of Incorporation of Amertranz Worldwide Holding
Corp., as amended
10.1 1996 Stock Option Plan of Amertranz Worldwide Holding Corp.
10.2 Purchase and Sale Agreement dated March 16, 1995, between
Amertranz Worldwide, Inc. and Fidelity Funding of California,
Inc., as amended July 5, 1995, October 25, 1995, and February
7, 1996
10.3 Form of 7% Convertible Subordinated Promissory Notes of
Amertranz Worldwide, Inc. and form of document evidencing the
exchange thereof for shares of Common Stock, $.01 par value,
of Amertranz Worldwide Holding Corp.
10.4 Form of 9-3/4% Convertible Subordinated Promissory Notes of
Amertranz Worldwide, Inc. and form of document evidencing the
exchange thereof for shares of Common Stock, $.01 par value,
of Amertranz Worldwide Holding Corp.
10.5 Loan and Security Agreement dated October 25,1995 between
Amertranz Worldwide, Inc. and TIA, Inc., as amended January
24, 1996
10.6 Form of Amended and Restated Promissory Note of Amertranz
Worldwide, Inc. payable to TIA, Inc. in principal amount of
$800,000
10.7 Form of 12% Subordinated Promissory Notes of Amertranz
Worldwide, Inc. and form of document evidencing the exchange
thereof for Notes of Amertranz Worldwide Holding Corp. on the
same terms and conditions
10.8 Assets Exchange Agreement dated February 7, 1996 among
Amertranz Worldwide Holding Corp., Caribbean Air Services,
Inc., Amertranz Worldwide, Inc., Caribbean Freight System,
Inc. and TIA, Inc.
10.9 Revolving Credit Promissory Note dated February 7, 1996 of
Caribbean Air Services, Inc. payable to TIA, Inc. and
Caribbean Freight System, Inc. in the principal amount of
$4,000,000
10.10 Promissory Note dated February 7, 1996 of Amertranz Worldwide
Holding Corp. payable to TIA, Inc. and Caribbean Freight
System, Inc. in the principal amount of $10,000,000
10.11 Consulting Agreement dated February 7, 1996 among Amertranz
Worldwide Holding Corp., Amertranz Worldwide, Inc. and Martin
Hoffenberg
10.12 Employment Agreement dated September 27, 1994 between Amerford
Domestic, Inc. and Bruce Brandi, as modified February 7, 1996
10.15 Cargo Aircraft Charter Agreement dated February 28, 1994
between TIA, Inc. and Florida West Airlines, Inc., as amended
and assigned November 29, 1995
10.16 Lease Agreement dated March 31, 1994 between The Equitable
Life Assurance Society of the U.S. and Integrity Logistics,
Inc. for the premises at 2001 Marcus Avenue, Lake Success, New
York
14
10.17 Lease Agreement dated August 7, 1990 between S Partners and
Caribbean Freight System, Inc. for the premises at 7001 Cessna
Drive, Greensboro, North Carolina, as amended and extended
April 9, 1994
21. Subsidiaries of Amertranz Worldwide Holding Corp.
(b) Reports on Form 8-K
-------------------
None
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.
AMERTRANZ WORLDWIDE HOLDING CORP.
Date: September 27, 1996 By: /s/ Stuart Hettleman
-------------------------------
Stuart Hettleman
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- - - --------- ----- ----
/s/ Stuart Hettleman President, Chief Executive September 27, 1996
- - - --------------------------- Officer, Principal Financial
Stuart Hettleman Officer and Director
/s/ Richard A. Faieta Executive Vice President September 27, 1996
- - - --------------------------- and Director
Richard A. Faieta
/s/ Michael Barsa Vice President and Director September 27, 1996
- - - ---------------------------
Michael Barsa
16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Amertranz Worldwide Holding Corp.:
We have audited the accompanying consolidated balance sheet of
Amertranz Worldwide Holding Corp., a Delaware corporation, as of June 30, 1996
and the related consolidated statement of operations, shareholders' deficit and
cash flows for the six month period 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Amertranz Worldwide
Holding Corp. as of June 30, 1996 and the results of its operations and cash
flows for the six month period then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
August 28, 1996
F-1
AMERTRANZ WORLDWIDE HOLDING CORP.
CONSOLIDATED BALANCE SHEET
June 30, 1996 June 30, 1996
------------- -------------
PROFORMA
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 377,490 $ 6,280,562
Accounts receivable, net of allowance for doubtful accounts of $371,322 7,598,390 7,598,390
Prepaid expenses and other current assets 557,192 557,192
----------------- ----------------
Total current assets 8,533,072 14,436,144
PROPERTY AND EQUIPMENT, net (Note 3) 829,442 829,442
DEBT ISSUANCE COST, net of accumulated amortization of $3,264,232 103,466 -
OTHER ASSETS 1,373,314 304,233
GOODWILL, net of accumulated amortization of $191,460 (Notes 2 and 4) 11,900,735 11,900,735
----------------- --------------
Total assets $ 22,740,029 $ 27,470,554
================= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 7,699,721 $ 7,699,721
Accrued expenses 2,028,274 1,842,229
Note payable to affiliate 3,954,989 3,954,989
Current portion of long-term debt (Note 5) 8,766,347 3,961,347
Lease obligation--current portion (Note 7) 21,034 21,034
----------------- ----------------
Total current liabilities 22,470,365 17,479,320
LONG-TERM DEBT (Note 5) 8,000,000 4,480,000
LEASE OBLIGATION--LONG-TERM (Note 7) 18,315 18,315
----------------- ----------------
Total liabilities 30,488,680 21,977,635
----------------- ----------------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, $10 par value; 2,500,000 shares authorized, 200,000 shares issued
and outstanding - 2,000,000
Common stock, $.01 par value; 15,000,000 shares authorized, 3,626,504 shares
issued and outstanding 36,265 59,265
Paid-in capital 8,567,675 19,889,712
Accumulated deficit (16,341,341) (16,444,808)
Less: Treasury stock, 106,304 shares held at cost (11,250) (11,250)
----------------- ----------------
Total stockholders' equity (deficit) (7,748,651) 5,492,919
----------------- ----------------
Total liabilities and stockholders' equity (deficit) $ 22,740,029 $ 27,470,554
================= ================
The accompanying notes are an integral part of this
consolidated balance sheet.
F-2
AMERTRANZ WORLDWIDE HOLDING CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
Six Months
Ended
June 30, 1996
-------------
OPERATING REVENUE $ 27,445,583
DIRECT COSTS 20,961,019
------------
Gross profit 6,484,564
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 8,772,226
Operating (loss) (2,287,662)
OTHER INCOME (EXPENSE):
Interest expense (4,057,864)
Other income (expense), net (50,998)
Net loss $ (6,396,524)
Net loss per common share $ (1.84)
------------
Weighted average number of common shares 3,482,504
------------
The accompanying notes are an integral part of this
consolidated statement.
F-3
AMERTRANZ WORLDWIDE HOLDING CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996
Additional
Common Stock Paid-in Treasury Stock Accumulated
Shares Amount Capital Shares Amount (Deficit) Total
------ ------ ------- ------ ------ --------- -----
Balance January 1, 1996 2,100,000 $21,000 $ - - $ - $( 4,932,989) $(4,911,989)
Liabilities in excess of assets
distributed to TIA/CFS - - - - - 4,988,172 4,988,172
Exchange Note issued to TIA/
CFS in connection with asset
exchange - - - - - (10,000,000) (10,000,000)
Common Stock issued in
connection with assigned
notes 280,888 2,809 1,376,301 - - - 1,379,110
Common Stock issued in
connection with Bridge
and Interim financings 727,560 7,276 2,781,787 - - - 2,789,063
Common Stock issued to
former stockholders of
Amertranz Worldwide 518,056 5,180 4,409,587 - - - 4,414,767
Purchase of treasury
stock - - - 106,304 (11,250) - (11,250)
Net loss - - - - - ( 6,396,524) (6,396,524)
--------- ------- ---------- ------- --------- ------------ ------------
Balance, June 30, 1996 3,626,504 $36,265 $8,567,675 106,304 $(11,250) $(16,341,341) $(7,748,651)
========= ======= ========== ======= ======== ============ ===========
The accompanying notes are an integral part of this
consolidated statement.
F-4
AMERTRANZ WORLDWIDE HOLDING CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(6,396,524)
Bad debt expense (13,187)
Depreciation and amortization 361,467
Decrease in debt issuance costs 3,208,809
Adjustments to reconcile net income to net cash used in operating activities-
Increase in accounts receivable (3,628,728)
Increase in prepaid expenses and other current assets (22,301)
Increase in other assets (1,214,586)
Increase in accounts payable and accrued expenses 1,130,878
Increase in due to affiliates 1,414
Net cash used in operating activities (6,572,758)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (123,068)
Cash advances under notes receivable (300,000)
Net cash used in investing activities (423,068)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from loan payable (56,515)
Proceeds from short-term debt 5,190,064
Repayment of long-term debt (3,990,064)
Proceeds from revolving loan due to affiliate 3,954,989
Payment of lease obligations (8,139)
Purchase of treasury stock (11,250)
Cash portion of assets distributed to TIA (2,590,031)
-----------
Net cash provided by financing activities 2,489,054
-----------
Net decrease in cash and cash equivalents (4,506,772)
-----------
CASH AND CASH EQUIVALENTS, beginning of the year 4,884,262
-----------
CASH AND CASH EQUIVALENTS, end of the year $ 377,490
===========
CASH PAYMENTS FOR:
Interest $ 825,563
Income taxes 434,199
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTMENT & FINANCING ACTIVITIES
On February 7, 1996 Holdings purchased the capital stock of Amertranz
for shares valued at $4,415,000. In conjunction with the acquisition, the
resulting goodwill is as follows:
Net liabilities assumed $ 7,685,000
Purchase price 4,415,000
-----------
Goodwill 12,100,000
Net liabilities retained by TIA/CFS 4,988,172
Cash portion of assets distributed to TIA (2,590,031)
-----------
Net liabilities distributed $ 2,398,141
===========
The accompanying notes are an integral part of this
consolidated statement.
F-5
AMERTRANZ WORLDWIDE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND
In January 1996, Amertranz Worldwide Holding Corp. ("Holding" or the
"Company") was incorporated in the state of Delaware. Effective February 7,
1996, Holding concluded an Asset Exchange Agreement (the "Agreement") with TIA,
Inc. ("TIA"), Caribbean Freight System, Inc. ("CFS"), Amertranz Worldwide, Inc.
("Amertranz") and the stockholders and convertible note holders of Amertranz. As
part of this transaction, Holding received (i) all of the issued and outstanding
stock of Amertranz, (ii) $1,379,110 in convertible notes of Amertranz, and (iii)
the air freight forwarding business of TIA and CFS. Holding then contributed the
air freight forwarding business of TIA and CFS to Caribbean Air Services, Inc.
("CAS") in return for all of the issued and outstanding shares of CAS. TIA and
CFS received 2,100,000 shares of common stock of the Company and a $10,000,000
promissory note, as discussed in Note 4, in addition to stock in the Company.
The transactions described above have been accounted for as a
recapitalization of TIA and CFS, whereby the historical data for their freight
forwarding operations are being presented as that of Holdings for all periods
presented. The issuance of the $10,000,000 Promissory Note has been reflected as
a charge to retained earnings and the distribution of assets and liabilities to
TIA and CFS has been reflected as a net adjustment to equity, at book value
(which approximates fair value). The transaction with Amertranz has been
accounted for as an acquisition under purchase accounting.
On July 3, 1996, the Company completed an initial public offering
("IPO") of 2,300,000 shares of common stock and redeemable common stock purchase
warrants at an initial offering price of $6.10 per share. Prior to the IPO,
there was no public market for the Company's capital stock. The net proceeds to
the Company of $12,414,117 were used to pay down existing debt of $6,503,000 and
the balance is available for working capital purposes. Additionally, the Company
issued 200,000 shares of Class A, non-voting, cumulative, convertible preferred
stock with a par value of $10.00 in exchange for payment of $2,000,000 of its
promissory note with TIA and CFS.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies of the Company, as summarized below,
are in conformity with generally accepted accounting principles. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Holding,
CAS and Amertranz since February 7, 1996. The accompanying consolidated
statements of operations and changes in retained earnings (deficit) include the
accounts of the former air freight business of TIA (a wholly-owned subsidiary of
Wrexham Aviation Corporation) and CFS, which was not a separate legal or
historical reporting entity for the period January 1, 1996 through February 7,
1996. All significant intercompany accounts and transactions have been
eliminated.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
under the straight-line method over estimated useful lives ranging from 3 to 8
years. Assets under capital leases are depreciated over the shorter of the
estimated useful life of the asset or the lease term. The Company utilizes a
half-year convention for assets in the year of acquisition and disposal.
Goodwill
Goodwill represents the excess of cost over the net assets acquired and
is amortized on a straight-line basis over 25 years. Management periodically
assesses whether there has been an impairment in the carrying value of the
excess of cost over the net assets acquired, by comparing current and projected
annual undiscounted cash flows with the related annual amortization. In the
event there is an impairment of goodwill, management would reduce the carrying
value to an amount equal to the projected discounted cash flow of the underlying
assets.
F-6
AMERTRANZ WORLDWIDE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Stock Options
The Company grants stock options to certain officers and related
parties. Compensation expense is recognized based upon the aggregate difference
between the fair market value of the Company's stock at date of grant and the
option price. Compensation expense is recognized equally over the vesting
period.
Proforma Data
The unaudited proforma balance sheet gives effect to the IPO discussed
in Note 1 as if it had closed on June 30, 1996.
Revenue Recognition
Revenue from freight forwarding is recognized upon delivery of goods
and direct expenses associated with the cost of transportation are accrued
concurrently. Monthly provision is made for doubtful receivables, discounts,
returns and allowances.
Cash and Cash Equivalents
Cash at June 30, 1996 includes $297,000 of overnight repurchase
agreements.
Per Share Data
Earnings per share is computed using the weighted average number of
common shares outstanding and, where applicable, common equivalent shares
issuable upon exercise of stock options redeemable under the treasury stock
method.
3. PROPERTY AND EQUIPMENT, NET
Property and Equipment consists of the following:
Furniture and fixtures $ 303,502
Computer equipment 421,946
Computer software 219,701
Leasehold improvements 63,658
Logos and trademarks 22,349
Vehicle 8,499
--------------
1,039,655
Less: Accumulated depreciation and amortization 210,213
--------------
$ 829,442
==============
4. ACQUISITION
Holding acquired all of the issued and outstanding stock of Amertranz
and the former stockholders of Amertranz received 870,254 shares (which consist
of the investment in Amertranz Worldwide of 518,056 shares, assigned notes of
280,888 shares and 71,310 shares associated with the Interim Financing) of
Holding's common stock and options to purchase 224,399 shares of Holding's
common stock valued at $4,415,000 or approximately $4.25 per share and option.
The Amertranz transaction has been accounted for as a purchase and resulted in
goodwill of approximately $12.1 million which represents the excess of the cost
over the fair value of the assets acquired.
F-7
AMERTRANZ WORLDWIDE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
5. DEBT
As of June 30, 1996, long-term and short-term debt consisted of the
following:
Promissory note to TIA and CFS (a) $ 10,000,000
Revolving loan to TIA and CFS (b) 3,954,989
February Bridge notes (c) 2,775,000
May bridge notes (d) 1,200,000
Asset-based financing (e) 1,641,347
Notes payable to TIA (f) 800,000
Interim financing (g) 350,000
--------------
Total debt 20,721,336
Less: Current portion (12,721,336)
--------------
Long-term debt $ 8,000,000
==============
(a) On February 7, 1996, as part of the Agreement, Holding issued to
TIA and CFS a $10,000,000 promissory note which bears interest at the rate of
8.0% per annum. The note is payable in five consecutive monthly payments of
principal and interest in the amount of $80,000 each, commencing March 1, 1996,
and thereafter monthly payments of principal and interest in the amount of
$166,667 each until the note is paid in full. On July 3, 1996, Holding repaid
$2,000,000 of this debt from the proceeds of the IPO and converted $2,000,000 of
the note into Class A, non-voting, cumulative, convertible preferred stock.
(b) As part of the Agreement, TIA and CFS have agreed to lend to CAS on
a revolving loan basis, an amount up to the net cash collections of TIA and
CFS's accounts receivable as of February 7, 1996 and additional amounts at the
discretion of TIA and CFS, up to an aggregate maximum of $4,000,000 outstanding
at any time, pursuant to the terms of a Revolving Credit Promissory Note. Only
funds advanced at the discretion of TIA and CFS bear interest, at the greater of
(i) 1% per month or (ii) at a rate of 4% over prime. The note is due July 6,
1996. The note is secured by all of the assets of CAS and is guaranteed by
Holding and Amertranz. As of June 30, 1996, $3,954,989 was outstanding under
this facility.
(c) On February 7, 1996, Holding consummated a private placement with a
group of investors whereby Holding borrowed $2,775,000 and issued promissory
notes. The notes are due at the earlier of (i) the consummation of the IPO by
Holding or (ii) February 7, 1998 or (iii) the sale or merger of Holding. The
investors also received 416,250 shares of common stock of Holding, as well as
832,500 warrants to purchase shares of common stock of Holding for five years at
$5.00 per share. These warrants convert into warrants upon the completion of the
IPO by Holding and will be exercisable at the IPO price. The notes accrue
interest at 10% per annum until April 30, 1996 and thereafter at 15% per annum.
The notes are secured by a junior lien on all of the assets of the Company. The
Company has recorded debt issuance costs of approximately $2,143,000 in
connection with such bridge financing and will amortize the amount over the life
of the debt. Upon repayment of the debt, the related unamortized debt issuance
cost would be expensed. The effective annual rate of interest on the notes after
giving effect to the debt issuance cost of $2,143,000 is 200%. The fair value of
the shares of common stock at the time of issuance was $4.25 per share. This
debt was repaid on July 3, 1996 with the proceeds of the IPO.
(d) On May 10, 1996, Holding consummated a private placement with a
group of investors whereby Holding borrowed $1,200,000 and issued promissory
notes. The notes are due at the earlier of (i) the closing of the IPO by Holding
or (ii) February 7, 1998 or (iii) the sale or merger of Holding. The investors
also received 240,000 shares of common stock of Holding, as well as 480,000
warrants to purchase shares of common stock of Holding for five years at $5.00
per share. These warrants convert into IPO warrants upon the completion of the
IPO by Holding and will be exercisable at the IPO price. The notes accrue
interest at 15% per annum. The notes are secured by a lien on all of the assets
of the Company. The Company has recorded debt issuance costs of approximately
$1,020,000 in connection with such bridge financing and will amortize the amount
over the life of the debt. Upon repayment of the debt, the related unamortized
debt issuance cost would be expensed. The effective annual rate of interest on
the notes after giving effect to the debt issuance cost of $1,020,000 is 525%.
The fair
F-8
AMERTRANZ WORLDWIDE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
value of the shares of common stock at the time of issuance was $4.25 per share.
This debt was repaid on July 3, 1996 with the proceeds of the IPO.
(e) Amertranz entered into a Purchase and Sale Agreement with a lender
whereby it receives advances of up to 75% of the net amounts of eligible
accounts receivable outstanding to a maximum amount of $3,125,000. The loan is
subject to interest at a rate of 4% per annum over the prevailing prime rate
(8.25% as of June 30, 1996). At June 30, 1996, the outstanding balance on the
credit line was $1,641,347, which represented the full amount available
thereunder. The lender has a security interest in all present and future
accounts receivable, machinery and equipment and other assets of Amertranz and
the loan is guaranteed by Holding.
(f) In October 1995, Amertranz obtained a $500,000 subordinated secured
loan from TIA, which was increased to $800,000 in January 1996 ("TIA Loan"). The
original TIA Loan bears interest at the rate of 12% per annum and is repayable
in 12 equal, consecutive monthly payments of principal and interest commencing
30 days after the closing of the IPO.
(g) Between November 1995 and January 1996, Amertranz obtained
financing of $350,000 ("Interim Financing") and issued $350,000 in aggregate
principal amount of promissory notes. Repayment of the principal amount due
under these notes, together with interest at the rate of 12% per annum is due
upon the earlier of (i) the closing of the IPO by Holding or (ii) February 7,
1998 or (iii) the sale or merger of Holding. The holders of these notes also
received shares of Amertranz common stock that were converted into 71,310 shares
of Holding common stock. The Company has recorded a debt issuance cost of
$150,000 in connection with the issuance of the stock and will amortize the
amount over the life of the debt. Upon repayment of the debt, the related
unamortized debt issuance cost would be expensed. The effective annual rate of
interest on the notes after giving effect to the debt issuance cost of $150,000
is 98%. The fair value of the shares of common stock at the time of issuance was
$2.22 per share. This debt was repaid on July 3, 1996 with the proceeds of the
IPO.
Between June 1995 and November 1995, Amertranz borrowed $1,379,110 in
aggregate principal amount from persons affiliated with Amertranz and other
non-affiliated lenders and issued convertible notes therefor. All of these notes
were assigned by the holders thereof to Holding as part of the Combination and
are included in additional paid-in capital.
TIA and CFS have agreed that, upon consummation of the IPO, they will
defer each payment on the TIA Loan and the Exchange Note to the extent the
aggregate of the payments thereon then due exceeds 80% of the Company's earnings
before interest, taxes, depreciation and amortization ("EBITDA") for the month
in respect of which such aggregate payments are due. During any deferral period,
interest will continue to accrue on these obligations in accordance with their
respective terms. Such deferral will continue until the earlier of (i) the date
after which the Company's EBITDA exceeds the sum of $600,000 for any consecutive
two-month period, or (ii) November 1, 1996. Furthermore, TIA and CFS have agreed
that, upon consummation of the IPO, they will defer collection of amounts due
under the Revolver Note until the earlier of (i) refinancing of Amertranz's and
CAS's accounts receivable working capital facilities, or (ii) December 31, 1996.
6. STOCKHOLDERS' EQUITY (DEFICIT)
Stock Options and Warrants
As of June 30, 1996, the Company had options outstanding to purchase a
total of 523,399 shares of common stock at exercise prices ranging from $.16 to
$6.00, of which 237,673 options are exercisable. No options were exercised as of
June 30, 1996. 224,399 of these options replaced outstanding options of
Amertranz and were included in the computation of the consideration received by
the former Amertranz stockholders. The Company also had warrants outstanding to
purchase 1,386,783 shares of common stock at an exercise price equal to the
exercise price of the warrants issued in connection with the Company's February
and May bridge financings.
In connection with the IPO, the Company issued 2,300,000 shares of
common stock and 2,300,000 warrants. Each warrant entitles the holder thereof to
purchase one share of common stock for $6.00 during the four-year period
commencing one year from the date of this Prospectus. The Company may redeem the
warrants at a price of $.01 per warrant at any time
F-9
AMERTRANZ WORLDWIDE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
after they become exercisable upon not less than 30 days' prior written notice
if the last sale price of the common stock has been at least $10.00 for each of
the 20 consecutive trading days ending on the third day prior to the date on
which the notice of redemption is given.
Preferred Stock
As of June 30, 1996, the Company does not have any preferred stock
authorized or issued. However, the Board of Directors is authorized without
further action by the stockholders, to issue series of preferred stock. On July
3, 1996, the Company issued 200,000 shares of Class A, non-voting, cumulative,
convertible preferred stock with a par value of $10.00 in exchange for a paydown
of $2,000,000 on the $10,000,000 promissory note.
The Preferred Stock will pay cumulative cash dividends at an annual
rate of $1.00 per share. The Company is prohibited from paying any dividends on
common stock unless all required preferred dividends have been paid. Each share
of Preferred Stock may be converted at the option of the holder into common
stock at a conversion price of the lower of (i) the IPO price per share of
common stock or (ii) 80% of the average of the closing price per share of common
stock on the day prior to the conversion date. Preferred Stock holders are
entitled to a liquidation preference of $10.00 per share plus all accrued and
unpaid dividends.
7. COMMITMENTS AND CONTINGENCIES
Leases
Future minimum lease payments for capital leases and operating leases
relating to equipment and rental premises are as follows:
YEAR ENDING CAPITAL LEASES OPERATING LEASES
----------- -------------- ----------------
1997 $24,053 $ 803,097
1998 13,234 537,365
1999 6,456 193,626
2000 -- 129,084
2001 -- --
------- ----------
Total minimum lease payments 43,743 $1,663,172
==========
Less--Amount representing interest (4,394)
-------
$39,349
=======
Employment Agreements
Amertranz has employment agreements with certain employees expiring at
various times through July 2000. Such agreements provide for minimum salary
levels and for incentive bonuses which are payable if specified management goals
are attained. The aggregate commitment for future salaries at June 30, 1996,
excluding bonuses, was approximately $1,534,000.
Litigation
Amertranz is a defendant in a lawsuit initiated by the trustee in
bankruptcy of Aeronautics Express, Inc. ("AEI"), a company with whom Amertranz
engaged in discussions concerning a prospective business combination during the
early spring of 1994. The complaint was filed in the United States Bankruptcy
Court for the Southern District of New York in December 1995, and alleges that
Amertranz improperly obtained control over the assets of AEI, committed fraud in
connection with the business discussion, breached an agreement not to solicit
the business or customers of AEI, induced AEI to convey property to Amertranz
for less than fair value and failed to pay AEI compensation for services
rendered by AEI to Amertranz. The
F-10
AMERTRANZ WORLDWIDE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
complaint seeks damages in excess of $11 million. The Company has reached an
agreement with the trustee in bankruptcy to settle the litigation for $50,000.
This settlement is conditioned upon the approval of the United States Bankruptcy
Court.
8. INCOME TAXES
At February 7, 1996, the Company had a tax net operating loss
carryforward of approximately $7,757,000, available within statutory limits, to
offset future regular federal taxable income. In accordance with certain
provisions of the Tax Reform Act of 1986, a change in ownership of a corporation
of greater than 50 percentage points within a three-year period places an annual
limitation on the corporation's ability to utilize its existing net operating
loss carryforwards. Such a change in ownership was deemed to have occurred in
connection with the Asset Exchange Agreement in which Amertranz became part of
Holding, at which time the Company's net operating loss carryforwards amounted
to approximately $7,757,000. The annual limitation of the utilization of such
tax attributes over the fifteen year carryforward amounts to approximately
$206,000. To the extent the annual limitation is not utilized, it may be carried
forward for utilization in future years. This limitation could affect the
Company's future provisions for or payment of federal income tax should the
Company's operations produce increased amounts of taxable income in the future.
Deferred tax benefits at June 30, 1996, which are fully offset by a
valuation allowance, primarily represent the estimated future tax effects of
federal net operating losses aggregating approximately $3,548,022.
9. RELATED PARTY TRANSACTIONS
Under the terms of a cargo aircraft charter agreement with Tradewinds
Airlines, Inc. ("Tradewinds Air"), a subsidiary of Tradewinds Acquisition
Corporation, of which TIA owns approximately 30% of the outstanding common
stock, CAS has exclusive rights until June 30, 1998 to the use of a leased
L-1011 freighter aircraft. While CAS is guaranteed the use of the L-1011
aircraft as needed, it pays only for actual use of the aircraft at market rates.
CAS had sales to Amertranz of approximately $242,000, and related
accounts receivable of approximately $213,000 as of and for the six month period
ended June 30, 1996.
At June 30, 1996, Amertranz owes approximately $213,000 to TIA for air
freight forwarding services.
10. SIGNIFICANT CUSTOMERS
During the six month period ended June 30,1996, no single customer
accounted for sales of 10% or more of the Company's revenue.
F-11
INDEPENDENT AUDITORS' REPORT
The Board of Directors
TIA, Inc.:
We have audited the accompanying balance sheets of Amertranz Worldwide
Holding Corp. (formerly The Freight Forwarding Business of TIA and CFS) (note 1)
as of December 31, 1994 and 1995 and the related statements of operations and
changes in accumulated deficit and cash flows for each of the years in the
three-year period ended December 31, 1995. These statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Amertranz Worldwide
Holding Corp. (formerly The Freight Forwarding Business of TIA and CFS) as of
December 31, 1994 and 1995, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Greensboro, North Carolina
March 8, 1996, except with respect to
the last paragraph in Note 2 for which
the date is May 1, 1996
F-12
AMERTRANZ WORLDWIDE HOLDING CORP.
(FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
BALANCE SHEETS
December 31, 1994 AND 1995
1994 1995
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 2,141,047 $ 2,463,336
Accounts receivable, net of allowance for doubtful accounts
of $131,229 in 1995 and $228,424 in 1994 (Note 7) 5,196,113 5,379,903
Income taxes receivable -- 65,000
Prepaid expenses and deposits 111,878 84,917
----------- -----------
Total current assets 7,449,038 7,993,156
----------- -----------
Property and equipment, at cost:
Ground support equipment 1,211,507 1,259,942
Furniture, fixtures and leasehold improvements 374,751 429,145
----------- -----------
1,586,258 1,689,087
Less accumulated depreciation and amortization 762,229 1,129,340
----------- -----------
Net property and equipment 824,029 559,747
Notes receivable (Note 3) -- 500,000
Other assets 54,077 54,077
----------- -----------
$ 8,327,144 $ 9,106,980
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Note payable to affiliate (Note 4) $ 3,387,808 $ 2,187,808
Current installments of note payable (Note 4) 25,000 25,000
Accounts payable (Note 7) 1,614,424 1,605,257
Accrued liabilities (Note 4) 1,479,493 1,235,568
Income taxes payable 108,201 --
----------- -----------
Total current liabilities 6,614,926 5,053,633
----------- -----------
Note payable (Note 4) 50,000 25,000
Note payable to Parent (Note 4) 8,940,336 8,940,336
----------- -----------
Total liabilities 15,605,262 14,018,969
----------- ----------
Stockholders' equity (deficit):
Common stock, $.01 par value; 15,000,000 shares
authorized, 2,100,000 shares issued
and outstanding 21,000 21,000
Accumulated deficit (7,299,118) (4,932,989)
----------- -----------
Total stockholders' equity (deficit) (7,278,118) (4,911,989)
Commitments and contingencies (Notes 6 and 9)
$ 8,327,144 $ 9,106,980
=========== ===========
See accompanying notes to financial statements.
F-13
AMERTRANZ WORLDWIDE HOLDING CORP.
(FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
STATEMENTS OF OPERATIONS AND
CHANGES IN ACCUMULATED DEFICIT
Years Ended December 31, 1993, 1994 and 1995
DECEMBER 31,
----------------------------------------------------
1993 1994 1995
---- ---- ----
Operating revenue $32,670,727 $38,576,285 $38,211,306
Cost of transportation (Note 7) 24,231,379 30,254,733 30,300,476
------------- ------------ ------------
Gross profit 8,439,348 8,321,552 7,910,830
Selling, general and administrative expenses 6,504,897 4,633,676 4,513,154
------------- ------------ ---------
Operating income 1,934,451 3,687,876 3,397,676
Other income (expense):
Interest expense (Note 4) (1,107,520) (1,143,787) (1,155,215)
Other, net 41,928 117,214 123,668
------------- ------------ ------------
Total other expense (1,065,592) (1,026,573) (1,031,547)
------------- ------------ ------------
Income before income taxes 868,859 2,661,303 2,366,129
Income taxes (Note 5) -- 108,201 --
------------- ------------ ------------
Net income 868,859 2,553,102 2,366,129
Accumulated deficit:
Balance at beginning of year (10,721,079) (9,852,220) (7,299,118)
------------- ------------ ------------
Balance at end of year $ (9,852,220) $ (7,299,118) $ (4,932,989)
============= ============ ============
See accompanying notes to the financial statements.
F-14
AMERTRANZ WORLDWIDE HOLDING CORP.
(FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1993, 1994 and 1995
DECEMBER 31,
--------------------------------------------
1993 1994 1995
---- ---- ----
Cash flows from operating activities:
Net income $ 868,859 $ 2,553,102 $ 2,366,129
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 416,830 377,569 367,111
Net disposals of property and equipment -- 46,978 --
Bad debt expense 153,574 70,000 41,000
Changes in assets and liabilities:
Increase in accounts receivable (771,087) (949,027) (224,790)
Increase in income taxes receivable -- -- (65,000)
Increase in inventory (11,309) -- --
(Increase) decrease in prepaid expenses (140,608) 581,376 26,961
Increase (decrease) in accounts payable 487,518 (274,010) (9,167)
Decrease in accrued liabilities (706,398) (165,264) (243,925)
Increase (decrease) in income taxes payable -- 68,201 (108,201)
--------- ----------- -----------
Total adjustments (571,480) (244,177) (216,011)
--------- ----------- -----------
Net cash provided by operating activities 297,379 2,308,925 2,150,118
Cash flows from investing activities:
Cash advances under notes receivable -- -- (500,000)
Purchases of furniture, fixtures and equipment (95,567) (42,280) (102,829)
Increase in other assets (7,393) (9,405) --
--------- ----------- -----------
Net cash used in investing activities (102,960) (51,685) (602,829)
Cash flows from financing activities:
Proceeds from Parent cash advance 400,000 -- --
Repayments on Parent cash advance (161,199) (238,801) --
Payments on note payable to affiliate -- -- (1,200,000)
Repayments on notes payable (274,162) (231,264) (25,000)
--------- ----------- -----------
Net cash used in financing activities (35,361) (470,065) (1,225,000)
--------- ----------- -----------
Net increase in cash and cash equivalents 159,058 1,787,175 322,289
Cash and cash equivalents at beginning of year 194,814 353,872 2,141,047
--------- ----------- -----------
Cash and cash equivalents at end of year 353,872 2,141,047 2,463,336
========= =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest 586,056 1,666,950 946,155
========= =========== ===========
Cash paid during the year for income taxes $ -- $ -- $ 173,201
========= =========== ===========
See accompanying notes to the financial statements.
F-15
AMERTRANZ WORLDWIDE HOLDING CORP.
(FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
NOTES TO FINANCIAL STATEMENTS
December 31, 1993, 1994 and 1995
(1) Significant Accounting Policies
Company Background
In January 1996, Amertranz Worldwide Holding Corp. ('Holding') was
incorporated in the state of Delaware. Effective February 7, 1996, Holding
concluded an asset exchange agreement with TIA, Inc. ('TIA'), its 51% owned
subsidiary, Caribbean Freight System, Inc. ('CFS'), Amertranz Worldwide, Inc.
('Amertranz') and the stockholders and convertible note holders of Amertranz. As
part of this transaction, Holding received (i) all of the issued and outstanding
stock of Amertranz, (ii) $1,379,110 in convertible notes of Amertranz, and (iii)
the freight forwarding business of TIA and CFS. Holding then contributed the
freight forwarding business of TIA and CFS to Caribbean Air Services, Inc.
('CAS') in return for all of the issued and outstanding shares of CAS. TIA and
CFS received a $10,000,000 promissory note in addition to 2,100,000 shares of
common stock in Holding, as discussed in Note 2.
Basis of Financial Statement Presentation
The accompanying balance sheets and statements of operations and
changes in accumulated deficit and cash flows include the accounts of the former
air freight business of TIA (a wholly owned subsidiary of Wrexham Aviation
Corporation) and CFS, which have been combined for reporting purposes as The
Freight Forwarding Business of TIA and CFS (the 'Business'), which is not a
separate legal or historical reporting entity. The Business of TIA and CFS is
treated as the predecessor since TIA and CFS represent the majority and
controlling shareholders of Holding, accordingly the issuance of 2,100,000
shares of stock by Holding for the freight forwarding business of TIA and CFS
has been accounted for as a recapitalization of the Business. Although the
Business is not a separate legal entity, since the Business is treated as the
predecessor the effect of the issuance of the 2,100,000 shares of common stock
of Holding in February 1996 has been reflected in the financial statements as if
it had occurred as of the beginning of the earliest year presented. Since the
Business was combined in February 1996 with Holding the accompanying financial
statements include the accounts of TIA and CFS related to their air freight
businesses and exclude accounts related to the minority interest in CFS.
At December 31, 1995, CFS has a 51% ownership interest in Caribbean Air
Services Dominicana, Inc. (CASD); however, the accompanying financial statements
do not include the accounts of CASD since CASD was not combined with Holding.
All significant intrabusiness balances and transactions have been
eliminated in the financial statements.
Description of Business
The Business operates an air freight forwarding business primarily
serving the eastern half of the United States, Puerto Rico and the Dominican
Republic.
Revenue Recognition
The Business is involved in brokering air cargo services for freight
flown between the United States, Puerto Rico and the Dominican Republic.
Revenues, and related direct costs, are recognized when the shipments of cargo
are completed. Monthly provision is made for doubtful receivables, discounts,
returns and allowances.
Cash and Cash Equivalents
Cash at December 31, 1995 includes $2,290,000 of overnight repurchase
agreements.
F-16
AMERTRANZ WORLDWIDE HOLDING CORP.
(FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1993, 1994 and 1995
(1) Significant Accounting Policies - (Continued)
Property and Equipment
Property and equipment are depreciated using the straight-line method
over the estimated useful lives of the assets of five years for ground support
equipment and 5 to 10 years for furniture, fixtures and leasehold improvements.
Income Taxes
The operations of the Business are included in the federal and state
income tax returns of TIA and CFS. Income taxes allocated to the Business are
based on the actual income taxes of TIA and CFS for the periods presented.
Deferred tax assets and liabilities are recognized under the asset and
liability method for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Financial Instruments
The carrying amounts of accounts receivable, notes receivable, note
payable to affiliate, accounts payable and accrued liabilities approximate fair
value because of the short maturity of these financial instruments. The carrying
amount of the note payable to the Parent approximates fair value because it
bears interest at an adjustable rate.
Earnings per Share
Earnings per share information has not been presented since it would
not be representative of future earnings per share information due to the
combination of the Business with Holding and Amertranz on February 7, 1996 and
the related changes in stockholders' equity which took place at that time.
Reclassification
Certain amounts in the 1993 and 1994 financial statements have been
reclassified to conform with the 1995 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-17
AMERTRANZ WORLDWIDE HOLDING CORP.
(FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1993, 1994 and 1995
(2) Asset Exchange Agreement
In anticipation of a public offering of securities ("Offering"), in
February 1996 TIA and CFS entered into an asset exchange agreement discussed in
note 1 in which the air freight business of TIA and CFS was combined with
Holding, which contributed the business to a wholly owned subsidiary.
The air freight business is defined by the agreement to include
customer lists and related business and marketing records; CFS's rights under a
freight handling agreement with CASD; the use of the names "Caribbean Air
Services" and "Tradewinds International Airlines;" the operating leases for the
Puerto Rico, Greensboro, North Carolina, and Hartford, Connecticut business
facilities; furniture and fixtures of $86,830 as of December 31, 1995 and
$83,525 as of February 7, 1996; and all assignable customer and sales
representative contracts of TIA and CFS in connection with their air freight
businesses. The air freight business does not include any other assets of TIA
and CFS, including cash, accounts receivable, notes receivable, securities,
equipment, aircraft, parts or tools, nor any liabilities of TIA or CFS.
In exchange for the transfer of the air freight operating assets
described above, TIA and CFS received a promissory note of $10,000,000 and
2,100,000 shares of Holding (allocated to TIA and CFS as notes receivable of
$8,000,000 and $2,000,000, respectively, and 1,680,000 and 420,000 shares,
respectively). The promissory note bears interest at 8%, and is due from March
1, 1996 through July 1, 1996 in monthly payments of $80,000 and from August 1,
1996 in monthly payments of $166,667. In addition, Holding intends to apply
$2,000,000 of the net proceeds from the proposed public offering of securities
discussed in the first paragraph above against the promissory note.
Pursuant to the asset exchange agreement, TIA and CFS agreed to advance
to the aforementioned subsidiary of Holding, on a revolving loan basis, the net
collections of TIA's and CFS's accounts receivable as of February 7, 1996 and
additional amounts in the discretion of TIA and CFS, up to an aggregate maximum
of $4,000,000 outstanding at any time. Funds advanced under the revolving loan
with respect to TIA's and CFS's accounts receivable do not bear interest and
discretionary advances bear interest at the greater of 1% per month or the prime
rate plus 4%. The revolving loan matures on July 6, 1996.
The promissory note and revolving loan are secured by a first priority
lien on all of the issued and outstanding shares of the aforementioned
subsidiary of Holding, a first priority lien on all of the assets of Holding and
the subsidiary of Holding, and a second lien on the accounts receivable of
another subsidiary of Holding.
TIA and CFS have agreed that upon consummation of the public offering
of securities discussed above, they will defer repayment of the promissory note,
revolving loan and notes receivable discussed in note 3 if, among other things,
Holding does not meet certain financial thresholds or obtain additional
financing. TIA and CFS have further agreed that except upon the occurrence of
certain events they will not take any action to foreclose on their security
interests in the assets of Holding or its subsidiaries for one year.
(3) Notes Receivable
In anticipation of entering into the asset exchange agreement discussed
in note 2, TIA and CFS made advances to a subsidiary of Holding totaling
$500,000 in 1995 and $300,000 subsequent to December 31, 1995. The notes are
secured by a subordinated lien on all of the assets of a subsidiary of Holding,
bear interest at a rate of 12%, and are repayable in 12 monthly payments of
principal and interest commencing 30 days after the closing of the Offering.
However, TIA and CFS have agreed that, upon consummation of the Offering,
repayment of the notes will be deferred as discussed in note 2.
F-18
AMERTRANZ WORLDWIDE HOLDING CORP.
(FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1993, 1994 and 1995
(4) Notes Payable
Substantially all of TIA's and CFS's activities in 1993, 1994 and 1995
are related to their air freight business and, accordingly, all of the
historical interest expense related to the interest-bearing debt of TIA and CFS
has been included in the accompanying financial statements.
Interest expense relates primarily to two notes payable as follows:
A note payable to Harborview Corporation Ltd. No. 1, a company
affiliated through common ownership to TIA has a balance outstanding at December
31, 1994 and 1995 of $3,387,808 and $2,187,808, respectively, bears interest at
a rate of 10%, is secured by a senior lien on all of the assets of TIA and is
due on demand. Interest expense on this note amounted to approximately $327,000,
$343,000 and $252,000 in 1993, 1994 and 1995, respectively.
A note payable to Wrexham Aviation Corporation, Parent of TIA has a
balance outstanding at both December 31, 1994 and 1995 of $8,940,336, bears
interest at prime plus 1% (9.5% at December 31, 1995), is secured by a second
lien on all assets of TIA and is due on June 16, 1997. Interest expense on this
note amounted to approximately $740,000, $783,000 and $903,000 in 1993, 1994 and
1995, respectively. Interest in the amount of approximately $11,000 and $202,000
is included in accrued liabilities at December 31, 1994 and 1995, respectively.
In addition to the above notes, a non-interest bearing note payable of
$50,000 is outstanding at December 31, 1995 and is due in payments of $25,000 in
1996 and 1997.
F-19
AMERTRANZ WORLDWIDE HOLDING CORP.
(FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1993, 1994 and 1995
(5) Income Taxes
The operations of the Business are included in the federal and state
income tax returns of TIA and CFS. Income taxes allocated to the Business are
based on the actual income taxes of TIA and CFS for the periods presented.
Income tax expense for 1993, 1994 and 1995 consists of:
1993
-----------------------------------------------
CURRENT DEFERRED TOTAL
------- -------- -----
Federal $ -- $ -- $ --
State -- -- --
-----------------------------------------------
$ -- $ -- $ --
========= ========= ========
1994
-----------------------------------------------
CURRENT DEFERRED TOTAL
------- -------- -----
Federal $ 79,494 $ -- $ 79,494
State 28,707 -- 28,707
--------- --------- --------
$ 108,201 $ -- $108,201
========= ========= ========
1995
-----------------------------------------------
CURRENT DEFERRED TOTAL
------- -------- -----
Federal $ -- $ -- $ --
State -- -- --
-----------------------------------------------
$ -- $ -- $ --
========= ========= ========
Income tax expense for 1993, 1994 and 1995 differed from the "expected"
amount for those years (computed by applying the federal corporate rate of 34%
to income before income taxes) for the following reasons:
1993 1994 1995
---- ---- ----
Computed "expected" tax expense $ 295,412 $ 904,843 $804,484
State income taxes, net of federal benefit -- 18,947 --
Change in valuation allowance for deferred tax
assets allocated to income tax expense (295,412) (861,672) (817,928)
Other -- 46,083 13,444
---------- --------- ---------
$ -- $ 108,201 $ --
========== ========= =========
F-20
AMERTRANZ WORLDWIDE HOLDING CORP.
(FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1993, 1994 and 1995
(5) Income Taxes--(Continued)
The temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 31, 1994 and 1995
are presented below:
1994 1995
---- ----
Deferred tax assets:
Allowance for doubtful accounts receivable $ 88,172 $ 50,664
Alternative minimum tax credit carry forward 79,494 79,494
Reserves and accruals, not deductible until paid for tax
purposes 51,606 40,656
Net operating loss carry forwards 4,034,683 3,562,667
----------- -----------
Total gross deferred tax assets 4,253,955 3,733,481
Less valuation allowance (2,709,088) (1,891,160)
----------- ----------
Net deferred tax assets 1,544,867 1,842,321
Deferred tax liabilities:
Fixed assets, primarily excess tax over financial statement
depreciation (1,544,867) (1,842,321)
----------- ----------
Total gross deferred tax liabilities (1,544,867) (1,842,321)
----------- -----------
$ -- $ --
=========== ===========
The changes in the valuation allowance for 1993, 1994 and 1995 result
from the utilization of net operating loss carryforwards allocated to the
Business. Subsequently recognized tax benefits relating to the valuation
allowance for deferred tax assets as of December 31, 1995 will be recorded as an
income tax benefit in the statement of operations.
At December 31, 1995, TIA had federal and state net operating loss
carryforwards of approximately $9,227,000. The carryforwards expire in 2005
through 2008 for federal income tax purposes and 1996 through 1997 for state
income tax purposes. Due to the statutory limitation on net operating loss
carryforwards following an ownership change, the availability of approximately
$2,456,000 at December 31, 1995 of these net operating loss carry forwards to
reduce future taxable income is substantially limited.
The excess of alternative minimum tax over regular tax is a credit
which can be carried forward to reduce regular tax liabilities in future years.
At December 31, 1995, TIA and CFS have approximately $79,000 available for
carryforward.
F-21
AMERTRANZ WORLDWIDE HOLDING CORP.
(FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1993, 1994 and 1995
(6) Leases
The Business leases certain equipment under various noncancellable
operating leases expiring at various dates through 1997. Future minimum lease
payments are as follows:
1996 $43,332
1997 $20,865
Rent expense for cancelable and noncancellable operating leases for the
years ended December 31, 1993, 1994 and 1995 was approximately $2,012,000,
$675,000 and $330,000, respectively.
(7) Related Party Transactions
During the years ended December 31, 1993, 1994 and 1995, the Business
incurred purchased transportation costs of approximately $541,000, $848,000 and
$1,622,000, respectively, from companies partially owned by minority
stockholders of CASD. Included in accounts payable at December 31, 1994 and 1995
was approximately $31,000 and $8,000, respectively, due to these companies.
During the year ended December 31, 1995, the Business had sales to a
subsidiary of Holding that amounted to approximately $350,500 and at December
31, 1995 related accounts receivable of $150,500, recorded in the accompanying
balance sheet.
Under the terms of a cargo aircraft charter agreement with Tradewinds
Airlines, Inc. ('Tradewinds Air'), a subsidiary of Tradewinds Acquisition
Corporation, of which TIA owns approximately 30% of the outstanding common
stock, TIA has exclusive rights until June 30, 1998 to the use of a leased
L-1011 freighter aircraft. While TIA is guaranteed the use of the L-1011
aircraft as needed, it pays only for actual use of the aircraft at market rates.
The investment in, and related activities of, Tradewinds Air are not
reflected in the accompanying financial statements as they were not included in
the Business combined with Holding, see Basis of Financial Statement
Presentation in note 1 and Asset Exchange Agreement in note 2.
TIA currently holds the United States Department of Transportation
licenses and certificates required for the operation of the L-1011 and is
operating the L-1011 aircraft on behalf of Tradewinds Air under an interim
operating agreement. Upon approval by the United States Department of
Transportation of the transfer of the licenses and certificates, TIA intends to
assign the aircraft lease to Tradewinds Air.
The leased L-1011, along with assignment of the aforementioned cargo
aircraft charter agreement and interim operating agreement, was acquired in late
November 1995 by Tradewinds Air from Florida West Airlines, Inc. (FWA) upon
confirmation by the Bankruptcy Court of FWA's plan of reorganization. FWA had
acquired the leased L-1011 from and entered into the aforementioned cargo
aircraft charter agreement and interim operating agreement with TIA in March
1994. Prior to March 1994, TIA had operated the L-1011. Accordingly, the
accompanying financial statements for the year ended December 31, 1993 and for
the first two months of 1994 include the operations of the aircraft.
F-22
AMERTRANZ WORLDWIDE HOLDING CORP.
(FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1993, 1994 and 1995
(7) Related Party Transactions (Continued)
Total transportation costs purchased from Tradewinds Air and FWA
related to these agreements amounted to approximately $14,959,000 and
$16,691,000 in 1994 and 1995, respectively. At December 31, 1994 and 1995, the
Business owed $913,000 and $760,000, respectively, for such services which are
included in accounts payable.
TIA provides accounting services to Tradewinds Air for $5,720 per
month.
(8) Supplier and Credit Concentration
The Business charters the flight operations of an L-1011 from one
supplier. Although there are a limited number of companies that charter or lease
L-1011 aircraft, management believes that other suppliers could provide similar
services on comparable terms. A change in suppliers, however, could cause a
delay in the air cargo operations and a possible loss of sales, which would
affect operating results adversely.
The air cargo industry is impacted by the general economy. Changes in
the marketplace of this industry may significantly affect management's estimates
and the Business's performance.
Most of the Business's customers are located primarily in the eastern
half of the United States, Puerto Rico, and the Dominican Republic. No single
customer accounted for more than 10% of the sales of the Business in 1993, 1994
and 1995. The Business estimates an allowance for doubtful accounts based on the
credit worthiness of its customers as well as general economic conditions.
Consequently, an adverse change in those factors could affect the Business's
estimate of its bad debts.
(9) Contingencies
TIA is responsible for the clean-up of contaminated soil associated
with the removal of an underground storage tank in Greensboro, North Carolina.
TIA removed the waste oil tank during 1994 and has performed a substantial
portion of the remediation procedures on the site. TIA, along with Tradewinds
Air, is responsible for any remaining soil clean-up required and the State of
North Carolina has a trust fund available to reimburse companies for voluntary
remediation expenses in excess of certain deductibles. Accordingly, management
believes that any remaining remediation costs will not have a material effect on
the financial statements.
F-23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Amertranz Worldwide Holding Corp.:
We have audited, in accordance with generally accepted auditing
standards, the financial statements of Amertranz Worldwide Holding Corp.
included in this annual report on Form 10-K and have issued our report thereon
dated August 28, 1996. Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. This schedule is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in our audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Melville, New York
August 28, 1996
S-1
SCHEDULE II
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance at Charged to Charged to
Beginning Costs and Other Balance at
of Year Expenses Accounts Deductions End of Year
------- -------- -------- ---------- -----------
For the fiscal year ended June 30, 1996
Allowance for doubtful accounts $ 401 $ 48 $ -- $(83) $ 371
===== ======= ====== ==== =======
Accumulated depreciation and amortization
of property and equipment $ 106 $ 108 $ -- $ (4) $ 210
===== ======= ====== ==== =======
Accumulated amortization of debt
issuance cost $ -- $ 3,264 $ -- $ -- $ 3,264
===== ======= ====== ==== =======
Accumulated amortization of goodwill $ -- $ 191 $ -- $ -- $ 191
===== ======= ====== ==== =======
S-2