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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 for the fiscal year ended June 30, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from to .
Commission file number: 001-14474
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 23, 1997 was $5,774,846.
The number of shares of common stock outstanding as of September 23, 1997 was
7,962,397.
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 1997 Annual
Meeting of Shareholders (to be filed).
AMERTRANZ WORLDWIDE HOLDING CORP.
1997 ANNUAL REPORT ON FORM 10-K
Table of Contents
Page
PART I
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Executive Officers of the Registrant 8
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 9
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 12
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures 17
PART III
Item 10. Directors and Executive Officers of the Registrant 18
Item 11. Executive Compensation 18
Item 12. Security Ownership of Certain Beneficial Owners
and Management 18
Item 13. Certain Relationships and Related Transactions 18
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 19
2
PART I
ITEM 1. BUSINESS
Background
Amertranz Worldwide Holding Corp. ("Company") provides freight
forwarding services and logistics services, through its wholly owned
subsidiaries, Caribbean Air Services, Inc. ("CAS") and Target Airfreight, Inc.
("Target"), and, until June 23, 1997, Amertranz Worldwide, Inc. ("Amertranz").
The Company has a network of offices in 26 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 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.
In February 1996, 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
conducting 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.
On October 10, 1996, the Company acquired Consolidated Air Services,
Inc. ("Consolidated"), a Phoenix based freight forwarder that had begun its
operation in 1982 focusing primarily on serving the fashion and retail industry
with domestic and international freight forwarding services. As a result,
Consolidated became a wholly-owned subsidiary of the Company with Amertranz
conducting Consolidated's freight forwarding business.
3
On May 8, 1997, the Company acquired (by merger into the Company's
Target subsidiary) Target Air Freight, Inc. (a California corporation) a Los
Angeles-based freight forwarder ("Air Freight"). Under the terms of the merger
(the "Target Merger"), the Company issued 900,000 shares of Common Stock and
paid $400,000 to Air Freight's stockholders. Following the Target Merger,
Christopher A. Coppersmith, the principal shareholder of Air Freight became a
director of the Company.
While the business of the Company's CAS subsidiary has generated
positive cash flows for several years, the business of the Company's Amertranz
subsidiary has incurred operating losses for each of its operating periods.
Because of continuing losses in the Amertranz subsidiary, on June 23, 1997 the
Company commenced actions to close the operations of the Amertranz subsidiary
and transfer its customer accounts to the Company's Target subsidiary for fair
consideration.
The Company is currently negotiating with the unsecured creditors of
the Amertranz subsidiary's trade payables (which have not been guaranteed by the
Company) to allow Amertranz to satisfy its trade payable obligations over a
period of time, primarily based on a percentage of the Company's future profits.
There can be no assurance that the Company will be successful in these
negotiations. In connection with the closing of the Amertranz subsidiary,
Amertranz has recorded a $3.4 million restructuring charge. To date, a large
portion of the Amertranz subsidiary's business has been transferred to the
Company's Target subsidiary. While the Company projects that the closing of the
Amertranz subsidiary will have a positive affect on the Company's operations,
there can be no assurance that the business of the Amertranz subsidiary will be
preserved and transferred to the Company's other operating subsidiaries, or that
the closing of Amertranz will produce positive operating results. If the Company
is not successful in these negotiations with these trade creditors, the Company
may consider other options, including seeking protection for the Amertranz
subsidiary under the Bankruptcy Code.
Following the closing of the Amertranz subsidiary, the Company operates
through its two wholly-owned subsidiaries, CAS and Target.
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 26 cities
throughout the United States and Puerto Rico, including exclusive agency
relationships in nine cities. The Company has international freight forwarding
operations consisting of strategic relationships in over 20 countries including
share ownership in its exclusive agents in Hong Kong, Malaysia and Singapore.
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
4
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, as 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 HP 9000 mainframe computer and has a proprietary
freight forwarding software system which the Company has named "Trax". Trax 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 through either printed or electronic
medium. Specifically, the Trax 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 Trax to
enhance its ability to maintain a competitive advantage.
International Operations. The Company has recently increased its
international operations through the acquisition of Target. During the fiscal
year ended June 30, 1997, the Company's international freight forwarding
accounted for 6.6% of the Company's operating revenue.
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 2,400 accounts.
The Company markets its services through an organization of
approximately 50 full-time salespersons supported by the sales efforts of senior
management, 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 enhanced its Fashion Services Division which specializes in
providing service to the garment industry through the acquisition of
Consolidated. This division targets customers from manufacturers to retail
establishments and provides specific expertise in handling fashion-related
shipments. The Fashion Services Division specializes in the movement of wearing
apparel for manufacturing customers to their department store customers located
throughout the United States.
5
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.
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.
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.
Employees
The Company and its subsidiaries had approximately 326 full-time
employees as of June 30, 1997. 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 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.
6
ITEM 2. PROPERTIES
The Company leases terminal facilities consisting of office and
warehouse space in 17 cities located in the United States and Puerto Rico, and
also utilizes nine 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 is in the process of closing this office and
relocating its headquarters to the Company's Greensboro, North Carolina,
facility where the Company leases an aggregate of 15,000 square feet of office
and warehouse space. The Company's 16 facilities range in size from 1,000 square
feet to 100,000 square feet and consist of offices and warehouses with loading
bays. All of such properties are leased from third parties. 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 warehouse facilities are set forth in the following table:
Approximate Square Feet Lease
Location of Floor Space Expiration
Los Angeles, CA 100,280 July 2002
Aquadilla, PR 45,000 Month-to-Month
The Company has an additional thirteen terminal facilities in the following
locations:
Atlanta, Georgia Indianapolis, Indiana
Charlotte, North Carolina Miami, Florida
Chicago, Illinois Newark, New Jersey
Dallas, Texas New York, New York
Hartford, Connecticut San Francisco, California
Houston, Texas San Juan, Puerto Rico
Seattle, Washington
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
By written consent dated May 20, 1997, the owners of an aggregate
3,498,741 shares of Common Stock, or 51.25% of all issued and outstanding shares
of the Company's Common Stock at that time, approved, by written consent in lieu
of a meeting, the adoption of an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of Common Stock from
15,000,000 shares to 30,000,000 shares. Such action by written consent is
sufficient to satisfy the applicable requirements of Delaware law that any
amendment of the Company's Certificate of Incorporation be approved by the
stockholders. An Information Statement in accordance with the requirements of
Regulation 14C under the Securities Exchange Act of 1934 was distributed to the
Company's stockholders, but the stockholders were not asked to take further
action on such amendment. On July 9, 1997, the amendment was filed with the
office of the Secretary of State of Delaware.
7
EXECUTIVE OFFICERS OF THE REGISTRANT
The 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............. 47 President and Chief Executive
Officer
Richard A. Faieta............ 51 Executive Vice President
Philip J. Dubato............. 41 Vice President, Chief Financial
Officer 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, and a director
and Executive Vice President of Target since May 8, 1997. 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, and a director of Target since May
8, 1997. 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.
PHILIP J. DUBATO has been Vice President, Chief Financial Officer and Secretary
of the Company since February 3, 1997. From 1984 through 1996, Mr. Dubato was
employed by LEP Profit International, Inc., a domestic and international freight
forwarder, where he held successive positions as Controller, Chief Financial
Officer and Executive Vice President.
8
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 following table shows the high and low sales prices of the Common
Stock and Warrants for the year ended June 30, 1996, and for each of the
quarters during the year ended June 30, 1997, as reported by NASDAQ.
There have been no dividends declared.
COMMON STOCK WARRANTS
Fiscal Year Ended June 30, 1996
High - 7 High - 1 7/8
Low - 6 Low - 1
Fiscal Year Ended June 30, 1997
First Quarter High - 6 5/8 High - 1 7/8
Low - 4 5/8 Low - 1
Second Quarter High - 5 1/2 High - 1 3/4
Low - 3 7/8 Low - 1/2
Third Quarter High - 4 1/2 High - 1 1/16
Low - 3 3/4 Low - 3/8
Fourth Quarter High - 3 7/8 High - 1/2
Low - 1 Low - 1/8
On September 23, 1997 there were 1,127 shareholders of record of the
Company's Common Stock and 946 holders of record of the Company's Warrants. The
closing price of the Common Stock on that date was $1.50 per share. The closing
price of the Warrants on that date was $0.25 per Warrant.
On May 8, 1997, the Company acquired its Target subsidiary Target Air
Freight, Inc. (a California corporation) a Los Angeles-based freight forwarder
("Air Freight"). Under the terms of the merger (the "Target Merger"), the
Company issued 900,000 shares of Common Stock and paid $400,000 to Air Freight's
stockholders.
On June 13, 1997, the Company completed a $2,575,000 private placement
of equity securities to individual investors (the "Private Placement") pursuant
to Regulation D promulgated under the Securities Act of 1933. GKN Securities
Corp. was the placement agent for the Private Placement. Under the terms of the
Private Placement, each $100,000 investment purchased 10,000 shares of the
Company's Class C Preferred Stock and 50,000 Warrants.
Each share of Class C Preferred Stock has a stated value (the "Stated
Value") of $10.00 and earns cumulative dividends at 10% per annum (pro rated for
shorter periods) payable quarterly, in arrears, in cash or, at the Company's
option if the Registration Statement described below is current and effective,
in shares of Common Stock (based on the average closing bid price per share of
Common Stock on the five trading days ending two business days prior to the
respective dividend payment date). Upon a liquidation of the Company (including,
at the option of the holder, a merger or consolidation in which the Company is
not the surviving entity or a sale by the Company of all or substantially all of
its assets), the holders of the Class C Preferred Stock shall be entitled to
9
receive, prior to the distribution to the holders of the Company's Common Stock,
Class A Preferred Stock and Class B Preferred Stock, an amount per share equal
to the greater of (i) the Stated Value plus any accrued and unpaid dividends, or
(ii) the amount they would have received had they converted the Class C
Preferred Stock into Common Stock on the business day immediately prior to the
record date with respect to such liquidation. The holders of the Class C
Preferred Stock shall, at any time, have the right to convert each share of
Class C Preferred Stock into 10 shares of Common Stock. Fractional Shares will
not be issued. Instead, the Company will round up to the nearest whole number of
shares. Subject to the conversion right, the Company may redeem the Class C
Preferred Stock at its Stated Value plus all accrued and unpaid dividends if the
Registration Statement described below is current and effective, upon 30 days'
written notice given at any time if the last sale price of the Common Stock has
been at least $2.50 on all 20 of the trading days ending on the third date prior
to the date on which written notice of redemption is given. The Class C
Preferred Stock ranks senior to all classes of the Company's capital stock now
existing or which may be created in the future; provided, however, that the
Company is entitled to create a Class D preferred stock, which would rank pari
passu with the Class C Preferred Stock with respect to dividend and liquidation
preferences, for issuance solely to certain holders of Company debt upon the
occurrence of certain events. The holders of the Class C Preferred Stock have no
voting rights until such time as they convert their Class C Preferred Stock into
Common Stock, except as provided by law.
Each Warrant issued in the Private Placement entitles the registered
holder to purchase one share of the Common Stock at an exercise price equal to
$6.00 during the four-year period commencing June 28, 1997. At any time and from
time to time during the period that the Warrant is exercisable, the Company, in
its sole discretion, upon appropriate notice to the Warrant holders, may extend
the period during which the Warrant is exercisable. No fractional shares of
Common stock will be issued in connection with the exercise of the Warrants.
Upon exercise, the Company will pay the holder the value of any such fractional
shares in cash, based upon the market value of the Common Stock at such time. In
the event a holder of the Warrants fails to exercise his Warrants prior to their
expiration, such Warrants will expire and the holder thereof will have no
further rights with respect to the Warrants. A holder of the Warrants does not
have any rights, privileges or liabilities as a stockholder of the Company prior
to exercise of the Warrants. The Company is required to keep reserved a
sufficient number of authorized shares of Common Stock to permit the exercise of
the Warrants. The exercise price of the Warrants is subject to adjustment to
protect against dilution in the event of stock dividends, stock splits,
combinations, subdivisions and reclassifications. In the event the Company has
an effective Registration Statement covering the resale of the Warrants by the
holders thereof and the shares of Common Stock issuable upon exercise of the
Warrants, and provided that not less than 30 days' notice of redemption is given
and the last sale date of the Common Stock has been at least $10.00 for each of
the 20 trading days ending on the third business day prior to the day on which
notice is given, the Company has the right to call the Warrants for redemption
at a redemption price of $.01 per Warrant.
Shares of Class C Preferred Stock and Warrants acquired in the Private
Placement and all shares of Common Stock underlying such securities or issued as
dividends on the Class C Preferred Stock may not be sold until June 13, 1998
without the approval of GKN Securities Corp.
The Company received $2,202,855 in net proceeds from the Private
Placement. Of these proceeds, $400,000 was used to acquire Air Freight (which
currently operates as the Company's Target subsidiary), $200,000 was used to
repay a short-term loan and the balance was used for working capital and general
corporate purposes.
10
ITEM 6. SELECTED FINANCIAL DATA
AMERTRANZ WORLDWIDE HOLDING CORP. (1)
(in thousands, except per share data)
Six Months Year
Years Ended December 31, Ended June 30, Ended June 30,
1993 1994 1995 1996 1997
Statement of Operations Data:
Operating revenue $32,671 $38,576 $38,211 $27,446 $75,352
Cost of transportation 24,232 30,254 30,300 20,961 57,199
------ ------ ------ ------ ------
Gross profit 8,439 8,322 7,911 6,485 18,153
Selling, general &
administrative
expenses 6,505 4,634 4,513 8,772 23,985
Net income (loss) before
restructuring charge $ 869 $2,661 $2,366 $(6,397) $(7,101)
Restructuring charge - - - - (3,407)
Net income (loss) $ 869 $2,661 $2,366 $(6,397) (10,508)
Net loss per common share $(1.84) $(1.74)
Balance Sheet Data:
Total assets $22,740 $29,821
Working capital (deficit) (13,937) (12,541)
Current liabilities 22,470 27,158
Long-term indebtedness 8,018 4,094
Stockholders' equity (deficit) $(7,749) (1,430)
(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, cost of transportation would be higher but would be more
than offset by a reduction in selling, general and administrative expenses.
11
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 $75.4 million and had net losses before taxes of $10.5
million for the fiscal year ended June 30, 1997. The loss included a charge of
$3.4 million attributed to restructuring costs in connection with the closing of
the Company's Amertranz subsidiary. 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 businesses of the Company's CAS subsidiary has generated
positive cash flows for several years, the business of the Company's Amertranz
subsidiary has incurred operating losses for each of its operating periods.
Because of continuing losses in the Amertranz subsidiary, on June 23, 1997 the
Company commenced actions to close the operations of the Amertranz subsidiary
and transfer its customer accounts to the Company's other subsidiaries for fair
consideration.
The Company is currently negotiating with the unsecured creditors of
the Amertranz subsidiary's trade payables (which have not been guaranteed by the
Company) to allow Amertranz to satisfy its trade payable obligations over a
period of time, primarily based on a percentage of the Company's future profits.
There can be no assurance that the Company will be successful in these
negotiations. In connection with the closing of the Amertranz subsidiary,
Amertranz has recorded a $3.4 million restructuring charge. To date, a large
portion of the Amertranz subsidiary's business has been transferred to the
Company's Target subsidiary. While the Company projects that the closing of the
Amertranz subsidiary will have a positive affect on the Company's operations,
there can be no assurance that the business of the Amertranz subsidiary will be
preserved and transferred to the Company's other operating subsidiaries, or that
the closing of Amertranz will produce positive operating results. If the Company
is not successful in these negotiations with these trade creditors, the Company
may consider other options, including seeking protection for the Amertranz
subsidiary under the Bankruptcy Code. See "Liquidity and Capital Resources",
below.
Results of Operations
This Annual Report on Form 10-K contains certain forward-looking
statements reflecting the Company's current expectations with respect to its
operations, performance, financial condition, and other developments. Such
statements are necessarily estimates reflecting the Company's best judgement
based upon current information and involve a number of risks and uncertainties.
While it is impossible to identify all such factors, factors which could cause
actual results to differ materially from expectations are: (i) the Company's
recent losses and ability to achieve profitability, (ii) competitive practices
in the industries in which the Company competes, (iii) the Company's dependence
on current management, (iv) the impact of current and future laws and
governmental regulations affecting the transportation industry in general and
the Company's operations in particular, (v) general economic conditions, and
(vi) other factors which may be identified from time to time in the Company's
Securities and Exchange Commission filings and other public announcements. There
can be no assurance that these and other factors will not affect the accuracy of
such forward-looking statements. Forward-looking statements are preceded by an
asterisk (*).
12
Years Ended June 30, 1997 and 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. For the fiscal year ended June 30,
1997, the consolidated financial statements included the accounts of Holding,
CAS, Amertranz, Consolidated (since October 1, 1996) and Target (since May 1,
1997). The following discussion relates to the combined results of the Company
for the period June 30, 1997 compared to the results of Holdings, CAS and
Amertranz 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 July
1, 1995 through February 7, 1996.
Year Ended
June 30, 1997 June 30, 1996
(Pro forma/Unaudited)
Operating revenue $75,352,065 $47,922,981
Cost of transportation 57,198,797 36,828,542
Gross profit 18,153,268 11,094,376
Selling, general and
administrative expenses 23,985,223 11,025,323
Net loss before restructuring charge ($ 7,100,852) ($4,317,845)
Restructuring charge 3,407,482 -
Net loss ($10,502,398) ($4,317,845)
Operating Revenue. Operating revenue increased by $27.4 million, or
57.2%, from $47.9 million for the period July 1, 1995 through June 30, 1996, to
$75.4 million for the period July 1, 1996 through June 30, 1997. This increase
resulted almost entirely from the Company's Amertranz subsidiary's operating
revenues which were included in the 1997 period but only in the period February
8, 1996 through June 30, 1996 for the twelve months ended June 30, 1996, and the
1997 acquisitions of Consolidated and Target.
Cost of Transportation. Cost of transportation decreased to 75.9% of
operating revenues for the period July 1, 1996 through June 30, 1997, from 76.8%
of operating revenues for the period July 1, 1995 through June 30, 1996. This
improvement is almost entirely from the Company's Amertranz subsidiary's
historically lower cost of transportation as a percentage of sales which were
included in the 1997 period but only the period February 8, 1996 through June
30, 1996 for the twelve months ended June 30, 1996.
Gross Profit. As a result of the factors described in the two previous
paragraphs, gross profit for the period July 1, 1996 through June 30, 1997,
increased to 24.1% of operating revenues from 23.2% of operating revenue for the
period July 1, 1995 through June 30, 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to 31.8% of operating revenues for the period
July 1, 1996 through June 30, 1997, from 23.0% of operating revenues for the
period July 1, 1995 through June 30, 1996. This increase is almost entirely
attributable to the Company's Amertranz subsidiary's historically higher
selling, general and administrative expenses as a percentage of its sales which
were included in the 1997 period but only the period February 8, 1996 through
June 30, 1996 for the twelve months ended June 30, 1996, and the 1997
acquisitions of Consolidated and Target.
Six Months Ended June 30, 1996 and 1995
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
13
following discussion relates to the combined results of Holdings, CAS and
Amertranz 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, and the results of the freight
forwarding business of TIA and CFS for the period January 1, 1995 through June
30, 1995.
Six Months Ended
June 30, 1996 June 30, 1995
(Pro forma/Unaudited)
Operating revenue $27,445,583 $17,733,971
Cost of transportation 20,961,019 14,432,953
Gross profit 6,484,564 3,301,018
Selling, general and
administrative expenses 8,772,226 2,260,057
Net (loss) income before taxes ($6,396,524) $ 287,450
Operating Revenue. Operating revenue increased by $9.7 million, or
54.8%, from $17.7 million for the period January 1, 1995 through June 30, 1995,
to $27.4 million for the period January 1, 1996 through June 30, 1996. This
increase resulted almost entirely from the Company's acquisition of its
Amertranz subsidiary on February 8, 1996.
Cost of Transportation. Cost of transportation decreased to 76.4% of
operating revenues for the period January 1, 1996 through June 30, 1996, from
81.4% of operating revenues for the period January 1, 1995 through June 30,
1995. Of this 5.0% change in cost of transportation as a percentage of operating
revenues between the periods, approximately 1% resulted from an improvement in
the operations of the Company's CAS subsidiary. The balance of the improvement
resulted from the Company's Amertranz subsidiary's historically lower cost of
transportation as a percentage of sales which were included in the 1996 period
but not in the 1995 period.
Gross Profit. As a result of the factors described in the two previous
paragraphs, gross profit for the period January 1, 1996 through June 30, 1996,
increased to 23.6% of operating revenues from 18.6% of operating revenue for the
period January 1, 1995 through June 30, 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to 32.0% of operating revenues for the period
January 1, 1996 through June 30, 1996, from 12.7% of operating revenues for the
period January 1, 1995 through June 30, 1995. This increase is almost entirely
attributable to the Company's acquisition of its Amertranz subsidiary on
February 8, 1996 and that subsidiary's historically higher selling, general and
administrative expenses as a percentage of its sales.
Years Ended December 31, 1995 and 1994
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.
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.
14
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.
Liquidity and Capital Resources
During the year ended June 30, 1997, net cash used by operating
activities was $7.7 million. Cash used in investing activities was $800,000
which consisted of capital expenditures and the acquisitions of Target and
Consolidated. Cash provided by financing activities was $9.5 million which
primarily consisted of net proceeds from the issuance of common stock as a
result of the Company's initial public offering ("IPO"), net proceeds from the
issuance of preferred stock as a result of the Private Placement, and net
borrowings under the BNY Facility.
Capital expenditures for the year ended June 30, 1997 were $468,912.
IPO. On July 3, 1996, the Company completed its IPO of 2,300,000 shares
of common stock and redeemable common stock purchase warrants at an initial
offering price of $6.00 per share and $0.10 per warrant. The proceeds from the
IPO, net of underwriting discounts and commissions and after deducting expenses
of the IPO, were approximately $12,200,000. Of this amount, $4,137,000 was used
to repay the outstanding principal and interest balance on earlier bridge
financing, $373,000 was used to repay the outstanding principal and interest
balance on earlier interim financing, $2,000,000 was used as partial payment on
a pre-IPO obligation to TIA and CFS ("Exchange Note"), and approximately
$700,000 was used to repay overdue trade payables. The remaining balance of the
proceeds was retained by the Company for working capital purposes. 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.
Private Placement. On June 13, 1997, the Company completed the Private
Placement. The proceeds from the Private Placement, net of commissions and after
deducting expenses of the Private Placement, were $2,202,855. Of this amount,
$400,000 was used to acquire Target, $200,000 was used to repay a short-term
loan, and the balance was used for working capital and general corporate
purposes.
BNY Facility. On January 16, 1997, the Company entered into a three
year $10 million revolving Accounts Receivable Management and Security Agreement
("BNY Facility") with BNY Financial Corp. ("BNY") which replaced the existing
facility with Fidelity Funding of California, Inc. On April 16, 1997 the Company
and BNY amended certain financial covenants set forth in the BNY Facility. The
interest rate of the BNY Facility is prime plus 2%. Under the Agreement, the
Company can borrow the lesser of $10 million or 85% of eligible accounts
receivable. The Company's borrowings under the BNY Facility are secured by a
first lien on all of the Company's assets. As of June 30, 1997, the Company had
outstanding borrowings of $6,467,558 under the BNY Facility which represented
84% of the amount available thereunder, and the amount available for borrowing
under the BNY Facility was approximately $1,204,000.
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. The TIA Loan
is secured by a lien on all of the assets of Amertranz subordinated only to the
lien granted to BNY in connection with the BNY Facility. The Company's
indebtedness under the TIA Loan has matured, but is subordinated to the
Company's obligations under its BNY Facility, and may only be repaid to the
extent of the Company's "Excess Cash Flow", defined as 80% of the difference
between (i) the Company's earnings before interest, taxes, depreciation and
amortization, less (ii) interest on the Company's obligations to BNY, capital
expenditures and payments for income taxes. As of June 30, 1997, the Company had
$953,073 (includes $153,073 of accrued interest) outstanding under the TIA Loan.
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
15
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. 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 BNY in connection with the BNY Facility and the second position lien
granted to TIA in connection with the TIA Loan. On January 16, 1997, upon the
closing of the BNY Facility, the Company repaid $3,570,768 of the Revolver Note.
The balance of the Company's indebtedness under the Revolver Note has matured,
but is subordinated to the Company's obligations under its BNY Facility, and may
only be repaid to the extent of the Company's Excess Cash Flow. As of June 30,
1997 and 1996, the Company had outstanding borrowings of $500,754 and
$3,954,989, respectively, under the Revolver Note.
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 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. The Company's
indebtedness under the Exchange Note is subordinated to the Company's
obligations under its BNY Facility, and may only be repaid to the extent of the
Company's Excess Cash Flow. As of June 30, 1997 and 1996, the Company had
outstanding balances of $6,680,200 (including $680,200 of accrued interest) and
$10,000,000, respectively, under the Exchange Note.
* Working Capital Requirements. Cash needs of the Company are currently
met by funds generated from operations, the BNY Facility and funds remaining
from the Private Placement. The Company believes that its current financial
resources will be sufficient to finance its operations and obligations for the
short term. However, the Company's actual working capital needs for the long and
short terms will depend upon numerous factors, including the Company's operating
results, the cost of increasing the Company's sales and marketing activities,
changes in law which affect doing business in Puerto Rico, and, competition,
none of which can be predicted with certainty. To the extent the Company's long
term working capital needs are not met from these sources, additional financing
will be necessary.
* Management's Plans. During the year ended June 30, 1997, the Company
incurred a loss of $10.5 million. Included in this loss was approximately $3.4
million attributed to restructuring costs in connection with the Company's
closing of its Amertranz subsidiary and cessation of the Amertranz subsidiary's
operation. The balance of the Company's loss for the fiscal year ended June 30,
1997 before the restructuring charges ($7.1 million) is attributed to the
Amertranz subsidiary's operations. Losses of the Amertranz subsidiary for the
fiscal year ended June 30, 1997 before the restructuring charges were $8.3
million, representing approximately 117% of the $7.1 million net losses of the
Company before restructuring charges. Without the restructuring charges or the
Amertranz subsidiary's losses, the Company would have reported a profit before
income taxes of approximately $1.2 million, primarily from the operations of its
CAS subsidiary.
As part of the closing of the Amertranz subsidiary, the Amertranz
subsidiary's business was combined with the Company's Target subsidiary. To
date, management believes that Target has successfully integrated many of the
customers of the Amertranz subsidiary into Target's operations.
The Company anticipates that the closing of the Amertranz subsidiary
while retaining many of its customers will have the effect of containing the
significant losses which the Company has incurred during the fiscal years ended
June 30, 1997 and 1996.
16
As of June 30, 1997, the Company had a working capital deficiency of
$12.5 million. Approximately $3.9 million of this amount represents unsecured
trade payables of the Amertranz subsidiary. In order to preserve the goodwill of
these trade creditors, the Company is currently negotiating with these trade
creditors to satisfy the Amertranz subsidiary's obligations over a period of
time, primarily based on a percentage of the Company's future profits.
In addition, $4.1 million of the Company's current liabilities
represent obligations to TIA and CFS, which, by their terms, are subordinated to
the Company's revolving credit obligations to BNY. Accordingly, repayment of
these obligations to TIA and CFS will only be made from the Company's future
profits.
The Company was in violation of the financial covenants under the BNY
Facility. BNY waived these violations and has revised the covenants. The Company
is in compliance with the revised covenants. These revisions did not affect the
availability under the BNY Facility. As of June 30, 1997, the Company had $1.2
million available under the BNY Facility, as well as additional cash resources
of approximately $1.4 million from the proceeds of the Private Placement and
from operations.
Results of the Company's operations for July and August 1997 indicate
that: (i) the closing of the Amertranz subsidiary is having a significant
positive impact on operating results; (ii) management believes that many
customers of the Amertranz subsidiary have been retained and are being
successfully integrated into the operations of the Target subsidiary; and (iii)
the operations of the Company's CAS subsidiary continue to be profitable. There
can be no assurance that management's plans outlined above to stem the Company's
losses and return to profitability will be successful. However, management
believes that it will successfully conclude its negotiations with the trade
creditors of the Amertranz subsidiary and that there will be a significant
positive impact on the Company's consolidated operating results and cash flows
as a result of the closing of the Amertranz subsidiary and the consolidation of
the Amertranz customer base into Target to sustain the Company's operations for
the fiscal year ending June 30, 1998.
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
17
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 1997 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 1997
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 1997
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 1997
Annual Meeting of Shareholders.
18
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 Sheets as of June 30, 1997 and 1996 F-2
Consolidated Statements of Operations for the Year Ended June 30, 1997 and
Six Months Ended June 30, 1996 F-3
Consolidated Statements of Shareholders' Deficit for the Year Ended
June 30, 1997 and Six Month Period Ended June 30, 1996 F-4
Consolidated Statements of Cash Flows for the Year Ended June 30, 1997 and
Six Months Ended June 30, 1996 F-5
Notes to Consolidated Financial Statements F-7
AMERTRANZ WORLDWIDE HOLDING CORP. (FORMERLY THE FREIGHT FORWARDING
BUSINESS OF TIA AND CFS)
Independent Auditors' Report F-19
Balance Sheets as of December 31, 1994 and 1995 F-20
Statements of Operations and Changes in Accumulated Deficit for the Years
December 31, 1993, 1994 and 1995 F-21
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 F-22
Notes to Financial Statements F-23
(a) 2. Financial Statement Schedules
Schedule II - Schedule of Valuation and Qualifying Accounts S-1
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
Exhibit No.
3.1 Certificate of Incorporation of Registrant, as amended (incorporated by
reference to Exhibit 3.1 to the Registrant's Registration Statement on
Form S-3, Registration No. 333-30351)
3.2 By-Laws of Registrant, as amended (incorporated by reference to Exhibit
3.2 to the Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended December 31, 1996, File No. 001-14474)
4.1 Warrant Agent Agreement (incorporated by reference to Exhibit 4.3 to
the Registrant's Registration Statement on Form S-1, Registration No.
333-03613)
4.2 Form of Amendment No. 1 to Warrant Agent Agreement dated June 13, 1997
(incorporated by reference to Exhibit 4.7 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-30351)
4.3 Agreement of Merger, dated as of April 17, 1997, by and between the
Registrant, Target International Services, Inc. (name subsequently
changed to Target Airfreight, Inc.), Target Air Freight, Inc., and
Christopher A. Coppersmith (incorporated by reference to Exhibit 4.4 to
the Registrant's Registration Statement on Form S-3, Registration No.
333-30351)
4.4 Agency Agreement, dated May 8, 1997, by and between the Registrant and
GKN Securities Corp. with respect to the Registrant's June 13, 1997
Private Placement (incorporated by reference to Exhibit 4.5 to the
Registrant's Registration Statement on Form S-3, Registration No.
333-30351)
19
4.5 Form of Subscription Agreement, dated June 13, 1997, with respect to
the Registrant's June 13, 1997 Private Placement (incorporated by
reference to Exhibit 4.6 to the Registrant's Registration Statement on
Form S-3, Registration No. 333-30351)
4.6 Certificate of Designations with respect to the Registrant's Class A
Preferred Stock (contained in Exhibit 3.1)
4.7 Certificate of Designations with respect to the Registrant's Class B
Preferred Stock (contained in Exhibit 3.1)
4.8 Certificate of Designations with respect to the Registrant's Class C
Preferred Stock (contained in Exhibit 3.1)
4.9 Form of Underwriter's Purchase Option (incorporated by reference to
Exhibit 4.4 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-03613)
10.1 1996 Stock Option Plan (incorporated by reference to Exhibit 10.1 to
the Registrant's Registration Statement on Form S-1, Registration No.
333-03613)
10.2 Accounts Receivable Management and Security Agreement, dated January
16, 1997 by and between BNY Financial Corp., as Lender, and Amertranz
Worldwide, Inc., Caribbean Air Services, Inc., and Consolidated Air
Services, Inc., as Borrowers, and guaranteed by Amertranz Worldwide
Holding Corp. ("BNY Facility Agreement") (incorporated by reference to
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the
Quarter Ended March 31, 1997, File No. 001- 14474)
10.3 Letter Amendment to BNY Facility Agreement, dated April 16, 1997 ("BNY
Letter Amendment") (incorporated by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter Ended March
31, 1997, File No. 001-14474)
10.4 Shadow Warrant entered into in connection with the BNY Letter Amendment
(incorporated by reference to Exhibit 10.3 to the Registrant's
Quarterly Report on Form 10-Q for the Quarter Ended March 31, 1997,
File No. 001-14474)
10.5 Letter Amendment to BNY Facility Agreement, dated September 25, 1997
10.6 Loan and Security Agreement dated October 25,1995 between Amertranz
Worldwide, Inc. and TIA, Inc., as amended January 24, 1996
(incorporated by reference to Exhibit 10.5 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-03613)
10.7 Form of Amended and Restated Promissory Note of Amertranz Worldwide,
Inc. payable to TIA, Inc. in principal amount of $800,000 (incorporated
by reference to Exhibit 10.6 to the Registrant's Registration Statement
on Form S-1, Registration No. 333-03613)
10.8 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 (incorporated by reference
to Exhibit 10.9 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-03613)
10.9 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 (incorporated by reference to Exhibit
10.10 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-03613)
10.10 Employment Agreement dated June 24, 1996 between Amertranz Worldwide
Holding Corp. and Stuart Hettleman (incorporated by reference to
Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the
Fiscal Year Ended June 30, 1996, File No. 001-14474)
10.11 Employment Agreement dated June 24, 1996 between Amertranz Worldwide
Holding Corp. and Richard A. Faieta (incorporated by reference to
Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for the
Fiscal Year Ended June 30, 1996, File No. 001-14474)
10.12 Consulting Agreement dated February 7, 1996 among Amertranz Worldwide
Holding Corp., Amertranz Worldwide, Inc. and Martin Hoffenberg
(incorporated by reference to Exhibit 10.11 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-03613)
10.13 Employment Agreement dated September 27, 1994 between Amerford
Domestic, Inc. and Bruce Brandi, as modified February 7, 1996
(incorporated by reference to Exhibit 10.12 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-03613)
20
10.14 Cargo Aircraft Charter Agreement dated February 28, 1994 between TIA,
Inc. and Florida West Airlines, Inc., as amended and assigned November
29, 1995 (incorporated by reference to Exhibit 10.15 to the
Registrant's Registration Statement on Form S-1, Registration No.
333-03613)
10.15 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 (incorporated by
reference to Exhibit 10.16 to the Registrant's Registration Statement
on Form S-1, Registration No. 333-03613)
10.16 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 (incorporated by
reference to Exhibit 10.17 to the Registrant's Registration Statement
on Form S-1, Registration No. 333-03613)
10.17 Lease Agreement for Los Angeles Facility
21 Subsidiaries of Amertranz Worldwide Holding Corp.
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
(b) Reports on Form 8-K
None
21
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 30, 1997 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 30, 1997
- - ---------------------------------- Officer and Director
Stuart Hettleman
/s/ Richard A. Faieta Executive Vice President September 30, 1997
- - ---------------------------------- and Director
Richard A. Faieta
/s/ Michael Barsa Director September 30, 1997
- - ----------------------------------
Michael Barsa
/s/ Philip J. Dubato Vice President, Chief September 30, 1997
- - ---------------------------------- Financial Officer and
Philip J. Dubato Principal Accounting Officer
C70815.198 R:1
22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Amertranz Worldwide Holding Corp.:
We have audited the accompanying consolidated balance sheets of Amertranz
Worldwide Holding Corp., a Delaware corporation, as of June 30, 1997 and 1996,
and the related consolidated statements of operations, shareholders' deficit and
cash flows for the year ended June 30, 1997 and for the six months ended June
30, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Amertranz Worldwide
Holding Corp. as of June 30, 1997 and 1996, and the results of its operations
and cash flows for the year ended June 30, 1997 and for the six months ended
June 30, 1996, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index of financial statements is presented for purposes of complying with the
Securities and Exchange Commission rules and are not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic consolidated 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
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
September 25, 1997
F-1
AMERTRANZ WORLDWIDE HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
June 30, 1997 June 30, 1996
------------- -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,382,243 $ 377,490
Accounts receivable, net of allowance for doubtful
accounts of $782,607 and $371,322, respectively 12,490,694 7,598,390
Prepaid expenses and other current assets 743,569 557,192
------------ ------------
Total current assets 14,616,506 8,533,072
PROPERTY AND EQUIPMENT, net (Note 4) 734,900 829,442
DEBT ISSUANCE COST, net of accumulated amortization
of $3,367,698 and $3,264,232, respectively - 103,466
OTHER ASSETS 223,768 1,373,314
GOODWILL, net of accumulated amortization of
$709,091 and $191,460, respectively (Notes 3 and 5) 14,245,932 11,900,735
------------ ------------
Total assets $29,821,106 $22,740,029
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 8,131,715 $7,699,721
Accrued expenses 2,364,219 1,614,453
Accrued transportation expenses 3,303,366 413,821
Reserve for restructuring 2,681,956 -
Note payable to bank (Note 6) 6,467,558 1,641,347
Note payable to affiliate (Note 6) 500,754 3,954,989
Current portion of long-term debt due to affiliate (Note 6) 3,633,273 3,150,000
Current portion of long-term debt (Note 6) 50,000 3,975,000
Dividends payable 12,875 -
Lease obligation-current portion (Note 8) 12,063 21,034
------------ ------------
Total current liabilities 27,157,779 22,470,365
LONG-TERM DEBT DUE TO AFFILIATE (Note 6) 4,000,000 8,000,000
LONG TERM DEBT (Note 6) 87,500 -
LEASE OBLIGATION--LONG-TERM (Note 8) 6,251 18,315
------------ ------------
Total liabilities $31,251,530 $30,488,680
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' DEFICIT:
Preferred Stock, $10 par value; 2,500,000 shares authorized,
498,000 shares issued and outstanding 4,980,000 -
Common stock, $.01 par value; 15,000,000 shares authorized,
6,826,504 and 3,626,504 shares issued and outstanding,
respectively 68,265 36,265
Paid-in capital 20,972,256 8,567,675
Accumulated deficit (27,439,695) (16,341,341)
Less: Treasury stock, 106,304 shares held at cost (11,250) (11,250)
------------ ------------
Total stockholders' deficit (1,430,424) (7,748,651)
------------ ------------
Total liabilities and stockholders' deficit $29,821,106 $22,740,029
=========== ===========
The accompanying notes are an integral part of these
consolidated statements.
F-2
AMERTRANZ WORLDWIDE HOLDING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months
Year Ended Ended
June 30, 1997 June 30, 1996
------------- -------------
OPERATING REVENUE $75,352,065 $27,445,583
COST OF TRANSPORTATION 57,198,797 20,961,019
------------ ------------
Gross profit 18,153,268 6,484,564
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 23,985,223 8,772,226
OTHER INCOME (EXPENSE):
Interest expense (1,335,833) (4,057,864)
Other income (expense), net 66,936 (50,998)
Loss before restructuring charge (7,100,852) (6,396,524)
Restructuring charge (Note 2) (3,407,482) -
------------ ------------
Net loss ($10,508,334) ($6,396,524)
============ ===========
Net loss per common share ($1.74) ($1.84)
------------ ------------
Weighted average number of common shares 6,048,148 3,482,504
------------ ------------
The accompanying notes are an integral part of these
consolidated statements.
F-3
AMERTRANZ WORLDWIDE HOLDING CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE YEAR ENDED JUNE 30, 1997 AND THE
SIX MONTHS ENDED JUNE 30, 1996
Additional
Preferred Stock Common Stock Paid-in Treasury Stock Accumulated
Shares Amount 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)
Common stock issued in
connection with the IPO - - 2,300,000 $23,000 $11,013,288 - - - $11,036,288
Preferred stock issued in
exchange for a principal
reduction in the Exchange Note 200,000 2,000,000 - - - - - - 2,000,000
Common stock issued in connection
with the acquisition of Target - - 900,000 9,000 1,014,750 - - - 1,023,750
Acquisition of Consolidated 20,000 200,000 - - 371,000 - - - 571,000
Stock Options exercised - - - - 5,543 - - - 5,543
Preferred stock issued in
connection with the Private
Placement 257,500 2,575,000 - - - - - (372,145) 2,202,855
Cash dividends associated with the
Class C Preferred stock - - - - - - - (12,875) (12,875)
Preferred Stock dividends associated
with the Class A Preferred stock 20,500 205,000 - - - - - (205,000) -
Net loss - - - - - - - (10,508,334) (10,508,334)
-------------------------------------------------------------------------------------------------
Balance June 30, 1997 498,000 $4,980,000 6,826,504 $68,265 $20,972,256 106,304 ($11,250)($27,439,695) ($1,430,424)
======= ========== ========= ======= =========== ======= ======= =========== ==========
F-4
AMERTRANZ WORLDWIDE HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months
Year Ended Ended
June 30, 1997 June 30, 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($10,508,334) ($6,396,524)
Bad debt expense 411,285 (13,187)
Depreciation and amortization 870,123 361,467
Write off and write down of fixed assets 727,938 -
Decrease in debt issuance costs 103,466 3,208,809
Restructuring charge 3,407,482 -
Adjustments to reconcile net loss to net cash used in operating activities-
Increase in accounts receivable (485,963) (3,628,728)
Increase in prepaid expenses and other current assets (257,630) (22,301)
Decrease (increase) in other assets 32,913 (1,214,586)
(Decrease) increase in accounts payable and accrued expenses (2,000,123) 1,130,878
Increase in due to affiliates - 1,414
------------- ------------
Net cash used in operating activities (7,698,843) (6,572,758)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (468,912) (123,068)
Acquisition of Consolidated 105,602 -
Acquisition of Target (452,032) -
Cash advances under notes receivable - (300,000)
------------- ------------
Net cash used in investing activities (815,342) (423,068)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering ("IPO") - net of costs 12,190,682 -
Proceeds from Private Placement - net of costs 2,202,855 -
Issuance of common stock in connection with the IPO 23,000 -
Stock options exercised 5,543 -
Net borrowings (repayments) from note payable to bank 4,676,355 (56,515)
(Repayment) proceeds from short-term debt (4,104,227) 5,190,064
Repayment of long-term debt (2,000,000) (3,990,064)
(Repayment) proceeds from revolving loan due to affiliate (3,454,235) 3,954,989
Payment of lease obligations (21,035) (8,139)
Purchase of treasury stock - (11,250)
Cash portion of assets distributed to TIA - (2,590,031)
------------- ------------
Net cash provided by financing activities 9,518,938 2,489,054
------------- ------------
Net increase (decrease) in cash and cash equivalents 1,004,753 (4,506,772)
------------- ------------
CASH AND CASH EQUIVALENTS, beginning of the year 377,490 4,884,262
------------- ------------
CASH AND CASH EQUIVALENTS, end of the year $ 1,382,243 $ 377,490
============= ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Payments For:
Interest $ 468,588 $ 825,563
Income taxes $ 46,396 $ 434,199
The accompanying notes are an integral part of these
consolidated statements.
F-5
AMERTRANZ WORLDWIDE HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (Continued)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Six Months
Year Ended Ended
June 30, 1997 June 30, 1996
Issuance of preferred stock as partial repayment of long-term debt $2,000,000 -
Issuance of preferred stock for the Private Placement $2,575,000 -
Issuance of preferred stock for the acquisition of Consolidated $ 200,000 -
Issuance of preferred stock as dividends for the Class A preferred stock $ 205,000 -
Issuance of note payable to Consolidated stockholders $ 150,000 -
Issuance of common stock in connection with the acquisition of Target $ 9,000 -
On October 10, 1996, Consolidated merged with and into the Company pursuant to
the terms of a merger agreement dated as of September 30, 1996. In conjunction
with the acquisition, the resulting goodwill is as follows:
Net assets assumed ($ 121,539) -
Purchase Price 786,428 -
-----------
Goodwill $ 664,889 -
===========
On May 8, 1997, Target merged with and into the Company pursuant to the terms of
Merger dated as of April 17, 1997. In conjunction with the acquisition, the
resulting goodwill is as follows:
Net liabilities assumed $ 709,157 -
Purchase Price 1,488,782 -
----------
Goodwill $2,197,939 -
==========
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 these
consolidated statements.
F-6
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 6, 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 $12,213,682 were used to pay down existing debt of $6,503,000 and the balance
was used 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. MANAGEMENT'S PLANS
During the year ended June 30, 1997, the Company incurred a loss of $10.5
million. Included in this loss was approximately $3.4 million attributed to
restructuring costs in connection with the Company's closing of its Amertranz
subsidiary and cessation of the Amertranz subsidiary's operation. The balance of
the Company's loss for the fiscal year ended June 30, 1997 before the
restructuring charges ($7.1 million) is attributed to the Amertranz subsidiary's
operations. Losses of the Amertranz subsidiary for the fiscal year ended June
30, 1997 before the restructuring charges were $8.3 million, representing
approximately 117% of the $7.1 million net losses of the Company before
restructuring charges. Without the restructuring charges or the Amertranz
subsidiary's losses, the Company would have reported a profit before income
taxes of approximately $1.2 million, primarily from the operations of its CAS
subsidiary.
As part of the closing of the Amertranz subsidiary, the Amertranz subsidiary's
business was combined with the Company's Target subsidiary. To date, management
believes that Target has successfully integrated many of the customers of the
Amertranz subsidiary into Target's operations.
The Company anticipates that the closing of the Amertranz subsidiary while
retaining many of its customers will have the effect of containing the
significant losses which the Company has incurred during the fiscal years ended
June 30, 1997 and 1996.
As of June 30, 1997, the Company had a working capital deficiency of $12.5
million. Approximately $3.9 million of this amount represents unsecured trade
payables of the Amertranz subsidiary. In order to preserve the goodwill of these
trade creditors, the Company is currently negotiating with these trade creditors
to satisfy the Amertranz subsidiary's obligations over a period of time,
primarily based on a percentage of the Company's future profits.
F-7
AMERTRANZ WORLDWIDE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
In addition, $4.1 million of the Company's current liabilities represent
obligations to TIA and CFS, which, by their terms, are subordinated to the
Company's revolving credit obligations to BNY. Accordingly, repayment of these
obligations to TIA and CFS will only be made from the Company's future profits.
The Company was in violation of the financial covenants under the BNY Facility.
BNY waived these violations and has revised the covenants. The Company is in
compliance with the revised covenants. These revisions did not affect the
availability under the BNY Facility. As of June 30, 1997, the Company had $1.2
million available under the BNY Facility, as well as additional cash resources
of approximately $1.4 million from the proceeds of the Private Placement and
from operations.
Results of the Company's operations for July and August 1997 indicate that: (i)
the closing of the Amertranz subsidiary is having a significant positive impact
on operating results; (ii) management believes that many customers of the
Amertranz subsidiary have been retained and are being successfully integrated
into the operations of the Target subsidiary; and (iii) the operations of the
Company's CAS subsidiary continue to be profitable. There can be no assurance
that management's plans outlined above to stem the Company's losses and return
to profitability will be successful. However, management believes that it will
successfully conclude its negotiations with the trade creditors of the Amertranz
subsidiary and that there will be a significant positive impact on the Company's
consolidated operating results and cash flows as a result of the closing of the
Amertranz subsidiary and the consolidation of the Amertranz customer base into
Target to sustain the Company's operations for the fiscal year ending June 30,
1998.
3. 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
For the fiscal year ended June 30, 1997, the consolidated financial statements
include the accounts of Holding, CAS, Amertranz, Consolidated (since October 1,
1996) and Target (since May 1, 1997).
For the six months ended June 30, 1996, 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
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.
F-8
AMERTRANZ WORLDWIDE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Goodwill
Goodwill represents the excess of cost over the net assets acquired and is
amortized on a straight-line basis over 25 years. In accordance with Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Acquired Assets and for Long-Lived Assets to be Disposed of",
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 carrying amount.
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.
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.
In October, 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation". This statement establishes a fair
value based method of accounting for an employee stock option or similar equity
instrument but allows companies to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees". Companies
electing to continue using the accounting under APB Onion No. 25 must, however,
make pro forma disclosures of net income and earnings per share as if the fair
value based method of accounting defined in SFAS No. 123 had been applied (Note
7). These disclosure requirements are effective for fiscal years beginning after
December 16, 1995. The Company has elected to continue accounting for its
stock-based compensation awards to employees and directors under the accounting
prescribed by APB Opinion No. 25 and to provide the disclosures required by SFAS
No. 123.
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.
There were no such agreements at June 30, 1997.
Self Insurance
The Company's CAS and Amertranz subsidiaries are generally self-insured for
losses and liabilities related to medical and dental claims. Losses are accrued
based upon each subsidiary's estimates of the aggregate liability for medical
and dental claims incurred based on each subsidiary's experience. In addition to
this self-insurance, an insurance policy is maintained which insures both
subsidiaries for losses over $50,000 for each individual insured and on an
aggregate basis for losses over an amount determined by formula.
F-9
AMERTRANZ WORLDWIDE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
CAS and Amertranz have been self-insured for medical claims since February 6,
1996 and May 1, 1997, respectively. For the year ended June 30, 1997, CAS and
Amertranz have accrued approximately $38,000 and $50,000, respectively relating
to medical claims.
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 and warrants redeemable under the treasury stock
method to the extent that they are dilutive. Any dividends on preferred stock
accrued by the Company have been accounted for in the computation.
In 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings
per Share." This statement establishes standards for computing and presenting
earnings per share ("EPS"), replacing the presentation of currently required
Primary EPS with a presentation of Basic EPS. For entities with complex capital
structures, the statement requires the dual presentation of both Basic EPS and
Diluted EPS on the face of the statement of operations. Under this new standard,
Basic EPS is computed based on the weighted average number of shares actually
outstanding during the year. Diluted EPS includes the effect of potential
dilution from the exercise of outstanding dilutive stock options and warrants
into common stock using the treasury stock method. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997, and
earlier application is not permitted. The Company does not expect the adoption
of this statement to have a material effect on its financial position or results
of operations.
Fair Value of Financial Instruments
Cash equivalents are reflected at cost which approximate their fair values. The
fair value of notes and loans payable outstanding is estimated by discounting
the future cash flows using the current rates offered by lenders for similar
borrowings with similar credit ratings. The carrying amounts of the accounts
receivable and debt approximate their fair value.
4. PROPERTY AND EQUIPMENT, NET
June 30, June 30,
1997 1996
Property and Equipment consists of the following:
Furniture and fixtures $ 730,341 $ 303,502
Computer equipment 665,738 421,946
Computer software - 219,701
Leasehold improvements 25,538 63,658
Logos and trademarks - 22,349
Vehicles 171,801 8,499
----------- -----------
1,593,418 1,039,655
Less: Accumulated depreciation and amortization 858,518 210,213
----------- -----------
$ 734,900 $ 829,442
=========== ===========
5. ACQUISITIONS
(a) On February 7, 1996, 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
F-10
AMERTRANZ WORLDWIDE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
518,056 shares, assigned notes of 280,888 shares and 71,310 s