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).
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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
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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.
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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
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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.
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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.
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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.
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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.
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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
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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.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C>
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)
<FN>
(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.
</FN>
</TABLE>
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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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
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<PAGE>
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
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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.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8 - K
(a) 1. Financial Statements
<TABLE>
<CAPTION>
AMERTRANZ WORLDWIDE HOLDING CORP. PAGE
----
<S> <C>
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
</TABLE>
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)
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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)
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<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C> <C> <C> <C> <C>
/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
</TABLE>
C70815.198 R:1
22
<PAGE>
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
<PAGE>
AMERTRANZ WORLDWIDE HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------- -----------------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
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
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
F-2
<PAGE>
AMERTRANZ WORLDWIDE HOLDING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
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
------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
F-3
<PAGE>
AMERTRANZ WORLDWIDE HOLDING CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE YEAR ENDED JUNE 30, 1997 AND THE
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-in Treasury Stock Accumulated
Shares Amount Shares Amount Capital Shares Amount (Deficit) Total
<S> <C> <C> <C> <C> <C>
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)
======= ========== ========= ======= =========== ======= ======= =========== ==========
</TABLE>
F-4
<PAGE>
AMERTRANZ WORLDWIDE HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
June 30, 1997 June 30, 1996
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
F-5
<PAGE>
AMERTRANZ WORLDWIDE HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (Continued)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
June 30, 1997 June 30, 1996
<S> <C>
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
============
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
F-6
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
<S> <C> <C> <C> <C> <C> <C>
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
=========== ===========
</TABLE>
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
<PAGE>
AMERTRANZ WORLDWIDE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
518,056 shares, assigned notes of 280,888 shares and 71,310 shares associated
with the Interim Financing) of Holding's common stock and options to purchase
224,399 shares of Holding's common stock valued at $4,415,000 or approximately
$4.25 per share and option. The Amertranz transaction has been accounted for as
a purchase and resulted in goodwill of approximately $12.1 million which
represents the excess of the cost over the fair value of the assets acquired.
(b) On October 10, 1996, the Company acquired all of the issued and outstanding
stock of Consolidated Air Services, Inc. ("Consolidated") for 20,000 shares of
Holding's Class B Preferred Stock valued at $571,000 or approximately $28.55 per
share. The Consolidated transaction has been accounted for as a purchase and
resulted in goodwill of approximately $665,000 which represents the excess cost
over the fair value of the assets acquired.
(c) On May 8, 1997, the Company acquired all of the issued and outstanding stock
of Target Airfreight, Inc. ("Target") for $400,000 cash and 900,000 shares of
Holding's common stock valued at $1,023,750 or approximately $1.14 per share.
The Target transaction has been accounted for as a purchase and resulted in
goodwill of approximately $2.2 million which represents the excess cost over the
fair value of the assets acquired.
(d) The following unaudited pro forma financial information for the Company
gives effect to the Consolidated and Target acquisitions as if they occurred at
the beginning of each fiscal period presented. These pro forma results have been
prepared for comparative purposes only, and do not purport to be indicative of
the results of operations which actually would have resulted had the
acquisitions occurred on the date indicated or which may result in the future:
Year Ended Six Months Ended
June 30, 1997 June 30, 1996
Operating revenue $100,026,271 $44,281,278
Net loss ($ 10,545,825) ($ 6,385,598)
Net loss per share ($1.55) ($1.46)
6. DEBT
As of June 30, 1997 and 1996, long-term and short-term debt consisted of the
following:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
<S> <C> <C>
Promissory note to TIA and CFS (a) $ 6,680,200 $10,000,000
Revolving loan to TIA and CFS (b) 500,754 3,954,989
February Bridge notes (c) - 2,775,000
May bridge notes (d) - 1,200,000
Asset-based financing (e) 6,467,558 1,641,347
Notes payable to TIA (f) 953,073 800,000
Interim financing - 350,000
Promissory note to
Consolidated Shareholders (g) 137,500 -
------------ ------------
Total debt 14,739,085 20,721,336
Less: Current portion (10,651,585) (12,721,336)
------------ ------------
Long-term debt 4,087,500 8,000,000
============ ============
</TABLE>
F-11
<PAGE>
AMERTRANZ WORLDWIDE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(a) On February 7, 1996, as part of the Agreement, Holding issued to TIA and CFS
a $10,000,000 promissory note which bears interest at the rate of 8.0% per
annum. On July 3, 1996, Holding repaid $2,000,000 of this debt from the proceeds
of the IPO and converted $2,000,000 of the note into Class A, non-voting,
cumulative, convertible preferred stock. As of June 30, 1997, $6,680,200
(includes $680,200 of accrued interest) was outstanding under this note.
(b) As part of the Agreement, TIA and CFS have agreed to lend to CAS on a
revolving loan basis, an amount up to the net cash collections of TIA and CFS's
accounts receivable as of February 7, 1996 and additional amounts at the
discretion of TIA and CFS, up to an aggregate maximum of $4,000,000 outstanding
at any time, pursuant to the terms of a Revolving Credit Promissory Note. Only
funds advanced at the discretion of TIA and CFS bear interest, at the greater of
(i) 1% per month or (ii) at a rate of 4% over prime. The note is secured by all
of the assets of CAS and is guaranteed by Holding and Amertranz. Furthermore,
the note discussed here and in (a) above are subordinated to the Company's
revolving credit obligations to BNY. On January 16, 1997, upon the closing of
the BNY Facility, the Company repaid $3,570,768 of this note. As of June 30,
1997, $500,754 was outstanding under this facility.
(c) On February 7, 1996, Holding consummated a private placement with a group of
investors whereby Holding borrowed $2,775,000 and issued promissory notes. The
notes were due at the earlier of (i) the consummation of the IPO by the Company,
or (ii) February 7, 1998, or (iii) the sale or merger of Holding. The investors
also received 416,250 shares of common stock of Holding, as well as 832,500
warrants to purchase shares of common stock of Holding for five years at $5.00
per share. These warrants converted into IPO warrants upon the completion of the
IPO by Holding and are exercisable at the IPO price. The notes accrued interest
at 10% per annum until April 30, 1996 and thereafter at 15% per annum. The notes
were secured by a junior lien on all of the assets of the Company. The Company
recorded debt issuance costs of approximately $2,143,000 in connection with such
bridge financing and amortized the amount over the life of the debt. Upon
repayment of the debt, the related unamortized debt issuance cost was expensed.
The effective annual rate of interest on the notes after giving effect to the
debt issuance cost of $2,143,000 is 200%. The fair value of the shares of common
stock at the time of issuance was $4.25 per share. This debt was repaid on July
3, 1996 with the proceeds of the IPO.
(d) On May 10, 1996, Holding consummated a private placement with a group of
investors whereby Holding borrowed $1,200,000 and issued promissory notes. The
notes were due at the earlier of (i) the closing of the IPO by Holding or (ii)
February 7, 1998 or (iii) the sale or merger of Holding. The investors also
received 240,000 shares of common stock of Holding, as well as 480,000 warrants
to purchase shares of common stock of Holding for five years at $5.00 per share.
These warrants converted into IPO warrants upon the completion of the IPO by
Holding and are exercisable at the IPO price. The notes accrued interest at 15%
per annum. The notes were secured by a lien on all of the assets of the Company.
The Company recorded debt issuance costs of approximately $1,020,000 in
connection with such bridge financing and amortized the amount over the life of
the debt. Upon repayment of the debt, the related unamortized debt issuance cost
was expensed. The effective annual rate of interest on the notes after giving
effect to the debt issuance cost of $1,020,000 is 525%. The fair value of the
shares of common stock at the time of issuance was $4.25 per share. This debt
was repaid on July 3, 1996 with the proceeds of the IPO.
(e) In January, 1997, the Company entered into an Accounts Receivable Management
and Security Agreement with a lender whereby it receives advances of up to 85%
of the net amounts of eligible accounts receivable outstanding to a maximum of
$10,000,000. The loan is subject to interest at a rate of 2.0% per annum over
the prevailing prime rate as defined by BNY (8.5% as of June 30, 1997). At June
30, 1997, the outstanding balance on the credit line was $6,467,558 which
represented 84% of the approximate $7,671,000 available thereunder. The lender
has a security interest in all present and future accounts receivable, machinery
and equipment and other assets of Amertranz and the loan is guaranteed by
Holding.
F-12
<PAGE>
AMERTRANZ WORLDWIDE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(f) In October 1995, Amertranz obtained a $500,000 subordinated secured loan
from TIA, which was increased to $800,000 in January 1996 ("TIA Loan"). The
original TIA Loan bears interest at the rate of 12% per annum. As of June 30,
1997, the Company had $953,073 (includes $153,073 of accrued interest)
outstanding under the TIA Loan.
(g) In connection with the acquisition of Consolidated, the Company issued a
promissory note to the Consolidated stockholders in the aggregate principal
amount of $150,000. The note bears interest at the rate of 8% per annum and is
repayable in 12 equal, consecutive quarterly payments of principal and interest
commencing January 2, 1997.
Between June 1995 and November 1995, Amertranz borrowed $1,379,110 in aggregate
principal amount from persons affiliated with Amertranz and other non-affiliated
lenders and issued convertible notes thereof. All of these notes were assigned
by the holders thereof to Holding as part of the Combination and are included in
additional paid-in capital.
The Company's indebtedness to TIA and CFS is subordinated to the Company's
obligations under its accounts receivable financing facility with BNY Financial
Corp.
7. SHAREHOLDERS' DEFICIT
Preferred Stock
As of June 30, 1997, the authorized preferred stock of the Company is 2,500,000
shares. As of the date of this Form 10-K, 498,000 shares of preferred stock are
outstanding as follows:
Number of Shares
Date Issued Issued
----------- ------
July 3, 1996 200,000 (a)
October 10, 1996 20,000 (b)
December 31, 1996 10,000 (a)
June 13, 1997 257,500 (c)
June 30, 1997 10,500 (a)
-------
Preferred Stock Issued 498,000
=======
(a) Class A Preferred Stock. On July 3, 1996, the Company issued 200,000 shares
of Class A, non-voting, cumulative, convertible preferred stock with a par value
of $10.00 in exchange for a paydown of $2,000,000 on the $10,000,000 promissory
note.
The Class A Preferred Stock will pay cumulative cash dividends at an annual rate
of $1.00 per share in cash or, at the option of the Company, in shares of Class
A Preferred Stock, at the rate of $10.00 per share. The Company is prohibited
from paying any dividends on common stock unless all required Class A Preferred
Stock dividends have been paid. Each share of Class A Preferred Stock may be
converted at any time, at the option of the holder, into common stock at a
conversion price of the lower of (i) the IPO price per share of common stock or
(ii) 80% of the average of the closing price per share of common stock on the
day prior to the conversion date. Class A Preferred Stock holders are entitled
to a liquidation preference of $10.00 per share plus all accrued and unpaid
dividends.
On December 31, 1996 and June 30, 1997, the Company issued 10,000 and 10,500,
respectively, shares of Class A, non-voting, cumulative, convertible preferred
stock with a par value of $10.00 representing the semi-annual dividend due the
Class A preferred shareholders.
F-13
<PAGE>
AMERTRANZ WORLDWIDE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(b) Class B Preferred Stock. On October 10, 1996, the Company issued 20,000
shares of Class B, non-voting, convertible preferred stock with a par value of
$10.00 for all of the issued and outstanding shares of Consolidated.
No dividends are paid on Class B Preferred Stock, and the shares carry no
liquidation preference or voting rights. Each share of Class B Preferred Stock
may be converted, at the option of the holder thereof at any time after October
10, 1997, into 10 shares of the Company's common stock.
(c) Class C Preferred Stock. On June 13, 1997, the Company issued 257,500 shares
of Class C, non-voting, cumulative, convertible preferred stock with a par value
of $10.00 upon completion of a $2,575,000 private placement of equity securities
to individual investors (the "Private Placement").
The Class C Preferred Stock will pay cumulative cash dividends at an annual rate
of $1.00 per share payable the last day of each calendar quarter in cash or, at
the option of the Company, in shares of common stock provided a registration
statement with respect to the underling shares of common stock is in effect. The
Company is prohibited from paying any dividends on common stock or Class A
Preferred Stock unless all required Class C Preferred Stock dividends have been
paid. Each share of Class C Preferred Stock may be converted at any time, at the
option of the holder, into 10 shares of common stock. Each share of Class C
Preferred Stock acquired in the Private Placement and all shares of Common Stock
underlying such securities may not be sold until June 13, 1998 without the
approval of GKN Securities Corp. ("GKN"), the placement agent for the Private
Placement.
Warrants
As of June 30, 1997, the Company had 5,074,283 warrants outstanding to purchase
5,074,283 shares of common stock at $6.00 per share.
In connection with the Company's February 1996 and May 1996 bridge financings,
the Company issued warrants to purchase 1,386,783 shares of common stock at an
exercise price and on terms identical to the warrants issued in the IPO.
In connection with the IPO of July 3, 1997, the Company issued 2,300,000 shares
of common stock and 2,300,000 warrants. Each warrant entitles the holder thereof
to purchase one share of common stock for $6.00 during the four-year period
commencing June 28, 1997.
In connection with the Private Placement of June 13, 1997, the Company issued
257,500 shares of Class C preferred stock and 1,387,500 warrants. Each warrant
entitles the holder thereof to purchase one share of common stock for $6.00
during the four-year period commencing June 28, 1997.
The Company may redeem the warrants at a price of $.01 per warrant at any time
after they become exercisable upon not less than 30 days' prior written notice
if the last sale price of the common stock has been at least $10.00 for each of
the 20 consecutive trading days ending on the third day prior to the date on
which the notice of redemption is given.
Stock Option Plan
In June 1996, the Board of Directors of the Company adopted the Amertranz
Worldwide Holding Corp. 1996 Stock Option Plan ("1996 Plan"), which was
subsequently approved by shareholders. The 1996 Plan authorizes the granting of
awards, the exercise of which would allow up to an aggregate of 402,348 shares
of the Company's common stock to be acquired by the holders of said awards. The
awards can take the form of incentive stock options ("ISOs") or
F-14
<PAGE>
AMERTRANZ WORLDWIDE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
nonqualified stock options ("NSOs") and may be granted to key employees,
officers, directors and consultants. Any plan participant who is granted an
Incentive Stock Option and possesses more than 10% of the voting rights of the
Company's outstanding common stock must be granted an option price at at least
110% of the fair market value on the date of grant and the option must be
exercised within five years from the date of grant. Under the 1996 Plan, stock
options have been granted to employees and directors for terms of up to 10 years
at exercise prices ranging from $.10 to $6.00 and are exercisable in whole or in
part at stated times from the date of grant up to four years from the date of
grant. At June 30, 1997, 96,300 stock options granted to employees and directors
were exercisable. The Company accounts for equity-based awards granted to
employees and directors under APB Opinion No. 25 under which no compensation
cost has been recognized for stock options granted at market value (Note 3). Had
compensation cost for these stock options been determined consistent with SFAS
No. 123, the Company's net loss and net loss per share would have been increased
to the following pro forma amounts:
Year Six Months
Ended Ended
June 30, 1997 June 30, 1996
Net loss: As Reported ($10,508,334) ($6,396,524)
Pro Forma ($10,833,762) ($6,997,862)
Primary EPS: As Reported ($1.74) ($1.84)
Pro Forma ($1.79) ($2.01)
The effects of applying SFAS No. 123 in the pro forma disclosure are not
indicative of future amounts as additional awards in future years are
anticipated.
Prior to the adoption of the 1996 Plan, there were 224,399 options granted to
purchase common stock at exercise prices ranging from $0.048 to $0.408. These
options were granted to the stockholders of Amertranz and the holders of certain
convertible promissory notes of Amertranz pursuant to the terms of the Asset
Exchange Agreement. At June 30, 1997, 196,007 options were outstanding and
181,809 were exercisable.
The following table reflects activity under the plan for the two-year period
ended June 30, 1997:
<TABLE>
<CAPTION>
Year Ended June 30, 1997 Six Months Ended June 30, 1996
------------------------ ------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
Outstanding at beginning of year 526,399 2.76 42,590 .16
Granted - - 483,809 2.99
Exercised (38,392) .68 - -
Forfeited (56,800) 2.06 - -
Cancelled - - - -
Outstanding at end of year 431,207 $3.08 526,399 $2.76
Exercisable at end of year 278,109 $2.18 196,005 $ .34
</TABLE>
F-15
<PAGE>
AMERTRANZ WORLDWIDE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The weighted average fair value and exercise price for options granted at an
exercise price equal to fair market is $3.18 and $.06, respectively. The
weighted average fair value and exercise price for options granted at an
exercise price below fair market is $2.51 and $.06, respectively.
The fair value of each stock option grant is estimated as of the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions:
1996
Risk-Free Interest Rates 6.05%
Expected Lives 5
Expected Volatility 64.00%
Expected Dividend Yields 0.00%
The following table summarizes information about stock options outstanding at
June 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Number Weighted Weighted Number Weighted
Outstanding Average Average Exercisable Average
at Remaining Exercise at Exercise
Exercise Prices 6/30/97 Contractual Life Price 6/30/97 Price
<C> <C> <C> <C> <C> <C> <C>
$0.04 - $0.50 196,007 5 $0.34 181,809 $0.35
$4.00 - $6.00 235,200 5 $5.37 96,300 $5.61
------- --------
$0.04 - $6.00 431,207 5 $3.08 278,109 $2.17
======= =======
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
Leases
Future minimum lease payments for capital leases and operating leases relating
to equipment and rental premises are as follows:
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL LEASES OPERATING LEASES
<S> <C> <C> <C>
1998 $24,053 $2,370,093
1999 14,031 1,892,802
2000 - 1,329,909
2001 - 883,474
2002 - 798,298
2003 - 33,092
-------- -----------
Total minimum lease payments 38,084 $7,307,669
==========
Less--Amount representing interest (1,373)
--------
$36,711
</TABLE>
F-16
<PAGE>
AMERTRANZ WORLDWIDE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Employment Agreements
Amertranz has employment agreements with certain employees expiring at various
times through July 2000. Such agreements provide for minimum salary levels and
for incentive bonuses which are payable if specified management goals are
attained. The aggregate commitment for future salaries at June 30, 1997,
excluding bonuses, was approximately $1,040,000.
9. INCOME TAXES
At February 7, 1996, the Company had a tax net operating loss carry forward of
approximately $7,757,000, available within statutory limits, to offset future
regular federal taxable income. In accordance with certain provisions of the Tax
Reform Act of 1986, a change in ownership of a corporation of greater than 50
percentage points within a three-year period places an annual limitation on the
corporation's ability to utilize its existing net operating loss carry forwards.
Such a change in ownership was deemed to have occurred in connection with the
Asset Exchange Agreement in which Amertranz became part of the Company, at which
time the Company's net operating loss carry forwards amounted to approximately
$7,757,000. The Company is subject to a significant annual limitation of the
utilization of such tax attributes over the fifteen year carry forward period.
To the extent the annual limitation is not utilized, it may be carried forward
for utilization in future years. This limitation could affect the Company's
future provisions for or payment of federal income tax should the Company's
operations produce increased amounts of taxable income in the future.
Deferred tax benefits at June 30, 1997 and 1996, which are fully offset by a
valuation allowance, primarily represent the estimated future tax effects of
federal net operating losses aggregating approximately $4,457,099 and
$3,548,022, respectively.
10. RELATED PARTY TRANSACTIONS
(a) Under the terms of a cargo aircraft charter agreement with Tradewinds
Airlines, Inc. ("Tradewinds Air"), a subsidiary of Tradewinds Acquisition
Corporation, of which TIA owns approximately 26% of the outstanding common
stock, CAS has exclusive rights until June 30, 1998 to the use of a leased
L-1011 freighter aircraft. While CAS is guaranteed the use of the L-1011
aircraft as needed, it pays only for actual use of the aircraft at market rates.
At June 30, 1997, CAS had outstanding payables to Tradewinds Air of
approximately $465,000 and accrued expenses of $815,000.
(b) CAS had sales to Amertranz of $985,477, and related accounts receivable of
approximately $673,000 as of and for the year ended June 30, 1997.
At June 30, 1997, Amertranz owes approximately $673,000 to CAS for air freight
forwarding services.
(c) In connection with the acquisition of Consolidated, the Company issued a
Promissory Note in the amount of $150,000. At June 30, 1997, the amount
outstanding under this note was $137,500. The note bears interest at 8% and
matures October 1, 1999.
(d) The President of Target, who is also a Director of the Company, owns 10% of
the shares of Target Airfreight (Hong Kong) Limited ("Target - HKG") and Target
- - - HKG owns shares in Target Airfreight (Asia) PTE., Limited ("Target - SIN").
F-17
<PAGE>
AMERTRANZ WORLDWIDE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Target had sales to Target - HKG and Target - SIN of $261,952 and $157,233,
respectively, for the two month period ended June 30, 1997; and accounts
receivable of $315,548 and $275,595, respectively, at June 30, 1997.
At June 30, 1997, Target owes $390,384 and $4,345 to Target - HKG and Target -
SIN, respectively.
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
TIA, Inc.:
We have audited the accompanying balance sheets of Amertranz Worldwide
Holding Corp. (formerly The Freight Forwarding Business of TIA and CFS) (note 1)
as of December 31, 1994 and 1995 and the related statements of operations and
changes in accumulated deficit and cash flows for each of the years in the
three-year period ended December 31, 1995. These statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Amertranz Worldwide
Holding Corp. (formerly The Freight Forwarding Business of TIA and CFS) as of
December 31, 1994 and 1995, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Greensboro, North Carolina March 8, 1996, except with respect to the last
paragraph in Note 2 for which the date is May 1, 1996
F-19
<PAGE>
AMERTRANZ WORLDWIDE HOLDING CORP.
(FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
BALANCE SHEETS
December 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
---- ----
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 2,141,047 $ 2,463,336
Accounts receivable, net of allowance for doubtful accounts
of $131,229 in 1995 and $228,424 in 1994 (Note 7) 5,196,113 5,379,903
Income taxes receivable -- 65,000
Prepaid expenses and deposits 111,878 84,917
----------- -----------
Total current assets 7,449,038 7,993,156
----------- -----------
Property and equipment, at cost:
Ground support equipment 1,211,507 1,259,942
Furniture, fixtures and leasehold improvements 374,751 429,145
----------- -----------
1,586,258 1,689,087
Less accumulated depreciation and amortization 762,229 1,129,340
----------- -----------
Net property and equipment 824,029 559,747
Notes receivable (Note 3) -- 500,000
Other assets 54,077 54,077
----------- -----------
$ 8,327,144 $ 9,106,980
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Note payable to affiliate (Note 4) $ 3,387,808 $ 2,187,808
Current installments of note payable (Note 4) 25,000 25,000
Accounts payable (Note 7) 1,614,424 1,605,257
Accrued liabilities (Note 4) 1,479,493 1,235,568
Income taxes payable 108,201 --
----------- -----------
Total current liabilities 6,614,926 5,053,633
----------- -----------
Note payable (Note 4) 50,000 25,000
Note payable to Parent (Note 4) 8,940,336 8,940,336
----------- -----------
Total liabilities 15,605,262 14,018,969
----------- ----------
Stockholders' equity (deficit):
Common stock, $.01 par value; 15,000,000 shares
authorized, 2,100,000 shares issued
and outstanding 21,000 21,000
Accumulated deficit (7,299,118) (4,932,989)
----------- -----------
Total stockholders' equity (deficit) (7,278,118) (4,911,989)
Commitments and contingencies (Notes 6 and 9)
$ 8,327,144 $ 9,106,980
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
AMERTRANZ WORLDWIDE HOLDING CORP.
(FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
STATEMENTS OF OPERATIONS AND
CHANGES IN ACCUMULATED DEFICIT
Years Ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Operating revenue $32,670,727 $38,576,285 $38,211,306
Cost of transportation (Note 7) 24,231,379 30,254,733 30,300,476
------------- ------------ ------------
Gross profit 8,439,348 8,321,552 7,910,830
Selling, general and administrative expenses 6,504,897 4,633,676 4,513,154
------------- ------------ ---------
Operating income 1,934,451 3,687,876 3,397,676
Other income (expense):
Interest expense (Note 4) (1,107,520) (1,143,787) (1,155,215)
Other, net 41,928 117,214 123,668
------------- ------------ ------------
Total other expense (1,065,592) (1,026,573) (1,031,547)
------------- ------------ ------------
Income before income taxes 868,859 2,661,303 2,366,129
Income taxes (Note 5) -- 108,201 --
------------- ------------ ------------
Net income 868,859 2,553,102 2,366,129
Accumulated deficit:
Balance at beginning of year (10,721,079) (9,852,220) (7,299,118)
------------- ------------ ------------
Balance at end of year $ (9,852,220) $ (7,299,118) $ (4,932,989)
============= ============ ============
</TABLE>
See accompanying notes to the financial statements.
F-21
<PAGE>
AMERTRANZ WORLDWIDE HOLDING CORP.
(FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 868,859 $ 2,553,102 $ 2,366,129
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 416,830 377,569 367,111
Net disposals of property and equipment -- 46,978 --
Bad debt expense 153,574 70,000 41,000
Changes in assets and liabilities:
Increase in accounts receivable (771,087) (949,027) (224,790)
Increase in income taxes receivable -- -- (65,000)
Increase in inventory (11,309) -- --
(Increase) decrease in prepaid expenses (140,608) 581,376 26,961
Increase (decrease) in accounts payable 487,518 (274,010) (9,167)
Decrease in accrued liabilities (706,398) (165,264) (243,925)
Increase (decrease) in income taxes payable -- 68,201 (108,201)
--------- ----------- -----------
Total adjustments (571,480) (244,177) (216,011)
--------- ----------- -----------
Net cash provided by operating activities 297,379 2,308,925 2,150,118
Cash flows from investing activities:
Cash advances under notes receivable -- -- (500,000)
Purchases of furniture, fixtures and equipment (95,567) (42,280) (102,829)
Increase in other assets (7,393) (9,405) --
--------- ----------- -----------
Net cash used in investing activities (102,960) (51,685) (602,829)
Cash flows from financing activities:
Proceeds from Parent cash advance 400,000 -- --
Repayments on Parent cash advance (161,199) (238,801) --
Payments on note payable to affiliate -- -- (1,200,000)
Repayments on notes payable (274,162) (231,264) (25,000)
--------- ----------- -----------
Net cash used in financing activities (35,361) (470,065) (1,225,000)
--------- ----------- -----------
Net increase in cash and cash equivalents 159,058 1,787,175 322,289
Cash and cash equivalents at beginning of year 194,814 353,872 2,141,047
--------- ----------- -----------
Cash and cash equivalents at end of year 353,872 2,141,047 2,463,336
========= =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest 586,056 1,666,950 946,155
========= =========== ===========
Cash paid during the year for income taxes $ -- $ -- $ 173,201
========= =========== ===========
</TABLE>
See accompanying notes to the financial statements.
F-22
<PAGE>
AMERTRANZ WORLDWIDE HOLDING CORP.
(FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
NOTES TO FINANCIAL STATEMENTS
December 31, 1993, 1994 and 1995
(1) Significant Accounting Policies
Company Background
In January 1996, Amertranz Worldwide Holding Corp. ('Holding') was
incorporated in the state of Delaware. Effective February 7, 1996, Holding
concluded an asset exchange agreement with TIA, Inc. ('TIA'), its 51% owned
subsidiary, Caribbean Freight System, Inc. ('CFS'), Amertranz Worldwide, Inc.
('Amertranz') and the stockholders and convertible note holders of Amertranz. As
part of this transaction, Holding received (i) all of the issued and outstanding
stock of Amertranz, (ii) $1,379,110 in convertible notes of Amertranz, and (iii)
the freight forwarding business of TIA and CFS. Holding then contributed the
freight forwarding business of TIA and CFS to Caribbean Air Services, Inc.
('CAS') in return for all of the issued and outstanding shares of CAS. TIA and
CFS received a $10,000,000 promissory note in addition to 2,100,000 shares of
common stock in Holding, as discussed in Note 2.
Basis of Financial Statement Presentation
The accompanying balance sheets and statements of operations and
changes in accumulated deficit and cash flows include the accounts of the former
air freight business of TIA (a wholly owned subsidiary of Wrexham Aviation
Corporation) and CFS, which have been combined for reporting purposes as The
Freight Forwarding Business of TIA and CFS (the 'Business'), which is not a
separate legal or historical reporting entity. The Business of TIA and CFS is
treated as the predecessor since TIA and CFS represent the majority and
controlling shareholders of Holding, accordingly the issuance of 2,100,000
shares of stock by Holding for the freight forwarding business of TIA and CFS
has been accounted for as a recapitalization of the Business. Although the
Business is not a separate legal entity, since the Business is treated as the
predecessor the effect of the issuance of the 2,100,000 shares of common stock
of Holding in February 1996 has been reflected in the financial statements as if
it had occurred as of the beginning of the earliest year presented. Since the
Business was combined in February 1996 with Holding the accompanying financial
statements include the accounts of TIA and CFS related to their air freight
businesses and exclude accounts related to the minority interest in CFS.
At December 31, 1995, CFS has a 51% ownership interest in Caribbean Air
Services Dominicana, Inc. (CASD); however, the accompanying financial statements
do not include the accounts of CASD since CASD was not combined with Holding.
All significant intrabusiness balances and transactions have been
eliminated in the financial statements.
Description of Business
The Business operates an air freight forwarding business primarily
serving the eastern half of the United States, Puerto Rico and the Dominican
Republic.
Revenue Recognition
The Business is involved in brokering air cargo services for freight
flown between the United States, Puerto Rico and the Dominican Republic.
Revenues, and related direct costs, are recognized when the shipments of cargo
are completed. Monthly provision is made for doubtful receivables, discounts,
returns and allowances.
F-23
<PAGE>
AMERTRANZ WORLDWIDE HOLDING CORP.
(FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1993, 1994 and 1995
(1) Significant Accounting Policies - (Continued)
Cash and Cash Equivalents
Cash at December 31, 1995 includes $2,290,000 of overnight repurchase
agreements.
Property and Equipment
Property and equipment are depreciated using the straight-line method
over the estimated useful lives of the assets of five years for ground support
equipment and 5 to 10 years for furniture, fixtures and leasehold improvements.
Income Taxes
The operations of the Business are included in the federal and state
income tax returns of TIA and CFS. Income taxes allocated to the Business are
based on the actual income taxes of TIA and CFS for the periods presented.
Deferred tax assets and liabilities are recognized under the asset and
liability method for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Financial Instruments
The carrying amounts of accounts receivable, notes receivable, note
payable to affiliate, accounts payable and accrued liabilities approximate fair
value because of the short maturity of these financial instruments. The carrying
amount of the note payable to the Parent approximates fair value because it
bears interest at an adjustable rate.
Earnings per Share
Earnings per share information has not been presented since it would
not be representative of future earnings per share information due to the
combination of the Business with Holding and Amertranz on February 7, 1996 and
the related changes in stockholders' equity which took place at that time.
Reclassification
Certain amounts in the 1993 and 1994 financial statements have been
reclassified to conform with the 1995 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-24
<PAGE>
AMERTRANZ WORLDWIDE HOLDING CORP.
(FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1993, 1994 and 1995
(2) Asset Exchange Agreement
In anticipation of a public offering of securities ("Offering"), in
February 1996 TIA and CFS entered into an asset exchange agreement discussed in
note 1 in which the air freight business of TIA and CFS was combined with
Holding, which contributed the business to a wholly owned subsidiary.
The air freight business is defined by the agreement to include
customer lists and related business and marketing records; CFS's rights under a
freight handling agreement with CASD; the use of the names "Caribbean Air
Services" and "Tradewinds International Airlines;" the operating leases for the
Puerto Rico, Greensboro, North Carolina, and Hartford, Connecticut business
facilities; furniture and fixtures of $86,830 as of December 31, 1995 and
$83,525 as of February 7, 1996; and all assignable customer and sales
representative contracts of TIA and CFS in connection with their air freight
businesses. The air freight business does not include any other assets of TIA
and CFS, including cash, accounts receivable, notes receivable, securities,
equipment, aircraft, parts or tools, nor any liabilities of TIA or CFS.
In exchange for the transfer of the air freight operating assets
described above, TIA and CFS received a promissory note of $10,000,000 and
2,100,000 shares of Holding (allocated to TIA and CFS as notes receivable of
$8,000,000 and $2,000,000, respectively, and 1,680,000 and 420,000 shares,
respectively). The promissory note bears interest at 8%, and is due from March
1, 1996 through July 1, 1996 in monthly payments of $80,000 and from August 1,
1996 in monthly payments of $166,667. In addition, Holding intends to apply
$2,000,000 of the net proceeds from the proposed public offering of securities
discussed in the first paragraph above against the promissory note.
Pursuant to the asset exchange agreement, TIA and CFS agreed to advance
to the aforementioned subsidiary of Holding, on a revolving loan basis, the net
collections of TIA's and CFS's accounts receivable as of February 7, 1996 and
additional amounts in the discretion of TIA and CFS, up to an aggregate maximum
of $4,000,000 outstanding at any time. Funds advanced under the revolving loan
with respect to TIA's and CFS's accounts receivable do not bear interest and
discretionary advances bear interest at the greater of 1% per month or the prime
rate plus 4%. The revolving loan matures on July 6, 1996.
The promissory note and revolving loan are secured by a first priority
lien on all of the issued and outstanding shares of the aforementioned
subsidiary of Holding, a first priority lien on all of the assets of Holding and
the subsidiary of Holding, and a second lien on the accounts receivable of
another subsidiary of Holding.
TIA and CFS have agreed that upon consummation of the public offering
of securities discussed above, they will defer repayment of the promissory note,
revolving loan and notes receivable discussed in note 3 if, among other things,
Holding does not meet certain financial thresholds or obtain additional
financing. TIA and CFS have further agreed that except upon the occurrence of
certain events they will not take any action to foreclose on their security
interests in the assets of Holding or its subsidiaries for one year.
F-25
<PAGE>
AMERTRANZ WORLDWIDE HOLDING CORP.
(FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1993, 1994 and 1995
(3) Notes Receivable
In anticipation of entering into the asset exchange agreement discussed
in note 2, TIA and CFS made advances to a subsidiary of Holding totaling
$500,000 in 1995 and $300,000 subsequent to December 31, 1995. The notes are
secured by a subordinated lien on all of the assets of a subsidiary of Holding,
bear interest at a rate of 12%, and are repayable in 12 monthly payments of
principal and interest commencing 30 days after the closing of the Offering.
However, TIA and CFS have agreed that, upon consummation of the Offering,
repayment of the notes will be deferred as discussed in note 2.
(4) Notes Payable
Substantially all of TIA's and CFS's activities in 1993, 1994 and 1995
are related to their air freight business and, accordingly, all of the
historical interest expense related to the interest-bearing debt of TIA and CFS
has been included in the accompanying financial statements.
Interest expense relates primarily to two notes payable as follows:
A note payable to Harborview Corporation Ltd. No. 1, a company
affiliated through common ownership to TIA has a balance outstanding at December
31, 1994 and 1995 of $3,387,808 and $2,187,808, respectively, bears interest at
a rate of 10%, is secured by a senior lien on all of the assets of TIA and is
due on demand. Interest expense on this note amounted to approximately $327,000,
$343,000 and $252,000 in 1993, 1994 and 1995, respectively.
A note payable to Wrexham Aviation Corporation, Parent of TIA has a
balance outstanding at both December 31, 1994 and 1995 of $8,940,336, bears
interest at prime plus 1% (9.5% at December 31, 1995), is secured by a second
lien on all assets of TIA and is due on June 16, 1997. Interest expense on this
note amounted to approximately $740,000, $783,000 and $903,000 in 1993, 1994 and
1995, respectively. Interest in the amount of approximately $11,000 and $202,000
is included in accrued liabilities at December 31, 1994 and 1995, respectively.
In addition to the above notes, a non-interest bearing note payable of
$50,000 is outstanding at December 31, 1995 and is due in payments of $25,000 in
1996 and 1997.
F-26
<PAGE>
AMERTRANZ WORLDWIDE HOLDING CORP.
(FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1993, 1994 and 1995
(5) Income Taxes
The operations of the Business are included in the federal and state
income tax returns of TIA and CFS. Income taxes allocated to the Business are
based on the actual income taxes of TIA and CFS for the periods presented.
Income tax expense for 1993, 1994 and 1995 consists of:
1993
CURRENT DEFERRED TOTAL
Federal $ -- $ -- $ --
State -- -- --
-----------------------------------------------
$ -- $ -- $ --
========= ========= ========
1994
CURRENT DEFERRED TOTAL
Federal $ 79,494 $ -- $ 79,494
State 28,707 -- 28,707
--------- --------- --------
$ 108,201 $ -- $108,201
========= ========= ========
1995
CURRENT DEFERRED TOTAL
Federal $ -- $ -- $ --
State -- -- --
-----------------------------------------------
$ -- $ -- $ --
========= ========= ========
Income tax expense for 1993, 1994 and 1995 differed from the "expected"
amount for those years (computed by applying the federal corporate rate of 34%
to income before income taxes) for the following reasons:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense $ 295,412 $ 904,843 $804,484
State income taxes, net of federal benefit -- 18,947 --
Change in valuation allowance for deferred tax
assets allocated to income tax expense (295,412) (861,672) (817,928)
Other -- 46,083 13,444
---------- --------- ---------
$ -- $ 108,201 $ --
========== ========= =========
</TABLE>
F-27
<PAGE>
AMERTRANZ WORLDWIDE HOLDING CORP.
(FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1993, 1994 and 1995
(5) Income Taxes--(Continued)
The temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 31, 1994 and 1995
are presented below:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C> <C> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts receivable $ 88,172 $ 50,664
Alternative minimum tax credit carry forward 79,494 79,494
Reserves and accruals, not deductible until paid for tax
purposes 51,606 40,656
Net operating loss carry forwards 4,034,683 3,562,667
----------- -----------
Total gross deferred tax assets 4,253,955 3,733,481
Less valuation allowance (2,709,088) (1,891,160)
----------- ----------
Net deferred tax assets 1,544,867 1,842,321
Deferred tax liabilities:
Fixed assets, primarily excess tax over financial statement
depreciation (1,544,867) (1,842,321)
----------- ----------
Total gross deferred tax liabilities (1,544,867) (1,842,321)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
The changes in the valuation allowance for 1993, 1994 and 1995 result
from the utilization of net operating loss carryforwards allocated to the
Business. Subsequently recognized tax benefits relating to the valuation
allowance for deferred tax assets as of December 31, 1995 will be recorded as an
income tax benefit in the statement of operations.
At December 31, 1995, TIA had federal and state net operating loss
carryforwards of approximately $9,227,000. The carryforwards expire in 2005
through 2008 for federal income tax purposes and 1996 through 1997 for state
income tax purposes. Due to the statutory limitation on net operating loss
carryforwards following an ownership change, the availability of approximately
$2,456,000 at December 31, 1995 of these net operating loss carry forwards to
reduce future taxable income is substantially limited.
The excess of alternative minimum tax over regular tax is a credit
which can be carried forward to reduce regular tax liabilities in future years.
At December 31, 1995, TIA and CFS have approximately $79,000 available for
carryforward.
F-28
<PAGE>
AMERTRANZ WORLDWIDE HOLDING CORP.
(FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1993, 1994 and 1995
(6) Leases
The Business leases certain equipment under various noncancellable
operating leases expiring at various dates through 1997. Future minimum lease
payments are as follows:
1996 $43,332
1997 $20,865
Rent expense for cancelable and noncancellable operating leases for the
years ended December 31, 1993, 1994 and 1995 was approximately $2,012,000,
$675,000 and $330,000, respectively.
(7) Related Party Transactions
During the years ended December 31, 1993, 1994 and 1995, the Business
incurred purchased transportation costs of approximately $541,000, $848,000 and
$1,622,000, respectively, from companies partially owned by minority
stockholders of CASD. Included in accounts payable at December 31, 1994 and 1995
was approximately $31,000 and $8,000, respectively, due to these companies.
During the year ended December 31, 1995, the Business had sales to a
subsidiary of Holding that amounted to approximately $350,500 and at December
31, 1995 related accounts receivable of $150,500, recorded in the accompanying
balance sheet.
Under the terms of a cargo aircraft charter agreement with Tradewinds
Airlines, Inc. ('Tradewinds Air'), a subsidiary of Tradewinds Acquisition
Corporation, of which TIA owns approximately 30% of the outstanding common
stock, TIA has exclusive rights until June 30, 1998 to the use of a leased
L-1011 freighter aircraft. While TIA is guaranteed the use of the L-1011
aircraft as needed, it pays only for actual use of the aircraft at market rates.
The investment in, and related activities of, Tradewinds Air are not
reflected in the accompanying financial statements as they were not included in
the Business combined with Holding, see Basis of Financial Statement
Presentation in note 1 and Asset Exchange Agreement in note 2.
TIA currently holds the United States Department of Transportation
licenses and certificates required for the operation of the L-1011 and is
operating the L-1011 aircraft on behalf of Tradewinds Air under an interim
operating agreement. Upon approval by the United States Department of
Transportation of the transfer of the licenses and certificates, TIA intends to
assign the aircraft lease to Tradewinds Air.
The leased L-1011, along with assignment of the aforementioned cargo
aircraft charter agreement and interim operating agreement, was acquired in late
November 1995 by Tradewinds Air from Florida West Airlines, Inc. (FWA) upon
confirmation by the Bankruptcy Court of FWA's plan of reorganization. FWA had
acquired the leased L-1011 from and entered into the aforementioned cargo
aircraft charter agreement and interim operating agreement with TIA in March
1994. Prior to March 1994, TIA had operated the L-1011. Accordingly, the
accompanying financial statements for the year ended December 31, 1993 and for
the first two months of 1994 include the operations of the aircraft.
F-29
<PAGE>
AMERTRANZ WORLDWIDE HOLDING CORP.
(FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1993, 1994 and 1995
(7) Related Party Transactions (Continued)
Total transportation costs purchased from Tradewinds Air and FWA
related to these agreements amounted to approximately $14,959,000 and
$16,691,000 in 1994 and 1995, respectively. At December 31, 1994 and 1995, the
Business owed $913,000 and $760,000, respectively, for such services which are
included in accounts payable.
TIA provides accounting services to Tradewinds Air for $5,720 per
month.
(8) Supplier and Credit Concentration
The Business charters the flight operations of an L-1011 from one
supplier. Although there are a limited number of companies that charter or lease
L-1011 aircraft, management believes that other suppliers could provide similar
services on comparable terms. A change in suppliers, however, could cause a
delay in the air cargo operations and a possible loss of sales, which would
affect operating results adversely.
The air cargo industry is impacted by the general economy. Changes in
the marketplace of this industry may significantly affect management's estimates
and the Business's performance.
Most of the Business's customers are located primarily in the eastern
half of the United States, Puerto Rico, and the Dominican Republic. No single
customer accounted for more than 10% of the sales of the Business in 1993, 1994
and 1995. The Business estimates an allowance for doubtful accounts based on the
credit worthiness of its customers as well as general economic conditions.
Consequently, an adverse change in those factors could affect the Business's
estimate of its bad debts.
(9) Contingencies
TIA is responsible for the clean-up of contaminated soil associated
with the removal of an underground storage tank in Greensboro, North Carolina.
TIA removed the waste oil tank during 1994 and has performed a substantial
portion of the remediation procedures on the site. TIA, along with Tradewinds
Air, is responsible for any remaining soil clean-up required and the State of
North Carolina has a trust fund available to reimburse companies for voluntary
remediation expenses in excess of certain deductibles. Accordingly, management
believes that any remaining remediation costs will not have a material effect on
the financial statements.
F-30
<PAGE>
SCHEDULE II
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Charged to
Beginning Costs and Other Balance at
of Year Expenses Accounts Deductions End of Year
<S> <C> <C>
For the fiscal year ended June 30, 1996
Allowance for doubtful accounts $ 401 $ 48 $ - $ (83) $ 371
======== ======= ======== ======= =======
Accumulated depreciation and amortization
of property and equipment $ 106 $ 108 $ - $ (4) $ 210
======== ======= ======== ======= =======
Accumulated amortization of debt
issuance cost $ - $ 3,264 $ - $ - $ 3,264
======== ======= ======== ======== =======
Accumulated amortization of goodwill $ - $ 191 $ - $ - $ 191
======== ======= ======== ======= =======
Deferred tax asset valuation allowance $ - $ 3,548 $ - $ - $ 3,548
======== ======= ======== ======== =======
For the fiscal year ended June 30, 1997
Allowance for doubtful accounts $ 371 $ 783 $ - $ (367) $ 787
======== ======= ======== ======= =======
Accumulated depreciation and amortization
of property and equipment $ 210 $ 352 $ 469 $ (172) $ 859
======== ======= ======== ======= =======
Accumulated amortization of debt
issuance cost $ 3,264 $ 104 $ - $ - $ 3,368
======== ======= ======== ======= =======
Accumulated amortization of goodwill $ 191 $ 518 $ - $ - $ 709
======== ======= ======== ======= =======
Deferred tax asset valuation allowance $ 3,548 $ 909 $ - $ - $ 4,457
======== ======= ======== ======== =======
Reserve for restructuring $ - $ 3,408 $ - $ (726) $2,682
-------- ------- -------- -------- ------
</TABLE>
C70815.198 R:1
S-1
<PAGE>
EXHIBIT 10.5
BNY FINANCIAL CORPORATION
1290 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10104
(212) 408-7000
September 25, 1997
Amertranz Worldwide, Inc.
Caribbean Air Services, Inc.
Target Air Freight, Inc.
Consolidated Air Services, Inc.
Target International Services, Inc.
2001 Marcus Avenue
Lake Success, New York 11042
Ladies/Gentlemen:
Reference is made to the Accounts Receivable Management and Security
Agreement between us bearing the effect date of January 14, 1997 (the
"Agreement"). All capitalized terms not otherwise defined herein shall have such
meaning as are ascribed to them under the Agreement.
You have advised us that due to continuing losses, Amertranz has ceased
its on-gong operations at this time. You have also advised us that you are in
violation of a number of provisions and covenants under the Agreement.
In light of the foregoing and pursuant to your request, it is hereby
agreed that:
1. Amertranz shall no longer be an agent for the Borrowers, and such
duties as agent for the Borrower set forth in Section 4 and otherwise under the
Agreement shall now and henceforth be executed by Caribbean Air Services, Inc.
and each Borrower hereby appoints as its agent and attorney-in-fact Caribbean
Air Services, Inc. to request and receive any Revolving Credit Advances under
the Agreement and to execute on behalf of each of them any and all documents,
amendments, reports, schedules, waivers and agreements pertaining to or in
connection with the Agreement or any of the ancillary agreements.
2. The Agreement shall be also be amended in the following manner:
Section 12(n) of the Agreement shall be amended by deleting the text
appearing therein and inserting the following text in its place and stead:
"(n) It shall not permit the consolidated net worth of
Amertranz Worldwide Holding Corp., determined in accordance
with GAAP as in effect on the Closing Date as of the end of
any fiscal quarter to be less than the amount set forth below
for each respective measurement date:
Quarter Ended Minimum Net Worth
June 30, 1997 ($1,600,000.00)
September 30, 1997 ($1,500,000.00)
December 31, 1997 ($1,300,000.00)
March 31, 1998 ($1,200,000.00)
June 30, 1998 ($1,000,000.00)
September 30, 1998 ($ 800,000.00)
December 31, 1998 ($ 500,000.00)
March 31, 1999 ($ 350,000.00)
June 30, 1999 ($ 150,000.00)
September 30, 1999 $ 50,000.00
December 31, 1999 $ 350,000.00
March 31, 2000 $ 500,000.00
June 30, 2000 $ 700,000.00
<PAGE>
To the extent that any new equity is raised by Amertranz
Worldwide Holding Corp. or to the extent any debt is converted
into equity then the dollar amounts set forth immediately
above shall accordingly be increased by the amount of any such
new equity. Conversely, to the extent that Amertranz Worldwide
Holding Corp. pays any dividends to the holders of any
preferred stock issued in its settlement with trade creditors,
then in such event the numbers set forth above shall be
decreased by an amount equal to the aggregate amount of the
dividends paid."
3. Section 12(o) shall be amended by deleting the text appearing
therein and inserting in its place and stead the following text:
"It shall not permit the consolidated net profit of Amertranz
Worldwide Holding Corp., determined in accordance with GAAP as
in effect on the Closing Date to be less than the amount set
forth below for each respective measurement date:
Quarter Ended Minimum Profit
September 30, 1997 $100,000.00
December 31, 1997 $200,000.00
March 31, 1998 $100,000.00
June 30, 1998 $200,000.00
September 30, 1998 $200,000.00
December 31, 1998 $300,000.00
March 31, 1999 $150,000.00
June 30, 1999 $200,000.00
September 30, 1999 $200,000.00
December 31, 1999 $300,000.00
March 31, 2000 $150,000.00
June 30, 2000 $200,000.00
4. Section 12(q) of the Agreement shall be amended by deleting the text
appearing therein and inserting the following text in its place and stead:
"(q) At the end of any month the sum of Borrowers' (i)
unrestricted cash plus, (ii) the Formula Amount less Revolving Credit Advances,
shall not bet less then $500,000.00.
Provided that your actual financial performance is no worse than as
reported to us, we hereby agree to waive your failure to meet the financial
covenant requirements under the Agreement with respect to minimum net profit for
the periods through June 30, 1997.
This letter shall also serve to confirm that provided Amertranz shall
no longer request, or have requested on its behalf, any future Loans other than
for the purpose of providing for its reasonable costs of winding up and
liquidation for approximately the next three months (to which the Borrowers
hereby agree), we hereby waive any Events of Default which may have arisen (i)
solely as a result of the discontinuance by Amertranz of this regular business
operations, (ii) as a result of the insolvency of Amertranz, or (iii) any Event
of Default which may have arisen solely as a result of the meeting of Amertranz
with its creditors in order to arrive at a payment plan with such creditors.
In consideration of the foregoing you agree to pay us a waiver fee of
$48,000.00, payable in 12 consecutive equal monthly installments of $4,000.00
each commencing on October 1, 1997, which fee shall be in addition to any other
fees charges or interest payable by you under the Agreement, and payment of
which fee shall be effectuated by our charging your loan account on the first
day of each month in which such monthly payment is due.
Except as hereby or heretofore modified or amended all of the terms and
conditions of the Agreement shall continue to remain in full force and effect in
accordance with its original terms.
-2-
<PAGE>
If the foregoing correctly set forth the agreement between us, please
execute a copy of this letter in the space provided below and return a fully
executed copy of this letter to our offices.
Very truly yours,
BNY FINANCIAL CORPORATION
By: /s/ Thomas W. Strachan
Title: Executive Vice President
READ & AGREED TO:
Amertranz Worldwide, Inc.
By: /s/ Stuart Hettleman
Title: Executive Vice President
Caribbean Air Services, Inc.
By: /s/ Stuart Hettleman
Title: Executive Vice President
Target Air Freight, Inc.
By: /s/ Stuart Hettleman
Title: Executive Vice President
Consolidated Air Services, Inc.
By: /s/ Stuart Hettleman
Title: Executive Vice President
Target International Services, Inc.
By: /s/ Stuart Hettleman
Title: Executive Vice President
-3-
<PAGE>
EXHIBIT 21
Subsidiaries of Amertranz Worldwide Holding Corp.
Amertranz Worldwide, Inc., a Delaware corporation
Caribbean Air Services, Inc., a Delaware corporation
Consolidated Air Services, Inc., a Delaware corporation
Target Airfreight, Inc., a Delaware corporation
Subsidiaries of Amertranz Worldwide, Inc.
Amertranz Logistics, Inc., a Delaware corporation
Integrity Logistics, Inc., a New York corporation
Amertranz Worldwide De Caribe, Inc., a Puerto Rico corporation
Subsidiaries of Target Airfreight, Inc.
Target Airfreight (HK) Ltd., a Hong Kong corporation
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-3, File No. 333-30351 and File No. 333-03613.
ARTHUR ANDERSEN LLP
New York, New York
September 29, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
financial statements as of and for the period ended June 30, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001009480
<NAME> AMERTRANZ WORLDWIDE HOLDING CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 1,382
<SECURITIES> 0
<RECEIVABLES> 13,273
<ALLOWANCES> 783
<INVENTORY> 0
<CURRENT-ASSETS> 14,617
<PP&E> 1,491
<DEPRECIATION> 756
<TOTAL-ASSETS> 29,821
<CURRENT-LIABILITIES> 27,158
<BONDS> 0
0
4,980
<COMMON> 68
<OTHER-SE> (6,479)
<TOTAL-LIABILITY-AND-EQUITY> 29,821
<SALES> 74,352
<TOTAL-REVENUES> 75,352
<CGS> 57,199
<TOTAL-COSTS> 57,199
<OTHER-EXPENSES> 23,985
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,336
<INCOME-PRETAX> (10,508)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,508)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,508)
<EPS-PRIMARY> (1.74)
<EPS-DILUTED> 0
</TABLE>
