UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM . .. . . . . . . . . TO . . . . . . . . . . . . .
FOR THE QUARTER ENDED SEPTEMBER 30, 1999 COMMISSION FILE NUMBER 000-25351
ALFORD REFRIGERATED WAREHOUSES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TEXAS 75-2695621
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER)
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
318 CADIZ STREET, DALLAS, TEXAS 75207
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 426-5151
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for the
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 [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practical date:
SHARES OUTSTANDING AS OF
TITLE OF CLASS SEPTEMBER 30, 1999
-------------- ------------------------
$0.01 Par Value Common Stock 7,540,715
Transitional Small Business Disclosure Format (check one): Yes No X
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INDEX
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Part I: Financial Information
Item1: Financial Statements (Unaudited)
Consolidated Balance Sheet:
Nine Months Ended September 30, 1999 and 1998..........................................................3
Consolidated Statement of Operations:
Nine Months Ended September 30, 1999 and 1998..........................................................4
Consolidated Statement of Operations:
Three Months Ended September 30, 1999 and 1998.........................................................5
Consolidated Statement of Stockholders' Equity:
Nine Months Ended September 30, 1999 and 1998..........................................................6
Consolidated Statements of Cash Flows:
Nine Months Ended September 30, 1999 and 1998 .........................................................7
Notes to Consolidated Financial Statements ..............................................................8
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations ....................9
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ALFORD REFRIGERATED WAREHOUSES, INC.
Consolidated Balance Sheets (unaudited)
NINE MONTHS ENDED SEPTEMBER 30 1999 1998
- ------------------------------ ---- ----
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Assets
Current
Cash and cash equivalents $ 162,850 $ 111,08l
Accounts receivable 2,523,610 1,991,042
Prepaid expenses 499,274 403,290
Income tax receivable 12,500 6,000
Escrows 372,343 404,603
- -----------------------------------------------------------------------------------------------------------------------
Total Current Assets $ 3,570,577 $2,916,016
=======================================================================================================================
Property, plant & equipment, net $21,577,593 $ 18,587,336
Due from affiliate 3,678,132 2,035,372
Deferred tax asset, net (104,594) 284,833
Other assets 751,177 353,489
Deposits 167,272 274,883
- -----------------------------------------------------------------------------------------------------------------------
Total Assets $29,640,157 $ 24,451,929
=======================================================================================================================
Liabilities & Stockholders' Equity
Current
Accounts payable $ 1,025,267 $ 417,243
Property taxes payable 529,767 568,534
Accrued charges 725,594 647,450
Notes payable 271,016 338,872
Current maturities of long-term debt 1,017,871 898,257
- -----------------------------------------------------------------------------------------------------------------------
Total Current Liabilities $ 3,569,515 $ 2,870,356
- -----------------------------------------------------------------------------------------------------------------------
Deferred revenue $ 211,251 $ 221,144
Long-term debt, less current maturities 17,449,733 14,604,711
Line of Credit 1,297,076 1,529,400
- -----------------------------------------------------------------------------------------------------------------------
Total Liabilities $22,527,575 $ 19,225,611
=======================================================================================================================
Stockholders' Equity
Preferred stock, par value $0.01 per share; 5,000,000 shares authorized; none
issued Common stock, par value $0.01 per share; 50,000,000 shares
authorized; issued 7,540,715 in 1999 and 6,552,087 in 1998 $ 75,407 $ 65,521
Additional paid-in capital 6,056,995 5,026,881
Retained earnings 980,180 133,916
- -----------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity $ 7,112,582 $ 5,226,318
- -----------------------------------------------------------------------------------------------------------------------
Total Liabilities & Stockholders' Equity $29,640,157 $ 24,451,929
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ALFORD REFRIGERATED WAREHOUSES, INC.
Consolidated Statements of Operations (unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 1999 1998
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Warehouse revenues $11,641,032 $13,089,171
Operating Costs 7,482,625 8,602,983
- ----------------------------------------------------------------------------------------------------------------------
Direct Profit Contribution 4,158,407 4,486,188
======================================================================================================================
General & Administrative Expenses 724,012 695,144
Depreciation, Rent & Interest Expenses:
Depreciation 645,666 620,531
Rent 630,356 1,156,128
Interest 1,137,887 1,089,528
- ----------------------------------------------------------------------------------------------------------------------
Total Depreciation, Rent & Interest Expense $ 2,413,909 $ 2,866,187
======================================================================================================================
Income Before Income Taxes $ 1,020,486 $ 924,857
Income Tax Expense 346,965 284,323
- ----------------------------------------------------------------------------------------------------------------------
Net Income $ 673,521 $ 640,534
======================================================================================================================
Basic Earnings Per Share
Net Income $ 0.09 $ 0.10
======================================================================================================================
Weighted Average
Common shares used in computing earnings per share $ 7,247,344 $ 6,552,087
======================================================================================================================
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ALFORD REFRIGERATED WAREHOUSES, INC.
Consolidated Statements of Operations (unaudited)
THREE MONTHS ENDED SEPTEMBER 30 1999 1998
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Warehouse Revenues $ 4,326,991 $ 4,583,785
Operating Costs 2,689,320 3,048,539
- ----------------------------------------------------------------------------------------------------------------------
Direct Profit Contribution 1,637,671 1,535,246
======================================================================================================================
General & Administrative Expenses 272,361 202,438
Depreciation, Rent & Interest Expenses:
Depreciation 238,924 218,990
Rent 225,840 400,522
Interest 404,782 382,675
- ----------------------------------------------------------------------------------------------------------------------
Total Depreciation, Rent & Interest Expense $ 869,546 $ 1,002,187
======================================================================================================================
Income Before Income Taxes $ 495,764 $ 330,621
Income Tax Expense 168,560 101,641
- ----------------------------------------------------------------------------------------------------------------------
Net Income $ 327,204 $ 228,980
======================================================================================================================
Basic Earnings Per Share $ 0.05 $ 0.03
Net Income
======================================================================================================================
Weighted Average
Common shares used in computing earnings per share $ 7,247,344 $ 6,552,087
======================================================================================================================
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ALFORD REFRIGERATED WAREHOUSES, INC.
Consolidated Statements of Stockholders' Equity (unaudited)
ADDITIONAL RETAINED
---------- --------
COMMON STOCK PAID-IN EARNINGS STOCKHOLDERS'
------------ ------- -------- -------------
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------ ------ ------- --------- ------
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Balance January 1, 1998 $6,552,087 $65,521 $5,026,881 $(506,617) $4,585,785
Net Income - - - 640,534 411,554
- -------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1998 $6,552,087 $65,521 $5,026,881 $133,917 $4,997,339
===============================================================================================================================
Balance, January 1, 1999 $7,000,715 $70,007 $5,032,395 $306,659 $5,409,061
Shares issued on Asset Purchase 400,000 4,000 396,000 0 400,000
Sale of shares 140,000 1,400 628,600 0 630,000
Net Income 0 0 0 673,521 673,521
- -------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1999 $7,540,715 $75,407 $6,056,995 $980,180 $7,112,582
===============================================================================================================================
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ALFORD REFRIGERATED WAREHOUSES, INC.
Consolidated Statements of Cash Flows (unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 1999 1998
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Operating Activities:
Net Income $ 673,521 $ 640,534
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation expense 645,666 620,531
Deferred income taxes 326,555 295,128
Changes in operating assets and liabilities
Accounts receivable 454,629 (171,246)
Prepaid expenses 144,129 253,390
Deposits and escrows 156,097 (25,863)
Income tax receivable (6,500) 127,629
Other assets (296,999) 128,868
Accounts payable 469,776 (22,179)
Property taxes payable (136,980) 196,491
Accrued charges 923 (114,903)
Notes payable (240,110) (248,727)
Deferred revenue (13,057) 63,032
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities $ 2,177,650 $ 1,742,685
======================================================================================================================
Investing Activities:
Capital expenditures $ (465,580) $ (1,349,239)
Funds invested - short term (400,000) 0
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities $ (865,580) $ (1,349,239)
======================================================================================================================
Financing Activities:
Sale of shares $ 60,000 $ 0
Due from affiliate (1,465,053) (760,334)
Funds borrowed 1,847,699 801,235
Principal payments on debt (1,701,383) (769,830)
Net Cash Used in Financing Activities (1,258,737) (728,929)
Net increase (decrease) in cash and cash equivalents 53,333 (335,483)
Cash and cash equivalents, beginning of period 109,517 446,564
- ----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $ 162,850 $ 111,081
======================================================================================================================
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ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
(unaudited)
1. The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not contain all of the
information and footnotes required by generally accepted accounting
principles for year end financial statements. It is the opinion of
management that all adjustments and eliminations (consisting only of
normal, recurring entries) necessary for a fair presentation of financial
position as at September 30, 1999 and the results of operations for the
period then ended have been included. The results of operations for any
interim period are not necessarily indicative of results for the full year.
These consolidated financial statements should be read in conjunction with
the financial statements and accompanying notes, for the year ended
December 31, 1998, contained in the Company's Form 10-SB as filed with the
Securities and Exchange Commission.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
With the exception of historical information, the matters discussed in
this report are "forward looking statements" as that term is defined in Section
21E of the Securities Exchange Act of 1934. The Company cautions the reader that
actual results could differ materially from those expected by the Company
depending on the outcome of certain factors, including, without limitation,
adverse changes in the market for the Company's services. Readers are cautioned
not to place undue reliance on any forward- looking statement. All
forward-looking statements speak only as of the date of this filing. The Company
does not have any obligations to update or otherwise make any revisions to these
statements to reflect events or circumstances after the date of this filing,
including, without limitation, changes in the Company's business strategy or
planned capital expenditures, or to reflect the occurrence of unanticipated
events.
Unless otherwise noted, all dollar amounts are rounded to the nearest
dollar. Reference to 1998 and 1999 are to the nine months ended September 30 of
each year.
RESULTS OF OPERATIONS
The Company currently operates four facilities in the state of Texas.
Included in the revenues and expenses for the nine months ended September 30,
1998 are the results of a fifth facility located in Houston which was
discontinued in November of 1998 due to the termination of the lease on the
facility by the landlord.
NINE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1998:
REVENUES
The Company recorded a net income of $673,521, or $.09 per share, for
1999, as compared to a net income of $640,534, or $.10 per share, for 1998.
Total revenues for 1999 were $11,641,032, a decrease of $1,448,139, or
11.1%, compared to revenues of $13,089,171 for 1998. This decrease in revenues
is due primarily to having discontinued the operation in Houston in 1998.
OPERATING COSTS
Operating costs decreased by $1,120,358, or 13.0% from 1998 to 1999,
due primarily to the decrease in costs associated with the Houston facility of
$1,028,526. This overall decrease is generally made up of the net of the
following increases and decreases:
- Wages and benefits decreased by $289,052; however the decrease
of $539,699 from the discontinued operation in Houston was
offset by an increase in wages at the Dallas facility and an
overall increase in the cost of health and workers'
compensation insurance premiums.
- Utilities decreased by $295,736, or 15.1%, primarily due to
the decrease of $228,480 from the discontinued operation in
Houston.
- Insurance decreased by $29,409, or 12.6%, primarily due to the
favorable renewal of insurance premiums and the deletion of
the operation in Houston from the insurance policies.
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- The remaining decrease in operating costs was due to a
multitude of smaller decreases which on an individual basis
are not material.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by $28,868, or 4.2%. This
increase was due primarily to an increase in professional fees of $34,879
associated with public company reporting requirements and an increase in
computer software costs of $20,418 associated with becoming Y2K compliant. The
overall increase was offset in part by expenses relating to the discontinued
operation in Houston.
DEPRECIATION, AMORTIZATION, RENT AND INTEREST
Depreciation expense increased in 1999 to $645,666 from $620,531 in
1998. Although not a significant increase, this increase is due primarily to the
effect of assets acquired in the last three quarters of 1998. Rent expense
decreased by $525,772, or 45.5% from 1998 to 1999. This decrease was primarily
due to the termination of the lease on the facility in Houston and the effect of
purchasing the Fort Worth facility in May 1999. Interest expense was $1,137,887
in 1999, as compared to $1,089,528 in 1998. The increase of $48,359, or 4.4%, is
attributed to an increase in the interest on the mortgage in La Porte of
$45,664, since the facility was purchased in February 1998, and interest on the
mortgage in Fort Worth of $91,872, offset by decreased interest paid on the
Company's other financed obligations which have been reduced by principal
repayments.
INCOME TAX EXPENSE OR BENEFIT
Income tax expense includes the current federal tax expense and the
effect of deferred taxes related primarily to the difference between book and
tax depreciation on property, plant and equipment. For the nine months ended
September 30, 1999 and September 30, 1998, the Company recorded income tax
expense of $346,965 and $284,323, respectively. The change from 1998 to 1999 is
due primarily to an increase in income before income taxes.
The Company establishes valuation allowances when necessary, in
accordance with the provisions of SFAS 109, "Accounting for Income Taxes," to
reduce deferred tax assets to the amount expected to be realized. Based upon
future income projections, the Company expects to realize the net asset.
LIQUIDITY AND CAPITAL RESOURCES:
At September 30, 1999 and 1998, the Company's working capital ratio was
1.0 to 1. The working capital ratio remained constant primarily due to increases
in accounts receivable of $532,568 and increases in prepaid expenses of $95,984
being offset by increases in accounts payable of $608,024.
Net cash provided by operating activities for 1999 totaled $2,177,650
as compared to $1,742,685 for the nine months ended 1998. The increase in net
cash provided by operating activities is comprised of the following factors: net
income was $673,521 in 1999, which includes the sale of vacant land for
approximately $300,000, as compared to $640,534 in 1998; deferred tax expense
was $326,555 in 1999 as compared to $295,128 in 1998; accounts receivable
decreased $454,629 in 1999 as compared to an increase of $171,246 in 1998,
prepaid expenses decreased only $144,1 29 in 1999 as compared to $253,390 in
1998; deposits and escrows decreased $156,097 in 1999 as compared to an increase
of $25,863 in 1998; accounts payable increased $469,776 in 1999 as compared to a
decrease of $22,179 in 1998; and accrued charges increased only $923 in 1999 as
compared to a decrease of $114,903 in 1998. These increases were partially
offset by an increase in income tax receivable in 1999 of $6,500 as compared to
a decrease of $127,629 in 1998; other assets increased
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$296,999 in 1999 as compared to a decrease of $128,868 in 1998; property taxes
payable decreased $136,980 in 1999 as compared to an increase of $196,491 in
1998; a decrease in notes payable of $240,110 in 1999 as compared to $248,727 in
1998; and deferred revenue decreased $13,057 in 1999 as compared to an increase
of $63,032 in 1998.
Capital expenditures for 1999 were $465,580, compared to $1,349,239 for
1998. The capital expenditures for 1998 included the cash paid on the purchase
of the La Porte facility, whereas the purchase of the Fort Worth facility in
1999 was for a combination of mortgage financing and common stock issued.
In 1999, the Company invested $400,000 on a short-term basis.
The Company has a line of credit which provides up to $2,500,000, of
which the Company had borrowed $1,100,000 at September 30, 1999. The borrowing
base on the line of credit fluctuates based on reports submitted by the Company
to the lender on a monthly basis. The availability at September 30, 1999 was
approximately $33,000. The line of credit expires on May 1, 2000. Prior to the
expiration date of the line of credit, the Company expects to renew the line of
credit with its lender.
Net cash used in financing activities for 1999 totaled $1,258,737 as
compared to net cash used in financing activities of $728,929 in 1998. The
Company paid $252,301 on the line of credit in 1999 as compared to receiving
$801,235 in advances in 1998. The Company refinanced some of its equipment with
Bank One Leasing Corporation and used the proceeds to repay a line of credit and
term loan. The cash used to make these payments and principal payments on the
Company's other long-term debt was $1,701,383 in 1999 as compared to principal
payments on long-term debt of $769,830 in 1998. The Company made advances to an
affiliate of $1,465,053 in 1999 as compared to $760,334 in 1998.
The Company filed a Form SB-2 registration statement to register
3,900,000 shares of the Company's common stock. Of the total shares registered,
1,000,000 shares were to be offered for sale by the Company on a best effort
basis at a price of $4.50 per share, 2,500,000 shares were shares owned by
Castor Capital Corporation, the majority shareholder, and remaining 400,000
shares were those issued in connection with the purchase of the Fort Worth
facility. The Company had sold a total of 140,000 shares as of September 30,
1999. Castor Capital Corporation had sold a total of 490,000 shares as of
September 30, 1999. Castor held 80.4% of the Company's outstanding common stock
as of September 30, 1999.
During 1998, the Company's parent assumed $2,600,000 of the Company's
notes payable of $12,539,223 as of December 31, 1997, in repayment of a portion
of the parent's notes payable due to the Company. The Company has guaranteed
this obligation which totaled $2,350,000 at December 31, 1998. The balance of
this obligation at September 30, 1999 is $2,162,500. The Company believes that
the collateral pledged by its parent is adequate to cover the debt in case of a
default and has not recorded a liability in the financial statements related to
this guarantee.
The Company believes that cash flow will be adequate to fund the
Company's capital requirements.
The Company purchased the Fort Worth facility for $3,000,000, which the
Company had leased since January 1997. The Company closed this transaction on
May 21, 1999. Financing for this transaction was provided by a first mortgage on
the property of $2,100,000 in favor of Bank One, Texas, N.A. and 400,000 shares
of the Company's common stock. Additional collateral was provided to the vendor
in the form of a second lien on the property and a $500,000 note.
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The Company has executed an "Exclusive Option Contract" for the
purchase of the Richardson facility for $6,000,000. The option period will
expire on February 22, 2000; however the Company expects to exercise the option
and complete the purchase in January 2000.
The Company sold 2.145 acres of vacant land in September 1999 to a
non-affiliated third party for $300,000.00. The property was sold for cash
payable on closing, on a where is, as is basis.
YEAR 2000:
The Company, like many companies, faces the "Year 2000" issue. This is
a result of computer programs being written using two digits rather than four to
define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions or engage in similar normal business
activities. The Company recognizes that it must take action to ensure that its
operations will not be adversely impacted by Year 2000 software failures.
The Company has conducted a comprehensive review of its computer
systems to identify the impact of the "Year 2000" issue. The Company has
developed a plan to address the problem and is currently implementing the
changes identified in the plan. During 1998 the Company replaced one of its
computer processors to handle the Year 2000 compliant software. The software
used by the Company is provided by a third party who has assured the Company
that its latest version is Year 2000 compliant. The fees associated with the
licensing of the latest version were paid in 1996. Implementation of the
software was initiated in the third quarter of 1999 with completion expected
before November 30, 1999. The remaining costs associated with the implementation
are not expected to have a material effect on the Company or its results of
operations. The total cost associated with the remediation plan is currently
estimated to be less than $180,000, most of which was incurred in 1996 and 1998.
The Company has maintained correspondence with many of the Company's
significant customers and suppliers. To date, the Company is not aware of any
third party customer or supplier with a "Year 2000" issue that would materially
impact the Company's results of operations, liquidity or capital resources.
However, the Company has no means of ensuring that all third parties will be
"Year 2000" ready.
The Company has reviewed its non-information technology and systems
that may include embedded chips for Year 2000 compliance. The Company's
assessments indicate that due to the nature of the Company's operations, these
technology systems do not represent an area of material risk relative to Year
2000 readiness.
FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY:
Generally sales volumes are lowest at the beginning of the fiscal year
and grow steadily to a peak in the fourth quarter.
ENVIRONMENTAL MATTERS:
The Company is not aware of any environmental liability relating to its
facilities or operations that would have a material adverse effect on the
Company, its business, assets or results of operations.
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INFLATION:
Inflation has not historically had a material effect on the Company's
operations and is not expected to have a material impact on the Company in the
future.
ACCOUNTING MATTERS:
In July 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In June 1999, the Financial Accounting
Standards Board issued SFAS No. 137 which delayed the effective date of SFAS No.
133 to fiscal years beginning after June 15, 2000. At this time, the Company has
not determined the impact the adoption of this standard will have on the
Company's financial statements.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the issuer
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
ALFORD REFRIGERATED WAREHOUSES, INC.
By: /s/ James C. Williams
--------------------------------------------------
James C. Williams, Vice President, Chief Financial
Officer, Secretary, Treasurer and Director
November 16, 1999
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