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 JUNE 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 JUNE 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 [ ]
No [X]
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
AUGUST 9, 1999
7,540,715
TITLE OF CLASS
$0.01 Par Value Common Stock
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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INDEX
Part I: Financial Information
Item 1: Financial Statements (Unaudited)
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Consolidated Balance Sheet:
Six Months Ended June 30, 1999 and 1998..............................................3
Consolidated Statement of Operations:
Six Months Ended June 30, 1999 and 1998..............................................4
Consolidated Statement of Operations:
Three Months Ended June 30, 1999 and 1998............................................5
Consolidated Statement of Stockholders' Equity:
Six Months Ended June 30, 1999 and 1998..............................................6
Consolidated Statements of Cash Flows:
Six Months Ended June 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)
SIX MONTHS ENDED JUNE 30, 1999 1998
- ----------------------------------------------------------------------------- ----------------- ------------------
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ASSETS
CURRENT
Cash and cash equivalents $57,441 $425,074
Accounts receivable 2,623,021 1,759,112
Prepaid expenses 450,095 326,591
Income tax receivable 12,500 75,000
Escrows 308,131 277,139
------- -------
Total current assets 3,451,188 2,862,916
========= =========
PROPERTY, PLANT AND EQUIPMENT, NET 21,671,267 18,390,634
DUE FROM AFFILIATE 3,119,951 1,858,702
DEFERRED TAX ASSET, NET 54,050 368,172
OTHER ASSETS 682,292 260,153
DEPOSITS 193,051 252,044
------- -------
Total assets $29,171,799 $23,992,621
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable $1,010,413 $647,169
Property taxes payable 445,847 414,034
Accrued charges 600,558 682,081
Notes payable 180,732 189,929
Current maturities of long-term debt 910,269 860,459
------- -------
Total current liabilities 3,147,819 2,793,672
========= =========
DEFERRED REVENUE 209,557 215,325
LONG-TERM DEBT, LESS CURRENT MATURITIES 17,713,217 14,666,733
LINE OF CREDIT 1,315,828 1,319,552
--------- ---------
Total liabilities 22,386,421 18,995,282
========== ==========
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 (deficit) 652,976 (95,063)
------- --------
Total stockholders' equity 6,785,378 4,997,339
--------- ---------
Total liabilities and stockholders' equity $29,171,799 $23,992,621
=========== ===========
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ALFORD REFRIGERATED WAREHOUSES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)
SIX MONTHS ENDED JUNE 30, 1999 1998
- -------------------------------------------------------------------------------- ------------- -------------
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WAREHOUSE REVENUES $7,314,041 $8,505,386
OPERATING COSTS 4,793,305 5,554,444
---------- ----------
DIRECT PROFIT CONTRIBUTION 2,520,736 2,950,942
---------- ----------
GENERAL AND ADMINISTRATIVE EXPENSES 451,651 492,706
DEPRECIATION, RENT AND INTEREST EXPENSES:
Depreciation 406,742 401,541
Rent 404,516 755,606
Interest 733,105 706,853
------- -------
Total Depreciation, Rent and Interest Expense 1,544,363 1,864,000
========= =========
INCOME BEFORE INCOME TAXES 524,722 594,236
INCOME TAX EXPENSE 178,405 182,682
------- -------
NET INCOME $346,317 $411,554
======== ========
BASIC EARNINGS PER SHARE -
Net Income $0.05 $0.06
===== =====
WEIGHTED AVERAGE -
Common shares used in computing earnings per share 7,098,229 6,552,087
========= =========
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ALFORD REFRIGERATED WAREHOUSES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)
THREE MONTHS ENDED JUNE 30, 1999 1998
- ----------------------------------------------------------------------- ------------------ ------------------
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WAREHOUSE REVENUES $3,725,339 $4,433,006
OPERATING COSTS 2,295,895 2,842,166
--------- ---------
DIRECT PROFIT CONTRIBUTION 1,429,444 1,590,840
--------- ---------
GENERAL AND ADMINISTRATIVE EXPENSES 189,618 271,620
DEPRECIATION, RENT AND INTEREST EXPENSES:
Depreciation 205,985 218,990
Rent 187,016 380,028
Interest 376,568 381,520
------- -------
Total Depreciation, Rent and Interest Expense 769,569 980,538
======= =======
INCOME BEFORE INCOME TAXES 470,257 338,682
INCOME TAX EXPENSE 161,739 104,118
------- -------
NET INCOME $308,518 $234,564
======== ========
BASIC EARNINGS PER SHARE -
Net Income $0.04 $0.04
===== =====
WEIGHTED AVERAGE -
Common shares used in computing earnings per share 7,098,229 6,552,087
========= =========
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ALFORD REFRIGERATED WAREHOUSES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY (unaudited)
COMMON STOCK
----------------------------- ADDITIONAL RETAINED
PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------------ ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 6,552,087 $65,521 $5,026,881 ($506,617) $4,585,785
Net income - - - 411,554 411,554
--------- ------- ---------- --------- ----------
BALANCE, JUNE 30, 1998 6,552,087 $65,521 $5,026,881 ($95,063) $4,997,339
========= ======= ========== ========= ==========
BALANCE, JANUARY 1, 1999 7,000,715 $70,007 $5,032,395 $306,659 $5,409,061
Net income 540,000 5,400 1,024,600 346,317 1,376,317
--------- ------- ---------- -------- ---------
BALANCE, JUNE 30, 1999 7,540,715 $75,407 $6,056,995 $652,976 $6,785,378
========= ======= ========== ======== ==========
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ALFORD REFRIGERATED WAREHOUSES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
SIX MONTHS ENDED JUNE 30, 1999 1998
- ----------------------------------------------------------------------- -------------- ------------
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OPERATING ACTIVITIES:
Net income 346,317 411,554
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation expense 406,742 401,541
Deferred income taxes 167,911 211,789
Changes in operating assets and liabilities:
Accounts receivable 355,218 60,684
Prepaid expenses (780) 235,988
Deposits and escrows 194,530 124,440
Income tax receivable (6,500) 58,629
Other assets (228,114) 222,204
Accounts payable 454,922 207,746
Property taxes payable (220,900) 41,991
Accrued charges (124,113) (80,272)
Notes payable (136,306) (303,569)
Deferred revenue (14,751) 57,213
---------- ---------
Net cash provided by operating activities 1,194,176 1,649,938
========== =========
INVESTING ACTIVITIES:
Capital expenditures (320,330) (1,346,488)
Funds invested - short term (400,000) 0
--------- -----------
Net cash used in Investing activities (720,330) (1,346,488)
========= ===========
FINANCING ACTIVITIES:
Sale of shares 60,000 0
Due from affiliate (906,872) (583,664)
Funds borrowed 1,866,451 591,387
Principal payments on debt (1,545,501) (332,663)
----------- ---------
Net cash used in financing activities (525,922) (324,940)
----------- ---------
Net decrease in cash and cash equivalents (52,076) (21,490)
Cash and cash equivalents, beginning of period 109,517 446,564
------- -------
Cash and cash equivalents, end of period 57,441 425,074
======= =======
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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 necessary for a fair
presentation of financial position as at June 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 six months ended June 30 of each
year.
RESULTS OF OPERATIONS
The Company currently operates four facilities in the state of Texas.
Included in the revenues and expenses of the six months ended June 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.
SIX MONTHS ENDED JUNE 30, 1999, COMPARED TO SIX MONTHS ENDED JUNE 30, 1998:
Revenues
The Company recorded a net income of $346,317, or $.05 per share for 1999,
as compared to a net income of $411,554, or $.06 per share for 1998.
Total revenues for 1999 were $7,314,041, a decrease of $1,191,345, or
14.0%, compared to revenues of $8,505,386 for 1998. This decrease in revenues is
due primarily to having discontinued the operation in Houston in 1998.
Operating Costs
Operating costs decreased by $761,139, or 13.7% from 1998 to 1999, due
primarily to the decrease in costs associated with the Houston facility of
$663,395. This overall decrease is generally made up of the net of the following
increases and decreases:
- Wages and benefits decreased by $62,133, however the decrease of
$349,995 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 $166,039, or 13.8% primarily due to the
decrease of $146,809 from the discontinued operation in Houston.
- Insurance decreased by $16,385, or 10.9% primarily due to the
favorable renewal of insurance premiums.
- 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 decreased by $41,055, or 8.3%. This
decrease was primarily due discontinued operation in Houston.
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Depreciation, Amortization, Rent and Interest
Depreciation expense increased in 1999 to $406,742 from $401,541 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 $351,090, or 46.5% from 1998 to 1999. This decrease was primarily
due to the termination of the lease on the facility in Houston. Interest expense
was $733,105 in 1999, as compared to $706,853 in 1998. The increase of $26,252,
or 3.7% is attributed to an increase in the interest on the mortgage in La Porte
of $43,996, since the facility was purchased in February 1998, 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 six months ended June 30,
1999 and June 30, 1998, the Company recorded income tax expense of $178,405 and
$182,682, respectively. The change from 1998 to 1999 is due primarily to
decrease 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 June 30, 1999, the Company's working capital ratio was 1.1 to 1 compared
to 1.0 to 1 at June 30, 1998. The Company had working capital of $303,369 at
June 30, 1999, as compared to working capital of $69,244 at June 30, 1998. The
increase in the Company's working capital ratio and working capital is primarily
due to increases in accounts receivable of $863,909, offset by decreases in cash
and cash equivalents of $367,633 and increases in accounts payable of $363,244.
Net cash provided by operating activities for 1999 totaled $1,194,176 as
compared to $1,649,938 for the six months ended 1998. The decrease in net cash
provided by operating activities is comprised of the following factors: net
income was $346,317 in 1999 as compared to $411,554 in 1998; deferred tax
expense was $167,911 in 1999 as compared to $211,789 in 1998; accounts
receivable decreased $355,218 in 1999 as compared to $60,684 in 1998, whereas
prepaid expenses increased only $780 in 1999 as compared to a decrease of
$235,988 in 1998; deposits and escrows decreased $194,530 in 1999 as compared to
a decrease of $124,440 in 1998; and accounts payable increased $454,922 in 1999
as compared to $207,746 in 1998. These decreases were partially offset by a
decrease in property taxes payable of $220,900 in 1999 as compared to an
increase of $41,991 in 1998; accrued charges decreased $124,113 in 1999 as
compared to a decrease of $80,272 in 1998; and a decrease in notes payable of
$136,306 in 1999 as compared to a decrease of $303,569 in 1998.
Capital expenditures for 1999 were $320,330, compared to $1,346,488 for
1998. The capital expenditures for 1998 included the cash paid on the purchase
of the La Porte facility. 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 $1,050,000 at June 30, 1999. The borrowing base on the
line of credit fluctuates based on reports submitted by the Company to the
lender on an a monthly basis. The availability at June 30, 1999 was
approximately $66,000. The line of credit expires on May 1, 2000.
Net cash used in financing activities for 1999 totaled $525,922 as compared
to net cash used in financing activities of $324,940 in 1998. The Company paid
$233,549 on the line of credit in 1999 as compared to receiving $591,387 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 $1,545,501 in 1999 as compared to principal
payments on long term debt of $332,663 in 1998. The Company made advances to an
affiliate of $906,872 in 1999 as compared to $583,387 in 1998.
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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 efforts 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 June 30, 1999. Castor Capital
Corporation had sold a total of 140,000 shares as of June 30, 1999. Castor held
85.0% of the Company's outstanding common stock as of June 30, 1999. Subsequent
to the end of the quarter Castor sold a total of 442,000 shares thereby reducing
its ownership to 79.2% of the Company's outstanding common stock.
During 1998, the Company's parent assumed $2,600,000 of the notes payable
of $12,539,223 as of December 31, 1997, as settlement of a portion of the 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 June
30 ,1999 is $2,225,000. 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, which the Company had leased
since January 1997, for $3,000,000. 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.
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 execute the option and
complete the purchase in the third quarter of 1999.
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 is expected late in
the third quarter of 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,
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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.
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 June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". This statement
standardized the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an entity
recognize those items as assets or liabilities in the statement of financial
position and measure them at fair value. The statement generally provides for
matching the timing of gain or loss recognition on the hedging instrument with
the recognition of (a) the changes in fair value of hedged asset or liabilities
that are attributable to the hedged risk or (b) the earnings effect of the
hedged forecasted transaction. The statement is effective for all fiscal
quarters for all fiscal years beginning after June 15, 1999, with early
application encouraged, and shall not be applied retroactively to financial
statements of prior periods. Adoption of SFAS No. 133 is expected to have no
effect 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
August 10, 1999
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