As filed with the Securities and Exchange Commission on May 11, 1999
Commission File Number 333-________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street N.W.
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ALFORD REFRIGERATED WAREHOUSES, INC.
(Exact name of Registrant as specified in charter)
Texas 75-2695621
(State of incorporation) (Primary Standard Industrial (IRS Employer
Classification Code Number) Identification No.)
318 Cadiz Street
Dallas, Texas 75207
(214) 426-5151
(Address and telephone number of principal executive
offices and principal place of business or intended
principal place of business)
James C. Williams
318 Cadiz Street
Dallas, Texas 75207
(214) 426-5151
(Name, address and telephone number or agent for service)
================================================================================
Please send copies of all communications to:
J. Rowland Cook
Jenkens & Gilchrist, A Professional Corporation
2200 One American Center
600 Congress Avenue
Austin, Texas 78701
(512) 499-3821
The common stock being sold by Alford will be sold to the public
beginning upon the effectiveness of this registration statement and continuously
thereafter during the offering period.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===============================================================================================================================
Proposed Proposed
maximum maximum
Amount to be offering price aggregate Amount of
Title of each class of securities to be registered registered per share.* offering price registration fee
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common Stock Offered by Alford 1,000,000 $4.50 $4,500,000.00 $1,251.00
- -------------------------------------------------------------------------------------------------------------------------------
Total 1,000,000 $4.50 $4,500,000.00 $1,251.00
===============================================================================================================================
<FN>
* Calculated only for purposes of calculating the registration fee.
</FN>
</TABLE>
The registrant amends this registration statement on the date or dates necessary
to delay its effective date until the registrant files a further amendment,
which specifically states that this registration statement is thereafter
effective in accordance with Section 8(a) of the Securities Act of 1933 or until
the registration statement becomes effective on the date the commission, acting
pursuant to said Section 8(a), determines.
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PRELIMINARY PROSPECTUS DATED MAY 11, 1999
SUBJECT TO COMPLETION
ALFORD REFRIGERATED WAREHOUSES, INC.
1,000,000 SHARES OF COMMON STOCK
Alford is offering to sell 1,000,000 shares of its common stock to the
public on a best efforts, no minimum basis.
Alford's common stock is quoted on the pink sheets under the trading
symbol "ALFO." At this time, neither the Nasdaq Stock Market nor any national
securities exchange lists the common stock. There can be no assurance that an
active trading market will develop. See "Risk Factors."
We urge you to read this prospectus carefully since it contains
information that is important to you. Also, pay particular attention to the
"Risk Factors" beginning on page 5.
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
Price to Proceeds to
the Public Alford
- --------------------------------------------------------------------------------
Per Share $4.50 $4.50
TOTAL $4,500,000 $4,500,000
- --------------------------------------------------------------------------------
No underwriters are involved or are expected to be involved in the
offer or sale of the common stock. Alford will offer the stock it is selling
through its officers, directors, employees and agents, or through registered
broker-dealers, on a best efforts, no minimum basis beginning on the date that
this registration become effective and continuing until all shares are sold or
until Alford determines to terminate the offering. Alford has not made any
arrangements to place the funds in an escrow, trust or similar account. Alford
will not pay any selling commissions to the officers, directors or employees of
Alford for shares of common stock sold by them. See "Plan of Distribution."
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
The date of this prospectus is May __, 1999
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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<S> <C>
PROSPECTUS SUMMARY INFORMATION....................................................................................7
ALFORD REFRIGERATED WAREHOUSES ...................................................................................7
THE OFFERING......................................................................................................7
RISK FACTORS......................................................................................................8
Alford faces substantial regional and local competition which is likely to increase .....................8
Alford's significant indebtedness may have a negative effect on its operations ..........................8
The loss of one of its larger customers could have an adverse impact on Alford's operations..............8
Because one shareholder will continue to hold a controlling interest in Alford, the ability
of Investors to influence our corporate activities after the offering will be very limited......8
The loss or damage to products stored at Alford's facilities could have an adverse impact on
Alford..........................................................................................9
Because there is a limited trading market for Alford's common stock, you may have difficulty
valuing and selling Alford's common stock.......................................................9
Regulations affecting Alford may make it more difficult for you to resell its shares.....................9
If you are an affiliate of Alford your ability to sell our shares will be limited........................9
Future sales of our stock made pursuant to Rule 144, could have an adverse effect on the
prevailing market price of our common stock.....................................................9
The year 2000 issue could adversely effect our business..................................................9
FORWARD-LOOKING INFORMATION......................................................................................10
Formation...............................................................................................10
Bankruptcy..............................................................................................10
Merger with Alford......................................................................................11
Reorganization..........................................................................................11
USE OF PROCEEDS..................................................................................................11
DETERMINATION OF OFFERING PRICE..................................................................................12
PLAN OF DISTRIBUTION.............................................................................................12
Regulations Affecting the Price and Marketability of Alford Stock ......................................12
DIVIDENDS........................................................................................................13
CAPITALIZATION...................................................................................................14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION......................................................................15
Results of Operations...................................................................................15
Year Ended December 31, 1998, Compared to Year Ended December 31, 1997:.................................16
Revenues ......................................................................................16
Operating Costs................................................................................16
General and Administrative Expenses............................................................17
Depreciation, Amortization, Rent and Interest..................................................17
Income Tax Expense or Benefit..................................................................17
Liquidity and Capital Resources.........................................................................17
Year 2000...............................................................................................18
Fluctuations in Operating Results; Seasonality..........................................................19
Environmental Matters...................................................................................19
Inflation...............................................................................................19
Accounting Matters......................................................................................19
4
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THE BUSINESS....................................................................................................20
The Industry............................................................................................21
Customers...............................................................................................21
Competition; Growth Potential...........................................................................21
Sales and Marketing.....................................................................................22
Suppliers...............................................................................................22
Employees...............................................................................................22
Government Regulation...................................................................................22
Research ...............................................................................................23
Licenses, Permits and Product Registrations.............................................................23
Properties..............................................................................................23
Dallas, Texas..................................................................................24
La Porte, Texas................................................................................24
Richardson, Texas..............................................................................24
Fort Worth, Texas..............................................................................25
WHERE YOU CAN GET MORE INFORMATION...............................................................................25
MANAGEMENT.......................................................................................................25
Committees of the Board of Directors....................................................................27
Compensation of Directors and Executive Officers........................................................27
Executive Compensation.........................................................................27
Director Compensation..........................................................................28
PRINCIPAL SHAREHOLDERS...........................................................................................29
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................................29
DESCRIPTION OF SECURITIES........................................................................................30
General ...............................................................................................30
Common Stock............................................................................................30
Preferred Stock.........................................................................................31
Provisions Having a Possible Anti-takeover Effect ......................................................31
Limitation of Liability of Directors....................................................................31
Bylaw Provisions and Amendment of Bylaws................................................................32
SHARES ELIGIBLE FOR FUTURE SALE..................................................................................32
TRANSFER AGENT...................................................................................................33
LEGAL MATTERS....................................................................................................33
EXPERTS ........................................................................................................33
5
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS......................................................................F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS..............................................................F-2
CONSOLIDATED BALANCE SHEETS.....................................................................................F-3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY.................................................................F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS...........................................................................F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...............................................................F-7 - F-19
</TABLE>
Dealer Prospectus Deliver Obligation
Until ___________, 1999, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
---------------------
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PROSPECTUS SUMMARY INFORMATION
Please read all of this prospectus carefully. It describes Alford, its
finances and products. Federal and state securities laws require that we include
in this prospectus all important information that investors will need to make an
investment decision. You should rely only on the information contained in this
prospectus to make your investment decision. We have not authorized anyone to
provide you with information that is different from what is contained in this
prospectus. The following is a summary of some of the information contained in
this prospectus. However, you should not rely on the summary but should also
read the more detailed information in this prospectus.
ALFORD REFRIGERATED WAREHOUSES
Alford Refrigerated Warehouses, Inc. is a Texas corporation. It was
originally incorporated in October 1992 under the laws of the state of Delaware.
Alford believes that it is the largest public refrigerated warehousing operation
in the southwest United States. It operates a network of four refrigerated
warehouse facilities in Texas, with a total area of 1,500,000 sq. ft. or
32,000,000 cu. ft. of storage space. The Company's principal executive office is
located at 318 Cadiz Street, Dallas, Texas 75207 and its telephone number is
(214) 426-5151.
THE OFFERING
Type of Security Offered Common Stock, $0.01 par value per share
Number of Outstanding Shares 7,000,715 shares
Common Stock Offered by Alford 1,000,000 shares
Common Stock Outstanding After Offering 8,000,715 shares
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RISK FACTORS
You should consider the common stock of Alford to be an investment
involving a high degree of risk. You should read this entire prospectus and
carefully consider the risk involved with this investment, including the
following factors.
In addition to other information contained elsewhere in this
Registration Statement, prospective investors should carefully consider the
following in evaluating the Company and its business before purchasing any of
the common stock offered hereby:
Alford faces substantial regional and local competition which is likely to
increase
Alford operates in a competitive environment. Alford's competition in
the public refrigerated warehouse business and for distribution services is
principally regional in nature. In the Dallas/Fort Worth Area, Alford competes
primarily with United States Cold Storage, Inc., CS Integrated-Texas Limited
Partnership, Texas Freezer Company, Inc., A-M-C Warehouses and Americold
Logistics, Inc. In the Houston area, Alford competes primarily with Jacintoport
Corp., Houston Central Industries, Inc., NOCS West Gulf, Inc. and Houston
Refrigerated Services. Alford believes that competition is likely to increase
among these companies which could lead to reduced prices and margins for public
refrigerated warehouse services. Alford also competes with local warehouse
operators in each of its markets, which influences prices charged by Alford in
those markets. Alford also believes that national competitors may become a
competitive factor in the marketplace.
Alford's significant indebtedness may have a negative effect on its operations
Following completion of this offering, indebtedness will comprise a
substantial portion of Alford's consolidated capitalization. Accordingly, a
significant portion of its cash flow from operations is required to service
debt. The extent to which Alford is leveraged could have serious consequences
for the holders of common stock, because it may affect Alford's ability to
respond to changes in general economic conditions or in conditions in sectors to
which Alford's customers belong. Substantially all of Alford's term indebtedness
matures in eight to nine years and must be repaid in full or refinanced by that
time.
The loss of one of its larger customers could have an adverse impact on Alford's
operations
Some of Alford's facilities depend to a large extent upon a small
number of customers or commodities. An interruption or reduction in the business
received from those customers or a reduction in supply or demand of those
customers' commodities could result in a decrease in the sales at Alford's
facilities and result in a decrease in Alford's overall sales.
Because one shareholder will continue to hold a controlling interest in Alford,
the ability of investors to influence our corporate activities after the
offering will be very limited
Upon completion of the offering and assuming the sale of all of the
common stock offered, Castor Capital Corporation will hold in the aggregate
approximately 81.9% of the outstanding common stock. Consequently, Castor
Capital Corporation will be able to elect all of Alford's Board of Directors and
effectively will be able to control its affairs, policies and activities. In
addition, Castor Capital Corporation will be able to determine or substantially
influence the outcome of any matter submitted to a vote of Alford's
shareholders. This concentration of ownership may have the effect of delaying or
preventing a change in control of Alford.
8
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The loss or damage to products stored at Alford's facilities could have an
adverse impact on Alford
Alford's business involves the handling, storage and distribution of
products belonging to the public. In the event of a fire, flood or other
occurrence, Alford could be held liable for the loss of or damage to stored
products. There is no assurance that Alford would not incur a substantial
liability to the public for loss or damage to stored products, in excess of
applicable insurance coverage limits.
Because there is a limited trading market for Alford's common stock, you may
have difficulty valuing and selling Alford's common stock
There is currently only a very limited market for trading Alford's
common stock and no assurance that an active trading market will develop or, if
established, will be maintained. Alford's common stock does not now, and may
never qualify for listing on the Nasdaq SmallCap Market or any securities
exchange. Consequently, selling our shares will probably be more difficult
because, for example, smaller quantities of shares could be bought and sold, and
transactions could be delayed. See "Description of Securities" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Regulations affecting Alford may make it more difficult for you to resell its
shares
Because of the low price of our common stock and the fact that it is
not listed on The Nasdaq SmallCap Market or any exchange, the shares may be
subject to a number of regulations which may affect the price of the shares and
your ability to sell the shares in the second market. See "Regulations Affecting
the Price and Marketability of Alford's Stock."
If you are an affiliate of Alford your ability to sell our shares will be
limited
If you are an affiliate of Alford under the rules and regulations of
the Securities and Exchange Commission, you may not sell shares of Alford's
common stock unless you comply with Rule 144 or another exemption from
registration. You will be deemed an affiliate if you are an officer or director
of Alford or if you beneficially own 5% or more of its securities.
Future sales of our stock made pursuant to Rule 144 could have an adverse effect
on the prevailing market price of our common stock
We are unable to predict the effect that sales made under Rule 144 or
otherwise, may have on the then prevailing market price of our common stock. It
is possible that market sales of large amounts of the shares offered in this
prospectus or otherwise (or the potential for those sales even if they do not
actually occur), will have the effect of depressing the market price of our
common stock. See "Description of Securities - Shares Eligible for Future Sale."
The year 2000 issue could adversely effect our business
If various third parties do not successfully achieve year 2000 compli-
ance, Alford's business and results of operations could be adversely affected,
resulting from, among other things, Alford's inability to properly exchange
and/or receive data. In addition, if our transfer agent does not achieve year
2000 compliance, that would have an adverse effect on your ability to trade the
common stock. See "Management's Discussion and Analysis of Financial Condition
and Results of Operation -- The Year Two Thousand."
FORWARD-LOOKING INFORMATION
Some of the statements contained in this prospectus relate to future
expectations, contain projections of results of operations or financial
conditions or include other forward-looking information. Those statements are
subject to known and unknown risks, uncertainties and other factors that could
cause the actual results to differ materially from those contemplated by the
statements. The forward-looking information is based on various factors and
assumptions. Important factors that may cause actual results to differ from
projections include, for example,
o the success or failure of our efforts to implement our business strategy,
o increased expenses, including utilities,
o the effect of changing economic conditions,
o our ability to attract and retain qualified employees,
o other risks which may be described in this and future filings with the SEC.
Please note that the forward looking statements are made as of the date
of this prospectus and may not be updated to reflect, for example, actual
results or changes in assumptions.
ALFORD REFRIGERATED WAREHOUSES, INC.
Formation
Alford Refrigerated Warehouses, Inc. is a Texas corporation that
was formerly known as Hilltop Acquisition Holding Corporation, and prior to
that, as Optical Acquisition Corp. It was originally incorporated in October
1992 under the laws of the state of Delaware.
Bankruptcy
Optical Acquisition Corp. filed a bankruptcy petition on September 21,
1995 and filed the First Amended Joint Plan of Reorganization on July 9, 1996.
The United States Bankruptcy Court for the Northern District of Texas, Dallas
Division entered an order approving the plan on August 9, 1996. The plan was
modified pursuant to an order of the court on February 28, 1997.
The plan provided for the liquidation of the company's assets and
distribution of the proceeds to secured, priority and unsecured creditors. The
plan further provided that the company would remain in existence, although all
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capital stock outstanding as of the petition date was canceled the company was
reincorporated in the State of Texas in September 1997.
As contemplated in the plan, the company, which had no operations or
significant assets at the time, had undertaken a business strategy to seek out
and consummate an acquisition or merger transaction.
Merger with Alford
On or about December 15, 1998, Hilltop merged with Alford pursuant to
an Agreement and Plan of Merger dated November 23, 1998 by and among Hilltop,
Womack Gilman Investment Services, L.C., Halter Financial Group, Inc. and
Alford. In accordance with the terms of the merger agreement, Alford (formerly
Hilltop) was the surviving corporation. Immediately prior to the merger, Hilltop
amended its Articles of Incorporation to effect a reverse stock split so that
each share of Hilltop's issued and outstanding common stock was automatically
converted into .625 of a fully paid and nonassessable share of Hilltop's common
stock. Pursuant to the terms of the merger agreement, each share of common stock
of Alford was automatically converted into the right to receive 655.1372 shares
of the common stock of the surviving company. In addition, the Articles of
Incorporation and the Bylaws of Alford became the Articles of Incorporation and
Bylaws of the surviving company, the directors and officers of Alford became the
directors and officers of the surviving company, and the surviving company
changed its name to Alford Refrigerated Warehouses, Inc. The transaction is
considered a reverse merger. Application of reverse merger accounting results in
the following:
1. The consolidated financial statements of the combined entity
are issued under the name of the legal parent, Alford
Refrigerated Warehouses, Inc. (formerly Hilltop), but the
entity is considered a continuation of the legal subsidiary,
Alford.
2. As Alford is deemed to be the acquirer for accounting
purposes, its assets and liabilities are included in the
consolidated financial statements of the continuing entity at
their carrying values.
3. Amounts presented in the financial statements for periods
prior to December 1998 are those of Alford, the legal
subsidiary. All shares for periods prior to December 31, 1998,
have been retroactively adjusted as if a stock split had
occurred.
4. Costs related to the transaction were expensed during 1998.
Reorganization
In November 1998, several affiliated entities of Alford were merged
into Alford. These entities, including Robco Industries, Inc. and Alltemp
Logistical Services, LLC are in the same line of business as Alford and, by
virtue of their ultimate ownership, are considered to be entities under common
control with Alford. Accordingly, these mergers were accounted for in the
financial statements in a manner similar to a pooling of interests and the
balance sheets, statements of operations, stockholders' equity and cash flows
give retroactive effect to the mergers as if they occurred as of the beginning
of the earliest period presented. The operations of Robco and Alltemp are
insignificant to total operations of the combined company.
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USE OF PROCEEDS
If all shares offered by Alford are sold by Alford directly and without
the use of selling agents, Alford should net approximately $4,460,000 after
deducting estimated offering expenses. However, Alford may contact registered
broker-dealers to act as selling agents and in connection with such sales will
pay fees or commissions not in excess of those normal for transactions of this
type. Of the net proceeds, Alford will use up to $2,000,000 to repay existing
indebtedness and the remainder for general working capital purposes and, depend-
ing on the timing of receipt of the proceeds, for the Company's two currently
contemplated real estate acquisitions.
DETERMINATION OF OFFERING PRICE
Although Alford's common stock trades on the pink sheets, management
does not believe that recent trading prices accurately reflect the value of the
common stock. Among the factors Alford considered in setting the offering price
of $4.50 per share were prevailing market conditions, the price-earnings ratio
of publicly traded companies that Alford believes are comparable to Alford, the
current state of Alford's development, and other factors Alford believed were
relevant.
PLAN OF DISTRIBUTION
Alford is offering 1,000,000 of common stock to the public for cash on
a best efforts, no minimum basis.
No underwriters have been engaged by Alford in connection with the
offering. However, Alford may arrange for brokers, dealers or agents to
participate in sales in consideration of commissions payable by Alford in
amounts to be negotiated which are not expected to exceed those customary in the
types of transactions involved. Any broker, dealer or agent participating in the
distribution of shares of common stock may be deemed to be an "underwriter"
within the meaning of Section 2(11) of the Securities Act. Any commissions or
discounts paid to any such broker, dealer or agent my be deemed to be
underwriting commissions or discounts under the securities laws.
The offer and sale of stock by Alford will commence promptly upon the
date of this prospectus, will be made on a continuous basis and will continue
until all of the shares are sold or until Alford determines to terminate further
sales under this offering. The shares will be offered on a best efforts basis,
meaning that there is no preexisting contractual commitment for any person to
purchase these shares. To the extent Alford offers the common stock it is
selling through Alford's existing trading markets, the common stock will be
offered at a fixed price as set forth on the cover page of this prospectus.
It is expected that Alford will spend a total of approximately
$39,250 for legal fees, accounting fees, printing and other costs involved in
the offering.
Regulations Affecting the Price and Marketability of Alford Stock
Because of the low price of our common stock and the fact that it is
not listed on The Nasdaq SmallCap Market or any exchange, the shares may be
subject to a number of regulations which may affect the price of the shares and
your ability to sell the shares in the secondary market.
11
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For example, Rule 15g-9 under the Securities Exchange Act may affect
the ability of broker-dealers to sell the shares and may affect your ability to
sell the common stock in the secondary market. Rule 15g-9 generally applies to
shares that are not listed on The Nasdaq SmallCap Market or any stock exchange.
The rule imposes additional sales practice requirements on broker-dealers that
sell low-priced securities to persons other than established customers and
institutional accredited investors. For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction.
In addition, because the penny stock rules probably will apply to our
shares, investors in this offering probably will find it more difficult to sell
their securities. The Securities and Exchange Commission's regulations define a
penny stock to be any equity security that has a market price or exercise price
of less than $5.00 per share, subject to some exceptions. The penny stock rules
require a broker-dealer to deliver a standardized risk disclosure document
prepared by the Securities and Exchange Commission, to provide the customer with
additional information including current bid and offer quotations for the penny
stock, the compensation of the broker-dealer and its salesperson in the
transaction, monthly account statements showing the market value of each penny
stock held in the customer's account, and to make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
requirements probably will reduce the level of trading activity in the secondary
market for the common stock and may severely and adversely affect the ability of
broker-dealers to sell our securities.
DIVIDENDS
The Company has not paid any dividends on its common stock and does not
anticipate paying any dividends in the foreseeable future. Alford's bank loan
agreement prohibits the payment of any dividends without the bank's consent.
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CAPITALIZATION
The following table shows the capitalization as of December 31, 1998
and as adjusted to reflect the results of Alford's offer of stock in this
prospectus, assuming all 1,000,000 of the new shares offered by Alford are sold.
<TABLE>
<CAPTION>
December 31, 1998
-------------------
Actual As Adjusted
------ -----------
(in thousands)
<S> <C> <C>
Long-term debt, net of current portion $15,946 $13,946
Stockholder's 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 7,000,715, actual, 50,000,000 shares authorized, issued
8,000,715, as
adjusted 70 80
Additional paid in capital 5,032 9,482
Retained earnings 307 307
------- -------
Total Stockholder's equity $ 5,409 $ 9,869
------- -------
Total capitalization $21,355 $23,815
------- -------
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
With the exception of historical information, the matters discussed in
this prospectus are "forward-looking statements" as that term is defined in
Section 21E of the Securities Exchange Act of 1934. Alford cautions you that
actual results could differ materially from those expected by Alford depending
on the outcome of a number of factors, including, without limitation, adverse
changes in the market for Alford's services. You 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. Alford 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 Alford's business strategy or planned capital expenditures, or to
reflect the occurrence of unanticipated events.
Reference to 1997 and 1998 are to the years ended December 31 of each
year.
Results of Operations
The following table sets forth unaudited information for the periods
indicated, including the dollar amount and percentage of revenues and pre-tax
net income derived from each of the Company's segments (warehouse locations).
<TABLE>
<CAPTION>
YEAR ENDED
1998 1997
-------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Dallas $ 9,411,480 53.3 $ 8,129,544 52.1
Richardson (1) 2,264,779 12.8 1,899,151 12.2
Fort Worth (2) 1,110,884 6.3 1,005,607 6.4
La Porte (3) 2,771,127 15.7 2,500,846 16.0
Other (4) $ 2,093,671 11.9 2,076,258 13.3
-------------------------------------------------------------
$ 17,651,941 100.0% $ 15,611,406 100.0%
=============================================================
NET INCOME (LOSS):
Dallas $ 1,500,682 127.8 $ 802,032 585.8
Richardson (1) 213,996 18.2 127,413 93.1
Fort Worth (2) 120,465 10.3 67,454 49.3
La Porte (3) 15,012 1.3 (64,734) (47.3)
Other (4) (675,879) (57.6) (795,261 ) (580.9)
-------------------------------------------------------------
$ 1,174,276 100.0% $ 136,904 100.0%
=============================================================
<FN>
- ---------------------
(1) Richardson began operations on 12/05/96 under Alford's management.
(2) Fort Worth began operations on 1/02/97 under Alford's management.
(3) La Porte was leased and operated up to February 6, 1998 by Alltemp
Logistical Services, LLC which was owned 100% by Mr. Michael Oros, who
is now the President of Alford. Alltemp was sold to Alford's parent
which then exercised an option to purchase the La Porte facility.
Alford then leased the facility beginning February 6, 1998. On November
30, 1998 Alford's parent contributed its ownership interest in Alltemp
to Alford. The contribution was treated as a merger with an entity
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under common control. Accordingly, Alltemp's operations are presented
as if the contribution occurred January 1, 1997.
(4) Includes revenues or losses of a facility in Houston, which was
discontinued in 1998 and expenses associated with the corporate office
(accounting, legal, data processing and administrative).
</FN>
</TABLE>
Year Ended December 31, 1998, Compared to Year Ended December 31, 1997:
Revenues
Alford recorded a net profit of $813,276, or $.12 per share for 1998,
as compared to a net profit of $141,497, or $.02 per share for 1997.
Total revenues for 1998 were $17,651,941, an increase of $2,040,535, or
13.1%, compared to revenues of $15,611,406 for 1997. This increase in revenues
is comprised primarily of the following components: Dallas revenues increased by
$1,281,936, or 15.8%; Richardson revenues increased by $365,628, or 19.3%; Fort
Worth revenues increased by $105,277, or 10.5%; and La Porte revenues increased
by $270,281, or 10.8%. Revenues from the facility in Houston, which was
discontinued in 1998, decreased marginally from 1997.
The increases of 15.8% in Dallas and 19.3% in Richardson are due to a
higher utilization of space at each facility. The current senior management team
began working on an aggressive revenue building program when they joined Alford
in December 1996. Continued increases are projected for 1999 as Alford continues
its efforts to increase utilization. The Fort Worth facility has approximately
30% of the warehouse space leased to a tenant, which accounted for approximately
32% of the revenues for 1998 and 25% of the revenues for 1997. The revenue
earning capability of this facility is stabilized by this constant flow of
revenue and increases in revenue are more dependant on the efficient utilization
of the remaining warehouse capacity. La Porte came under current management's
control in February 1998. Although the revenue increases from 1997 to 1998
exceeded 10%, management believes that the true earning capability of La Porte
will not be realized until at least 1999.
Operating Costs
Operating costs increased by $754,843, or 7.0% from 1997 to 1998, due
primarily to the increase in related sales. This overall increase is generally
made up of the net of the following increases and decreases:
- Wages and benefits increased by $643,320, or 11.6% primarily
due to increases in warehouse utilization which in turn
necessitated increased employment levels.
- Utilities increased by $261,986, or 11.1% primarily due to the
abnormally high outside temperatures during 1998 which
contributed to increased consumption of electricity.
- Insurance decreased by $56,512, or 14.6% primarily due to the
consolidation of La Porte under corporate insurance policies
in 1998.
- The remaining decrease in operating costs was due to a
multitude of smaller decreases which on an individual basis
are not material.
15
<PAGE>
General and Administrative Expenses
General and administrative expenses decreased by $267,622, or 20.3%.
This decrease was primarily due to a decrease in legal and professional fees of
$226,514, or 57.4%.
Depreciation, Amortization, Rent and Interest
Depreciation expense increased in 1998 to $776,569 from $545,732 in
1997 due primarily to the purchase of La Porte and the capitalization of lease
assets and obligations. Rent expense decreased by $146,424, or 8.5% from 1997 to
1998. This decrease was primarily due to the purchase of La Porte in 1998 and
the closing of the leased facility in Houston. Interest expense was $1,462,318
in 1998, as compared to $1,030,789 in 1997. This increase of $431,529, or 41.9%
was due primarily to the assumption of $5,400,000 of long-term debt for the
purchase of La Porte and the higher utilization of the line of credit.
Income Tax Expense or Benefit
Income tax expense or benefit includes the current federal tax expense
or benefit and the effect of deferred taxes related primarily to the difference
between book and tax depreciation on property, plant and equipment. For the
years ended December 31, 1998 and December 31, 1997, Alford recorded income tax
expense of $361,000 and an income tax benefit of $4,593, respectively. The
change from 1998 to 1997 is due to an increase in taxable income and deferred
tax expense related to the utilization of net operating losses which became
available in 1998 after the merger with Robco.
Alford establishes valuation allowances when necessary, in accordance
with the provisions of SFAS 109, "Accounting for Income Taxes," to reduce
deferred tax assets to the net deferred tax asset expected to be realized.
Alford had potential net operating loss carryforward of approximately $8,332,000
and $9,703,000 for the years ended December 31, 1998 and December 31, 1997,
respectively. A valuation allowance of $1,676,000 exists for both years for net
operating loss carryforwards not anticipated to be realized before expiration.
Based upon future income projections, Alford expects to realize the net asset.
Liquidity and Capital Resources
At December 31, 1998, Alford's working capital ratio was .9 to 1
compared to 1.3 to 1 at December 31, 1997. Alford had a working capital deficit
of $241,219 at December 31, 1998, as compared to working capital of $681,778 at
the end of 1997. The decrease in Alford's working capital ratio and working
capital is primarily due to decreases in cash and cash equivalents of $337,047
and federal income tax receivable of $127,629 and increases in property taxes
payable of $294,704 and current maturities of long-term debt in the amount of
$384,285. These decreases are offset in part by an increase in accounts
receivable of $188,443. The increase in accounts receivable and property taxes
payable are primarily due to addition of La Porte in 1998. The increase in
current maturities of long-term debt is primarily due to the assumption of a
note payable of $5,400,000 for the purchase of La Porte and the capitalization
of lease assets and obligations of $1,191,228.
Net cash provided by operating activities for 1998 totaled $2,119,211
as compared to net cash used in operating activities of $91,878 for the year
ended 1997. The increase in net cash provided by operating activities is
comprised of the following factors: net income was $813,276 in 1998 as compared
to $141,497 in 1997; depreciation expense was $776,569 in 1998 as compared to
16
<PAGE>
$545,732 in 1997; deferred tax expense was $296,000 in 1998 as compared to
deferred tax benefit of $6,593 in 1997; prepaid expenses decreased $459,058 in
1998 as compared to $294,517 in 1997; accounts payable increased $116,068 in
1998 as compared to a decrease of $87,826 in 1997; and property taxes payable
increased $294,704 in 1998 as compared to $186,158 in 1997. These increases were
partially offset by a decrease in notes payable of $522,254 in 1998 as compared
to $280,659 in 1997. In 1997 there were other material decreases in net cash
provided by operating activities due to an increase in deposits and escrows of
$552,506 and an increase in other assets of $511,827. There was no material
change in these categories in 1998.
Capital expenditures for 1998 were $1,417,965, compared to $746,579 for
1997. The increase of $671,386 was due primarily to the cash paid on the
purchase of the La Porte facility.
Alford has a line of credit which provides up to $2,500,000, of which
Alford had borrowed $1,549,377 at December 31, 1998. The borrowing base on the
line of credit fluctuates based on reports submitted by Alford to the lender on
an as needed basis. The availability at any time is determined by a calculation
of 80% of the eligible accounts receivable submitted plus 20% of the cash
receipts collected since the last report. The line of credit expires on December
3, 2001.
Net cash used in financing activities for 1998 totaled $1,038,293 as
compared to net cash provided by financing activities of $697,062 in 1997, a net
change of $1,735,355. Financing activities in 1997 included mortgage financing
on the Dallas facility for $8,100,000 and a term loan of $1,207,160. Alford also
received $678,165 in advances on the line of credit. Cash was used to make
principal payments on debt of $5,758,195 and advances to an affiliate of
$3,922,472. In 1998 financing activities consisted of advances on the line of
credit in the amount of $1,021,212. Cash was used to make principal payments on
debt of $1,261,464 and advances to an affiliate of $798,041.
During 1998, Alford's parent assumed $2,600,000 of the notes payable
outstanding as of January 1, 1998 as a settlement of a portion of the notes
payable due to Alford. Alford has guaranteed this obligation which totaled
$2,350,000 at December 31, 1998. Alford 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.
Alford believes that cash flow supplemented by Alford's positive cash
position will be adequate to fund Alford's capital requirements.
Alford has entered into an agreement for the purchase of the Fort Worth
facility for $3,000,000. Alford expects to complete the transaction in the
second quarter of 1999. Alford has executed an "Exclusive Option Contract"
expiring February 22, 2000, for the purchase of the Richardson facility for
$6,000,000. Management hopes to close this transaction by the end of the third
quarter of 1999. Alford is currently negotiating with a potential lender to
provide financing for both facilities.
Year 2000
Alford, 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 Alford'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. Alford
17
<PAGE>
recognizes that it must take action to ensure that its operations will not be
adversely impacted by Year 2000 software failures.
Alford has conducted a comprehensive review of its computer systems to
identify the impact of the "Year 2000" issue. Alford has developed a plan to
address the problem and is currently implementing the changes identified in the
plan. During 1998 Alford replaced one of its computer processors to handle the
Year 2000 compliant software. The software used by Alford is provided by a third
party who has assured Alford 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 second quarter of 1999.
The remaining costs associated with the implementation are not expected to have
a material effect on Alford 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.
Alford has maintained correspondence with many of Alford's significant
customers and suppliers. To date, Alford is not aware of any third party
customer or supplier with a "Year 2000" issue that would materially impact
Alford's results of operations, liquidity or capital resources. However, Alford
has no means of ensuring that all third parties will be "Year 2000" ready.
Alford has reviewed its non-information technology and systems that may
include embedded chips for Year 2000 compliance. Alford's assessments indicate
that due to the nature of Alford's operations, these technology systems do not
represent an area of material risk relative to Year 2000 readiness.
Fluctuations in Operating Results; Seasonality
Alford's operating results do not vary significantly from period to
period. Generally sales volumes are lowest at the beginning of the fiscal year
and grow steadily to a peak in November and December.
Environmental Matters
Alford is not aware of any environmental liability relating to its
facilities or operations that would have a material adverse effect on Alford,
its business, assets or results of operations.
Inflation
Inflation has not historically had a material effect on Alford's
operations, and is not expected to have a material impact on Alford in the
future.
Accounting Matters
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected financial information about
operating segments in interim financial reports to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. The disclosure requirements of SFAS No.
131 are effective for financial statements for financial years beginning after
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<PAGE>
December 15, 1997. Alford has complied with the disclosure requirements of SFAS
No. 131 in its financial statements for fiscal year ended December 31, 1998 and
December 31, 1997.
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 Alford's financial statements.
THE BUSINESS
Alford believes that it is the largest public refrigerated warehousing
operation in the southwest United States. Alford operates a network of four
strategically located refrigerated warehouse facilities in Texas, with a total
area of 1,500,000 sq. ft. or 32,000,000 cu. ft. of storage space. Alford's
principal executive office is located at 318 Cadiz Street, Dallas, Texas 75207
and its telephone number is (214) 426-5151.
Alford's public warehouse business consists of providing customers,
which include food processors, distributors, wholesalers and retailers, with
temperature controlled storage services and a full range of logistics management
and other value-added services such as (i) blast freezing of fresh products,
(ii) repackaging and labeling of food products, (iii) order picking and load
consolidation, (iv) cross-docking, (v) container handling, (vi) importing and
exporting services, (vii) USDA approved storage and inspection services, and
(viii) Federal Government inspected facility for export.
Alford is a third party service provider and as such does not purchase
the inventory that it stores. When Alford receives products for storage, it
provides the customer with a nonnegotiable warehouse receipt. At that time, the
customer pays for one month of storage and handling based upon the type and
amount of product accepted at the beginning of the 30 day period. Alford's
inventory control system monitors the product by type of product and by lot
number. To remove any product from storage, the customer places an order with
Alford, Alford removes the product from the warehouse for the customer and
provides the customer with a bill of lading. If there is any product remaining
in storage at the end of the 30 day period, Alford bills the customer for an
additional 30 days of storage.
In addition to its public warehouse business, Alford leases
refrigerated space to approximately 28 tenants who manage their own inventory
and logistics functions and use their own equipment and personnel. In almost all
cases, the tenant pays all of the expenses, except for utilities and property
taxes which are included in the rent. The terms of the leases may be month to
month or as long as five years. Alford does not allow tenants to make any
special modifications to the leased space without Alford's prior approval. For
the year ended December 31, 1998 public warehouse customers represented over 93%
of Alford's revenue, the remainder of which was attributable to leased space.
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<PAGE>
For the year ended December 31, 1997, public warehouse customers represented
approximately 92% of Alford's revenue.
Alford is designing and planning the construction of a 4,000,000 cubic
foot addition to its Cadiz Street facility in Dallas, Texas. Alford anticipates
that the new addition will contain a blast freezing capacity of 400,000 lbs. per
day and storage at -20(degree)F.
The Industry
The public refrigerated warehousing industry provides refrigerated
warehousing, inventory management and logistics services to food processors,
distributors and retailers of frozen and chilled foods during the period between
production and consumption. In the food industry, there is a period between
production and consumption as well as a continuing shift by individual food
processors, distributors and retailers from owning their refrigerated storage
facilities to outsourcing their warehousing requirements, inventory management
and logistics functions to operators of public refrigerated warehousing
businesses who are generally more economical providers of such services.
Historically, public refrigerated warehousing growth has been steady
and non-cyclical. Although the overall U.S. food industry has been growing at
the rate of population growth, according to a U.S. Department of Agriculture
report dated January of 1998, the public refrigerated warehousing industry has
been growing more rapidly than the population, at an average compound annual
growth rate of 4.5% per year over the past 10 years.
Customers
Alford had approximately 600 customers during the 12 months ended
December 31, 1998 and during the 12 months ended December 31, 1997. Alford's
customers include a broad base of national, regional and local food processors,
distributors, wholesalers and retailers. The current customer base includes
Pilgrim's Pride, Nabisco Food, M & M Mars, Kroger Co., Maple Leaf Foods, Borden
Dairy, Chef America, Dairy Farmers of America and many others. During the twelve
months ended December 31, 1998, no customer accounted for more than 10% of
Alford's revenues. During the twelve months ended December 31, 1997, Nabisco
Food accounted for approximately 12% of Alford's revenues.
Competition; Growth Potential
The United States public refrigerated warehousing market is highly
fragmented. According to the International Association of Refrigerated
Warehouses, the 10 largest public refrigerated warehousing firms represent less
than 40% of the available public refrigerated warehousing space. Public
refrigerated warehousing facilities in the United States are typically owned by
strong local or regional operators with one to four facilities representing two
to 14 million cubic feet of public refrigerated warehousing space which, on
average, generate direct profit contribution margins of 40%. Many of these
companies are family-owned businesses without successors active in the
management of the business. Based on past experience with such owners and the
dynamics of the industry, the Company believes that many of these businesses can
be acquired at attractive cash flow multiples.
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<PAGE>
Sales and Marketing
Alford's marketing and sales efforts are integrated across all levels
of management. Senior management has the responsibility for major customers,
including all national accounts. In addition, customers in each region are
serviced by regional general managers who work with sales and marketing
professionals to plan and execute regional business development strategies. At
the local level, individual facility managers are responsible for developing and
maintaining long-term relationships with customers.
Alford's management and sales professionals are aggressively pursuing
business development opportunities that arise from natural market growth as
sales of frozen foods increase and the trend towards the use of public
refrigerated warehouse services continues. Management believes that by taking an
active role in the management and coordination of its customers' inventories and
by providing a broader range of logistics services, the Company will maintain
its competitive advantage over the long term.
Suppliers
Alford's largest expenses are labor and utilities. It is not dependent
upon any one supplier for raw materials. The majority of Alford's maintenance
services are provided primarily by its own employees.
Employees
As of December 31, 1998, Alford had a total of 188 employees, all of
whom are full-time employees. Of these employees, approximately 136 were
employed at the Dallas, Texas facility which includes its corporate offices, 28
were employed at the La Porte facility, 17 were employed at the Richardson
facility and seven were employed at the Fort Worth facility. None of the
employees are represented by a labor union.
Government Regulation
Alford's operations are subject to federal, state and local laws,
regulations and ordinances relating to the storage, handling, emission,
transportation and discharge of certain materials and various other health and
safety matters. These laws include the Clean Air Act, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, and the Resource
Conservation and Recovery Act. For example, Alford uses anhydrous ammonia in its
operations. In addition, Alford uses a type of refrigerant which is no longer
being produced because of government regulations. Alford is in the process of
modifying its equipment and believes that all of its equipment will be able to
use a new type of refrigerant by the end of 1999. Alford's operations also are
governed by laws and regulations relating to workplace safety and worker health,
principally the Occupational Safety and Health Act and the regulations
thereunder.
Governmental authorities have the power to enforce compliance with
their regulations, and violators may be subject to fines, injunctions or both.
Alford believes that it is currently in substantial compliance with all such
applicable laws and regulations. Alford cannot at this time estimate the impact
of any increased regulation on Alford's operations, future capital expenditure
requirements or the cost of compliance.
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<PAGE>
In addition to regulating Alford directly, Alford's customers are
subject to certain regulations relating to the import and export of food
products. Alford maintains an approved USDA inspection room on site at three of
its four facilities for the benefit of its customers.
Research
Alford generally does not spend any material amount of its resources on
research and development. Rather, it is a member of the Refrigeration Research
and Education Foundation which is an organization that was founded in 1943 as a
scientific and educational foundation for the following purposes:
o advance the application of refrigeration technology for better
preservation of food and commodities;
o develop and support research in the science of refrigeration;
o cooperate with government and private institutions in research
activities;
o train and educate refrigerated warehouse/distribution personnel; and
o establish and make available a repository of scientific information
specific to the industry.
Licenses, Permits and Product Registrations
Alford uses certain licenses and registrations in its operations. For
example, Alford has a perpetual license for the use of certain software from
Maves International Software, Inc. Alford uses this software for inventory
control and financial reporting. Alford is not required to pay any additional
royalties on the software, however, Alford periodically purchases upgrades to
the software.
In addition, Alford Distribution Services, Inc., a wholly owned
subsidiary of Alford is licensed by the Texas Alcoholic Beverage Commission to
store products containing alcohol. Alford Distribution Services is required to
post a bond each year to maintain this license which is subject to revocation,
modification and renewal each year by the commission.
For the benefit of its customers, Alford maintains a room at three of
its four facilities that is approved by the USDA for use in connection with the
inspection of food products.
Alford's trademark, a penguin, is registered with the patent trademark
office. This registration is periodically subject to renewal.
Properties
Set forth below is information with respect to Alford's principal
properties. The industry measures space in cubic feet instead of square feet
because cost projections include facility height to account for refrigeration
and stacked cooled product. Alford believes that all of these properties are
adequately insured, in good condition and suitable for their anticipated future
use.
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<PAGE>
<TABLE>
<CAPTION>
Lease
Location Primary Use Approximate Size Owned/Lease Expiration Date
- -------- ----------- ---------------- ----------- ---------------
<S> <C> <C> <C> <C>
Dallas, Texas Corporate office 24,000,000 cubic Owned N/A
& Warehouse feet on 52 acres
La Porte, Texas Warehouse 4,500,000 cubic feet Owned N/A
on 32.3 acres
Richardson, Texas Warehouse 3,200,000 cubic feet Leased Dec. 31,2007
on 12.4 acres
Fort Worth, Texas Warehouse 1,550,000 cubic feet Leased Jan. 31, 2000
on 13.5 acres
</TABLE>
Dallas, Texas
Alford has 18 tenants at its Dallas, Texas facility. Of these, no
tenant occupies ten percent or more of the rentable cubic footage of the
facility. Alford itself uses a majority of the total cubic feet of the facility
as a public refrigerated warehouse. A majority of the Dallas, Texas facility is
used for refrigerated warehousing purposes. The remainder is used for public dry
storage and for Alford's corporate offices.
The Dallas, Texas facility is subject to a 10 year fixed rate mortgage
in the original principal amount of $8,100,000 which accrues interest at 8.4%
per year. As of January 20, 1999, Alford owed approximately $7,893,859 on the
mortgage which matures on or about October 1, 2007. At that time, assuming no
prepayments, Alford will owe approximately $5,682,578.
Alford currently plans to begin construction in 1999 on a 4,000,000
cubic-foot addition to its facility in Dallas, Texas. The estimated cost of the
improvements is approximately $8,000,000 which amount most likely will be
financed by a conventional mortgage or sale of convertible debentures in
addition to cash flow and the issuance of Alford's common shares.
La Porte, Texas
Alford has three tenants at its La Porte facility. Of these, no tenant
occupies ten percent or more of the rentable cubic footage of the facility.
Alford itself uses a majority of the total cubic feet of the facility as a
public refrigerated warehouse.
This property is subject to a 10 year fixed rate mortgage in the
original principal amount of $5,400,000 which accrues interest at 8.36% per
year. As of January 20, 1999, Alford owed approximately $5,352,494 on the
mortgage which matures on or about March 1, 2008. At that time, assuming no
prepayments, Alford will owe approximately $4,511,799.
Richardson, Texas
Alford has three subtenants at its Richardson facility. Alford has
executed an exclusive option contract for the purchase of this property for
$6,000,000. Alford has received a term sheet from a bank, subject to due
diligence, to finance the purchase of the property in an amount up to 70% of the
property's appraised value. Alford hopes to close this transaction by the end of
the third quarter of 1999.
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<PAGE>
Fort Worth, Texas
As of December 31, 1998, Alford had four tenants at its Ft. Worth faci-
lity. Of these, Kroger Co. accounted for approximately 30% of the space in the
facility. The lease between Alford and Kroger Co. is for a one year term with
provisions for annual renewal.
Alford has entered into a purchase and sale agreement to purchase this
property for $3,000,0000 in cash. Alford has received a term sheet from a bank,
subject to due diligence, to finance the purchase of the property in an amount
up to 70% of the property's appraised value. Alford hopes to close this
transaction in the second quarter of 1999.
Legal Proceedings
Alford is not a party to any legal actions or proceedings that it
believes will have a material adverse effect on its business, results or
obligations or financial position.
WHERE YOU CAN GET MORE INFORMATION
If you want more information, write or call us at:
Alford Refrigerated Warehouses, Inc.
318 Cadiz Street
Dallas, Texas 75207
Telephone: (214) 426-5151
Our fiscal year ends on December 31. We presently are required to file
annual, quarterly and current reports, proxy statements and other information
with the Securities and Exchange Commission, and to furnish our shareholders
annual reports containing audited financial statements and other appropriate
reports. You may read and copy any reports, statements or other information we
file at the SEC's public reference room in Washington D.C. You can request
copies of these documents, upon payment of a duplicating fee by writing to the
SEC. You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. Our SEC filings are also available to the
public on the SEC Internet site at http://www.sec.gov.
This prospectus contains information concerning Alford as of December
31, 1998 unless another date is specified. The delivery of this prospectus at
any time does not constitute a representation that the information contained in
it is correct as of any other date, and the delivery of this prospectus shall
not imply that there has not been a change in the business or affairs of Alford
since that date. No dealer, salesman or other person has been authorized to
furnish information or to make any representations other than what is set forth
in this prospectus. You should not rely on any information or representation
other than the information set forth in this prospectus.
MANAGEMENT
Set forth below is certain information regarding the directors,
executive officers and significant employees of Alford. Each of the directors of
Alford will serve until the next annual meeting of shareholders or until his
successor is elected and qualified. Executive officers of Alford are elected by
the Board of Directors to hold office until their respective successors are
elected and qualified.
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<PAGE>
Name Age Position(s)
- ---- --- -----------
Alton M. Adams 60 Chief Executive Officer
Michael A. Oros 63 President
James C. Williams 41 Vice President, Chief Financial Officer,
Secretary, Treasurer and Director
Joseph Y. Robichaud 71 Director
Kenneth M. Tomilson 65 Director
Set forth below is a description of the backgrounds of the directors,
executive officers and significant employees of Alford.
Joseph Y. Robichaud has served as a Director of Alford since December
1996 and from March 1994 to July 1995. Mr. Robichaud is also on the board of
directors and serves as the chairman and chief executive officer of Castor
Capital Corporation. From 1966 to 1995, Mr. Robichaud was chairman and,
indirectly, principal shareholder of Odyssey Industries, Inc., which was the
sole shareholder of Associated Freezers of Canada, Inc., an operating company in
the business of owning and operating frozen food warehousing facilities in
Canada and Australia. In 1994, a dispute arose between Odyssey and its bank
lender concerning currency exchange rates affecting the repayment of Odyssey's
loan. At the request of the bank, a receiver was appointed for Odyssey and the
receiver subsequently placed Odyssey into bankruptcy and sold the profitable
operations of Associated Freezers of Canada, Inc. Mr. Robichaud received his
Bachelor of Science degree in Civil Engineering from the University of New
Brunswick in 1950. Mr. Robichaud is the brother-in-law of Mr. Tomilson.
Kenneth M. Tomilson has served as a Director of Alford since December
1996. Mr. Tomilson is also the president of Castor Capital Corporation and has
served in that position since 1995. From 1964 to the present, Mr. Tomilson has
served as president of Engineering Design & Construction Managers Ltd. which
provides design services, engineering, construction supervision and management
for low and high-rise residential, commercial and industrial buildings, food
processing and refrigerated warehousing. Prior to 1995, Mr. Tomilson was vice
president and a director of Odyssey Industries, Inc. In 1994, a dispute arose
between Odyssey and its bank lender concerning currency exchange rates affecting
the repayment of Odyssey's loan. At the request of the bank, a receiver was
appointed for Odyssey and the receiver subsequently placed Odyssey into
bankruptcy and sold the profitable operations of Associated Freezers of Canada,
Inc. Mr. Tomilson is a member of The Canadian Standards Association Technical
Committee responsible for setting standards and formulating codes for mechanical
refrigeration in Canada. Mr. Tomilson graduated from the University of New
Brunswick with a Bachelor of Science degree in Civil Engineering in 1958. Mr.
Tomilson is the brother-in-law of Mr. Robichaud and is also the brother-in-law
of Mr. Adams.
Alton M. Adams has served as the Chief Executive Officer of Alford
since January 1997. Mr. Adams also currently serves as vice president of Castor
Capital Corporation, a position which he has held since September 1995. From
April 1995 to April 1996, Mr. Adams served as president of Polar Corp
International. From 1984 to 1995, he served as president of Associated Freezers
of Canada, Inc., and during that time, was also a director of Odyssey
Industries, Inc., which was the sole shareholder of Associated Freezers of
Canada, Inc. In 1994, a dispute arose between Odyssey and its bank lender
concerning currency exchange rates affecting the repayment of Odyssey's loan. At
the request of the bank, a receiver was appointed for Odyssey and the receiver
subsequently placed Odyssey into bankruptcy and sold the profitable operations
of Associated Freezers of Canada, Inc. Mr. Adams graduated from the University
25
<PAGE>
of New Brunswick with a Bachelor of Science degree in Electrical Engineering in
1960, earned a master of science degree in 1963 in Electrical Engineering from
Queen's University and a master of arts degree in Political Science from
Canadian Forces Staff College in 1968.
Michael A. Oros has served as President of Alford since January 1997.
He also served as its chief operating officer from January 1997 until December
1998. From 1986 until 1996, Mr. Oros served as president and chief operating
officer of Associated Freezers, Inc. Mr. Oros is a member of International
Association of Refrigerated Warehousemen, the North Texas Warehouse Association,
the American Frozen Food Institute, the Meat Importers Council, the Southwest
Meat Association and the National Frozen Food Association.
James C. Williams has served as Vice President, Chief Financial
Officer, Secretary and Treasurer of Alford since December 1996. Prior to that
time, from October 1995 until April 1997, Mr. Williams served as vice president
of finance for Castor Capital Corporation and from June 1987 until October 1995
as the controller for Associated Freezers of Canada, Inc. Mr. Williams is on the
Maves Advisory Board. He graduated from the University of Waterloo Co-op Program
in 1982 with a bachelor of mathematics degree. Mr. William's degree included a
major in mathematics and minors in computer science and accounting.
Due to the broad experience of Alford's executive officers, directors
and key personnel in the refrigerated warehousing industry, Alford does not
believe that the loss of any one of them would have a material adverse effect on
its business. None of the executive officers currently have an employment
agreement with Alford, however, Mr. Adams has a consulting contract which
automatically renews on an annual basis and provides for a fee of $8,000 per
month for services rendered.
Committees of the Board of Directors
The Board of Directors does not have any committees at this time.
Compensation of Directors and Executive Officers
Executive Compensation
The following table sets forth the cash and non-cash compensation paid
by Alford to its chief executive officer and its most highly compensated
executive officers receiving more than $100,000 for services to Alford for the
fiscal years ended December 31, 1998, 1997 and 1996. Other than the persons
named below, none of Alford's other officers or directors received cash or
non-cash compensation in excess of $100,000 for the fiscal year ended December
31, 1998.
26
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
Name and --------------------------------------------------------- All Other
Principal Position Year Salary Bonus Options
Compensation(1)
- ---------------------- ------ -------- -------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Mr. Adams 1998 96,000
Chief Executive Officer 1997 96,000
1996 N/A
Mr. Oros 1998 100,000 25,000
President 1997 100,000 25,000
1996 N/A
<FN>
- -----------------------------
(1) These amounts were paid pursuant to a consulting contract and were paid
by Alford directly to Mr. Adams in 1997 and to Castor Capital
Corporation which paid Mr. Adams in 1998.
</FN>
</TABLE>
In addition to the officers listed above, Mr. George Gilman served as
the president and secretary of Hilltop Acquisition Holding Corporation from
February 18, 1998 until December 15, 1998 when it merged with Alford. Mr.
Timothy T. Halter served as president and secretary of Hilltop Acquisition
Holding Corporation prior to Mr. Gilman. Neither Mr. Gilman nor Mr. Halter
received any compensation for services rendered to Hilltop from 1996 through
1998.
Director Compensation
Directors who are employees of Alford will not receive additional
compensation for serving as directors. Independent directors will receive an
annual fee to be established by the Board of Directors and a fee of $500 for
attending each meeting of the Board of Directors or any committee of the Board
of Directors. All directors will be reimbursed for out-of-pocket expenses
incurred in attending meetings and for other expenses incurred in performing in
their capacity as directors.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of the date of
this prospectus, and as adjusted to reflect the sale by Alford of 1,000,000
shares, with regard to the beneficial ownership of common stock by (i) each
person known to Alford to be the beneficial owner of 5% or more of its
outstanding common stock, (ii) the officers and directors of Alford
individually, and (iii) the officers and directors of Alford as a group. All
addresses are in care of Alford, 318 Cadiz Street, Dallas, Texas 75207.
27
<PAGE>
<TABLE>
<CAPTION>
Name Number of Shares Owned Actual As Adjusted
---- ---------------------- ------ -----------
<S> <C> <C> <C>
Joseph Y. Robichaud(1) 6,551,372 93.6% 81.9%
Castor Capital Corporation 6,551,372 93.6% 81.9%
Directors and executive 6,551,372 93.6% 81.9%
officers as a group (5 persons)
<FN>
- ------------------------
(1) All of these shares are held by Castor Capital Corporation. The sole
shareholder of Castor is the Robichaud Family Trust, of which Mr.
Robichaud is the trustee. Mr. Robichaud is also the chairman and chief
executive officer of Castor.
</FN>
</TABLE>
Castor Capital Corporation is the owner of approximately 93.6% of the
outstanding shares of the common stock (81.9% assuming the sale of all 1,000,000
shares offered by Alford) and as such is able to elect the board of directors
and determine the outcome of other matters requiring shareholder action without
the concurrence of any other shareholder. The sole shareholder of Castor Capital
Corporation is the Robichaud Family Trust, of which Mr. Robichaud is trustee.
Mr. Robichaud is also the chairman and chief executive officer of Castor.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On or about December 1, 1996, Alford entered into an agreement with
Canfina AG, a company organized under the laws of Switzerland, and J. Eichmann
to repay existing loans to Canfina AG in the original principal amount of
$6,700,000 and to purchase all of the shares of stock of Alford owned by Mr. J.
Eichmann in exchange for $2,000,000. As of December 1, 1996, Mr. Eichmann owned
5,000 shares (the equivalent of 3,275,686 shares after the reverse merger) or
50% of the issued and outstanding capital stock of Alford. On or about December
4, 1997, Alford paid to Mr. Eichmann $2,000,000 in exchange for rights to the
Eichmann shares using funds obtained through a term note and line of credit.
Alford's rights to the Eichmann shares were subsequently transferred by Alford
to Alford's parent, Castor Capital Corporation, in exchange for a $2,000,000
note receivable. On or about December 15, 1998, in connection with the reverse
merger of Alford with and into Hilltop, the Eichmann shares were converted into
3,275,686 shares of the surviving corporation, all of which are being held in
escrow pending the final payment due to Mr. Eichmann in December 2001. As of
December 31, 1998, the outstanding principal balance on the note was $2,350,000.
Castor Capital Corporation has assumed the liability for this note.
On or about February 6, 1998, Alford leased a warehouse facility in La
Porte, Texas at market rates from La Porte Properties, LLC, a Texas limited
liability company, which was a wholly owned subsidiary of Alltemp Logistical
Services, L.L.C., a Texas limited liability company. At that time, Alltemp was a
wholly owned subsidiary of Castor Capital Corporation. Effective November 30,
1998, Alltemp was merged with and into Alford.
In 1997, Alford made two loans to its parent, Castor Capital
Corporation. On or about September 17, 1997, Alford loaned Castor $1,500,000,
and on or about December 4, 1997, Alford loaned Castor $2,000,000. Each of these
loans is evidenced by a promissory note bearing interest at a rate of eight
percent per annum. The notes are due December 31, 2000 and December 31, 2002. As
of December 31, 1998, the total amount of principal and interest payable to
Alford by Castor pursuant to these two notes was $1,676,655. Mr. Robichaud, a
28
<PAGE>
Director of Alford, is the trustee of the Robichaud Family Trust which is the
sole shareholder of Castor Capital Corporation.
In 1997 and 1998, Alford paid to Associated Freezers, Inc. an aggregate of
$475,903 for the rights to certain trademarks consisting of a penguin and the
name Associated Freezers, Inc. At that time, Associated Freezers, Inc. was
indirectly owned 100% by Mr. Robichaud. Effective November 30, 1998, Associated
Freezers, Inc. was merged with and into its parent which was then merged with
and into Alford.
Engineering Design & Construction Managers Ltd. is a company which
specializes in the design, construction and maintenance of refrigerated
warehouse facilities. Engineering Design is owned in equal proportions by Mr.
Robichaud, Mr. Tomilson, Mr. Adams and Mr. Paul Haines. It has provided
maintenance services to Alford for which it billed Alford on a per diem basis.
Alford and Engineering Design are in the process of formalizing a new agreement
which was made effective as of January 1, 1999. Pursuant to this new five year
maintenance contract, Engineering Design will provide professional engineering
and maintenance services for Alford's four facilities for a fee of $200,000 per
year.
Castor Capital Corporation owns approximately 93.6% of Alford's issued
and outstanding common stock. Assuming the sale by Alford of all 1,000,000
shares it is offering pursuant to this offering, its ownership would drop to
81.9%. Mr. Robichaud, a Director of Alford, is the trustee of the Robichaud
Family Trust which owns all of the issued and outstanding stock of Castor
Capital Corporation.
DESCRIPTION OF SECURITIES
General
Alford's authorized capital stock consists of 50,000,000 shares of
common stock and 5,000,000 shares of preferred stock, par value $.01 per share.
Common Stock
Each share of common stock entitles the holder thereof to one vote on
all matters on which holders are permitted to vote. No shareholder has any
preemptive right or other similar right to purchase or subscribe for any
additional securities issued by Alford, and no shareholder has any right to
convert common stock into other securities. No shares of common stock are
subject to redemption or to any sinking fund provisions. All of the outstanding
shares of common stock are fully paid and nonassessable.
Subject to rights of holders of preferred stock, if any, the holders of
shares of common stock are entitled to dividends when, as and if declared by the
Board of Directors from funds legally available therefor and, upon liquidation,
to a pro rata share in any distribution to shareholders. Alford does not
anticipate declaring or paying any cash dividends on the Common Stock in 1999.
Alford's current bank loan agreement requires the bank's prior written consent
for the payment of dividends.
29
<PAGE>
Preferred Stock
Pursuant to Alford's Amended and Restated Articles of Incorporation,
the Board of Directors has the authority, without further shareholder approval,
to provide for the issuance of up to 5,000,000 shares of preferred stock in one
or more series and to determine the dividend rights, conversion rights, voting
rights, rights and terms of redemption, liquidation preferences, the number of
shares constituting any such series and the designation of such series. Because
the Board of Directors has the power to establish the preferences and rights of
each series, it may afford the holders of any preferred stock preferences,
powers and rights (including voting rights) senior to the rights of the holders
of common stock. No shares of preferred stock are currently outstanding.
Although Alford has no present intention to issue shares of preferred stock, the
issuance of shares of preferred stock, or the issuance of rights to purchase
such shares, may have the effect of delaying, deferring or preventing a change
in control of Alford.
Provisions Having a Possible Anti-takeover Effect
Alford's Amended and Restated Articles of Incorporation and Bylaws
contain certain provisions that are intended to enhance the likelihood of
continuity and stability in the composition of the Board of Directors of Alford
and in the policies formulated by the Board and to discourage certain types of
transactions which may involve an actual or threatened change of control of
Alford. The provisions are designed to reduce the vulnerability of Alford to an
unsolicited proposal for a takeover of Alford or an unsolicited proposal for the
restructuring or sale of all or part of Alford. The provisions also are intended
to discourage certain tactics that may be used in proxy fights.
The Board will have the authority, without further action by the
shareholders, to issue up to 5,000,000 shares of Alford's preferred stock in one
or more series and to fix the rights, preferences, privileges and restrictions
thereof, and to issue over 42,999,285 additional shares of common stock. The
issuance of Alford's preferred stock or additional shares of common stock could
adversely affect the voting power of the holders of common stock and could have
the effect of delaying, deferring or preventing a change in control of Alford.
Limitation of Liability of Directors
The Amended and Restated Articles of Incorporation provide that, to the
fullest extent permitted by applicable law, a director of Alford shall not be
liable to Alford or its shareholders for monetary damages for an act or omission
in the director's capacity as a director. This provision does not eliminate the
duty of care, and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of non-monetary relief will remain available under
Texas law. In addition, each director will continue to be subject to liability
for breach of the director's duty of loyalty to Alford, for acts or omissions
not in good faith or involving intentional misconduct, for knowing violations of
law, for actions leading to improper personal benefit to a director and for acts
or omissions for which a director is made expressly liable by applicable
statute, such as the improper payment of dividends. The limitations on liability
provided for in the Amended and Restated Articles of Incorporation do not
restrict the availability of non-monetary remedies and do not affect a
director's responsibility under any other law, such as the federal securities
laws or state or federal environmental laws. Alford believes that these
provisions will assist Alford in attracting and retaining qualified individuals
to serve as executive officers and directors.
30
<PAGE>
The inclusion of these provisions in the Amended and Restated Articles
of Incorporation, may have the effect of reducing the likelihood of derivative
litigation against directors and may discourage or deter shareholders or
management from bringing a lawsuit against directors for breach of their duty of
care, even though such an action, if successful, might otherwise have benefitted
Alford and its shareholders.
Bylaw Provisions and Amendment of Bylaws
The Board of Directors of Alford, acting by a majority of directors
then in office, may fill any vacancy or newly created directorship, provided
that the Board of Directors may not fill more than two newly created
directorships between successive annual meetings of the shareholders. The Bylaws
provide that a special meeting of the shareholders may be called only by the
President, the Chairman of the Board of Directors, or the holders of not less
than ten percent of all shares entitled to vote at such meeting. The Bylaws
provide that the power to amend or repeal the Bylaws or to adopt new Bylaws is
vested in the Board of Directors, but is subject to the right of the
shareholders to amend or repeal the Bylaws or to adopt new Bylaws.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, Alford will have outstanding 8,000,715
shares of common stock. The 1,000,000 shares of common stock proposed to be sold
in the offering will be freely tradeable in the public market without
restriction or further registration under the Securities Act, except for any
shares acquired by "affiliates" of Alford as that term is defined in Rule 144
("Rule 144") promulgated under the Securities Act. Of the remaining 7,000,715
shares of common stock of Alford to be outstanding following this offering,
____________ are deemed to be "restricted securities" within the meaning of Rule
144 and may be publicly resold only if registered under the Securities Act or
sold in accordance with an eligible exemption from registration, such as Rule
144. All of the restricted shares will be available for resale in the public
market commencing on or about _____________, subject to certain volume and other
restrictions under Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate of Alford,
who beneficially owns restricted securities acquired from Alford or an affiliate
of Alford at least one year prior to the sale is entitled to sell within any
three-month period a number of shares that does not exceed the greater of the
following:
o 1% of the then outstanding shares of common stock, and
o the average weekly reported trading volume of the common stock during
the four calendar weeks immediately preceding the date on which notice
of such sale is filed with the Securities and Exchange Commission,
provided manner of sale and notice requirements and requirements as to
the availability of current public information concerning Alford are
satisfied.
Under Rule 144(k), a person who has not been an affiliate of Alford for a period
of three months preceding a sale of securities by him, and who beneficially owns
restricted securities acquired from Alford or an affiliate of Alford at least
two years prior to the sale, would be entitled to sell the shares without regard
to volume limitations, manner of sale provisions, notification requirements or
requirements as to the availability of current public information concerning
Alford.
31
<PAGE>
Shares held by persons who are deemed to be affiliates of Alford,
including any shares acquired by affiliates in the offering, are subject to
volume limitations, manner of sale provisions, notification requirements and
requirements as to the availability of current public information concerning
Alford, regardless of how long the shares have been owned or how they were
reacquired. In addition, the sale of any restricted securities beneficially
owned by an affiliate of Alford and not registered under the Securities Act is
subject to the one-year holding requirement of Rule 144. As defined in Rule 144,
an affiliate of an issuer is a person that directly or indirectly through the
use of one or more intermediaries, controls, or is controlled by, or is under
common control with, such issuer. Approximately 81.9% of the common stock of
Alford after the distribution will be beneficially owned by Castor Capital
Corporation, an affiliate of Alford. These shares will be regarded as
unrestricted shares held by an affiliate and therefor subject to the provisions
of Rule 144, other than the holding period requirement of Rule 144(d). If Castor
Capital Corporation ceases to be an affiliate of Alford those shares would be
marketable under Rule 144(k) three months thereafter.
Prior to the offering, the common stock has been traded on the pink
sheets. No prediction can be made as to the effect, if any, that the sale of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of the
common stock in the public market could adversely affect prevailing market
prices and the ability of Alford to raise equity capital in the future.
TRANSFER AGENT
Alford's transfer agent is Securities Transfer Corporation, 16910
Dallas Parkway, Suite 100, Dallas, Texas 75248.
LEGAL MATTERS
Jenkens & Gilchrist, A Professional Corporation, 600 Congress Avenue,
Suite 2200, Austin, Texas 78701, has acted as legal counsel to Alford in
connection with this prospectus and related matters.
EXPERTS
The financial statements and schedules included in this prospectus and
in the registration statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports appearing elsewhere herein and in the registration statement, and
are included in reliance upon such reports given upon the authority of said firm
as experts in auditing and accounting.
32
<PAGE>
ITEM 13. FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
Report of Independent Certified Public Accountants F-2
Consolidated balance sheets F-3
Consolidated statements of operations F-4
Consolidated statements of stockholders' equity F-5
Consolidated statements of cash flows F-6
Notes to consolidated financial statements F-7 - F-19
F-1
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors of
Alford Refrigerated Warehouses, Inc.
We have audited the accompanying consolidated balance sheets of Alford
Refrigerated Warehouses, Inc. and Subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The financial
statements give retroactive effect to certain mergers which occurred in 1998 as
described in Note 1 to the financial statements.
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 presentation of the financial
statements. 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 consolidated financial position of Alford
Refrigerated Warehouses, Inc. and Subsidiaries as of December 31, 1998 and 1997,
and the consolidated results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
BDO Seidman, LLP
March 9, 1999
Dallas, Texas
F-2
<PAGE>
<TABLE>
<CAPTION>
ALFORD REFRIGERATED WAREHOUSES, INC.
Consolidated Balance Sheets
Note (1)
December 31, 1998 1997
- ----------------------------------------------------------------------------------------------------------
Assets
Current
<S> <C> <C>
Cash and cash equivalents (Note 7) $ 109,517 $ 446,564
Accounts receivable 2,008,239 1,819,796
Prepaid expense 250,045 313,281
Income tax receivable (Note 4) 6,000 133,629
Escrows (Note 5) 522,072 474,657
- -------------------------------------------------------------------------------------------------------------------
Total current assets 2,895,873 3,187,927
- -------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net (Notes 3 and 5) 18,757,679 11,525,055
Due from affiliates (Note 2) 2,213,079 4,015,038
Deferred tax asset, net (Note 4) 221,961 579,961
Other assets 454,178 342,357
Deposits 173,640 178,966
- -------------------------------------------------------------------------------------------------------------------
Total assets $24,716,410 $ 19,829,304
- -------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current
Accounts payable $ 555,491 $ 439,423
Property taxes payable 666,747 372,043
Accrued charges 724,671 862,353
Notes payable (Note 5) 117,768 144,200
Current maturities of long-term debt (Note 5) 1,072,415 688,130
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 3,137,092 2,506,149
- -------------------------------------------------------------------------------------------------------------------
Deferred revenue 224,308 158,112
Long-term debt, less current maturities (Notes 2 and 5) 14,396,572 11,851,093
Line of credit (Note 5) 1,549,377 728,165
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 19,307,349 15,243,519
- -------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 6)
Stockholders' equity (Notes 1 and 10):
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 7,000,715
in 1998 and 6,552,087 in 1997 70,007 65,521
Additional paid-in capital 5,032,395 5,026,881
Retained earnings (deficit) 306,659 (506,617)
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 5,409,061 4,585,785
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $24,716,410 $ 19,829,304
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
ALFORD REFRIGERATED WAREHOUSES, INC.
Consolidated Statements of Operations
Note (1)
Years ended December 31, 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Warehouse Revenues (Note 7) $17,651,941 $ 15,611,406
- -------------------------------------------------------------------------------------------------------------------
Operating Costs and General and Administrative
Operating costs 11,611,227 10,856,384
General and administrative expenses 1,050,422 1,318,044
- -------------------------------------------------------------------------------------------------------------------
Total Operating Costs and General and Administrative 12,661,649 12,174,428
- -------------------------------------------------------------------------------------------------------------------
Depreciation, Rent and Interest Expenses:
Depreciation 776,569 545,732
Rent 1,577,129 1,723,553
Interest 1,462,318 1,030,789
- -------------------------------------------------------------------------------------------------------------------
Total Depreciation, Rent and Interest Expenses 3,816,016 3,300,074
- -------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 1,174,276 136,904
Income Tax Expense (Benefit) (Note 4) 361,000 (4,593)
- -------------------------------------------------------------------------------------------------------------------
Net Income $ 813,276 $ 141,497
- -------------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share -
Net income $ 0.12 $ 0.02
- -------------------------------------------------------------------------------------------------------------------
Weighted Average -
Common shares used in computing earnings per share $ 6,572,982 $ 6,552,087
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ALFORD REFRIGERATED WAREHOUSES, INC.
Consolidated Statements of Stockholders' Equity
Note (1)
Common Stock Additional Retained
------------------------------------ Paid-in Earnings Stockholders'
Shares Amount Capital (Deficit) Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 6,552,087 $ 65,521 $ 5,026,881 $ (648,114) $ 4,444,288
Net income - - - 141,497 141,497
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 6,552,087 65,521 5,026,881 (506,617) 4,585,785
Issuance of 448,628 shares in
connection with reverse merger (Note 1) 448,628 4,486 5,514 - 10,000
Net income - - - 813,276 813,276
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 7,000,715 $ 70,007 $ 5,032,395 $ 306,659 $ 5,409,061
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
ALFORD REFRIGERATED WAREHOUSES, INC.
Consolidated Statements of Cash Flows
Note (1)
Increase (Decrease) in Cash and Cash Equivalents
Years ended December 31, 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net income $ 813,276 $ 141,497
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation expense 776,569 545,732
Deferred income taxes 296,000 (6,593)
Changes in operating assets and liabilities:
Accounts receivable (188,443) (98,230)
Prepaid expenses 459,058 294,517
Deposits and escrows (42,089) (552,506)
Income tax receivable 127,629 97,047
Other assets (39,821) (511,827)
Accounts payable 116,068 (87,826)
Property taxes payable 294,704 186,158
Accrued charges (37,682) 91,641
Notes payable (522,254) (280,659)
Deferred revenue 66,196 89,171
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 2,119,211 (91,878)
- -------------------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities -
Capital expenditures (1,417,965) (746,579)
- -------------------------------------------------------------------------------------------------------------------
Financing Activities:
Due from affiliates (798,041) (3,922,472)
Funds borrowed 1,021,212 10,377,729
Principal payments on debt (1,261,464) (5,758,195)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (1,038,293) 697,062
- -------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (337,047) (141,395)
Cash and cash equivalents, beginning of year 446,564 587,959
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 109,517 $ 446,564
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
The accompanying consolidated financial statements of Alford Refrigerated
Warehouses, Inc. and consolidated entities (the "Company") have been prepared in
conformity with generally accepted accounting principles, the most significant
of which are described in Note 1 "Summary of Significant Accounting Policies".
These, along with the remainder of the Notes to Consolidated Financial
Statements, are an integral part of the consolidated financial statements. The
data presented in the Notes to Consolidated Financial Statements are as of
December 31 of each year and for the year then ended, unless otherwise
indicated. Certain balances for 1997 have been reclassified to conform to the
1998 presentation. Shares and per share data have been restated for the reverse
stock split effected December 1998, as discussed in the following section,
"Description of the Merger with Alford."
1. Summary of
Significant
Accounting
Policies
Description of
the Merger
with Alford
Alford Refrigerated Warehouses, Inc., a Texas corporation
formerly known as Hilltop Acquisition Holding Corporation,
and prior to that, as Optical Acquisition Corp. (the
"Company"), was originally incorporated in October 1992
under the laws of the state of Delaware.
The Company filed a bankruptcy petition on September 21,
1995 and filed the First Amended Joint Plan of
Reorganization (the "Plan") on July 9, 1996. The United
States Bankruptcy Court for the Northern District of Texas,
Dallas Division (the "Court") entered an order approving the
Plan on August 9, 1996. The Plan was modified pursuant to an
order of the Court on February 28, 1997.
The Plan provided for the liquidation of the Company's
assets and distribution of the proceeds to secured, priority
and unsecured creditors. The Plan further provided that the
Company would remain in existence, although all capital
stock outstanding as of the Petition Date was canceled The
Company was reincorporated in the State of Texas in
September 1997.
As contemplated in the Plan, the Company, which had no
operations or significant assets at the time, had undertaken
a business strategy to seek out and consummate an
acquisition or merger transaction.
On or about December 15, 1998, the Company merged with
Alford Refrigerated Warehouses, Inc. ("Alford") pursuant to
an Agreement and Plan of Merger dated November 23, 1998 by
and among Hilltop, Womack Gilman Investment Services, L.C.,
Halter Financial Group, Inc. and Alford (the "Merger
Agreement"). In accordance with the terms of the Merger
Agreement, Alford was the surviving corporation. Immediately
prior to the merger, Hilltop amended its Articles of
Incorporation to effect a reverse stock split so that each
share of Hilltop's issued and outstanding common stock was
automatically converted into .625 of a fully paid and
nonassessable share of Hilltop's common stock. Pursuant to
F-7
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
the terms of the Merger Agreement, each share of common
stock of Alford was automatically converted into the right
to receive 655.1372 shares of the common stock of the
Company. In addition, the Articles of Incorporation and the
Bylaws of Alford became the Articles of Incorporation and
Bylaws of the Company, the directors and officers of Alford
became the directors and officers of the Company, and the
Company changed its name to Alford Refrigerated Warehouses,
Inc. The transaction is considered a reverse merger.
Application of reverse merger accounting results in the
following:
1. The consolidated financial statements of the combined
entity are issued under the name of the legal parent,
Alford Refrigerated Warehouses, Inc. (formerly
Hilltop), but the entity is considered a continuation
of the legal subsidiary, Alford.
2. As Alford is deemed to be the acquirer for accounting
purposes, its assets and liabilities are included in
the consolidated financial statements of the continuing
entity at their carrying values.
3. Amounts presented for periods prior to December 1998
are those of Alford, the legal subsidiary. All shares
for periods prior to December 31, 1998, have been
retroactively adjusted as if a stock split had
occurred.
4. Costs related to the transaction with the Company were
expensed during 1998.
Merger of
Affiliated
Entities
with Alford
In November 1998, certain affiliated entities of Alford were
merged into Alford. These entities, including Robco
Industries, Inc. ("Robco") and Alltemp Logistical Services,
LLC ("Alltemp") are in the same line of business as the
Company and, by virtue of their ultimate ownership, are
considered to be entities under common control with the
Company. Accordingly, these mergers were accounted for in a
manner similar to a pooling of interests and the balance
sheets, statements of operations, stockholders' equity and
cash flows give retroactive effect to the mergers as if they
occurred as of the beginning of the earliest period
presented. The operations of Robco and Alltemp are
insignificant to total operations.
Description of
Business and
Revenue
Recognition
The Company's public warehouse business consists of
providing customers, which include food processors,
distributors, wholesalers and retailers, with temperature
controlled storage services and a full range of logistics
management and other value-added services such as (i) blast
freezing of fresh products, (ii) repackaging and labeling of
food products, (iii) order picking and load consolidation,
(iv) cross docking , (v) container handling, (vi) importing
and exporting services, (vii) USDA approved storage and
inspection services, and (viii) Federal Government inspected
facility for export.
F-8
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
The Company is a third party service provider and as such
does not purchase the inventory that it stores. When the
Company receives products for storage, it provides the
customer with a nonnegotiable warehouse receipt. At that
time, the customer pays for one month of storage and
handling based upon the type and amount of product accepted
at the beginning of the 30 day period. The prepayment is
accounted for as deferred revenue. The Compan y's inventory
control system monitors the product by type of product and
by lot number. In order to remove any product from storage,
the customer places an order with the Company, the Company
removes the product from the warehouse for the customer and
provides the customer with a bill of lading. Revenue is
recognized ratably throughout the storage period and billed
monthly.
In addition to its public warehouse business, the Company
leases refrigerated space to approximately 28 tenants who
manage their own inventory and logistics functions and
utilize their own equipment and personnel. In almost all
cases, the tenant pays all of the expenses, except for
utilities and property taxes which are included in the rent.
The terms of the leases may be month to month or as long as
five years. The Company does not allow tenants to make any
special modifications to the leased space without the
Company's prior approval. For the year ended December 31,
1998, public warehouse cus tomers represented over 93
percent of the Company's revenue, the remainder of which was
attributable to leased space.
Basis of
Presentation
The consolidated financial statements include the accounts
of Alford Refrigerated Warehouses, Inc. and its wholly owned
subsidiaries: Alford Logistical Services, Inc. ("ALS"),
Thermix Corporation ("Thermix"), Specialty Processing
Corporation ("SPC"), Alford Terminal Warehouses, Inc.
("ATW"), Alford Distribution Services, Inc. ("ADS"), Cadiz
Properties, Inc. ("Cadiz"), and La Porte Properties, LLC
("LPP"). All intercompany transac tions and balances have
been eliminated.
Set forth below is information with respect to certain of
the Company's properties. The industry measures space in
cubic feet instead of square feet because cost projections
include facility height to account for refrigeration and
stacked cooled product.
<TABLE>
<CAPTION>
Approximate Lease
Primary Size Owned/ Expiration
Location Use (Unaudited) Lease Date
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dallas, Texas Corporate office 24,000,000 cubic Owned N/A
& Warehouse feet on 52 acres
La Porte, Texas Warehouse 4,500,000 cubic feet Owned N/A
on 32.3 acres
Richardson, Texas Warehouse 3,200,000 cubic feet Leased Dec. 31, 2007
on 12.4 acres
Fort Worth, Texas Warehouse 1,550,000 cubic feet Leased Jan. 31, 2000
on 13.5 acres
</TABLE>
F-9
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
Cash and Cash
Equivalents
For purposes of reporting the consolidated statements of
cash flows, the Company considers all highly liquid
investments purchased with an original maturity of three
months or less to be cash equivalents.
Property, Plant
and Equipment
Property, plant and equipment are stated at cost, less
accumulated depreciation. The cost of additions and
improvements are capitalized, while maintenance and repairs
are charged to expense when incurred.
Depreciation of property, plant and equipment is calculated
using the straight-line method. The estimated depreciable
lives range from three to seven years for most machinery and
equipment and 31.5 years for buildings.
Leased property meeting certain criteria is capitalized and
the present value of the related lease payments is recorded
as a liability. Amortization of capitalized leased assets is
computed on the straight-line method over the term of the
lease.
Realization of long-lived assets is periodically assessed by
the Company to determine if an impairment of the carrying
value of the assets has occurred. If impairment exists, an
impairment loss is recognized, by a charge against earnings,
equal to the amount by which the carrying amount of the
asset exceeds the fair value of the asset. If impairment of
an asset is recognized, the carrying amount of the asset is
reduced by the amount of the impairment, and a new cost for
the asset is established. Such new cost is depreciated over
the asset's remaining useful life.
Income Taxes
The Company used the asset and liability approach for
accounting for income taxes. Deferred income taxes are
recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities
and their financial reporting amounts at each year-end based
on enacted tax laws and statutory tax rates applicable to
the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax
payable for the period and the change during the period in
deferred tax assets and liabilities.
Use of
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles (GAAP) 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 these estimates.
F-10
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
Earnings Per
Share
Income per share is computed based upon the weighted average
number of shares of Common Stock outstanding during each
year adjusted for the reverse stock split effected November
1998. The Company adopted SFAS 128, Earnings Per Share,
effective for 1997. The adoption had no impact on the
financial statements of the Company.
2. Related
Party
Transactions
On December 1, 1996, the Company entered into an agreement
("the Agreement") with Canfina AG and J. Eichmann to repay
existing loans and to purchase Mr. Eichmann's Company stock.
The Agreement terms consisted of the following:
$1,700,000 loan repayment to Canfina AG on December 31,
1996
$3,000,000 loan repayment to Canfina AG on June 11,
1997
$2,000,000 payment to Mr. Eichmann no later than
December 13, 1997 in consideration for his shares of
Company stock (see below).
$2,600,000 term note due December 2001 secured by
shares of the Company's common stock held in escrow
(Note 4).
The Company made the first payment of $1,700,000 as
scheduled. On September 15, 1997, the Company modified the
Agreement with Mr. Eichmann whereby the interest rate on the
$2,600,000 note increased from 8 percent to 9 percent in
exchange for an extension on the due date of the $3,000,000
payment. The second payment of $3,000,000 due to Mr.
Eichmann was made by use of certain proceeds from an
$8,100,000 loan from Morgan Guaranty Trust Company of New
York. On December 4, 1997, the Company paid Mr. Eichmann
$2,000,000 in exchange for rights to his shares in
accordance with the Agreement using funds obtained through a
term note and line of credit with Nations Credit Commercial
Corporation (Note 5). These rights were assigned to the
Company's parent, Castor Capital Corporation ("Castor") in
exchange for a $2,000,000 note receivable (see below).
During 1998, Castor assumed $2,600,000 of the aforementioned
amounts due Eichmann as settlement of a portion of the notes
payable due the Company.
During 1998, the Company advanced Castor a total of
$834,868. As a part of the aforementioned settlement of the
Castor notes payable due the Company, $771,509 of these
advances were settled.
On February 5, 1998, the Company loaned an affiliate
$714,362 as evidenced by a promissory note payable to the
Company at the rate of 8 percent per annum due December 31,
1999. During November 1998, the $714,362 receivable was
eliminated upon the merger of the affiliated entity with
Alford.
F-11
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
The Company's due from affiliates consists of the following
at December 31, 1998 and 1997:
Description 1998 1997
- --------------------------------------------------------------------------------
8%promissory note from Castor,
secured by 500,000 shares of
the Company common stock,
balance of principal and
accrued interest due December
31, 2002 $ 1,676,655 $ 2,007,452
8%unsecured promissory note
from Castor, balance of
principal and accrued
interest due December 31,
2000 - 1,534,521
Advances to Castor 396,424 333,065
Advances to affiliate 140,000 140,000
- --------------------------------------------------------------------------------
$ 2,213,079 $ 4,015,038
- --------------------------------------------------------------------------------
3. Property,
Plant and
Equipment
The Company's property, plant and equipment consists of the
following:
1998 1997
- --------------------------------------------------------------------------------
Land $ 4,939,136 $ 4,265,389
Building 12,707,043 7,183,415
Machinery and equipment 2,656,873 2,036,283
Machinery and equipment
under capital leases 1,595,040 403,812
- --------------------------------------------------------------------------------
21,898,092 13,888,899
Less accumulated depreciation 3,140,413 2,363,844
- --------------------------------------------------------------------------------
Total $ 18,757,679 $ 11,525,055
- --------------------------------------------------------------------------------
Included in accumulated depreciation is $240,385 and $40,500
of accumulated depreciation related to machinery and
equipment under capital leases at December 31, 1998 and
1997, respectively.
F-12
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
4. Income
Taxes
Income tax expense (benefit) for the years ended December
31, 1998 and 1997 was as follows:
1998 1997
------------------------------------------------------------
Current tax expense $ 65,000 $ 2,000
Deferred tax expense (benefit) 296,000 (6,593)
------------------------------------------------------------
Total tax expense (benefit) $ 361,000 $ (4,593)
------------------------------------------------------------
A reconciliation between the actual income tax expense and
income taxes computed by applying the statutory federal
income tax rate to earnings before income taxes follows:
1998 1997
------------------------------------------------------------
Computed income taxes, at 34
percent $ 399,000 $ 51,000
Change in valuation allowance -- (57,593)
Franchise taxes 16,000 2,000
Other, net (54,000) --
------------------------------------------------------------
$ 361,000 $ (4,593)
------------------------------------------------------------
The net deferred tax asset is partially offset by a deferred
tax liability which consists primarily of the difference
between book and tax depreciation on property, plant and
equipment. Differences between book and tax depreciation
were approximately $2,763,000 and $3,081,000 at December 31,
1998 and 1997, respectively. The deferred tax liability was
calculated at the federal tax rate of 34 percent.
The net deferred tax asset includes amounts relating to the
carryforward of prior year net operating losses (NOL) which
have expiration dates ranging from 2003 through 2006. At
December 31, 1998 and 1997, the Company had potential NOL
carryforwards of approximately $8,332,000 and $9,703,000,
respectively. A valuation allowance of $1,676,000 exists for
both years for NOL carryforwards not anticipated to be
realized before expiration. Management believes realization
of the entire net asset is more likely than not based on
future income projections. The deferred tax asset was
calculated at the federal tax rate of 34 percent.
5. Notes
Payable,
Long-Term
Debt, and
Line of
Credit
Notes payable consist of various notes due to insurers with
principal totaling $117,768 and $144,200 at December 31,
1998 and 1997, respectively. The notes accrue interest at
various rates; principal and interest are due monthly.
F-13
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
The Company's long-term debt consists of the following:
Description 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
8.4% Morgan Guaranty Trust Company
of New York note, monthly payments
of principal and interest of $69,782,
remaining balance of principal and
accrued interest due October, 2007,
secured by the land and improvements
and certain other property and equipment
at the Company's Cadiz Street facility. $ 7,908,283 $ 8,073,745
8.36% Amresco Capital, L.P. note,
monthly payments of principal and
interest of $42,974, remaining balance
of principal and interest due March, 2008,
secured by the land and improvements
and certain other property and equipment
at the Company's La Porte, Texas facility. 5,355,641 -
Obligations under capital leases,
maturity dates ranging from 1999
through 2002. 1,086,504 419,475
Nations Credit Commercial Corporation
term note, prime plus 5% (12.75% at
December 31, 1998), monthly principal
payments of $20,119 plus accrued
interest, remaining principal and
accrued interest due December 3, 2001,
secured by selected equipment and
guaranties from Castor, ALS, Thermix,
SPC, ATW, and ADS. 965,760 1,207,160
Other 152,799 238,843
9% J. Eichmann note, quarterly
principal payments from second to
fifth year of $62,500, remaining
principal and accrued interest due
December 2001, secured by common
stock held in escrow (Note 2). - 2,600,000
--------------------------------------------------------------------------------------------------------
15,468,987 12,539,223
Current maturities (1,072,415) (688,130)
--------------------------------------------------------------------------------------------------------
$ 14,396,572 $ 11,851,093
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-14
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
Maturities of long-term debt follows:
Year ended December 31,
- --------------------------------------------------------------------------------
1999 $ 1,072,415
2000 814,894
2001 1,020,587
2002 445,376
2003 350,639
Thereafter 11,765,076
- --------------------------------------------------------------------------------
$ 15,468,987
- --------------------------------------------------------------------------------
Included in the above maturities of long-term debt are
capital lease principal payments of approximately $443,000
in 1999, $280,000 in 2000, $241,000 in 2001 and $123,000 in
2002.
The Morgan Guaranty Trust Company of New York ("Morgan")
note requires the establishment of certain escrow accounts.
Morgan restricts the use of the funds to the designated
purpose of the accounts in accordance with the terms of the
note.
The loan agreement with Nations Credit Commercial
Corporation ("Nations") contains various restrictive
covenants. Certain covenants were in technical default at
December 31, 1998. The Company obtained waivers pertaining
to these defaults from Nations permitting the payments made
to affiliates during 1998 and the capital additions in
excess of allowed limits, as restricted by the loan
agreement.
Effective January 1, 1998, Castor assumed the $2,600,000
note payable to Eichmann (see Note 2). The Company
guaranteed the repayment of the note payable to Eichmann.
The Company has a line of credit with Nations Credit
Commercial Corporation which provides up to $2,500,000
through December 3, 2001 at prime (7.75 percent at December
31, 1998) plus 5 percent. Interest is payable monthly, and
all unpaid but accrued interest and principal is due at
maturity. The line of credit is secured by guaranties from
Castor, ALS, Thermix, SPC, ATW, and ADS.
6. Commitments and
Contingencies
The Company rents certain real estate and equipment under
operating leases. The leases do not provide for any
significant renewals; and, except for insignificant leases
as discussed below. there are no existing purchase options.
Rent expense was $1,577,129 and $1,723,553 for the years
ended December 31, 1998 and 1997, respectively.
F-15
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
Future minimum rental payments required under operating
leases that have initial or remaining noncancelable lease
terms in excess of one year at December 31, 1998, were:
Year ended December 31, Amount
------------------------------------------------------------
1999 $ 881,130
2000 630,384
2001 600,000
2002 600,000
2003 600,000
Thereafter 2,400,000
------------------------------------------------------------
$5,711,514
------------------------------------------------------------
From time to time, in the normal course of business, the
Company is a party to various matters of litigation.
Management is of the opinion that the eventual resolution of
these matters will not have a material adverse effect on the
Company.
The Company has guaranteed an obligation of Castor to Mr. J.
Eichmann (see Note 5). At December 31, 1998, this obligation
totaled $2,350,000. No liability has been recorded in the
financial statements related to this guarantee.
The Company has entered into a Purchase and Sale Agreement
for the Fort Worth facility for $3,000,000. The Company
expects to complete the transaction in the second quarter of
1999 and is currently negotiating with a potential lender to
provide financing. 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.
7. Concentration
of Credit Risk
At December 31, 1998 and 1997, the Company had bank deposits
in excess of federally insured limits of approximately
$45,000 and $134,000, respectively.
The Company derived 12 and 10 percent of its revenue from
two customers, respectively, in 1997. During 1998, no single
customer provided greater than 10 percent of the Company's
revenues. The Company closely monitors the creditworthiness
of its customers and does not believe that it is dependent
upon any single customer.
8. Supplemental
Cash Flow
Information
Cash paid for interest during the years ended December 31,
1998 and 1997 was approximately $1,385,000 and $800,000,
respectively. Cash paid for income taxes during the years
ended December 31, 1998 and 1997 was approximately $6,000
and $-0-, respectively.
F-16
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Noncash investing and financing activity during 1998 and
1997 consists of the following:
1998 1997
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Financing of various insurance policies
(Note 5) $ 395,822 $ 418,022
Capitalization of leased assets and
obligations (Note 5) 1,191,228 403,812
Debt reduction in exchange for receivable
reduction (Note 2) 2,600,000 -
Assumption of debt related to acquisition
of property, plant and equipment in
LaPorte, Texas 5,400,000 -
Issuance of common shares for services,
pursuant to merger agreement 10,000 -
</TABLE>
9. Rental
Income
Under
Operating
Leases
The Company's operations include the leasing of space to
third parties in the Company's commercial warehouses. The
following is a schedule of minimum future rental income on
non-cancelable operating leases at December 31, 1998:
Year ended December 31, Amount
------------------------------------------------------------
1999 $ 519,262
2000 99,215
2001 73,685
2002 39,600
2003 3,300
------------------------------------------------------------
$ 735,062
------------------------------------------------------------
10. Description
of
Securities
Each share of Common Stock entitles the holder thereof to
one vote on all matters on which holders are permitted to
vote. No shareholder has any preemptive right or other
similar right to purchase or subscribe for any additional
securities issued by the Company, and no shareholder has any
right to convert Common Stock into other securities. No
shares of Common Stock are subject to redemption or to any
sinking fund provisions. All of the outstanding shares of
Common Stock are fully paid and nonassessable.
Subject to rights of holders of Preferred Stock, if any, the
holders of shares of Common Stock are entitled to dividends
when, as and if declared by the Board of Directors from
funds legally available therefor and, upon liquidation, to a
pro rata share in any distribution to shareholders. The
F-17
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
Company does not anticipate declaring or paying any cash
dividends on the Common Stock in 1999. The Company must
obtain approval from its lenders prior to paying dividends
in order to remain in compliance with various loan
covenants.
Pursuant to the Company's Amended and Restated Articles of
Incorporation, the Board of Directors has the authority to
provide for the issuance of up to 5,000,000 shares of
Preferred Stock in one or more series and to determine the
dividend rights, conversion rights, voting rights, rights
and terms of redemption, liquidation preferences, the number
of shares constituting any such series and the designation
of such series. Because the Board of Directors has the power
to establish the preferences and rights of each series, it
may afford the holders of any Preferred Stock preferences,
powers and rights (including voting rights) senior to the
rights of the holders of Common Stock. No shares of
Preferred Stock are currently outstanding.
11. Segment
Information
Alford Refrigerated Warehouses, Inc. has four reportable
segments consisting of one cold storage public warehouse in
each segment. Each warehouse is identified and referred to
by the city in which the warehouse is located: Dallas,
Richardson, Fort Worth and La Porte. The reportable segments
are strategic business units which are managed separately as
independent profit centers. The services from which each
reportable segment derives its revenues are fundamentally
the same, the storage and handling of refrigerated product.
The accounting policies of the segments are the same as
those described in the summary of significant accounting
policies. The Company measures segment profit as income
before income taxes and extraordinary items. There are no
intersegment sales or transfers.
The "Other" category includes results from a location which
ceased operations in November 1998 and expenses for the
corporate office.
<TABLE>
<CAPTION>
Fiscal year ended Consolidated
December 31, 1998 Dallas Richardson Ft. Worth La Porte Subtotal Other Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 9,411,480 $ 2,264,779 $ 1,110,884 $2,771,127 $15,558,270 $ 2,093,671 $ 17,651,941
Depreciation and
amortization 451,867 12,591 15,433 254,624 734,515 42,054 776,569
Interest expense 1,029,172 - - 414,425 1,443,597 18,721 1,462,318
Rent expense - 818,217 267,500 20,000 1,105,717 471,413 1,577,130
Segment profit 1,500,682 213,996 120,465 15,012 1,850,155 (675,879) 1,174,276
Segment gross
property, plant
and equipment 13,849,675 323,940 294,661 6,818,201 21,286,477 611,615 21,898,092
F-18
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
Fiscal year ended Consolidated
December 31, 1997 Dallas Richardson Ft. Worth La Porte Subtotal Other Total
- ---------------------------------------------------------------------------------------------------------------------
Revenues $ 8,129,544 $ 1,899,151 $ 1,005,607 $2,500,846 $13,535,148 $ 2,076,258 $ 15,611,406
Depreciation and
amortization 388,035 15,204 43,112 42,328 488,679 57,053 545,732
Interest expense 815,864 - - 2,570 818,434 212,355 1,030,789
Rent expense - 622,117 225,000 426,436 1,273,553 450,000 1,723,553
Segment profit 802,032 127,413 67,454 (64,734) 932,165 (795,261) 136,904
Segment gross
property, plant
and equipment 12,564,663 286,042 291,173 137,325 13,279,203 609,696 13,888,899
</TABLE>
12. Fair Value
of Financial
Instruments
The methods and assumptions used to estimate the fair value
of each class of financial instrument are as follows:
Cash and cash equivalents, trade receivables, certain other
current assets, notes payable, accounts payable, and current
maturities of long-term debt. The carrying amounts
approximate fair value because of the short maturity of
these instruments.
Long-term receivables. The fair value of long-term
receivables was based on discounted cash flows or other
specific instrument analysis.
The carrying amounts and fair values of long-term notes
receivable were as follows:
December 31, 1998 1997
------------------------------------------------------------
Carrying amount $ 1,676,655 $ 3,541,973
Fair value 1,615,000 3,412,000
------------------------------------------------------------
Long-term debt. The carrying amounts of the Company's bank
borrowings under its revolving credit agreement approximates
fair value because the interest rate is based on floating
rates identified by reference to market rates. The fair
values of the Company's other long-term debt either
approximate carrying value or are estimated based on quoted
market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same
remaining maturities.
The carrying amounts and fair values of long-term debt at
December 31, 1998 and 1997 were as follows:
December 31, 1998 1997
------------------------------------------------------------
Carrying amount $14,396,572 $ 11,851,093
Fair value 14,253,000 11,700,000
------------------------------------------------------------
F-19
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. Indemnification of Directors and Officers
The Amended and Restated Articles of Incorporation provide that the
Company shall indemnify any person who was, is or is threatened to be made a
named defendant in a proceeding because the person (i) is or was a director or
officer of the Corporation or (ii) while a director or officer of the
Corporation, is or was serving as a director, officer, partner, or other
functionary of another corporation, partnership or other enterprise, to the
fullest extent that a corporation may grant indemnification to a director under
the Texas Business Corporation Act. Article 2.01-1 of the Texas Business
Corporation Act (the "TBCA") provides that a corporation may indemnify any
director or officer provided that the director or officer (i) conducted himself
in good faith, (ii) reasonably believed (a) in the case of conduct in his
official capacity, that his conduct was in the corporation's best interests or
(b) in all other cases, that his conduct was at least not opposed to the
corporation's best interests and (iii) in the case of any criminal proceeding,
had no reasonable cause to believe his conduct was unlawful. Subject to certain
exceptions, a director or officer may not be indemnified if the person is found
liable to the corporation or if the person is found liable on the basis that he
improperly received a personal benefit. Under Texas law, reasonable expenses
incurred by a director or officer may be paid or reimbursed by the corporation
in advance of a final disposition of the proceeding after the corporation
receives a written affirmation by the director or officer of his good faith
belief that he has met the standard of conduct necessary for indemnification and
a written undertaking by or on behalf of the director or officer to repay the
amount if it is ultimately determined that the director or officer is not
entitled to indemnification by the corporation. Texas law requires a corporation
to indemnify an officer or director against reasonable expenses incurred in
connection with a proceeding in which he is named a defendant or respondent
because he is or was a director or officer if he is wholly successful in defense
of the proceeding.
Texas law permits a corporation to purchase and maintain insurance or
another arrangement on behalf of any person who is or was a director or officer
against any liability asserted against him and incurred by him in such a
capacity or arising out of his status as such a person, whether or not the
corporation would have the power to indemnify him against that liability under
Article 2.02-1 of the TBCA. The Company has directors' and officers' liability
insurance policies to cover certain liabilities of directors and officers
arising out of claims based on certain acts or omissions by them in their
capacity as directors or officers.
The above discussion is not intended to be exhaustive and is qualified
in its entirety by such statute and the Company's Amended and Restated Articles
of Incorporation and bylaws, respectively.
ITEM 25. Other Expenses of Issuance and Distribution
Following are the estimated expenses which will be incurred by Alford
with respect to the distribution of the common stock.
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration Fee......................................................$ 1,250.00
Printing and Engraving...................................................................................$ 2,500.00
Fees of Transfer Agent...................................................................................$ 500.00
Legal Fees and Expenses..................................................................................$ 15,000.00
Accountant's Fees and Expenses...........................................................................$ 20,000.00
Miscellaneous............................................................................................$ .00
-----------
$ 39,250.00
===========
</TABLE>
II-1
<PAGE>
ITEM 26. Recent Sales of Unregistered Securities
Pursuant to the First Amended Joint Plan of Reorganization entered into
on July 9, 1996, as modified, the Company issued an aggregate of 187,701 shares
of Common Stock to certain of its creditors on various dates in 1996. Such
shares were issued in accordance with Section 1145 under the United States
Bankruptcy Code and the transaction was thus exempt from the registration
requirements of Section 5 of the Securities Act of 1933 (the "Securities Act").
Effective December 15, 1998, the Company issued to Castor Capital
Corporation, the sole stockholder of Alford, an aggregate of 6,551,372 shares of
Common Stock in exchange for an aggregate of 10,000 shares of common stock of
Alford pursuant to the Merger Agreement. Castor Capital Corporation is a
sophisticated, knowledgeable investor able to bear the economic risk of an
investment in these shares of Common Stock. The Company relied on Section 4(2)
of the Securities Act because the transaction did not involve a public offering
and was thus exempt from the registration requirements of the Securities Act. No
underwriters were used in connection this transaction.
Effective in December 1998, the Company issued to Mr. Art Beroff 92,000
shares of Common Stock as a finders fee. Mr. Art Beroff is a sophisticated,
knowledgeable investor able to bear the economic risk of an investment in these
shares of Common Stock. The Company relied on Section 4(2) of the Securities Act
because the transaction did not involve a public offering and was thus exempt
from the registration requirements of the Securities Act. No underwriters were
used in connection with this transaction.
ITEM 27. Exhibits and Financial Statement Schedules
(a) The financial statements filed as part of this Registration Statement
in Item 13 are listed in the Index to Financial Statements contained in such
Item.
(b) The following documents are filed as exhibits to this Registration
Statement:
2.1 First Amended Joint Plan of Reorganization dated July 9, 1996 as
modified and clarified to date (incorporated by reference as
Exhibit 2.1 of Alford's registration statement on Form 10-SB (No.
000-25351 dated February 4, 1999)
2.2 Agreement and Plan of Merger dated November 23, 1998 by and
between Hilltop Acquisition Holding Corporation, Womack Gilman
Investment Services, L.C., Halter Financial Group, Inc. and
Alford Refrigerated Warehouses, Inc. (incorporated by reference
as Exhibit 2.2 of Alford's registration statement on Form 10-SB
(No. 000-25351 dated February 4, 1999)
3(i) Restated Articles of Incorporation (with amendments)
(incorporated by reference as Exhibit 3(i) of Alford's
registration statement on Form 10-SB (No. 000-25351 dated
February 4, 1999)
3(ii)Amended and Restated Bylaws (incorporated by reference as
Exhibit 3(ii) of Alford's registration statement on Form 10-SB
(No. 000-25351 dated February 4, 1999)
II-2
<PAGE>
4.1 Form of Common Stock Certificate (incorporated by reference as
Exhibit 4.1 of Alford's registration statement on Form 10-SB (No.
000-25351 dated February 4, 1999)
*5.1 Opinion of Jenkens & Gilchirst, A Professional Corporation
10.1 Fixed Rate Note dated September 15, 1997 between Cadiz
Properties, Inc., and Morgan Guaranty Trust Company of New York
(incorporated by reference as Exhibit 10.1 of Alford's
registration statement on Form 10-SB (No. 000-25351 dated
February 4, 1999)
10.2 Fixed Rate Note dated February 6, 1998 between La Porte
Properties, L.L.C., and Amresco Capital, L.P. (incorporated by
reference as Exhibit 10.2 of Alford's registration statement on
Form 10-SB (No. 000-25351 dated February 4, 1999)
10.3 Consulting Agreement dated January 1, 1997 between Alford
Refrigerated Warehouses, Inc. and Alton M. Adams, P. Eng.
(incorporated by reference as Exhibit 10.3 of Alford's
registration statement on Form 10-SB (No. 000-25351 dated
February 4, 1999)
10.4 Purchase and Sale Agreement executed on or about January 19, 1999
between Alford Refrigerated Warehouses, Inc. and Fort Worth Cold
Storage Holdings, Inc. (incorporated by reference as Exhibit 10.4
of Alford's registration statement on Form 10-SB (No. 000-25351
dated February 4, 1999)
10.5 Consulting Agreement dated March 29, 1999 between Alford
Refrigerated Warehouses, Inc. and Engineering Design and
Construction Managers Limited (incorporated by reference as
Exhibit 10.5 of Alford's registration statement on Form 10-SB
(No. 000-25351 dated February 4, 1999)
21.1 Subsidiaries of the Company (incorporated by reference as Exhibit
21.1 of Alford's registration statement on Form 10-SB (No.
000-25351 dated February 4, 1999)
23.1 Consent of Jenkens & Gilchrist, A Professional Corporation -
contained in Exhibit 5.1
23.2 Consent of BDO Seidman, LLP
* to be filed by amendment
ITEM 28. Undertakings
The undersigned registrant hereby undertakes:
A. To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement; and notwithstanding the forgoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission under Rule 424(b)
II-3
<PAGE>
if, in the aggregate, the changes in the volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculations of Registration Fee" table in the effective registration
statement.
(iii) Include any additional or changed material information
on the plan of distribution.
B. For determining liability under the Securities Act of 1933,
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering.
C. File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
D. Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the small business issuer under the foregoing provisions
or otherwise, the small business issuer has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of expenses
incurred or paid by a director, officer or controlling person of the small
business issuer in the successful defense of any action, suit, or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the small business issuer will, unless in the
opinion of its counsel the matter has been settled by a controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement or amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Dallas and State of Texas on the 7th day of May,
1999.
ALFORD REFRIGERATED WAREHOUSES, INC.
By: /s/ James C. Williams
--------------------------------------------------
James C. Williams, Vice President, Chief Financial
Officer, and Secretary
POWER OF ATTORNEY TO SIGN AMENDMENTS
KNOW ALL BY THESE PRESENTS, that each person whose signature appears
below does hereby constitute and appoint James C. Williams as his true and
lawful attorney-in-fact and agent for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments to the Alford Refrigerated
Warehouses, Inc. Form SB-2, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises in order to effectuate the same as fully,
to all intents and purposes, as they or he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agents, or any of
them, may lawfully do or cause to be done by virtue hereof. This Power of
Attorney been signed below by the following persons in the capacities and on the
dates indicated.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement or amendment has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Alton M. Adams
- ------------------------------- Chief Executive Officer May 7, 1999
Alton M. Adams
/a/ Michael A. Oros
- ------------------------------- President May 7, 1999
Michael A. Oros
/s/ James C. Williams
- ------------------------------- Vice President, Chief May 7, 1999
James C. Williams Financial Officer, Secretary,
Treasurer and Director
/s/ Joseph Y. Robichaud
- ------------------------------- Director May 7, 1999
Joseph Y. Robichaud
/s/ Kenneth M. Tomilson
- ------------------------------- Director May 7, 1999
Kenneth M. Tomilson
</TABLE>
II-5
Consent of Independent Certified Public Accountants
Alford Refrigerated Warehouses, Inc.
Dallas, Texas
We hereby consent to the use in the Prospectus constituting a part of this Reg-
istration Statement of our reported dated March 9, 1999, relating to the consol-
dated financial statements of Alford Warehouses, Inc. which is contained in the
Prospectus.
We also consent to the reference to us under the caption "Experts" in the Pros-
pectus.
/s/ BDO Seidman, LLP
------------------------------
BDO Seidman, LLP
Dallas, Texas
May 11, 1999
