SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-25351
ALFORD REFRIGERATED WAREHOUSES, INC.
(Exact name of registrant as specified in its charter)
TEXAS
(State or other jurisdiction of
incorporation or organization)
75-2695621
(I.R.S. Employer
Identification Number)
318 Cadiz Street, Dallas, Texas 75207
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 426-5151
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of
the Act:
Common Stock, $0.01 Par Value
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Report on Form 10-KSB
or any amendment to this Report on Form 10-KSB. _____
The total issuer's revenue for its most recent fiscal year ended
December 31, 1999 was $15,712,757.
The aggregate market value of the voting stock (which consists solely
of shares of Common Stock) held by non-affiliates of the Registrant as of March
22, 2000 (based upon the average bid and asked price) was $3,698,357.50.
Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes X No
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As of March 22, 2000 there were 7,540,715 shares of the issuer's Common
Stock, par value $0.01 per share, issued and 7,040,715 shares outstanding. Of
such outstanding shares, 1,479,343 were held by non-affiiliates.
Documents Incorporated by Reference. None.
Transitional Small Business Issuer Format. Yes No X
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TABLE OF CONTENTS
PAGE
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PART I...........................................................................................................1
Item 1. DESCRIPTION OF BUSINESS..........................................................................1
Item 2. DESCRIPTION OF PROPERTY..........................................................................5
Item 3. LEGAL PROCEEDINGS................................................................................6
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............................................6
PART II...........................................................................................................6
Item 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.........................................6
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............7
Item 7. FINANCIAL STATEMENTS............................................................................12
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE............12
PART III.........................................................................................................12
Item 9. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT; DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS.........................................................................................12
Item 10. EXECUTIVE COMPENSATION.........................................................................14
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................15
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................15
Item 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...............................16
SIGNATURES.................................................................................................18
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PART I
Item 1. DESCRIPTION OF BUSINESS
The Company
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 and stock 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.
Merger with Alford
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 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.
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.
The Business
The Company believes that it is the largest public refrigerated warehousing
operation in the southwest United States. The Company operates a network of four
strategically located refrigerated warehouse facilities in Texas, with a total
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area of 1,500,000 sq. ft. or 33,000,000 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 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.
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 Company'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. If there is any
product remaining in storage at the end of the 30 day period, the Company bills
the customer for an additional 30 days of storage.
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, 1999 public warehouse customers represented over 92% of
the Company's revenue, the remainder of which was attributable to leased space.
For the year ended December 31, 1998, public warehouse customers represented
approximately 93% of the Company's revenue.
The Company is designing and planning the construction of a 4,000,000 cubic foot
addition to its Cadiz Street facility in Dallas, Texas. The Company anticipates
that the new addition will contain a blast freezing capacity of 400,000 lbs. per
day and storage at -20EF.
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.
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Customers
The Company had approximately 600 customers during the 12 months ended December
31, 1999 and during the 12 months ended December 31, 1998. The Company'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, Beatrice Foods, M & M Mars, Kroger Co., Maple Leaf Foods,
Borden Dairy, Chef America, Birdsong Peanuts and many others. During the twelve
months ended December 31, 1999 and December 31, 1998, no customer accounted for
more than 10% of the Company'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 2 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.
Sales and Marketing
The Company'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.
The Company'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
The Company's largest expenses are labor and utilities. It is not dependent upon
any one supplier for raw materials. The majority of the Company's maintenance
services are provided primarily by its own employees.
Employees
As of December 31, 1999, the Company had a total of 182 employees, all of whom
are full-time employees. Of these employees, approximately 124 were employed at
the Dallas, Texas facility which includes its corporate offices, 37 were
employed at the La Porte facility, 13 were employed at the Richardson facility
and 8 were employed at the Fort Worth facility. None of the employees are
represented by a labor union.
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Government Regulation
The Company'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, the Company uses anhydrous ammonia
in its operations. In addition, the Company used a type of refrigerant which is
no longer being produced because of government regulations. The Company has
modified its equipment and all of its equipment is able to use a new type of
refrigerant. The Company'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. The
Company believes that it is currently in substantial compliance with all such
applicable laws and regulations. The Company cannot at this time estimate the
impact of any increased regulation on the Company's operations, future capital
expenditure requirements or the cost of compliance.
In addition to regulating the Company directly, the Company's customers are
subject to certain regulations relating to the import and export of food
products. The Company maintains an approved USDA inspection room on site at
three of its four facilities for the benefit of its customers.
Research
The Company 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 to advance the application of refrigeration technology for better pre-
servation 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
The Company uses certain licenses and registrations in its operations. For
example, the Company has a perpetual license for the use of certain software
from Maves International Software, Inc. The Company uses this software for
inventory control and financial reporting. The Company is not required to pay
any additional royalties on the software, however, the Company periodically
purchases upgrades to the software.
In addition, Alford Distribution Services, Inc. ("ADS"), a wholly owned
subsidiary of the Company, is licensed by the Texas Alcoholic Beverages
Commission to store products containing alcohol. ADS is required to post a bond
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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, the Company 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.
The Company's trademark, a penguin, is registered with the patent trademark
office. This registration is periodically subject to renewal.
Item 2. DESCRIPTION OF PROPERTY
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. The Company believes that all of these properties
are adequately insured, in good condition and suitable for their anticipated
future use.
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Lease
Location Primary Use Approximate Size Owned/Lease Expiration Date
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Dallas, Texas Corporate office & 24,000,000 cubic feet Owned N/A
Warehouse on 52 acres
La Porte, Texas Warehouse 4,500,000 cubic feet on Owned N/A
32.3 acres
Richardson, Texas Warehouse 3,200,000 cubic feet on Leased Dec. 31, 2007
12.4 acres
Fort Worth, Texas Warehouse 1,550,000 cubic feet on Owned N/A
13.5 acres
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Dallas, Texas
The Company 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. The
Company 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 the Company'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 March 22, 2000, the Company owed approximately $7,680,995 on the mortgage
which matures on or about October 1, 2007. At that time, assuming no
prepayments, the Company will owe approximately $5,682,578.
The Company currently plans to construct 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 the Company's common shares.
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La Porte, Texas
The Company 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. The
Company 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
March 22, 2000, the Company owed approximately $5,275,610 on the mortgage which
matures on or about March 1, 2008. At that time, assuming no prepayments, the
Company will owe approximately $4,511,799.
Richardson, Texas
The Company has three subtenants at its Richardson facility. Of these, no
subtenant occupies ten percent or more of the rentable cubic footage of the
facility. The Company has executed an exclusive option contract for the purchase
of this property for $6,000,000.
The Company 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. The Company hopes to close this transaction by the end of the
second quarter of 2000.
Fort Worth, Texas
As of December 31, 1999, the Company had four tenants at its Fort Worth
facility. Of these, Kroger Co. accounted for approximately 30% of the space in
the facility. The lease between the Company and Kroger Co. is for a one year
term with provisions for annual renewal.
This property is subject to a 3 year variable rate mortgage in the original
principal amount of $2,100,000 which accrues interest at prime rate plus 0.50%.
As of March 22, 2000, the Company owed approximately $1,983,333 on the mortgage
which matures on or about May 1, 2002. At that time, assuming no prepayments,
the Company will owe approximately $1,691,655.
Item 3. LEGAL PROCEEDINGS
Other than routine litigation incidental to the business, the Company is not a
party to any legal actions or proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year 1999, there were no matters
submitted to a vote of security holders.
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The company securities have been traded on the NASDAQ Small Cap market since
September of 1999. High and low sales prices for the equity for each full
quarterly period are as follows:
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1999 Quarter High Low
1st N/A N/A
2nd N/A N/A
3rd $ 5.25 $ 2.875
4th $ 4 $ 2.25
As of March 22, 2000, there were 7,540,715 shares of Common Stock issued and
7,040,715 shares of Common Stock outstanding held by approximately 1,100 holders
of record.
The Company has not paid dividends on its Common Stock and anticipates that in
2000 all earnings will be retained to finance the continuing development of its
business. The Company does not anticipate paying dividends on the Common Stock
in 2000 but may consider paying dividends thereafter. The Company's current bank
loan agreement requires the bank's prior written consent for the payment of
dividends.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
With the exception of historical information, the matters discussed in this
report are "forward looking statements" as that term is defined in Section 21E
of the Securities Exchange Act of 1934. The Company cautions the reader that
actual results could differ materially from those expected by the Company
depending on the outcome of certain factors, including, without limitation,
adverse changes in the market for the Company's services, competition from new
facilities, loss of revenues due to fires or accident, labor shortages and the
loss of significant customers or increased utilities costs. Readers are
cautioned not to place undue reliance on any forward-looking statement. All
forward-looking statements speak only as of the date of this filing. The Company
does not have any obligations to update or otherwise make any revisions to these
statements to reflect events or circumstances after the date of this filing,
including, without limitation, changes in the Company's business strategy or
planned capital expenditures, or to reflect the occurrence of unanticipated
events.
Unless otherwise noted, all dollar amounts are rounded to the nearest dollar.
Reference to 1998 and 1999 are to the year ended December 31 of each year.
Results Of Operations
The Company currently operates four facilities, all of which are located in the
state of Texas. Included in the revenues and expenses for the year ended
December 31, 1998 are the results of a fifth facility located in Houston which
was discontinued in November of 1998 due to the termination of the lease on the
facility by the landlord.
Year Ended December 31, 1999, Compared To Year Ended December 31, 1998
Revenues
Total revenues for 1999 were $15,712,757, a decrease of $1,939,184, or 11.0%,
compared to revenues of $17,651,941 for 1998. This decrease in revenues is due
primarily to having discontinued the operation in Houston in 1998.
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The Company recorded a net income of $664,828 or $.09 per share for 1999, as
compared to a net income of $813,276, or $.12 per share for 1998.
Operating Costs
Operating costs decreased by $1,399,513, or 12.1% from 1998 to 1999, due
primarily to the decrease in costs associated with the Houston facility of
$1,292,312. This decrease is generally figured by netting the following
increases and decreases:
- Wages and benefits decreased by $150,421, or 2.3%,
however the decrease of $665,073 from the discontinued
operation in Houston was offset by an increase in wages
at the Dallas facility and an overall increase in the
cost of health and workers' compensation insurance
premiums.
- Utilities decreased by $349,879, or 13.5%, primarily due
to the decrease of $268,084 from the discontinued opera-
tion in Houston.
- Insurance decreased by $36,879, or 11.8%, primarily due
to the favorable renewal of insurance premiums and the
deletion of the operation in Houston from the insurance
policies.
- The remaining decrease in operating costs was due to a
multitude of decreases which on an individual basis are
not material and were primarily due to the discontinued
operation in Houston.
General and Administrative Expenses
General and administrative expenses increased by $113,546, or 11.2%. This
increase was due primarily to an increase in professional fees of $162,958
associated with public company reporting requirements and an increase in
computer software costs of $44,210, some of which are associated with becoming
Y2K compliant. The overall increase was offset in part by expenses relating to
the discontinued operation in Houston.
Depreciation, Amortization, Rent and Interest
Depreciation expense increased in 1999 to $904,158 from $776,569 in 1998. This
increase is due primarily to the effect of a full year of depreciation on assets
acquired in 1998 and the depreciation taken on the Fort Worth facility acquired
in May 1999. Rent expense decreased by $692,376, or 43.9% from 1998 to 1999.
This decrease was primarily due to the termination of the lease on the facility
in Houston and the effect of purchasing the Fort Worth facility in May 1999.
Interest expense was $1,793,989 in 1999, as compared to $1,498,971 in 1998. The
interest expense increase of $295,018, or 19.7% is attributed to an increase in
the interest on the mortgage in La Porte of $74,044, since the facility was
purchased in February 1998, interest on the mortgage in Fort Worth of $155,778
and additional interest of $65,792 related to an increase in funds provided by
the company's lender through a combination of line of credit and refinancing of
equipment.
Income Tax Expense or Benefit
Income tax expense includes the current federal tax expense and the effect of
deferred taxes related primarily to the difference between book and tax
depreciation on property, plant and equipment. For the year ended December 31,
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1999 and December 31, 1998, the Company recorded income tax expense of $426,000
and $361,000, respectively. The change from 1998 to 1999 is due primarily to an
increase in deferred taxes for the current year of $70,000.
The Company establishes valuation allowances when necessary, in accordance with
the provisions of SFAS 109, "Accounting for Income Taxes", to reduce deferred
tax assets to the amount expected to be realized. Based upon future income
projections, the Company expects to realize the net asset.
Liquidity and Capital Resources
At December 31, 1999, the Company's working capital ratio was 0.8 to 1 as
compared to 0.9 to 1 at December 31, 1998. The working capital ratio decreased
primarily due to decreases in accounts receivable of $254,349, decreases in
prepaid expenses of $28,453 and increases in accounts payable of $374,845.
Net cash provided by operating activities for 1999 totaled $2,347,772 as
compared to $2,119,211 for the year ended 1998. The increase in net cash
provided by operating activities is comprised of the following factors: net
income was $664,828 in 1999, as compared to $813,276 in 1998, a decrease of
$148,448, which is partially compensated by an increase in depreciation of
$127,589 from 1998 to 1999; deferred income taxes decreased $398,000 in 1999 as
compared to a decrease of $296,000 in 1998; accounts receivable decreased
$254,349 in 1999 as compared to an increase of $188,443 in 1998; prepaid
expenses decreased $364,905 in 1999 as compared to $459,058 in 1998; accounts
payable increased $374,845 in 1999 as compared to a increase of $116,068 in
1998; and accrued charges increased $97,978 in 1999 as compared to a decrease of
$37,682 in 1998. The cash provided by these activities was partially offset by
an increase in income tax receivable in 1999 of $7,000 as compared to a decrease
of $127,629 in 1998; other assets increased $146,240 in 1999 as compared to a
increase of $39,821 in 1998; property taxes payable decreased $117,440 in 1999
as compared to an increase of $294,704 in 1998; and a decrease in notes payable
of $160,014 in 1999 as compared to $522,254 in 1998.
Net cash used in investing activities was $4,375,035 in 1999 as compared to
$7,616,006 in 1998. Capital expenditures for 1999 were $2,539,188, compared to
$6,817,965 for 1998. The capital expenditures for 1998 included the purchase of
the La Porte facility for $6,000,000, which was comprised of mortgage financing
and cash, whereas the purchase of the Fort Worth facility in 1999 for
$3,000,000, was for a combination of mortgage financing of $2,100,000 and common
stock issued for $900,000. The Company made advances to Castor Capital
Corporation, the majority shareholder, of $1,735,847 in 1999 as compared to
$798,041 in 1998. As settlement in part for advances made to Castor , the
Company redeemed 500,000 shares of common stock for $1,750,000. The price per
share was determined from the average selling price on NASDAQ - SM from the date
the stock began trading until December 30, 1999. The 500,000 shares are being
held as treasury stock. The Company sold 2.145 acres of vacant land in September
1999 to a non-affiliated third party for $300,000. The property was sold for
cash payable on closing, on a where is, as is basis. In 1999 the Company loaned
$400,000 on a short term basis to an unrelated third party, in connection with
the purchase of the Fort Worth facility.
The Company has a line of credit which provides up to $2,500,000, of which the
company had borrowed $1,235,000 at December 31, 1999. In addition to the line of
credit the Company had an unfunded overdraft in the amount of $131,654, which is
grouped for financial statement presentation with the line of credit. The
borrowing base on the line of credit fluctuates based on reports submitted by
the Company to the lender on an a monthly basis. The line of credit expires on
May 1, 2000. Prior to the expiration date of the line of credit the Company
expects to renew the line of credit with its lender.
Net cash provided by financing activities for 1999 totaled $2,022,821 as
compared to net cash provided by financing activities of $5,159,748 in 1998. The
Company had net payments of $182,723 on the line of credit in 1999 as compared
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to receiving $1,021,212 in net advances in 1998. The Company received mortgage
financing of $2,100,000 in 1999 as compared to $5,400,000 in 1998. The Company
refinanced some of its equipment with Bank One Leasing Corporation in 1999 for
$2,100,000 and used the proceeds to repay a line of credit and term loan. The
cash used to make these payments and principal payments on the Company's other
long term debt was $2,084,456 in 1999 as compared to principal payments on long
term debt of $1,261,464 in 1998.
In May of 1999 the Company filed a Form SB-2 registration statement to register
3,900,000 shares of the Company's common stock. Of the total shares registered,
1,000,000 shares were to be offered for sale by the Company on a best efforts
basis at a price of $4.50 per share, 2,500,000 shares were shares owned by
Castor Capital Corporation, the majority shareholder, and the remaining 400,000
shares were those issued in connection with the purchase of the Fort Worth
facility. The Company sold a total of 140,000 shares as of December 31, 1999.
Castor Capital Corporation sold 490,000 shares as of December 31, 1999. Castor
held 79.0% of the Company's outstanding common stock as of December 31, 1999.
The Company guaranteed a certain obligation of its parent, Castor, this
obligation totaled $2,100,000 at December 31, 1999. The Company believes that
the collateral pledged by its parent is adequate to cover the debt in case of a
default and has not recorded a liability in the financial statements related to
this guarantee.
The Company believes that cash flow from operations will be adequate to fund the
Company's capital requirements.
The Company purchased the Fort Worth facility for $3,000,000, which the Company
had leased since January 1997. The Company closed this transaction on May 21,
1999. Financing for this transaction was provided by a first mortgage on the
property of $2,100,000 in favor of Bank One, Texas, N.A. and 400,000 shares of
the Company's common stock. Additional collateral was provided to the vendor in
the form of a second lien on the property and a $500,000 note.
The Company has executed an "Exclusive Option Contract" for the purchase of the
Richardson facility for $6,000,000. The option period expired on February 22,
2000, however the Company is currently negotiating an extension to the option
and expects to exercise the option and complete the purchase in the second
quarter of 2000.
Year 2000
The year 2000 issue relates to computer systems that use the last two digits
rather than four to define a year and whether such systems would properly and
accurately process information when the year changed to 2000. During fiscal
1999, the Company completed its company-wide program to prepare the Company's
computer systems for year 2000 compliance.
At the date of this report, the company had not experienced any material
problems related to the year 2000. The Company has not become aware of any
significant year 2000 issues affecting the Company's major customers or
suppliers. The Company does not anticipate any material complaints regarding any
year 2000 issues related to its products.
Year 2000 related costs through December 31, 1999 were limited to employees' and
consultant's time and were expensed as incurred. The remaining estimated cost to
address any additional year 2000 problems is deemed immaterial. No significant
information system projects were deferred to accommodate the year 2000 issues.
10
<PAGE>
Fluctuations In Operating Results; Seasonality
Generally sales volumes are lowest at the beginning of the fiscal year and grow
steadily to a peak in the fourth quarter.
Environmental Matters
The Company is not aware of any environmental liability relating to its
facilities or operations that would have a material adverse effect on the
Company, its business, assets or results of operations.
Inflation
Inflation has not historically had a material effect on the Company's
operations, and is not expected to have a material impact on the Company in the
future.
Accounting Matters
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. In June 1999, the Financial Accounting Standards Board
issued SFAS No. 137 which delayed the effective date of SFAS No. 133 to fiscal
years beginning after June 15, 2000. At this time, the Company has not
determined the impact that adoption of this standard will have on the Company's
financial statements.
11
<PAGE>
Item 7.
FINANCIAL STATEMENTS
Index to Consolidated Financial Statements See F-2
[The remainder of this page is intentionally left blank]
12
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Contents
================================================================================
ALVORD REFRIGERATED
WAREHOUSES, INC.
Financial Statements
Years Ended December 31, 1999 and 1998
F-1
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Contents
================================================================================
Index to Consolidated Financial Statements
Report of Independent Certified Public Accountants F-3
Consolidated balance sheets F-4
Consolidated statements of income F-6
Consolidated statements of stockholders' equity F-7
Consolidated statements of cash flows F-8
Notes to consolidated financial statements F-9
F-2
<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., a subsidiary of Castor Capital, Inc. as of
December 31, 1999 and 1998, and the related consolidated statements of income,
stockholders' equity and cash flows for 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. as of December 31, 1999 and 1998, and the
consolidated results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
--------------------------------
BDO Seidman, LLP
February 25, 2000
Dallas, Texas
F-3
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Consolidated Balance Sheets
================================================================================
<TABLE>
<CAPTION>
December 31, 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Assets
Current assets
<S> <C> <C>
Cash and cash equivalents (Note 7) $ 105,075 $ 109,517
Accounts receivable 1,753,890 2,008,239
Prepaid expenses 278,498 250,045
Income tax receivable 13,000 6,000
Escrows (Note 5) 565,282 522,072
- --------------------------------------------------------------------------------------------------------------------
Total current assets 2,715,745 2,895,873
- --------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net (Notes 3 and 5) 21,422,381 18,757,679
Due from affiliates (Note 2) 2,198,926 2,213,079
Deferred tax asset, net (Note 4) - 221,961
Other assets 600,418 454,178
Deposits 172,235 173,640
- --------------------------------------------------------------------------------------------------------------------
Total assets $ 27,109,705 $ 24,716,410
====================================================================================================================
</TABLE>
F-4
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Consolidated Balance Sheets
================================================================================
<TABLE>
<CAPTION>
December 31, 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities
<S> <C> <C>
Accounts payable $ 930,336 $ 555,491
Property taxes payable 549,307 666,747
Accrued charges 822,649 724,671
Notes payable (Note 5) 351,112 117,768
Current maturities of long-term debt (Note 5) 963,885 1,072,415
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 3,617,289 3,137,092
- --------------------------------------------------------------------------------------------------------------------
Deferred revenue 285,516 224,308
Long-term debt, less current maturities (Notes 2 and 5) 16,750,318 14,396,572
Line of credit (Note 5) 1,366,654 1,549,377
Deferred tax liability, net (Note 4) 176,039 -
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 22,195,816 19,307,349
- --------------------------------------------------------------------------------------------------------------------
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 7,540,715 and 7,000,715 75,407 70,007
Additional paid-in capital 6,556,995 5,032,395
Retained earnings 971,487 306,659
- --------------------------------------------------------------------------------------------------------------------
7,603,889 5,409,061
Stock subscriptions and note receivables (Note 11) (940,000) -
Treasury stock at cost (500,000 shares)(Note 12) (1,750,000) -
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 4,913,889 5,409,061
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 27,109,705 $ 24,716,410
====================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-5
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Consolidated Statements of Income
================================================================================
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Warehouse Revenues (Note 7) $ 15,712,757 $ 17,651,941
Operating Costs 10,211,714 11,611,227
- --------------------------------------------------------------------------------------------------------------------
Direct Profit Contribution 5,501,043 6,040,714
- --------------------------------------------------------------------------------------------------------------------
General and Administrative Expenses 1,127,315 1,013,769
Depreciation, Rent and Interest Expenses
Depreciation 904,158 776,569
Rent 884,753 1,577,129
Interest 1,793,989 1,498,971
- --------------------------------------------------------------------------------------------------------------------
Total Depreciation, Rent and Interest Expenses 3,582,900 3,852,669
- --------------------------------------------------------------------------------------------------------------------
Other Income
Gain on sale of land 300,000 -
- --------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 1,090,828 1,174,276
Income Tax Expense (Note 4) 426,000 361,000
- --------------------------------------------------------------------------------------------------------------------
Net Income $ 664,828 $ 813,276
- --------------------------------------------------------------------------------------------------------------------
Net Income Per Share -
Basic and diluted $ .09 .12
- --------------------------------------------------------------------------------------------------------------------
Weighted Average Shares Outstanding -
Basic and diluted $ 7,321,290 6,572,982
- --------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-6
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Consolidated Statements of Stockholders' Equity
================================================================================
<TABLE>
<CAPTION>
Stock
Common Stock Additional Retained Subscriptions Treasury Total
--------------------- Paid-in Earnings and Note Stock Stockholders
Shares Amount Capital (Deficit) Receivables Cost Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 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
Issuance of 400,000 shares in connection
with the purchase of land and
building 400,000 4,000 896,000 - - - 900,000
Issuance of 140,000 shares in connection
with stock subscription agreements 140,000 1,400 628,600 - (540,000) - 90,000
Note received in payment of common
shares - - - - (400,000) - (400,000)
Return of 500,000 shares in satisfaction
of amounts due from affiliate - - - - - (1,750,000) (1,750,000)
Net income - - - 664,828 - - 664,828
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 7,540,715 $ 75,407 $ 6,556,995 $ 971,487 $ (940,000) (1,750,000) 4,913,889
====================================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-7
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Consolidated Statements of Cash Flows
================================================================================
<TABLE>
<CAPTION>
Increase (Decrease) in Cash and Cash Equivalents
Years ended December 31, 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Operating Activities:
<S> <C> <C>
Net income $ 664,828 $ 813,276
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of land (300,000) -
Depreciation expense 904,158 776,569
Deferred income taxes 398,000 296,000
Changes in operating assets and liabilities:
Accounts receivable 254,349 (188,443)
Prepaid expenses 364,905 459,058
Deposits and escrows (41,805) (42,089)
Income tax receivable (7,000) 127,629
Other assets (146,240) (39,821)
Accounts payable 374,845 116,068
Property taxes payable (117,440) 294,704
Accrued charges 97,978 (37,682)
Notes payable (160,014) (522,254)
Deferred revenue 61,208 66,196
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,347,772 2,119,211
- --------------------------------------------------------------------------------------------------------------------
Investing Activities:
Proceeds from sale of land 300,000 -
Increase in note receivable (400,000) -
Due from affiliates (1,735,847) (798,041)
Capital expenditures (2,539,188) (6,817,965)
- --------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (4,375,035) (7,616,006)
- --------------------------------------------------------------------------------------------------------------------
Financing Activities:
Proceeds from borrowings 4,200,000 6,421,212
Principal payments on borrowings (2,267,179) (1,261,464)
Proceeds from sale of stock subscriptions 90,000 -
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,022,821 5,159,748
- --------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (4,442) (337,047)
Cash and cash equivalents, beginning of year 109,517 446,564
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 105,075 $ 109,517
====================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-8
<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 years then ended, unless otherwise
indicated. 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 Alford Refrigerated Warehouses, Inc., a Texas
with Alford 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.
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 (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
F-9
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
================================================================================
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 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.
Merger of Affiliated In November 1998, certain affiliated entities
Entities with Alford 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 the total operations.
Description of Business The Company's public warehouse business
and Revenue consists of providing customers, which
Recognition 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-10
<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 pay an
amount equivalent to 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 Company's
inventory control system monitors the product
from storage, the customer places an order
with the Company, and 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
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 that 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 years ended December 31, 1999 and
1998, public warehouse customers represented
approximately 92 and 93 percent of the
Company's revenue, the remainder of which was
attributable to leased space. The Company is
managed as a single business segment.
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
F-11
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
================================================================================
("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 transactions and
balances have been eliminated.
The Company is a subsidiary of Castor
Capital, Inc.
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 Owned N/A
feet on 32.3
acres
Richardson, Texas Warehouse 3,200,000 cubic Leased Dec. 31, 2007
feet on 12.4
acres
Fort Worth, Texas Warehouse 1,550,000 cubic Owned May N/A
feet on 13.5 1999,
acres leased
prior to
</TABLE>
Cash and Cash For purposes of reporting the consolidated
Equivalents statements of cash flows, the Company
considers all highly liquid investments pur-
chased with an original maturity of three
months or less to be cash equivalents.
Property, Plant and Property, plant and equipment are stated at
Equipment cost, less accumulated depreciation. The cost
of additions and improvements are
capitalized, while maintenance and repairs
are charged to expense when incurred.
F-12
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
================================================================================
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 basis for the asset is established.
Such new basis 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 ex-
pected 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.
F-13
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
================================================================================
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.
Earnings Per Share Basic earnings per share have been
computed based on the weighted average number
of common shares outstanding. Diluted
earnings per share reflects the increase, if
any, in the weighted average common shares
outstanding that would result from the
potential dilutive effect of unpaid common
stock subscriptions. For the years ended
December 31, 1999 and 1998, there was no
dilution.
Recent Accounting In June 1998, the Financial Accounting
Pronouncements Standards Board (FASB) issued SFAS No. 133,
"Accounting for Derivative Instruments and
Hedging Activities", which establishes
accounting and reporting standards for
derivative instruments and hedging
activities. It requires that an
entity recognize all derivatives as either
assets or liabilities in the balance sheet
and measure those instruments at fair value.
Implementation of this standard has recently
been delayed by the FASB for a 12-month
period through the issuance of SFAS No. 137,
"Accounting for Derivative Instruments and
Hedging Activities - deferral of the
effective date of FASB Statement No. 133".
SFAS No. 137 defers the effective date of
SFAS No. 133 to all fiscal quarters beginning
after June 15, 2000. Management does not
believe this will have a material effect on
the operations.
Stock Subscriptions Stock subscriptions and note receivable
and Note Receivables represent the unpaid portion of stock
subscription agreements and an advance made
by the Company for the purchase of
F-14
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
================================================================================
the Company's common stock. Stock subscrip-
ions and note receivables are presented as a
reduction to stockholders' equity.
Treasury Stock Treasury stock is accounted for under the
cost method and is presented as a reduction
to stockholders' equity.
Reclassifications Certain prior year amounts have been
reclassified to conform to the current year
presentation.
2. Related Party On December 1, 1996, the Company entered into
Transactions an agreement ("the Agreement") with certain
shareholders to repay existing loans and to
purchase their Company stock. Among the
Agreement terms, the Company entered into a
$2,600,000 term note due December 2001
secured by shares of the Company's common
stock held in escrow.
Effective January 1, 1998, Castor, the
Company's Parent, assumed the $2,600,000 note
payable. The Company guaranteed the repayment
of this note payable. At December 31, 1999,
this obligation totaled $2,100,000. No
liability has been recorded in the Company's
financial statements related to this
guarantee.
In settlement of certain amounts owed by
Castor, Alford accepted 500,000 shares of its
common stock valued at $3.50 per share or
$1,750,000 in exchange for a reduction in the
amount owed. The 500,000 shares have been
recorded by the Company as treasury stock.
The Company's due from affiliates consists of
the following at December 31, 1999 and 1998:
F-15
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
================================================================================
<TABLE>
<CAPTION>
Description 1999 1998
----------------------------------------------------------------------------------
<S> <C> <C> <C>
8% promissory note from
Castor, balance of principal
and accrued interest due
December 31, 2002 (see below) $ 1,452,502 $ 1,676,655
Advances to Castor (see below) 396,424 396,424
Advances to affiliate, guaranteed by 350,000 140,000
Castor
----------------------------------------------------------------------------------
$ 2,198,926 $ 2,213,079
==================================================================================
The note and advances due from Castor are
secured by 500,000 shares of the Company's
stock.
3. Property, Plant and The Company's property, plant and equipment
Equipment consists of the December 31, 1999 and 1998:
1999 1998
---------------------------------------------------------------------------------
Land $ 5,539,136 $ 4,939,136
Building 15,351,782 12,707,043
Machinery and equipment 2,855,281 2,656,873
Machinery and equipment under
capital leases 1,720,753 1,595,040
---------------------------------------------------------------------------------
25,466,952 21,898,092
Less accumulated depreciation 4,044,571 3,140,413
---------------------------------------------------------------------------------
Total $ 21,422,381 $ 18,757,679
---------------------------------------------------------------------------------
</TABLE>
F-16
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
================================================================================
Included in accumulated depreciation is
approximately $331,000 and $240,000 of
accumulated depreciation related to machinery
and equipment under capital leases at
December 31, 1999 and 1998, respectively.
During May 1999, the Company acquired a
refrigerated warehouse and the related land
located in Fort Worth, Texas for a purchase
price of $3,000,000. The purchase price
consisted of the Company securing a
$2,100,000 mortgage loan with a financial
institution along with 400,000 shares of the
Company's common stock.
4. Income Taxes Income tax expense for the years ended
December 31, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax expense $ 28,000 $ 65,000
Deferred tax expense 398,000 296,000
---------------------------------------------------------------------------------
Total income tax expense $ 426,000 $ 361,000
---------------------------------------------------------------------------------
</TABLE>
F-17
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
================================================================================
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:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed income taxes, at
34 percent $ 371,000 $ 399,000
Utilization of net operating loss
carryforwards - (103,000 )
Alternative minimum tax and
franchise taxes 28,000 65,000
Other, net 27,000 -
---------------------------------------------------------------------------------
$ 426,000 $ 361,000
---------------------------------------------------------------------------------
The components of the deferred tax asset and
liability at December 31, 1999 and 1998 were
approximately as follows:
1999 1998
---------------------------------------------------------------------------------
Deferred tax liability:
Accelerated depreciation $ (1,009,000) (940,000)
$
Deferred tax asset:
Net operating losses 833,000 1,162,000
---------------------------------------------------------------------------------
Net deferred tax asset (liability) $ (176,000) $ 222,000
=================================================================================
</TABLE>
At December 31, 1999, the Company had
potential net operating loss carryforwards of
approximately $7,915,000, which have
expiration dates ranging from 2003 through
2006. A valuation allowance of approximately
$1,676,000 exists for NOL carryforwards
totaling approximately $4,928,000 not
anticipated to be realized before expiration
because of an utilization limitation under
IRC Section 382. Management believes
realization of the entire net asset is more
likely than not based on future income
projections.
F-18
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
================================================================================
5. Notes Payable, Long-Term Notes payable consists of various notes due
Debt, and Line of Credit to insurers with $121,751 and $117,768 at
December 31, 1999 and 1998 respectively. The
notes accrue interest at various rates;
principal and interest are due monthly. Also,
included in notes payable at December 31,
1999, is a 7 percent note payable totaling
$204,185 due to the Company's legal counsel,
with a maturity date of December 31, 2000 and
an 8 percent note payable to an officer
totaling $25,176 with a maturity date of
May 1, 2000.
The Company's long-term debt consists of the
following:
<TABLE>
<CAPTION>
Description 1999 1998
---------------------------------------------------------------------------------
<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 $ 7,728,375 $ 7,908,283
8.36% Amresco Capital, L.P. note, monthly pay-
ments 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 5,292,784 5,355,641
F-19
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
================================================================================
Primeplus .50% Bank One, Texas N.A. note (9%
at December 31, 1999), monthly principal
and interest payments of $11,667,
remaining balance of principal and accrued
interest due May 2002, secured by the land
and improvements of the Company's Fort
Worth, Texas facility and certain other
property and equipment and guaranties from
Castor, ALS, Thermix, SPC, ATW and ADS 2,018,331 -
8% Bank One, Texas N.A., Master Lease Agreement,
monthly principal and interest payments of
$32,514 through April 2006, secured by
listed equipment at the Company's Cadiz
Street Facility, La Porte, Texas,
Richardson, Texas and Fort Worth, Texas
facilities, and guaranties from Castor,
ALS, Thermix, SPC, ATW and ADS 1,914,094 -
Obligations under capital leases,
maturity dates ranging from
2000 through 2004 760,619 1,086,504
F-20
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
================================================================================
Nations Credit Commercial Corporation term
note, prime plus 5%, monthly principal
payments of $20,119 plus accrued interest,
secured by selected equipment and
guaranties from Castor, ALS, Thermix, SPC,
ATW, and ADS - 965,760
Other - 152,799
--------------------------------------------------------------------------------------
17,714,203 15,468,987
Current maturities (963,885) (1,072,415)
--------------------------------------------------------------------------------------
$ 16,750,318 $ 14,396,572
======================================================================================
</TABLE>
Maturities of long-term debt follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------------------------------
<S> <C> <C>
2000 $ 963,885
2001 959,602
2002 2,487,585
2003 676,784
2004 719,866
Thereafter 11,906,481
-----------------------------------------------------------------------------------
$ 17,714,203
===================================================================================
</TABLE>
Included in the above maturities of long-term
debt are capital lease principal payments of
approximately $560,000 in 2000, $531,000 in
2001, $435,000 in 2002, $336,000 in 2003,
$350,000 in 2004 and $463,000 thereafter.
Interest expense related to the future
capital lease obligations is approximately
$602,000.
The Morgan Guaranty Trust Company of New York
and the Amresco Capital, L.P. notes payable
require certain escrow accounts and restrict
F-21
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
================================================================================
the use of the funds to the designated
purpose of the accounts in accordance with
the terms of the note.
The loan agreement with Bank One, Texas N.A.
contains various restrictive covenants. The
Company was in technical default of its Cash
Flow Coverage Ratio at December 31, 1999. The
Company obtained a waiver pertaining to its
1999 Cash Flow Coverage Ratio default.
During May 1999, the Company refinanced its
line of credit with Bank One, Texas N.A.,
which provides up to $2,500,000 through May
1, 2000 at prime plus 1 percent (9.50 percent
at December 31, 1999). 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. The Company
has obtained the financial institution's
commitment and intent to extend the due date
to May 1, 2001. Accordingly, the line of
credit is presented as non-current.
6. Commitments and The Company rents certain real estate and
Contingencies equipment under operating leases. The leases
do not provide for any significant renewals;
and, except for insignificant leases, there
are no existing purchase options. Rent
expense was $884,753 and $1,577,129 for the
years ended December 31, 1999 and 1998, res-
pectively.
Future minimum rental payments required under
operating leases that have initial or
remaining noncancelable lease terms in excess
of one year at December 31, 1999 are as
follows:
F-22
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
================================================================================
Year ended December 31, Amount
-----------------------------------------------
2000 $ 625,000
2001 613,000
2002 605,000
2003 600,000
2004 600,000
Thereafter 1,800,000
-----------------------------------------------
$ 4,843,000
===============================================
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 guaranteed an obligation of
Castor. At December 31, 1999, this obligation
totaled $2,100,000. No liability has been
recorded in the Company's financial
statements related to this guarantee.
The Company executed an "Exclusive Option
Contract" for the purchase of the Richardson
facility for $6,000,000. The option period
expired on February 22, 2000. The Company is
continuing to negotiate with the seller in
regards to the purchase of the Richardson
facility.
7. Concentration of At December 31, 1999 and 1998, the Company
Credit Risk in excess of Risk federally insured limits of
approximately $55,000 and $45,000, respect-
ively.
During 1999 and 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.
F-23
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
================================================================================
8. Supplemental Cash Flow Cash paid for interest during the years ended
Information December 31, 1999 and 1998 was approximately
$1,592,000 and $1,385,000, respectively.
Cash paid for income taxes during the years
ended December 31, 1999 and 1998 was approxi-
mately $13,000 and $6,000, respectively.
Noncash investing and financing activity
during 1999 and 1998 consists of the
following:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Financing of various insurance
policies (Note 5) $ 394,358 $ 385,822
Capitalization of leased assets and
obligations (Note 5) 129,672 1,191,228
Debt reduction in exchange for
receivable reduction (Note 2) - 2,600,000
Issuance of common shares for
services, pursuant to merger
agreement - 10,000
Issuance of 400,000 shares in
connection with the
acquisition of a refrigerated
warehouse and land 900,000 -
Return of 500,000 shares in
satisfaction of amount due
from affiliate 1,750,000 -
</TABLE>
F-24
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
================================================================================
9. Rental Income Under The Company's operations include the leasing
Operating Leases of space to third parties in their commercial
warehouses. The following is a schedule of
minimum future rental income on non-
cancelable operating leases at December 31,
1999:
Year ended December 31, Amount
-----------------------------------------------
2000 $ 703,000
2001 208,000
2002 26,000
2003 18,000
2004 15,000
-----------------------------------------------
$ 970,000
===============================================
10. Description of Each share of Common Stock entitles the
Securities 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 re-
demption or to any sinking fund provisions.
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 Company
does not anticipate declaring or paying any
cash dividends on the Common Stock in 2000.
The Company must obtain approval from its
lenders prior to paying dividends in order to
remain in compliance with various loan
covenants.
F-25
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
================================================================================
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. Stock Subscription and During 1999, the Company entered into stock
Other Receivables subscription shares of its common stock at a
price of $4.50 per share for a total of
$630,000. At the date the stock subscription
agreements were entered into, the Company
received initial payments totaling $90,000.
The balance of $540,000 is recorded by the
Company as a stock subscription receivable
and has been presented as a reduction from
stockholders' equity at December 31, 1999.
The Company received a $400,000 note
receivable in May 1999 that, through a series
of transactions, was ultimately for the
purchase of the Company's stock. The $400,000
note is presented as a reduction from
stockholders' equity at December 31, 1999.
12. Fair Value of Financial The methods and assumptions used to estimate
Instruments 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.
F-26
<PAGE>
ALFORD REFRIGERATED WAREHOUSES, INC.
Notes to Consolidated Financial Statements
================================================================================
Long-term receivables. The fair value of
long-term receivables was based on discounted
cash flows or other specific instrument
analysis and approximated the carrying
amounts.
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.
December 1999 1998
-----------------------------------------------
Carrying amount $ 16,750,318 $ 14,396,572
Fair value 15,993,247 14,253,000
-----------------------------------------------
F-27
<PAGE>
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the registrant's two most recent Fiscal years and subsequent interim
periods, neither an independent accountant who was previously engaged as the
principal accountant to audit the registrant's financial statements, nor an
independent accountant who was previously engaged to audit a significant
subsidiary and on whom the principal accountant expressed reliance in its
report, has resigned (or indicated it has declined to stand for re-election
after the completion of the current audit) or was dismissed.
PART III
Item 9. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT; DIRECTORS, EXECUTIVE
OFFICERS, PROMOTERS AND CONTROL PERSONS
Set forth below is certain information regarding the directors, executive
officers and significant employees of the Company. Each of the directors of the
Company will serve until the next annual meeting of shareholders or until his
successor is elected and qualified. Executive officers of the Company are
elected by the Board of Directors to hold office until their respective
successors are elected and qualified.
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C> <C>
Alton M. Adams 61 Chief Executive Officer
Michael A. Oros 64 President and Director
James C. Williams 42 Vice President; Chief Financial
Officer, Treasurer and Director
Joseph Y. Robichaud 72 Director
Kenneth M. Tomilson 66 Director
John C. Crawford 63 Director (independent)
Len Ebersberger 60 Director (independent)
</TABLE>
Set forth below is a description of the backgrounds of the directors, executive
officers and significant employees of the Company.
Joseph Y. Robichaud has served as a Director of the Company 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.
13
Kenneth M. Tomilson has served as a Director of the Company 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. 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 the Company 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
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 the Company since January 1997 and
has served as a Director of the Company since June 1999. 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 the Company 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.
Dr. John C. Crawford has served as a Director of the Company since June 1999.
For the past 18 years, Dr. Crawford has served as a professor of marketing at
the University of North Texas at Denton, Texas.
Len Ebersberger has served as a Director of the Company since June 1999. For
more than the past 5 years, Mr. Ebersberger has served as president of
Refrigerated Warehouse Consultants, Inc. From 1986 to 1991, Mr. Ebersberger
served as president of Burris Refrigerated Services. From 1971 to 1978 and from
14
<PAGE>
1984 to 1986, Mr. Ebersberger served as vice president of operations of United
Refrigerated Services. Prior to that time, from 1965 to 1971, Mr. Ebersberger
worked for E.I. duPont deNemours Co. For the last five years, Mr. Ebersbeger has
continued as an instructor in "Refrigerated Warehouse Technology" at the
Refrigerated Research & Education Foundation's school at the University of
Oklahoma. Mr. Ebersberger has served on the Board of Governors of that
Foundation as well as on the Board of Directors of the International Association
of Refrigerated Warehouses. Mr. Ebersberger graduated from the United States
Naval Academy in 1961 and attended John Hopkins University for pre law and
received a degree in Business Administration from Southwest Texas State
University.
Due to the broad experience of the Company's executive officers, directors and
key personnel in the refrigerated warehousing industry, the Company 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 the Company, 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 Audit Committee of the Company is comprised of Joseph Robichaud, John
Crawford and Len Ebersberger.
Item 10. EXECUTIVE COMPENSATION
Executive Compensation
The following table sets forth the cash and non-cash compensation paid by the
Company to its chief executive officer and its two other most highly compensated
executive officers for the fiscal years ended December 31, 1999, 1998 and 1997.
None of the Company's other officers or directors received cash or non-cash
compensation in excess of $100,000 for the fiscal year ended December 31, 1998.
<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 1999 96,000
Chief Executive Officer 1998 96,000
1997 96,000
Mr. Oros 1999 100,000 25,000
President 1998 100,000 25,000
1997 100,000 25,000
<FN>
- --------------------------------------------------------------------
(1) These amounts were paid pursuant to a consulting contract and were paid by
the Company directly to Mr. Adams in 1997 and to Castor Capital Corporation
which paid Mr. Adams in 1998 and 1999.
</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.
15
<PAGE>
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 the Company will not receive additional
compensation for serving as directors. Independent directors will receive an
annual fee established by the Board of Directors of $5,000 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.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of December 31, 1999 with
regard to the beneficial ownership of Common Stock by (i) each person known to
the Company to be the beneficial owner of 5% or more of its outstanding Common
Stock, (ii) the officers and directors of the Company individually, and (iii)
the officers and directors of the Company as a group. All addresses are in care
of the Company, 318 Cadiz Street, Dallas, Texas 75207.
<TABLE>
<CAPTION>
Name Title of Class Number of Shares Owned Percent
---- -------------- ---------------------- -------
<S> <C> <C> <C> <C>
Joseph Y. Robichaud(1) Common Stock 5,561,372 79.0%
Castor Capital Corporation Common Stock 5,561,372 79.0%
Directors and executive Common Stock 5,561,372 79.0%
officers as a group (7 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 79.0% of the
outstanding shares of the Common Stock 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.
Item 12. 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 (the "Eichmann Shares"). 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 merger of Alford with and into the Company, the Eichmann Shares were
16
<PAGE>
converted into 3,275,686 shares of the Company, all of which are being held in
escrow pending the final payment due to Mr. Eichmann in December 2001. As of
December 31, 1999, the outstanding principal balance on the note was $2,100,000.
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 ("La Porte"), which was a wholly owned subsidiary of Alltemp Logistical
Services, L.L.C., a Texas limited liability company ("Alltemp"). 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. In settlement
of certain amounts owed by Castor, Alford accepted 500,000 shares of its common
stock during 1999 valued at $3.50 per share or $1,750,000 in exchange for a
reduction in the amount owed. The 500,000 shares have been recorded by the
Company as treasury stock. As of December 31, 1999, the total amount of
principal and interest payable to the Company by Castor pursuant to these two
notes was $1,452,502. Mr. Robichaud, a Director of the Company, 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. ("EDCM") is a company which
specializes in the design, construction and maintenance of refrigerated
warehouse facilities. EDCM is owned in equal proportions by Mr. Robichaud, Mr.
Tomilson, Mr. Adams and Mr. Paul Haines. EDCM has provided maintenance services
to the Company for which it billed the Company on a per diem basis. The Company
and EDCM were in the process of formalizing a new agreement, in the first
quarter of 1999, which they intended to make effective as of January 1, 1999.
This agreement was not consummated.
Castor Capital Corporation owns approximately 79.0% of the Company's issued and
outstanding Common Stock. Mr. Robichaud, a director of the Company, is the
trustee of the Robichaud Family Trust which owns all of the issued and
outstanding stock of Castor Capital Corporation.
Item 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Financial Statement
The consolidated financial statements are contained herein as listed on the
"Index" on page F-2 hereof. Reports on Form 8-K
There were no Current Reports on Form 8-K filed by the Company during the
quarter ended December 31, 1999 that have not been previously reported in the
Company's Quarterly Reports on Form 10-QSB.
17
<PAGE>
<TABLE>
<CAPTION>
Description and Index of Exhibits
- --------------------------------------------------------------------------------------------------------------------------------
Number Description Page
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2.1 First Amended Joint Plan of Reorganization dated July 9, 1996 as modified and N/A
clarified to date. (1)
- --------------------------------------------------------------------------------------------------------------------------------
2.2 Agreement of Plan of Merger dated November 23, 1998 by and between Hilltop N/A
Acquisition Holding Corporation, Womack Gilman Investment Services, L.C., Halter
Financial Group, Inc. and Alford Refrigerated Warehouse, Inc. (1)
- --------------------------------------------------------------------------------------------------------------------------------
3(i) Restated Articles of Incorporation (with Amendments) (2) N/A
- --------------------------------------------------------------------------------------------------------------------------------
3(ii) Amended and Restated Bylaws (2) N/A
- --------------------------------------------------------------------------------------------------------------------------------
4.1 Form of Common Stock Certificate (1) N/A
- --------------------------------------------------------------------------------------------------------------------------------
10.1 Fixed Rate Note dated September 15, 1997 between Cadiz Properties, Inc., and N/A
Morgan Guaranty Trust Company of New York (1)
- --------------------------------------------------------------------------------------------------------------------------------
10.2 Fixed Rate Note dated February 6, 1998 between La Porte Properties, L.L.C., and N/A
Amresco Capital, L.P. (1)
- ---------------------------------------------------------------------------------------------------------------------------------
10.3 Consulting Agreement dated January 1, 1997 between Alford Refrigerated N/A
Warehouses, Inc. and Alton M. Adams, P. Eng. (1)
- ---------------------------------------------------------------------------------------------------------------------------------
10.4 Purchase and Sale Agreement executed on or about January 19, 1999 between Alford N/A
Refrigerated Warehouses, Inc. and Fort Worth Cold Storage Holdings, Inc. (1)
- ---------------------------------------------------------------------------------------------------------------------------------
10.5 Consulting Agreement dated March 29, 1999 between Alford Refrigerated Warehouses, N/A
Inc. and Engineering Design and Construction Managers Limited (1)
- ---------------------------------------------------------------------------------------------------------------------------------
21.1 Subsidiaries of the Company (1) N/A
- ---------------------------------------------------------------------------------------------------------------------------------
25 Power of Attorney (included on signature page) N/A
- ---------------------------------------------------------------------------------------------------------------------------------
27 Financial Data Schedule (Filed herewith)
- ---------------------------------------------------------------------------------------------------------------------------------
<FN>
- -----------------------------
(1) Incorporated by reference to the Company's Form 10SB12G/A filed April 26, 1999.
(2) Incorporated by reference to the Company's Form 10-SB12G, filed February 4, 1999.
</FN>
</TABLE>
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ALFORD REFRIGERATED WAREHOUSE, INC.
By: /s/ James C. Williams
-----------------------------------
James C. Williams
President, Chief Financial Officer,
Secretary, Treasurer and Director
April 14, 2000
19
<PAGE>
POWER OF ATTORNEY TO SIGN AMENDMENTS
KNOW ALL BY THESE PRESENTS, that each person who signature appears
below does hereby constitute and appoint James C. Williams and Michael A. Oros
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 Warehouse, Inc. Form 10-KSB, Annual Report, for year ending
December 31, 1999, 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 that all 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.
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the indicated persons on behalf of
the Registrant in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Alton M. Adams Chief Executive Officer April 14, 2000
- ------------------------------
Alton M. Adams
/s/ Michael A . Oros President and Director April 14, 2000
- ------------------------------
Michael A .Oros
/s/ James C. Williams Vice President, Chief April 14, 2000
- ------------------------------ Financial Officer,
James C. Williams Secretary, Treasurer
and Director
/s/ Joseph Y. Robichaud Director April 14, 2000
- ------------------------------
Joseph Y. Robichaud
/s/ Kenneth M. Tomilson Director April 14, 2000
- ------------------------------
Kenneth M. Tomilson
Director April __, 2000
- ------------------------------
John C. Crawford
Director April __, 2000
- ------------------------------
Len Ebersberger
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule for Alford Refrigerated Warehouse, Inc.
</LEGEND>
<CIK> 0001078006
<NAME> Alford Refrigerated Warehouse, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 105,075
<SECURITIES> 0
<RECEIVABLES> 1,753,890
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,715,745
<PP&E> 21,422,381
<DEPRECIATION> 4,044,571
<TOTAL-ASSETS> 27,109,705
<CURRENT-LIABILITIES> 3,617,289
<BONDS> 0
0
0
<COMMON> 75,407
<OTHER-SE> 6,556,995
<TOTAL-LIABILITY-AND-EQUITY> 27,109,705
<SALES> 15,712,757
<TOTAL-REVENUES> 15,712,757
<CGS> 0
<TOTAL-COSTS> 14,921,929
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,793,989
<INCOME-PRETAX> 1,090,828
<INCOME-TAX> 426,000
<INCOME-CONTINUING> 664,828
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 664,828
<EPS-BASIC> 0.09
<EPS-DILUTED> 0.09
</TABLE>
