U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended July 31, 2000
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------- -------------
Commission File No. 000-27011
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ALPINE AIR EXPRESS, INC.
-----------------------------------
(Name of Small Business Issuer in its Charter)
DELAWARE 33-0619518
------------------------------- --------------------------
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
3450 West Jense Parkway
Provo, Utah 84601
-------------------------
(Address of Principal Executive Offices)
Issuer's Telephone Number: (801) 373-1508
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Company was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
(1) Yes X No (2) Yes X No
--- --- --- ---
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)
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____ No ___
(APPLICABLE ONLY TO CORPORATE ISSUERS)
State the number of shares outstanding of each of the Issuer's
classes of common equity, as of the latest practicable date:
July 31, 2000
Common - 11,000,000 shares
DOCUMENTS INCORPORATED BY REFERENCE
NONE.
Transitional Small Business Issuer Format Yes X No
--- ---
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Condensed Financial Statements of the Company required
to be filed with this 10-QSB Quarterly Report were prepared by management and
commence on the following page, together with related Notes. In the opinion
of management, the Condensed Financial Statements fairly present the
financial condition of the Company.
<PAGE>
HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF ALPINE AIR EXPRESS, INC.
AND SUBSIDIARY
OCTOBER 31, 1999 AND 1998
AND JULY 31, 2000 (UNAUDITED)
<PAGE>
TABLE OF CONTENTS
Page
INDEPENDENT AUDITOR'S REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheets 2
Statements of Operations 3
Statements of Stockholders' Equity 4
Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
of Alpine Air Express, Inc.
We have audited the accompanying consolidated balance sheets of Alpine Air
Express, Inc. and subsidiary (a Utah corporation) as of October 31, 1999 and
1998, and the related statements of operations, stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the management of Alpine Air Express, Inc. and subsudiary.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Alpine Air
Express, Inc. and subsidiary as of October 31, 1999 and 1998, and the results
of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/S/Squire and Company, PC
Squire and Company, PC
Orem, Utah
July 26, 2000
<PAGE>
<TABLE>
ALPINE AIR EXPRESS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
July 31, October 31, October 31,
2000 1999 1998
ASSETS (Unaudited)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 474,790 $ 2,008,747 $ 905,537
Marketable securities 3,197,884 649,715 39,414
Accounts receivable 1,084,974 1,050,998 1,398,999
Prepaid expense 944,234 167,360 107,489
Inventories 1,133,399 501,791 468,496
Current portion of deferred tax asset 88,072 53,588 -
Total current assets 6,923,353 4,432,199 2,919,395
Property, Plant and Equipment - net 160,612 109,627 60,361
Total assets $ 7,083,965 $ 4,541,826 $ 2,980,296
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 107,370 $ 194,322 $ 465,207
Accounts payable - related party 327,765 210,921 237,849
Accrued expenses 349,712 472,995 484,562
Refundable deposits 8,415 - -
Current income tax payable 82,800 133,195 -
Current portion of deferred
tax liability 58,017 28,068 -
Total current liabilities 934,079 1,039,501 1,187,618
Deferred Income Taxes 9,071 2,433 14,718
Total liabilities 943,150 1,041,934 1,202,336
Stockholders' Equity:
Preferred stock, $.001 par value,
1,000,000 shares authorized, no
shares issued or outstanding - - -
Common stock, $.001 par value,
20,000,000 shares authorized,
11,000,000, 10,895,000 and 10,895,000
shares issued and outstanding, at
July 31, 2000, October 31, 1999, and
1998, respectively 11,000 10,895 10,895
Additional paid in capital 1,513,510 84,466 84,466
Cumulative other comprehensive
income (loss) 60,335 (31,405) 3,147
Retained earnings 4,555,970 3,435,936 1,679,452
Total stockholders' equity 6,140,815 3,499,892 1,777,960
Total liabilities and
stockholders' equity $ 7,083,965 $ 4,541,826 $ 2,980,296
</TABLE>
<PAGE>
<TABLE>
ALPINE AIR EXPRESS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended Nine Months Ended Years Ended
July 31, July 31, October 31,
2000 1999 2000 1999 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Operating
Revenues $3,871,292 $3,182,614 $12,662,788 $8,993,625 $12,477,816 $9,629,491
Operating
Expenses:
Direct
operating
expenses 2,558,833 1,818,767 7,272,457 5,454,838 7,756,988 7,522,051
General and
admin 1,563,884 307,117 2,080,653 649,053 1,672,480 1,083,489
Depreciation 8,367 8,300 25,270 24,742 33,001 21,462
Total
operating
expenses 4,131,084 2,134,184 9,378,380 6,128,633 9,462,469 8,627,002
Operating
Income
(Loss) (259,792) 1,048,430 3,284,408 2,864,992 3,015,347 1,002,489
Other Income
(Expense) 17,659 9,388 139,861 28,949 (120,504) (80,045)
Income (Loss)
Before Income
Taxes (242,133) 1,057,818 3,424,269 2,893,941 2,894,843 922,444
Income Tax
Expense
(Benefit):
Current income
tax expense
(benefit) (137,661) 399,017 1,363,231 1,108,005 1,153,130 329,618
Deferred income
tax expense
(benefit) (11,458) (111) (58,996) (31,597) (14,771) 28,474
Total income
tax expense
(benefit) (149,119) 398,906 1,304,235 1,076,408 1,138,359 358,092
Net Income
(Loss) $(93,014) $ 658,912 $2,120,034 $1,817,583 $1,756,484 $ 564,352
Earnings
(Loss) Per
Share - Basic
and Fully
Diluted $ (0.008) $ 0.06 $ 0.19 $ 0.17 $ 0.16 $ 0.05
Weighted
Average
Shares
Outstanding 10,947,500 10,895,000 10,912,500 10,895,000 10,895,000 10,895,000
</TABLE>
<PAGE>
<TABLE>
ALPINE AIR EXPRESS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
<CAPTION>
Cumulative
Other
Compre-
Additional hensive
Common Stock(1) Paid In Income Retained
Shares Amount Capital (Loss) Earnings Total
<S> <C> <C> <C> <C> <C> <C>
Balance,
November 1, 1997 10,895,000 $10,895 $ 84,466 $ - $ 1,115,100 $1,210,461
Comprehensive Net
Income Calculation:
Net income - - - - 564,352 564,352
Other comprehensive
income-net of tax.
Unrealized holding
gains arising during
the period - - - 3,147 - 3,147
Comprehensive Income - - - 3,147 564,352 567,499
Balance,
October 31, 1998 10,895,000 10,895 84,466 3,147 1,679,452 1,777,960
Comprehensive Net
Income Calculation:
Net income - - - - 1,756,484 1,756,484
Other comprehensive
income-net of tax.
Unrealized holding
losses arising during
the period - - - (34,552) - (34,552)
Comprehensive Income - - - (34,552) 1,756,484 1,721,932
Balance,
October 31, 1999 10,895,000 10,895 84,466 (31,405) 3,435,936 3,499,892
Stock issued for
consulting
services 105,000 105 1,430,145 - - 1,430,250
Valuation of net
liabilities on
June 12, 2000 of
Riverside - - (1,101) - - (1,101)
Comprehensive Net
Income Calculation
(unaudited):
Net income - - - - 2,120,034 2,120,034
Other comprehensive
income-net of tax.
Unrealized holding
gains arising during
the period - - - 91,740 - 91,740
Comprehensive Income
(unaudited) - - - 91,740 2,120,034 2,211,774
Dividends (unaudited) - - - - (1,000,000)(1,000,000)
Balance,
July 31, 2000
(unaudited) 11,000,000 $11,000 $1,513,510 $60,335 $4,555,970 $6,140,815
</TABLE>
(1) Reflects retroactive restatement for periods presented prior to the June
12, 2000 recapitalization (Note 1).
<PAGE>
<TABLE>
ALPINE AIR EXPRESS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Nine Months Ended Years Ended
July 31, October 31,
2000 1999 1999 1998
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 2,120,034 $ 1,817,583 $ 1,756,484 $ 564,352
Adjustments to reconcile net
income to net cash provided
(used) by operating activities:
Stock issued to consultants 1,430,250 - - -
Realized loss on marketable
securities 16,980 - - -
(Gain) loss on disposal of
property, plant, and equipment 1,463 - - (23)
Deferred tax expense (benefit) (51,776) (33,271) (14,771) 28,474
Depreciation and amortization 25,270 24,742 33,001 21,462
Bad debt provision - (572) - (110)
Changes in assets and liabilities:
Accounts receivable (33,976) 380,045 348,001 (879,112)
Inventories (631,608) 177,085 (33,296) (94,693)
Prepaid expense (776,874) (55,602) (32,561) (79,036)
Accounts payable (88,053) (417,325) (273,360) 213,478
Accounts payable - related
party 116,844 (13,023) (26,928) 78,144
Accrued expenses (123,283) (362,833) (9,091) 424,409
Refundable deposits 8,415 364,999 - (22,964)
Income tax payable (50,395) 2,101 105,885 (45,607)
Total adjustments (156,743) 66,346 96,880 (355,578)
Net cash provided by operating
activities 1,963,291 1,883,929 1,853,364 208,774
Cash Flows from Investing Activities:
Proceeds from sale of marketable
securities 888,982 - - -
Purchase of marketable
securities (3,308,512) (446,042) (667,887) -
Purchase of equipment (77,718) (74,466) (82,267) (2,322)
Net cash used by investing
activities (2,497,248) (520,508) (750,154) (2,322)
Cash Flows from Financing Activities:
Dividends paid (1,000,000) - - -
Net Increase (Decrease) in Cash
and Cash Equivalents (1,533,957) 1,363,421 1,103,210 206,452
Beginning Cash and Cash
Equivalents 2,008,747 905,537 905,537 699,085
Ending Cash and Cash Equivalents $ 474,790 $2,268,958 $2,008,747 $905,537
</TABLE>
ALPINE AIR EXPRESS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
This summary of significant accounting policies of Alpine Air Express,
Inc. and subsidiary (the Company) is presented to assist in
understanding the Company's financial statements. These accounting
policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial
statements.
Organization and Business Description Alpine Aviation, Inc.
(Alpine) was incorporated in the state of Utah on October 3, 1975.
On June 12, 2000 Alpine entered into a transaction that was accounted
for as a reverse merger with Riverside Ventures, Inc., a Delaware
corporation incorporated on April 20, 1994. At the time of the
transaction, Riverside Ventures, Inc. was inactive. All of the
outstanding common stock of Alpine was exchanged for 9,895,000 shares
of common stock of Riverside Venture, Inc. The transaction,
accounted for as a reverse merger acquisition, resulted in a
recapitalization of Alpine inasmuch as it was deemed to be the
acquiring entity for accounting purposes. Subsequently, Riverside
Ventures, Inc. changed its name to Alpine Air Express, Inc.
In connection with the reverse merger, the 25,000 shares of common
stock of Alpine were exchanged at a rate of one share of Alpine for
395.8 shares of Riverside Ventures, Inc. The financial statements and
earnings per share data have been retroactively restated to reflect
the post merger share amounts. The historical financial statements
prior to June 12, 2000 are those of Alpine.
The Company is involved in the hauling of air freight, serving
commuter routes, and providing pilot training. The Company
terminated commuter flights in July 1999. The Federal government
enhances the income of the Company on some of those essential air
service routes.
Interim Financial Statements - The balance sheet as of July 31, 2000
and related statements of operations, stockholders' equity and cash
flows for the nine month periods ended July 31, 2000 and 1999 are
unaudited. Periods reported on for the three months ended July 31,
2000 and 1999 are also unaudited. However, in the opinion of
management these interim financial statements include all adjustments
(consisting of only normal recurring adjustments) which are necessary
for the fair presentation of the results for the interim periods
presented. The results of operations for the unaudited nine month
and three month periods ended July 31, 2000 are not necessarily
indicative of the results which may be expected for the entire 2000
fiscal year.
Marketable Securities - The Company held marketable equity and debt
securities recorded at aggregate fair market values totaling,
$649,715, and $39,414 at October 31, 1999 and 1998, respectively.
These securities are classified as available-for-sale. Gross
unrealized gains and (losses) were $(57,586) and $4,995, for the
years ending October 31, 1999 and 1998, respectively.
<PAGE>
Note 1. Summary of Significant Accounting Policies (Continued)
Accounts Receivable - The Company grants credit to its customers,
substantially all of whom are businesses located in the western
United States. The Company has no policy requiring collateral on any
of its accounts receivable.
Allowances of $100,000 and $50,000 were established for accounts
receivable at October 31, 1999 and 1998, respectively.
Inventory - Inventory consists of airplane parts, fuel and oil, and
supplies and is stated at the lower of cost or market, determined
using the first-in, first-out method (FIFO).
Depreciation - Provision for depreciation of property, plant and
equipment is computed on the straight-line method for financial
reporting purposes. Depreciation is based upon estimated useful
lives as follows:
Buildings and improvements 10 to 20 Years
Equipment 2 to 7 Years
Furniture and fixtures 2 to 7 Years
Maintenance, repairs, and renewals which neither materially
add to the value of the equipment nor appreciably prolong its
life are charged to expense as incurred. Gains and losses on
dispositions of equipment are included in net income.
Accumulated depreciation consists of $328,971, and $295,970
at October 31, 1999 and 1998, respectively.
Cash and Cash Equivalents - The Company considers demand
deposits at banks and money market funds at other financial
institutions with an original maturity of three months or
less to be cash equivalents.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts disclosed. Accordingly, actual
results could differ from those estimates.
Earnings Per Share Basic and fully diluted earnings per
share is computed by dividing net income available for common
stock by the weighted average number of common shares during
the period.
Revenue and Cost Recognition The Company utilizes the
accrual method of accounting whereby revenue is recognized
when earned and expenses are recognized when incurred.
<PAGE>
Note 1. Summary of Significant Accounting Policies (Continued)
Additional Cash Flow Statement Disclosures - During the nine months
ended July 31, 2000 and 1999, the Company paid $3,059 and $11,673 in
interest and $1,336,630 and $743,006 in income taxes, respectively.
The Company paid $12,307 and $3,953 in interest and $989,068 and
$195,558 in income taxes during the years ended October 31, 1999 and
1998, respectively. On June 12, 2000 the Company consummated a
reverse merger wherein the Company effectively assumed $1,101 of the
acquiree's debt obligations as a reduction of stockholders' equity.
Note 2. Accounts Receivable
Accounts receivable consist of the following at October 31,:
1999 1998
Trade accounts receivable $ 1,010,273 $ 998,172
Accounts receivable - related party 30,830 400,827
Accounts receivable - employee 9,895 -
$ 1,050,998 $ 1,398,999
Note 3. Income Taxes
The Company accounts for income taxes under the provision of SFAS 109
"Accounting for Income Taxes." This method requires the recognition
of deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between tax bases and financial
reporting bases of assets and liabilities.
The provision for income taxes consists of the following:
October 31,
1999 1998
Current:
Federal $ 982,405 $ 275,544
State 170,725 54,074
Total current 1,153,130 329,618
Deferred Expense (Benefit):
Income tax expense (benefit) (14,771) 28,474
Total income tax expense $ 1,138,359 $ 358,092
<PAGE>
Note 3. Income Taxes (continued)
The income tax provision reconciled to the tax computed at the
federal statutory rate is as follows:
October 31,
1999 1998
Income taxes at the statutory rate $ 964,667 $ 315,329
Non-deductible expenses 3,712 323
State income taxes, net of federal
benefit 169,980 42,440
Total income tax provision $ 1,138,359 $ 358,09
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities are
as follows:
October 31,
1999 1998
Deferred tax assets:
Allowance for bad debts $ 20,544 $ 4,543
Accrued vacation and sick leave 33,044 -
Valuation allowance - (4,543)
Total deferred assets 53,588 -
Deferred tax liabilities:
Unrealized holding gains (27,837) -
Excess tax depreciation (2,664) (14,718)
Total deferred liabilities (30,501) (14,718)
Net deferred tax assets (liabilities) $ 23,087 $ (14,718)
Note 4. Related Party Transactions
The Company leases its aircraft from CLB Corporation (CLB) and CLB
Bates Partnership, which are owned by a significant stockholder of
the Company. The lease terms for aircraft and equipment vary from
month to month and approximates $153,000 per month. The Company
owed $210,921, and $237,849 in lease payments to related parties, at
October 31, 1999 and 1998, respectively.
Total lease expenses to related parties for the years ended
October 31, 1999 and 1998 is detailed below.
1999 1998
CLB Corporation $ 2,690,048 $ 2,337,330
CLB Bates Partnership - 93,600
$ 2,690,048 $ 2,430,930
<PAGE>
Note 4. Related Party Transactions (continued)
Monthly engine overhaul reserves are paid based on actual flying
hours during the month.
CLB reimburses the Company for certain qualifying repairs paid for or
performed by the Company. At October 31, 1999 and 1998, the Company
had a receivable of $30,830 and $400,827, respectively, related to
these repairs.
Note 5. Operating Leases
The Company also leases real property under two operating lease
agreements. One lease has a remaining term of 13 years. The other
lease will expire October 2001. Future minimum lease payments are as
follows:
2001 $ 21,914
2002 21,914
2003 6,934
2004 6,934
2005 6,934
Thereafter 58,356
$ 122,986
Note 6. 401(k) Profit Sharing Plan
Employees who have been employed at least 3 months may contribute up
to 17 percent of their compensation to the Company's 401(k) profit
sharing plan. The Company contributes an additional 50 percent of
the amount contributed by employees up to a maximum of 3 percent of
compensation. Participants are fully vested in employer
contributions after two years of service. The Company contributed
$15,163, and $13,828 for the years ended October 31, 1999 and 1998,
respectively.
Note 7. Concentrations
The Company receives the majority of its revenues from contracts with
the U.S. Postal Service (USPS). For the years ending October 31,
1999 and 1998, the revenues from contracts with the USPS represented
79 percent and 67 percent of total revenues, respectively. At
October 31, 1999 and 1998, accounts receivable from the USPS totaled
$1,152,536 and $992,133, respectively. Although a loss of contracts
with the USPS would severely impact the financial position of the
Company, the Company's management believes that the relationship with
the USPS is excellent and will continue.
The Company maintains cash balances at several financial
institutions. Accounts at each institution are insured by the
Federal Deposit Insurance Corporation up to $100,000. As of October
31, 1999 and 1998, the Company's uninsured cash balances totaled
$1,142,849 and $721,448, respectively.
<PAGE>
Note 8. Subsequent Events Unaudited
The Company has acquired an option to purchase CLB for $17,000,000.
The purchase price will be paid for with shares of the Company's
common stock. Solely for purposes of the CLB transaction, the
Company's common stock will be valued at $3.40 per share. The option
is for a period of two years. The purchase price was determined by
the "blue book" value of the planes owned by CLB less
any debt still owed on the planes. As of the date of the option, CLB
had less than $840,000 in debt on its 24 planes.
On August 14, 2000 the Company entered into an agreement to sell
certain of its business assets to Keystone Aviation, LLC d.b.a.
Million Air of Salt Lake City, Utah. Included in the agreement are
the sale of leasehold interests for certain property and buildings
leased at the Provo, Utah Airport and certain improvements and other
personal property held by the Company. The sales price for these
assets will approximate $620,000 including $285,000 in cash at
closing and the balance in leaseback, and fuel credits to be applied
over the next two years. It is anticipated that the sale will take
place on September 21, 2000 or earlier if all conditions of the sale
are met.
Note 9. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This statement establishes accounting and
reporting standards requiring that every derivative instrument be
recorded on the balance sheet as either an asset or liability
measured at fair value. The statement also requires that changes in
the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. In June 1999, the
FASB issued SFAS No. 137, which deferred the application of SFAS No.
133 from fiscal years beginning after June 15, 1999 to fiscal years
beginning after June 15, 2000. The application of SFAS No. 133 is
not expected to have a material impact on the Company's financial
statement.
Item 2. Management's Discussion and Analysis or Plan of Operation.
General
-------
Since the mid 90's, Alpine has been profitable with consistent revenue.
Net profits have ranged from a low in 1995 of $96,981 on revenue of $7,050,026
to net profits of $1,756,484 in 1999 on revenue of $12,477,816. We believe
this increase in revenue and more importantly net income is the result of
focusing on our primary customer, the Postal Service. The focus on the Postal
Service comes after pursuing various avenues in the aviation industry. We
have tried to be a charter carrier, passenger carrier and support integrated
cargo carriers. We discovered in each of these avenues that a small carrier
such as Alpine has little negotiation capabilities and is at the discretion of
the larger carriers and customers as to terms of payment. This placed
substantial burden on our ability to meet our own financial needs, much less
grow. Although these other markets could be profitable, certain dynamics such
as size and steady cash flow had to be achieved before entering them.
After analyzing the various options available, we determined that until a
certain size was reached, we should focus on government contracts,
specifically the Postal Service.
The Postal Service offered us the ability to have a consistent, reliable
source of revenue and immediate payments helping to solve cash flow problems
we previously faced. The Postal Service also had need for a carrier who
could expand in the western portion of the United States and would meet
certain customer service goals such as on-time performance, which is critical
to the Postal Service. By focusing our efforts to satisfy the needs of the
Postal Service, we have been able to build a strong relationship resulting in
our expansion to 20 Postal Service routes.
While we will continue to focus on maintaining our Postal Service
contracts and feel confident we will be able to acquire additional Postal
Service routes, there is always the possibility that someone will enter our
market area and take some of these routes. However, there is no indication,
at this time, that any other parties are trying to do this. We believe our
relationship with the Postal Service is strong enough to maintain our current
relationship, at a minimum.
Since we now have the established revenue flow from our Postal Service
routes, we would like to go after some of the cargo business we were not able
to handle before, including providing carrier services to integrated carriers
such as FedEx and Emery. Many of these integrated carriers use local airlines
to carry the integrated carriers cargo between smaller markets where the
economics do not make sense for them to devote manpower and planes. These
routes, however, are profitable to a carrier with the right structure. We
have proven the profitability of servicing these smaller markets through our
work with the Postal Service and now feel we can grow our business by offering
the same quality service to the integrated carriers, freight forwarding
companies and non-integrated domestic, international and regional cargo
companies. We anticipate it will take time to develop material contracts with
integrated carriers and freight forwarders. Most of these companies already
have existing relationships with air cargo companies.
Plan of Operation
-----------------
We have been successful in steadily increasing revenue and net income.
Over the next year we anticipate a new Postal Service contract being announced
which, based on current discussions, should be on similar terms as the
existing contract. We have no reason to believe we would not receive our
current routes and are hopeful that as the amount of mail continues to
increase we will be able to receive additional routes in the western portion
of the United States which can be serviced from our current facilities.
We do intend to acquire, through lease or purchase, additional planes to
meet increasing demand and allow us to bid on additional work. Management has
consistently maintained a policy of low debt ratios so we will not finance
these planes with heavy debt. We anticipate using existing cash flow and
potentially selling equity in Alpine to make up any other sums needed. A
third alternative and one we most likely will use in the short term, will be
to rely on the financing provided by Eugene Mallette who, through CLB, owns
the other planes we use. Mr. Mallette has indicated a willingness to purchase
the planes and lease them back to Alpine on similar terms to the current CLB
agreements. Mr. Mallette has stated he has the financing to purchase up to 15
additional planes.
We are in the process of building new facilities at our Provo, Utah
headquarters. These new facilities will serve as our corporate offices,
maintenance and training facilities. We have entered a contract to sell the
current facilities in Provo, Utah. The proceeds from this sale will help pay
for the new facilities as well as offset some lease and fuel expenses. The
cost of the new facilities in excess of the proceeds received from the sale of
the current facilities will be paid from our current capital and ongoing
revenue. The facilities will be at the Provo Airport and be built on grounds
leased from Provo City. The lease will be for 40 years, and like our current
lease be for a fairly nominal monthly rent.
Liquidity and Capital Resources
-------------------------------
October 31, 1999
----------------
In reviewing our financial position, we have focused on Alpine Aviation's
operations prior to the merger with Riverside. We have treated the merger as
a "reverse acquisition" and we are changing year ends to October 31 to match
Alpine Aviation's.
Financially, Alpine is experiencing its best times since inception. For
the fiscal year ended October 31, 1999, we had record profits that left Alpine
with current assets of $4,432,199 compared with current liabilities of
$1,093,581 and little long term debt. With a working capital surplus of
$3,336,618 we are positioned to complete the building of our new facility in
Provo, Utah which we anticipate costing around $1,000,000. We only anticipate
having to expend approximately $600,000 out of existing funds once we complete
the sale of our existing facility. Even if the sales contract for our current
facility does not close, our budget will be able to handle the in-house
financing of the new facility until a new buyer could be found. We do not
anticipate any problems with liquidity in the upcoming year. Revenues should
exceed the previous years, resulting in additional cash to fund operations and
expansion.
The only expenditures anticipated besides the new facility are for
additional cargo aircraft. Management anticipates following its existing
practice of not incurring large amounts of long term debt. Accordingly, if
the planes cannot be financed out of existing revenue, management will seek
alternatives. Hopefully, we will raise the necessary capital through the sale
of equity. If not, Eugene Mallette has indicated a willingness, through other
entities he controls, to purchase the planes and lease them back to Alpine.
The lease terms would be similar to the ones currently being paid on our other
planes which are also leased from an entity controlled by Mr. Mallette. We
believe these terms to be very favorable.
July 31, 2000
--------------
As of July 31, 2000, our working capital surplus improved to $5,898,203,
with current assets of $6,923,353 and total current liabilities of
approximately $943,079. We feel good about the $2,652,656 increase in working
capital since October 31, 1999, particularly since we paid $1,000,000 in
dividends during the quarter ended April 30, 2000.
We believe the next quarter should produce similar results leaving us
with a strong financial position for the next twelve months. Even with
anticipated expansion, the operations are producing enough cash flow that our
business should continue to remain profitable, as long as our Postal Service
routes continue.
Results of Operation
--------------------
October 31, 1999
----------------
Our last fiscal year was our best year ever in terms of revenue and net
income. Revenue for the fiscal year ended October 31, 1999, was $12,477,816
which represented an increase of $2,848,325 or 30% over the $9,629,491 in
revenue for the same period in 1998. More importantly, net income increased
almost 211% to $1,756,484 for the fiscal year ended October 31, 1999, from
$564,352 received in 1998.
The increase in net income was the result of increased loads and expanded
route system resulting in better utilization of planes and pilots. We
consider these results even better than expected given the high fuel cost we
had to pay in 1999 and continue to pay today. As we are able to expand
routes, net income should continue to increase given our ratio of fixed cost
to variable cost.
Our contract with the Postal Service more than made up for the higher
fuel cost as they awarded us expanded routes increasing from 12 routes in 1998
to 19 in 1999. These increased routes allowed us to utilize our planes and
pilots more efficiently. This additional revenue offset the increased
variable cost of fuel and maintenance. We anticipate that fuel costs will
remain about the same for this year, somewhere near $1.65 per gallon on
average.
One advantage we have over other carriers is the Postal Service contracts
have a fuel expense increase clause. This clause automatically increases the
amount the Postal Service pays us when fuel costs increase, making adjustments
every quarter. Accordingly, as fuel costs go up, we generally only experience
a quarter lag time before we begin to be paid at a higher rate.
Wage expense increased by $524,267 for a couple of reasons. First, our
business expanded which required we hire additional pilots to fly the new
routes. However, a major increase came from bonus to our employees and
management. To show our appreciation to our employees, we gave them part of a
"bonus" received from the Postal Service. The bonus was for our on-time
performance being in the top 10% for all regional carriers. This bonus was
$135,949 for 1999. To show our appreciation for our employees making this
bonus possible, we passed along $66,200 of the bonus to the employees.
Unfortunately, the Postal Service will not be offering a performance bonus
until September 2001, at the earliest. They have indicated other incentives
will be built into the new contract but at this time we do not know how these
new incentives of the contract will affect our revenue. The other major
increase in wages related to bonuses to officers of $265,000.
One factor we anticipate will change in upcoming years is the revenue
received from our fixed based operations. We do not feel it makes long term
economic sense to continue to operate our fixed based operations for third
party use. Last year, the fixed based operation contributed about $654,000 to
our revenue. However, for the last nine months, the fixed based operation
operated at a loss. Accordingly, we have decided to refocus our resources by
selling the fixed based operation. We will transfer the personnel used in the
fixed based operation to maintenance of our own planes and to other
administrative needs.
July 31, 2000
--------------
For the nine months ending July 31, 2000, operating revenue increased to
$12,662,788. This was a $3,669,163 increase over the same period in 1999 when
revenue was $8,993,625. More importantly, our operating income increased to
$3,284,408 from $2,864,992 for the nine months ending July 31, 2000, as
compared to July 31, 1999. Net income after taxes was $2,120,034.
Management is pleased with these numbers and feels they show how well we
have been able to expand operations and maintain our expenses. Except for
those variable costs related to the increase in operations, expenses remained
fairly constant from prior periods. As expected flight operations,
maintenance and rental expenses increased as we added flights. These
increases, however, were more than offset by the additional revenue generated.
One factor that reduced profits for the last nine months was the expenses
associated with the reorganization with Riverside. Although only $150,000 in
cash was spent, the advisors and consultants hired by Alpine received shares
of Alpine which were valued at $1,430,250, based, in part, on prior business
evaluations received by Alpine. Without the reorganization expenses,
operating income before tax would have increased to $4,864,658 for the nine
months ended July 31, 2000.
As a result of management's efforts to maintain cost and expand
operations, our profit margin on operating income, excluding the one time
expense associated with the reorganization, increased to almost 40% from 31%
from the prior nine month period. Management feels these profit margins are
reflective of future results if we are able to continue to expand operations.
For the nine months ended July 31, 2000, general and administrative
expenses expanded as we continued to reward employees with payroll bonuses.
We do not anticipate paying large bonuses as we move forward. In the past as
a private company, bonuses were the best way to reward management. Now, as
we move into more of a public company, we plan on creating an option plan to
link management's performance with increasing shareholder value. As we branch
out into different revenue sources and reduce our dependency on the Postal
Service, we would anticipate that profit margins on the new business would not
be as favorable, at first, as new routes have to be developed, and additional
planes and personnel added.
We also will reduce some expenses completely in the future. Flight
instruction and rentals which were $426,212 expense item will no longer be
incurred once we sell our fixed base facility. This will also remove $283,256
in revenue from these items. Management feels the reallocation of these
resources will be a positive effect to our operating profits. Particularly
when considering the maintenance on the aircraft and the managerial time
devoted to these marginal revenue activities.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None; not applicable.
Item 2. Changes in Securities.
None; not applicable.
Item 3. Defaults Upon Senior Securities.
None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
None; not applicable.
Item 5. Other Information.
The Company completed the reorganization outlined in the 8-K Current
Report referred to in Item 6(b) below, and changed its calendar year end to a
fiscal year ending in October of each year, to coincide with the year end of
the acquired operating company. A Quarterly Report on Form 10-QSB was due to
be filed by the pre-reorganization Company for the quarter ended June 30,
2000; however, the pre-organization Company had no operations during that
period.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10 Agreement For Sale of Business Assets
27 Financial Data Schedule
(b) Reports on Form 8-K.
Dated June 12, 2000 and filed with the Securities and Exchange
Commission on August 31, 2000.
SIGNATURES
Pursuant to the requirements 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.
ALPINE AIR EXPRESS, INC.
Date: 9/14/2000 By/s/Bill Distenfano
------------------------
Bill Distenfano, Director
and President
Date: 9/14/2000 By/s/Leslie Hill
------------------------
Leslie Hill
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this Report has been signed below by the following persons on
behalf of the Company and in the capacities and on the dates indicated:
ALPINE AIR EXPRESS, INC.
Date: 9/14/2000 By/s/Bill Distenfano
------------------------
Bill Distenfano, Director
and President
Date: 9/13/2000 By/s/Max A. Hansen
------------------------
Max A. Hansen, Director
Secretary/Treasurer
Date: 9/14/2000 By/s/Eugene R. Mallette
------------------------
Eugene R. Mallette, Director
and CEO
