SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20509
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act
June 12, 2000
Date of Report
(Date of Earliest Event Reported)
Alpine Air Express, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 000-27011 33-0619518
(State or other juris- (Commission File No.) (IRS Employer
diction of incorporation) I.D. No.)
3450 West Jense Parkway
Provo, Utah 84601
(Address of Principal Executive Offices)
801-373-1508
Registrant's Telephone Number
24351 Pasto Road, #B
Dana Point, California 92629
----------------------
(Former Name and Address of Principal Executive Offices)
Item 1. Changes in Control of Registrant.
(a) Effective as of June 12, 2000, the Registrant; Alpine Aviation,
Inc., a Utah corporation ("Alpine"); and all of the stockholders of Alpine
(the "Alpine Stockholders"), executed an Agreement and Plan of Reorganization,
as amended (respectively, the "Alpine Plan" and the "Amended Alpine Plan"),
whereby the Registrant acquired 100% of the outstanding securities of Alpine.
The effective date of the Alpine Plan was June 12, 2000, and the combination
of these entities was treated as a purchase for accounting purposes, with
Alpine becoming a wholly-owned subsidiary of the Registrant on closing. On
August 28, 2000, the Alpine Plan was amended by the Amended Alpine Plan to
include certain persons and entities who had been given shares of Alpine by
its former sole stockholder, Eugene R. Mallette, prior to the completion of
the Alpine Plan; to include the grant of an option to the Registrant to
purchase 100% of the outstanding shares of C.L.B. Corporation, a Utah
corporation ("CLB"), that is wholly-owned by Mr. Mallette; and to amend
Exhibit I to the Alpine Plan.
The source of the consideration used by the Alpine Stockholders to
acquire their interest in the Registrant was the exchange of 100% of the
outstanding securities of Alpine.
The basis of the "control" by the Alpine Stockholders is stock
ownership, and two of the Alpine Stockholders, Mr. Mallette and Bill
Distefano, were designated and elected to the Board of Directors of the
Registrant. Mr. Mallette was also elected as the CEO; and Mr. Distefano was
elected the President. These persons served Alpine in these capacities prior
to the completion of the Alpine Plan.
The principal terms of the Alpine Plan were:
1. The acquisition of 100% of the outstanding securities of
Alpine in exchange for 9,895,000 shares of the Registrant's common stock
("restricted securities").
2. The execution of a Stock Purchase and Sale Agreement (the "CLB
Option Agreement") pursuant to which the Registrant was granted an option to
purchase 100% of the outstanding common stock of CLB for a total purchase
price of $17,000,000 payable by the issuance of 5,000,000 shares of the
Registrant's common stock at an agreed value of $3.40 per share to Mr.
Mallette, the sole stockholder of CLB. The option expires two years from the
date of the execution of the CLB Option Agreement or August 27, 2002. Alpine
leases all of its aircraft from CLB.
3. The Resignation of the directors and executive officers of
the Registrant, and the election of the directors and executive officers of
Alpine as directors and executive officers of the Registrant.
4. A change of name of the Registrant to "Alpine Air Express,
Inc."
5. The issuance of 105,000 shares of common stock of the Registrant
("restricted securities") to Smith Consulting Services, Inc., a Utah
corporation and financial consulting firm ("SCS"), as partial consideration of
fees due and owing SCS that were rendered in connection with the negotiation
and consummation of the Alpine Plan. See Item 5.
6. The filing of a registration statement with the Securities and
Exchange Commission to register certain outstanding securities of the
Registrant for resale (the "Registration Statement").
Prior to the completion of the Alpine Plan, there were 1,000,000
outstanding shares of the Registrant's common stock. Following the
completion of the Alpine Plan, there were 11,000,000 outstanding shares of
common stock.
A copy of the Alpine Plan, as amended, including all material
exhibits and related instruments, accompanies this Report, which, by this
reference, is incorporated herein; the foregoing summary is modified in its
entirety by such reference. See Item 7, Exhibits 2 and 2.1.
The former principal stockholder of the Registrant and his percentage of
ownership of the outstanding voting securities of the Registrant prior to the
completion of the Alpine Plan was: Jehu Hand, Esq., former President and Chief
Financial Officer of the Registrant, 800,000 (80%).
(b) To the knowledge of management and based upon a review of the
stock ledger maintained by the Registrant's transfer agent and registrar, the
following table sets forth the beneficial ownership of persons who own more
than five percent of the Registrant's common stock as of the date hereof, and
the share holdings of new management:
Name Positions Held Shares Owned %
Eugene R. Mallette CEO, Director 9,396,688 * 85.4%
The Mallette Family Stockholder 989,500 * 8.9%
Limited Partnership
Bill Distenfano President, Director 491,979 4.5%
Max A. Hansen Secretary/Treasurer, Director -0- -0-
Charles L. Bates Director -0- -0-
Richard Rowack Director -0- -0-
SCS Financial Consultant 723,850 6.6%
* The 9,396,688 shares owned beneficially by Eugene R. Mallette
includes the 989,500 shares that are also included as being owned by The
Mallette Family Limited Partnership of which Mr. Mallette is the General
Partner.
Officers and
Directors
Collectively 9,888,667 89.9%
Item 2. Acquisition or Disposition of Assets.
(a) See Item 1.
The consideration exchanged under the Alpine Plan was
negotiated at "arms length" and the sole Director, Mr. Hand, of the Registrant
used criteria used in similar uncompleted proposals involving the Registrant
in the past, including the relative value of the assets of the Registrant in
comparison to those of Alpine; Alpine's present and past business operations;
the future potential of Alpine; its management; and the potential benefit to
the stockholders of the Registrant. The sole Director determined that the
consideration for the exchange was reasonable, under these circumstances.
No director, executive officer or controlling person of the
Registrant had any direct or indirect interest in Alpine prior to the
completion of the Alpine Plan.
(b) The Registrant is a successor to and intends to continue the
business operations conducted and intended to be conducted by Alpine, and
which are described below under the caption "Business."
Also see the Financial Statements of Alpine which accompany this Report.
See Item 7.
MANAGEMENT
Directors and Executive Officers
--------------------------------
The members of the Board of Directors of Alpine serve until the next
annual meeting of stockholders, or until their successors have been elected.
The officers serve at the pleasure of the Board of Directors. The following
are the directors and executive officers of Alpine:
Name Age Position Held Position Since*
Eugene R. Mallette 51 Chairman and CEO 1986
Bill Distefano 53 President and Director 1982
Leslie Hill 46 Chief Financial Officer 2000
Max Hansen 51 Secretary/Treasurer
and Director 1986
Charles L. Bates 76 Director 2000
Richard A. Rowack 52 Director 2000
* These years represent the period of service as a director or
executive officer of Alpine.
Mr. Mallette began his career with Alpine in 1979 as its Sales Manager,
then became General Manager later in 1979. He became Chief Executive Officer
and Director upon acquiring Alpine in 1986. Prior to his employment by
Alpine, he was employed by the State of Montana as a staff auditor. He
received a B.A. in Business Administration from Carroll College in 1971. Mr.
Mallette holds a private pilot's license and maintains proficiency in many of
the Company's aircraft types. He devotes time to civic and charitable causes
and was previously Chairman of the Better Business Bureau of Utah County and
Vice-President of the Provo Chamber of Commerce.
Bill Distefano has been Director of Maintenance for Alpine since 1972.
He became a director in 1986 and president in 1992. He holds an Aircraft and
Engine Repair Certificate and an Airframe Inspector certificate from the FAA.
Leslie Hill has been our accountant since 1998 and named Chief Financial
Officer in 2000. Prior to 1998, Ms. Hill was employed by Sendsations Card
Company as controller. She received a Bachelor of Science degree from Brigham
Young University in 1991. In 1999, Ms. Hill received the "Outstanding
Achievement Award" from the Dale Carnegie Foundation in Salt Lake City, Utah.
Max Hansen has been a director since 1986. He has been practicing law
since 1976 and has had his own firm, Max A. Hansen & Associates, P.C. since
1980. Mr. Hansen provides legal services to Alpine. From 1988 to 1989, he
was President of the Montana Bar Association and is currently a member of the
American Bar Association House of Delegates. From 1982 to 1987 he was also
Chairman of the Police Commission of Dillon, Montana. He was an instructor at
Western Montana College of Law from 1980 to 1987. Mr. Hansen has received
distinguished service awards from the Montana State Bar Association and the
Montana Supreme Court. He received a JD degree from the University of San
Diego in 1976, where he was a member of law review, and received a BA in
Political Science from Carroll College.
Charles L. Bates was named a director in 2000. Mr. Bates is currently
retired. He received a Bachelor of Science degree with honors in Mechanical
Engineering from Northeastern University in Boston. Mr. Bates has been
founder and president of the Valtek Company, a producer of high pressure
automated valves, with manufacturing operations and offices in Utah, Alberta,
Canada, Houston, Los Angeles, Melbourne, Auckland, New Zealand and Japan.
Valtek products are also manufactured under license in England, Brazil, South
Africa and Indonesia. In 1978, Valtek was named "Growth Company of the Year",
by the National Association of Investment Clubs. In 1976 the Small Business
Association named Mr. Bates the "Utah Businessman of the Year" and in 1977 he
was recognized as "Utah's Outstanding Practicing Engineer" by the Utah
Engineering Council. Mr. Bates served as a Member of the Board of Directors
of the National Association of Manufacturers and the Utah Manufacturers
Association. He was a Vice-President of the Utah Foundation and has served as
the President of the Utah County Unit of the American Cancer Society. He is a
former President of the Fluid Controls Institute and the Salt Lake City
Chapter of the Instrument Society of American. He is a member of the National
Council of Northeastern University and is a member of the Board of Directors
of Daw Technologies, Inc. and was a member of the Board of Directors of
Duriron Co.
Richard A. Rowack was named a director of Alpine in 2000. Mr. Rowack
has been employed by Republic Financial Corporation since 1988 working in
their international commercial aircraft group. Republic Financial Corporation
is focused on the acquisitions, sales and leasing of commercial, transport
category passenger and cargo aircraft. Mr. Rowack graduated from the
University of Colorado in 1973 with a degree in Finance.
BUSINESS
Background
----------
Alpine Aviation, Inc., a Utah Corporation ("Alpine Aviation"), was
organized in 1972 and has been operated by the same management since 1986; it
is presently a wholly-owned subsidiary of the Registrant.
Alpine is an air cargo operator, transporting mail packages and other
time-sensitive cargo between 19 cities in the western portion of the United
States. Alpine began its operations in the 1970's with the intent of being a
regional charter and cargo carrier. After present management acquired control
in 1986, Alpine began to focus less on the charter or passenger services and
more on the cargo aspects of the airline industry. Throughout most of the
1990's, Alpine has focused more and more on hauling mail for the Postal
Service because of their favorable contracts, routes and payment practices.
As a result of this focus, approximately 80% of Alpine's revenues now come
from the Postal Service.
Industry overview
-----------------
The package delivery or cargo business has evolved rapidly over the last
two decades, driven by the integration of world markets, the rationalization
of corporate supply chains and the implementation of enterprise software and
Internet-based information technology solutions. The ability to provide
time-definite delivery options and transfer information increasingly
determines success. Customer demands for real-time information processing and
worldwide distribution and logistics capabilities favor larger companies with
integrated services.
Customers increasingly focus on the timing and predictability of
deliveries rather than the mode of transportation. As customers re-engineer
the total distribution process, which includes order processing,
administration, warehousing, transportation and inventory management, they are
attempting to reduce the most expensive and fastest growing component --
inventory carrying costs. Time-definite transportation, which is no longer
limited to air express, has become a critical part of just-in-time inventory
management and improving overall distribution efficiency.
Technology advances have made it easier for companies to analyze and
compare distribution options. Rapid advances in technology have also helped
move the traditional business model in which manufacturers "pushed" products
into the supply chain, often based on incomplete information, toward a model
where end-user demand "pulls" products into the supply chain. This evolution
has placed greater demands on transportation systems for visibility of
information at all stages of the order/delivery process, because
time-to-market is becoming a key component of financial and operating success.
As a result of these changes, individual shipments are generally smaller
but more frequent and a greater proportion of products is being delivered
directly to end-users, particularly as e-commerce takes hold. Customers expect
high performance levels and broad product offerings as they seek to optimize
supply chain solutions.
Delivery of packages to a specific destination at a guaranteed time has
been the growth engine for the package delivery industry over the past decade.
Time-definite service has grown from 4% of the U.S. parcel delivery market in
1977 to over 60% today. Time-definite service has grown from just under 10
billion revenue ton miles in 1989 to over 14 billion revenue ton miles in
1997, for a compound annual growth rate of 4.3%, while charter, scheduled mail
and scheduled freight have remained relatively flat during that period.
Internationally, however, time-definite service represents only 6% of the
parcel delivery market, demonstrating the potential for substantial growth.
The key U.S. industry trends are:
There has been dramatic growth in the utilization of e-commerce by both
consumers and businesses for the transfer of goods. Consumers who use the
Internet for home shopping and other services shop across borders and require
global delivery capabilities. According to Forrester Research, $80 billion in
goods were purchased globally over the Internet in 1998, and this figure is
expected to reach over $3.2 trillion in 2003. Of this $80 billion, 80% to 85%
represented business-to-business sales, with the remainder representing
business-to-residential sales.
Customers are demanding increasingly complex supply chain management
solutions that require more sophisticated information technology systems.
Major manufacturers require increased precision in delivery time, and
customers demand precise tracking and timely information about potential
service disruptions.
Industry Consolidation. The industry has become increasingly dominated
by large integrated carriers such as FedEx and UPS that provide seamless
services, including pick-up and delivery, shipment via air and/or road
transport and customs clearance. The pace of consolidation in the package
delivery industry has increased on a global scale, particularly in Europe, due
to the following factors:
- the need for global distribution networks, large vehicle fleets,
global information technology systems and the resources necessary for their
development or acquisition;
- customers' desire for integrated services;
- high growth in the international and cross-border delivery
segments;
- deregulation of European delivery markets.
Industry participants are acquiring, merging with or forming alliances
with partners that can expand global reach, breadth of services or
technological capabilities in order to better enable those participants to
compete in a rapidly changing global environment. In particular,
government-run post offices have made several recent alliances with and
acquisitions of private-sector companies. Post offices, which still maintain
numerous advantages over private-sector companies, create significant
challenges for competitors worldwide. Statistics compiled by Boeing Aircraft
Company indicated air cargo traffic will nearly triple by 2017. We feel with
the growth in cargo and with e-commerce taking hold, the need for companies
like Alpine will only continue to expand. We offer the ability to deliver
mail and cargo to smaller markets without the associated capital cost.
Routes and Delivery
-------------------
Alpine currently has 20 routes covering 19 western cities in 9 states.
Most routes are flown every day and some several times a day. In fiscal 1999,
Alpine transported 9,360 tons of cargo. The largest component of Alpine's
cargo mix is U.S. mail, which accounted for approximately 80% of our fiscal
1999 revenue. Alpine's delivery commitment on U.S. mail and most of the cargo
ranges from one to four hours. Alpine has consistently garnered awards from
the U.S. Postal service for timeliness ranking in the top 10% of all contract
carriers for the Postal Service.
Alpine services its routes with 18 aircraft which are smaller turbo-prop
planes. Currently, the largest planes in our fleet are Beechcraft 99 which
hold 3,000 pounds of cargo. The Postal Service delivers and picks up all
cargo we carry at the plane, unless separate arrangements have been made. The
Post Office delivery and pick up plane side enables us to reduce our cost.
Expansion Strategy
------------------
Our current routes could support additional and larger planes. To meet
this need, we have located, and made an offer to purchase up to fifteen
Beechcraft 1900's along with their spare parts inventory. The Beechcraft 1900
is typically configured for 5,400 pounds and 611 cubic feet of cargo capacity.
The Beechcraft 1900 is an all-weather aircraft powered by twin, PT-6 Pratt
Whitney turbo props. It has a range of about 800 statute miles and enjoys a
sound reputation for safety. Acquisition of the Beechcraft 1900 will increase
the total cargo capacity of the Company's aircraft from 54,000 pounds to
135,000 pounds per day, an increase of 150%. With these aircraft, Alpine will
be able to bid on additional Postal Service routes and also try to receive
some of the contract hauling contracts from integrated carriers like FedEx and
Emery. The additional advantages of the Beechcraft 1900 include allowing us to
carry more freight on routes increasing our economies of scale since it does
not cost much more to operate than our current planes.
The offer is for a purchase price of approximately two million dollars
($2,000,000) per plane payable at delivery. Our offer was accepted in July
2000. Presently, management has made the decision that Alpine will assign its
rights to purchase the planes to Eugene Mallette. Mr. Mallette, in turn, has
agreed to purchase the planes and lease them back to Alpine on similar terms
as our other leases. The decision was made to transfer the purchase rights to
Mr. Mallette because management did not want Alpine to take on the debt
associated with the planes. We have agreed to loan Mr. Mallette $1,000,000
towards the down payment on the planes. As part of the terms of this loan,
Alpine will receive an irrevocable two year option to purchase the planes from
Mr. Mallette. The purchase price will be the fair market value on the date
the option is exercised. Alpine is hopeful that it will be able to sell our
equity in the future to buy the planes. In the meantime, Alpine is
maintaining its flexibility in having the ability to use the planes without
the burdensome debt associated with the planes.
Alpine is also seeking potential acquisitions in the western portion of
the United States which would add planes, additional contracts and additional
maintenance facilities at a location which would be able to serve our routes.
Presently, Alpine does not have any agreements to acquire any other cargo
companies. Alpine has talked to its competitors in our region to see if any
are interested in being acquired by Alpine. So far, all talks are in the
early/development stages and no agreements are anticipated until Alpine is
finished with the registration of its securities and has its shares of Common
Stock listed for trading. Even then, Alpine anticipates a potential seller
would want to wait a period of time to see how shares of Alpine's Common Stock
are valued by the marketplace.
Ancillary Services
------------------
Our Provo, Utah base contains a fixed base operation. Our fixed base
operation operates a flight school, sells aviation fuel, provides catering and
charter services, performs "outside" maintenance, and houses a training
facility for our captains and first officers. Our operation has grown to the
point the fixed base operation has become a drain in terms of the time to
manage and in trying to handle third party needs in conjunction with our own
needs for maintenance and training facilities. We, therefore, anticipate
selling the fixed base operation to a third party or parties and concentrate
our personnel resources, which would stay with Alpine on our own maintenance
and training needs. We do not anticipate a significant change in earnings as
a result of its sale to a third party. In recent years, our own expansion has
resulted in most of the fixed base operation being directed to the maintenance
of our own planes.
Employees
---------
The Company has 64 employees including 7 in administration and 57 in
flight operations which includes 19 pilots. No employees belong to any labor
union.
Facilities
-----------
Alpine leases all of its real property, exclusive of buildings. Alpine
leases 41,496 square feet at the Provo Municipal Airport under a lease that
expires in 2013. The lease calls for monthly payment of $572.80. The
buildings on the lease grounds are the property of Alpine. These facilities
are not large enough to handle current and future needs and Alpine has
tentatively leased additional property at the airport under a proposed lease
that would expire in 2040. Under the terms of the proposed lease Alpine will
pay a monthly lease rate of approximately $800. We intend to build new
facilities on this property to meet our current and future operational needs.
Alpine hopes to sell our current buildings and assign the current lease to a
third party once the new facility is completed. Presently, we estimate the
new facilities will be completed around February 2001 at a cost of up to
$1,000,000.
We also lease a 10,403 square foot hangar in Billings, Montana at a
lease rate of $14,980 per year. This lease expires on October 31, 2002, if
not renewed by mutual consent.
Item 5. Other Events.
On July 5, 2000, the Registrant filed an Amendment to the Articles
of Incorporation changing its name to "Alpine Air Express, Inc." A copy of
the Certificate of Amendment is attached hereto and incorporated herein by
reference. See Item 7, Exhibit 3.
On October 5, 1999, Alpine entered into a Consulting Services Agreement
with SCS whereby it engaged SCS to identify a publicly-held company into which
Alpine could effect a reverse reorganization or merger, and pursuant to which
SCS would pay all costs associated with the reorganization or merger; engage
counsel to gather and review documentation respecting any identified publicly-
held company; cause the necessary documentation respecting any such
reorganization or merger to be prepared and filed, where required; to assist
the reorganized Alpine with introductions to broker/dealers; and to pay all
costs incident to listing the reorganized Alpine in two nationally recognized
financial manuals. Alpine paid SCS a deposit of $150,000, with the Alpine
Stockholders to receive 87% of the reorganized Alpine; SCS to receive 8.5%;
and the public stockholders to retain 4.5%. Alpine and SCS subsequently
agreed to orally modify the consideration by agreeing that the Alpine
Stockholders would receive approximately 90% of the reorganized Alpine, and
that SCS and the public stockholders would together own the remaining 10% (SCS
would be entitled to receive approximately 9.5% of this amount or 1,048,850
shares, to be divided by it with its counsel and certain other consultants and
employees). Taking into consideration shares of the Registrant acquired by
SCS from former principal stockholders of the Registrant and the shares
retained by the public stockholders, the Registrant was required to issued SCS
an additional 105,000 shares of its common stock as outlined in the amended
Exhibit I to the Alpine Plan. A copy of the Consulting Services Agreement is
attached hereto and incorporated herein by reference. See Item 7, Exhibit
10.2.
Item 6. Resignations of Registrant's Directors.
Pursuant to the Registrant's Bylaws, the sole pre-Alpine Plan director
and executive officer of the Registrant resigned and designated the directors
and executive officers of Alpine to serve in the same capacities in which they
served for Alpine, until the next respective annual meetings of the
stockholders and the Board of Directors and until their respective successors
are elected and qualified or until their prior resignations or terminations.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(a) Financial Statements of Businesses Acquired.
(i) Historical financial information of Alpine Aviation, Inc.
for the years ended October 31, 1999 and 1998 (audited)and the period ended
April 30, 2000 (unaudited).
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
of Alpine Aviation, Inc.
We have audited the accompanying balance sheets of Alpine Aviation, Inc. (a
Utah corporation) as of October 31, 1999 and 1998, and the related statements
of income, stockholder's equity, and cash flows for the years then ended.
These financial statements are the responsibility of the management of Alpine
Aviation, Inc. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Alpine Aviation, Inc. as of
October 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
Squire & Company, P.C.
Orem, Utah
November 17, 1999
<PAGE>
ALPINE AVIATION, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, October 31, October 31,
2000 1999 1998
-------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents $ 723,689 $ 2,008,747 $ 905,537
Marketable securities 2,514,038 649,715 39,414
Accounts receivable 1,518,703 1,050,998 1,398,999
Prepaid expense 218,399 167,360 107,489
Inventories 748,310 501,791 468,496
Current portion of
deferred tax asset 76,142 53,588 -
---------- ----------- ------------
Total current assets 5,799,281 4,432,199 2,919,395
Property, Plant and
Equipment net 106,439 109,627 60,361
----------- ----------- -----------
Total assets $ 5,905,720 $ 4,541,826 $ 2,980,296
=========== =========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 92,252 $ 194,322 $ 465,207
Accounts payable -
related party 276,746 210,921 237,849
Accrued expenses 416,861 472,995 484,562
Refundable deposits 20,080 - -
Current income tax payable 230,323 133,195 -
Current portion of deferred
taxes 57,319 28,068 -
----------- ----------- -----------
Total current
liabilities 1,093,581 1,039,501 1,187,618
Deferred Income Taxes 8,599 2,433 14,718
----------- ----------- -----------
Total liabilities 1,102,180 1,041,934 1,202,336
<PAGE>
ALPINE AVIATION, INC.
BALANCE SHEETS
Continued
Stockholder's Equity:
Common stock, 50,000
shares authorized, 25,000
shares issued and
outstanding, no par
value 95,361 95,361 95,361
Cumulative other
comprehensive income 59,195 (31,405) 3,147
Retained earnings 4,648,984 3,435,936 1,679,452
---------- ---------- ----------
Total stockholder's
equity 4,803,540 3,499,892 1,777,960
---------- ---------- ----------
Total liabilities and
stockholder's equity $ 5,905,720 $ 4,541,826 $ 2,980,296
=========== =========== ===========
</TABLE>
The accompanying footnotes are an integral part of these statements.
<PAGE>
ALPINE AVIATION, INC.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Six Months Ended Years Ended
April 30, October 31,
---------------- -----------
2000 1999 1999 1998
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating Revenues $8,791,496 $5,811,011 $12,477,816 $9,629,491
---------- ---------- ----------- ----------
Operating Expenses:
Direct operating
expenses 4,713,624 3,636,071 7,756,988 7,522,051
General and
administrative 516,769 341,936 1,672,480 1,083,489
Depreciation 16,903 16,442 33,001 21,462
---------- ---------- ----------- ----------
Total operating
expenses 5,247,296 3,994,449 9,462,469 8,627,002
---------- ---------- ----------- ----------
Operating Income 3,544,200 1,816,562 3,015,347 1,002,489
Other Income (Expense) 122,202 19,561 (120,504) (80,045)
---------- ---------- ----------- ----------
Income Before Income
Taxes 3,666,402 1,836,123 2,894,843 922,444
Income Tax Expense
(Benefit):
Current income tax
expense 1,500,892 708,988 1,153,130 329,618
Deferred income tax
expense (benefit) (47,538) (31,486) (14,771) 28,474
---------- ---------- ---------- ----------
Total income tax expense
(benefit) 1,453,354 677,502 1,138,359 358,092
---------- ---------- ---------- ----------
Net Income $2,213,048 $1,158,621 $1,756,484 $ 564,352
========== ========== ========== ==========
Earnings Per Share -
Basic and Fully Diluted $ 88.52 $ 46.34 $ 70.26 $ 22.57
========== ========== ========== ==========
Weighted Average
Shares Outstanding 25,000 25,000 25,000 25,000
========== ========== ========== ==========
The accompanying footnotes are an integral part of these statements.
</TABLE>
<PAGE>
ALPINE AVIATION, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Cumulative
other
Compre-
Common Stock hensive Retained
Shares Amount Income Earnings Total
------ ------ ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Balance,
November 1, 1997 25,000 $95,361 $ $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 25,000 95,361 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 25,000 95,361 (31,405) 3,435,936 3,499,892
Comprehensive Net
Income
Calculation
(unaudited):
Net income - - - 2,213,048 2,213,048
Other comprehensive
income net of tax.
Unrealized holding
gains arising during
the period - - 90,600 - 90,600
------ ------- ------ --------- ---------
Comprehensive Income
(unaudited) - - 90,600 2,213,048 2,303,648
Dividends
(unaudited) - - - (1,000,000) (1,000,000)
------ ------- ------ --------- ---------
Balance, April 30,
2000 (unaudited) 25,000 $95,361 $59,195 $4,648,984 $4,803,540
====== ======= ======= ========== ==========
</TABLE>
The accompanying footnotes are an integral part of these
statements.
<PAGE>
ALPINE AVIATION, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended Years Ended
April 30, October 31,
-------------------------------------------------------
2000 1999 1999 1998
-------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash Flows from
Operating
Activities:
Net income $2,213,048 $1,158,621 $1,756,484 $564,352
Adjustments to
reconcile net
income to net cash
provided (used) by
operating activities:
Realized loss on
marketable securities 16,980 - - -
Gain (loss) on disposal
of fixed assets (1,036) - - (23)
Deferred tax expense
(benefit) (47,538) (31,486) (14,771) 28,474
Depreciation and
amortization 16,903 16,442 33,001 21,462
Bad debt provision - (572) - (110)
Changes in assets and
liabilities:
Accounts receivable (467,705) 324,275 348,001 (879,112)
Inventories (246,519) 53,403 (33,296) (94,693)
Prepaid expense (51,039) (5,075) (32,561) (79,036)
Accounts payable (102,070) (446,305) (273,360) 213,478
Accounts payable -
related party 65,825 2,474 (26,928) 78,144
Accrued expenses (56,134) (422,787) (9,091) 424,409
Customer deposits 20,080 - - (22,964)
Income taxes payable 97,128 539,315 105,885 (45,607)
--------- --------- -------- ------
Total adjustments (755,125) 29,684 96,880 (355,578)
--------- --------- -------- -------
Net cash provided by
operating activities 1,457,923 1,188,305 1,853,364 208,774
Cash Flows from Investing
Activities:
Purchase of marketable
securities (1,730,303) (1,635) (667,887) -
Proceeds from sale of
equipment 2,500 - - -
Purchase of
equipment (15,178) (77,035) (82,267) (2,322)
---------- ---------- --------- -------
<PAGE>
ALPINE AVIATION, INC.
STATEMENTS OF CASH FLOWS
Continued
Net cash used by
investing activities (1,742,981) (78,670) (750,154) (2,322)
Cash Flows from
Financing Activities:
Dividends paid (1,000,000) - - -
---------- ---------- ---------- ---------
Net Increase (Decrease)
in Cash and
Cash Equivalents (1,285,058) 1,109,635 1,103,210 206,452
Beginning Cash and
Cash Equivalents 2,008,747 905,537 905,537 699,085
---------- ---------- ----------- --------
Ending Cash and Cash
Equivalents $ 723,689 $2,015,172 $ 2,008,747 $905,537
========== ========== =========== ========
</TABLE>
The accompanying footnotes are an integral part of these statements<PAGE>
<PAGE>
ALPINE AVIATION, INC. NOTES TO FINANCIAL STATEMENTS
Note 1.Summary of Significant Accounting Policies
This summary of significant accounting policies of Alpine Aviation, Inc. (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.
Business Description - The Company was incorporated in the state of Utah on
October 3, 1975 for the purpose of, but not limited to, hauling 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 April 30, 2000 and
related statements of income, stockholder's equity and cash flows for the six-
month periods ended April 30, 2000 and 1999 are 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 six-month period ended
April 30, 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 $34,414 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.
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
for each year ended 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).
<PAGE>
ALPINE AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies (Continued)
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 a 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.
Additional Cash Flow Statement Disclosures - During the six months ended April
30, 2000 and 1999, the Company paid $3,059 and $7,028 in interest and
$1,243,974 and $166,238 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. There were no
non-cash investing and financing activities.
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
========== ==========
<PAGE>
ALPINE AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS
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
========== ========
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 $358,092
========== ========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are as follows:
<PAGE>
ALPINE AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS
CONTINUED
Note 3.Income Taxes
Continued
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)
=========== ========
<PAGE>
ALPINE AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS
Note 4.Related Party Transactions
The Company leases its aircraft from CLB Corporation (CLB) and other related
leasing entities, which are owned by the sole 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.
October 31,
-----------
1999 1998
---- ----
CLB Corporation $ 2,690,048 $ 2,337,330
CLB Bates Partnership - 93,600
----------- -----------
$ 2,690,048 $ 2,430,930
=========== ===========
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
========
<PAGE>
ALPINE AVIATION, INC.
NOTES TO FINANCIAL STATEMENTS
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. For the years ending October 31, 1999 and 1998,
accounts receivable from the USPS was $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.
Note 8.Subsequent Events
On June 12, 2000, the Company consummated a reverse merger with a public
shell, Riverside Ventures, Inc., wherein all of the outstanding common stock
of the Company was exchanged for 9,895,000 shares of common stock of Riverside
Ventures, Inc. The transaction qualified as a tax-free exchange pursuant to
Section 368 (a)(I)(B) of the Internal Revenue Code, as amended.
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.
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 measure 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 statements.
<PAGE>
(ii) Historical financial information of Riverside Ventures,
Inc. for the years ended October 31, 1999 and 1998 and for the period ended
April 30, 2000 (Unaudited). These financial statements were re-configured to
align with the financial statements of Alpine Aviation, Inc. as of October 31,
1999 and 1998 and April 30, 2000.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
of Riverside Ventures, Inc.
We have audited the accompanying balance sheets of Riverside Ventures, Inc. (a
Delaware 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 Riverside Ventures, Inc. 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 financial statements referred to above present fairly, in
all material respects, the balance sheets of Riverside Ventures, Inc. as of
October 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development stage
company seeking out business opportunities, including acquisitions. As
discussed in Note 1 to the financial statements, the Company's activities have
resulted in negative cash flows from operating activities and raise
substantial doubt about its ability to continue as a going concern.
Management's plans concerning these matters are also described in Note 1.
These financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Squire & Company, P.C.
Orem, Utah
July 26, 2000
<PAGE>
RIVERSIDE VENTURES, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, October 31, October 31,
2000 1999 1998
--------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS $ - $ - $ -
-------- ------------ -----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Accounts payable $ 7,608 $ 108 $ -
Accounts payable - related party 1,730 993 468
--------- ----------- -----------
Total current liabilities 9,338 1,101 468
Stockholders' Equity:
Preferred stock, $.001 par value,
1,000,000 shares authorized,
no shares issued and
outstanding - - -
Common stock, $.001 par value,
20,000,000 shares authorized,
1,000,000 shares issued
and outstanding 1,000 1,000 1,000
Additional paid-in capital 7,515 15 15
Accumulated deficit during the
development stage (17,853) (2,116) (1,483)
-------- ---------- -----------
Total stockholder deficit (9,338) (1,101) (468)
-------- ---------- -----------
Total liabilities and stockholders
equity $ - $ - $ -
========= ========== ===========
</TABLE>
The accompanying footnotes are an integral part of these statements.
<PAGE>
RIVERSIDE VENTURES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
from
Inception
(April 20, 1994)
April 30, October 31, to April 30
2000 1999 1999 1998 2000
---- ---- ---- ---- ---------------
<S> <C> <C> <C> <C> <C>
REVENUES - - - - -
--------- --------- --------- --------- ---------
Operation Expenses:
General and
administrative 15,737 468 633 108 17,853
--------- --------- --------- --------- ---------
Total operating
expenses 15,737 468 633 108 17,853
--------- --------- --------- --------- ---------
Net Loss $ (15,737) $ (468) $ (633) $ (108) $ (17,853)
========= ========= ========= ========= =========
Net Loss Per
Common Share-
Basic and Fully
Diluted $ - $ - $ - $ - $ -
========= ========= ========= ========= =========
Weighted Average
Shares 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000
========= ========= ========= ========= =========
</TABLE>
The accompanying footnotes are an integral part of these statements.
<PAGE>
RIVERSIDE VENTURES, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Deficit
Common Stock Additional During the
------------ Paid-In Development
Shares Amount Capital Stage
------ ------ ------- -----------
<S> <C> <C> <C> <C>
Issuance of Common
Stock for Cash
and Services,
April 20, 1994 1,000,000 $1,000 $15 $ -
Net Loss - - - (1,015)
--------- ------ ---- --------
Balances at
October 31, 1994 1,000,000 1,000 15 (1,015)
Net Loss - - - (134)
--------- ----- ---- --------
Balances at
October 31, 1995 1,000,000 1,000 15 (1,149)
Net Loss - - - (116)
--------- ----- ---- --------
Balances at
October 31, 1996 1,000,000 1,000 15 (1,265)
Net Loss - - - (110)
--------- ----- ---- --------
Balances at
October 31, 1997 1,000,000 1,000 15 (1,375)
Net Loss - - - (108)
--------- ----- ---- --------
Balances at
October 31, 1998 1,000,000 1,000 15 (1,483)
Net Loss - - - (633)
--------- ----- ---- --------
Balances at
October 31, 1999 1,000,000 1,000 15 (2,116)
Net Loss -
(unaudited) - - - (15,737)
--------- ----- ---- --------
Balances at
April 30, 2000 -
(unaudited) 1,000,000 $1,000 $ 15 $(17,853)
========= ====== ===== ========
</TABLE>
The accompanying footnotes are an integral part of these statements.
<PAGE>
RIVERSIDE VENTURES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
from
Inception
April 30, October 31, (April 20, 1994)
to April 30,
2000 1999 1999 1998 2000
---- ---- ---- ---- ---------------
--------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from
Operating Activities:
Net loss $(15,737) $ (468) $ (633) $ (108) $(17,853)
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Increase in accounts
payable 8,237 468 633 108 9,338
--------- ------ ----- ----- ---------
Net cash used in
operating activities (7,500) - - - (8,515)
Cash Flows from
Financing Activities:
Additional paid-in
capital 7,500 - - - 7,515
Sale of common stock - - - - 1,000
Total operating
expenses --------- ------ ----- ----- ---------
Net cash provided by
financing activities 7,500 - - - 8,515
--------- ------ ----- ----- ---------
Net increase in Cash
and Cash Equivalents - - - - -
Cash and Cash Equivalents
Balance at Beginning
of Period - - - - -
--------- ------ ----- ----- ---------
Cash and Cash
Equivalents
Balance at End
of Period $ - $ - $ - $ - $ -
</TABLE>
The accompanying footnotes are an integral part of these statements.
<PAGE>
RIVERSIDE VENTURES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 1.Organization and Significant Accounting Policies
Nature of Business - The Company was incorporated under the laws of the State
of Delaware on April 20, 1994, for the purpose of seeking out business
opportunities, including acquisitions. The Company is in the development
stage and will be very dependent on the skills, talents, and abilities of
management to successfully implement its business plan.
Business Condition - Since inception, the Company's activities have been
limited to organizational matters resulting in negative cash flows from
operating activities. The Company's continued existence is dependent upon the
cash inflows from its investors. Management believes that the Company will
continue as a going concern through investor capital contributions and
profitable business ventures.
Note 2.Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of
three months or less to be cash equivalents.
Note 3.Related Party Transactions
The Company currently receives the use of office space free of charge from an
officer of the Company. The fair market value of the office space is
insignificant.
Additionally, the Company has received legal services valued at $1,730 from
stockholder's of the Company and is shown in the accounts payable - related
party account.
Note 4.Income Taxes
As of April 30, the Company has a net operating loss carry forward of $17,853
that will begin expiring in the year 2009. No deferred tax asset has been
booked due to the uncertainty of the ability of the Company to use the loss
carry forward.
<PAGE>
RIVERSIDE VENTURES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 5.Stock Option Plan
The Company has stock option plans for directors, officers, employees,
advisors, and employees of companies that do business with the Company, which
provide for non-qualified and qualified stock options. The Stock Options
Committee of the Board determines the option price, which cannot be less than
the fair market value at the date of the grant or 110 percent of the fair
market value if the Optionee holds 10 percent or more of the Company's common
stock. The price per share of shares subject to a Non-Qualified Option shall
not be less than 85 percent of the fair market value at the date of the grant.
Options generally expire either three months after termination of employment
or ten years after date of grant (five years if the optionee holds 10 percent
or more of the Company's common stock at the time of grant). No options have
been granted under the plan.
Note 6.Subsequent Event
On June 12, 2000, the Company acquired all of the outstanding common stock of
Alpine Aviation, Inc. in exchange for 9,895,000 shares of common stock of
Riverside Ventures, Inc. in a transaction qualifying as a tax-free exchange
pursuant to Section 368 (a)(I)(B) of the Internal Revenue Code, as amended.
The transaction will be accounted for as a reverse acquisition with the
surviving entity being Alpine Air Express, Inc. (formerly Alpine Aviation,
Inc.)
Note 7.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 statements.
(iii) Management Discussion and Analysis of Operations.
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 intend to sell the current
facilities in Provo to help pay for the new facilities and to pay the balance
of the cost with 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 $500,000 out of existing funds once we complete
the sale of our existing facility. Even if our current facility does not sell
for a period of time or we receive less than anticipated, our budget will be
able to handle the in-house financing of the new facility. 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.
April 30, 2000
--------------
As of April 30, 2000, our working capital surplus improved to $4,705,700,
with current assets of $5,799,281 and total liabilities of approximately
$1,100,000. We feel good about the $1,000,000 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 two quarters 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 might 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. Although this seems like a lot of money for a company our size,
when matched with the related expenses, the fixed based operation operated at
only a slight profit. As, and if, this change occurs, we will refocus the
personnel used in the fixed based operation to maintenance of our own planes
and to other administrative needs.
April 30, 2000
--------------
For the six months ending April 30, 2000, operating revenue increased to
$8,791,496. This was almost a $3,000,000 increase over the same period in
1999 when revenue was $5,811,011. More importantly, our operating income
increased to $3,544,200 from $1,816,562 for the six months ending April 30,
2000, as compared to April 30, 1999. Net income after taxes was $2,213,048.
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.
As a result of management's efforts to maintain cost and expand operations,
our profit margin on operating income increased to 40% from 31% from the prior
six month period. Management feels these profit margins are reflective of
future results if we are able to continue to expand operations.
For the six months ended April 30, 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 $217,535 expense item will no longer be
incurred once we sell our fixed base facility. This will also remove $262,397
in revenue from these items. Management feels the reallocation of these
resources will more than make up for the lost revenue. Particularly when
considering the maintenance on the aircraft and the managerial time devoted to
these marginal revenue activities.
(b) Pro Forma Financial Information.
Pro forma combined financial statements of Alpine Air Express, Inc.
(formerly Riverside Ventures, Inc. and Alpine Aviation, Inc.) as of April 30,
2000 (Unaudited).
<PAGE>
Alpine Air Express, Inc.
(Formerly Riverside Ventures, Inc. and
Alpine Aviation, Inc.)
Pro Forma Combined Financial Statements
(Unaudited)
The following unaudited pro forma combined balance sheet and statement of
income aggregate the unaudited balance sheet and statement of income of
Riverside Ventures, Inc. (Riverside) (a Delaware Corporation) as of April 30,
2000, and the unaudited balance sheet and statement of income of Alpine
Aviation, Inc. (Alpine) (a Utah Corporation) as of April 30, 2000, giving
effect to a transaction which was completed on June 12, 2000, wherein
Riverside acquired Alpine (the "Acquisition"). The business combination is
treated as a recapitalization of Alpine with Riverside issuing common stock in
exchange for all of the issued and outstanding shares of Alpine. The
following pro forma balance sheet and statements of income used management
assumptions as described in the notes and the historical financial information
available at April 30, 2000. The financial statements of Riverside included
in the October 31, 1999 pro forma income statement were audited as of October
31, 1999 and are herein included with Alpine at October 31, 1999. The
financial statements of Alpine included in the October 31, 1999 pro forma
income statement were audited as of October 31, 1999. Again, the format and
amounts used in these pro forma financial statements are based on those
financial statements.
The pro forma combined balance sheet and statements of income should be read
in conjunction with the separate financial statements and related notes
thereto of Riverside and Alpine. The pro forma combined financial statements
are not necessarily indicative of the combined balance sheet and statements of
income which might have existed for the period indicated or the results of
operations as they may be now or in the future.
<PAGE>
ALPINE AIR EXPRESS, INC.
(Formerly Riverside Ventures, Inc. and Alpine Aviation, Inc.)
PRO FORMA COMBINED BALANCE SHEET
April 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Alpine Riverside Pro forma
Aviation, Ventures, Increase Pro forma
Inc. Inc. (Decrease) Combined
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents $ 723,689 $ - $ - $ 723,689
Marketable securities
2,514,038 - - 2,514,038
Accounts receivable 1,518,703 - - 1,518,703
Prepaid expense 218,399 - 229,807 448,206
Inventories 748,310 - - 748,310
Current portion of
deferred tax asset 76,142 - - 76,142
---------- ------- ---------- ----------
Total current assets 5,799,281 - 229,807 6,029,088
Property, Plant and
Equipment - net 106,439 - - 106,439
----------- ------- ---------- ----------
Total assets $5,905,720 $ - $ 229,807 $6,135,527
=========== ======= ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 92,252 $ 9,338 $ - $ 101,590
Accounts payable -
related party 276,746 - - 276,746
Accrued expenses 416,861 - - 416,861
Refundable deposits 20,080 - - 20,080
Current income tax payable 230,323 - (230,323) -
Current portion of
deferred taxes 57,319 - - 57,319
--------- ------- ---------- -------
Total current
liabilities 1,093,581 9,338 (230,323) 872,596
Deferred Income Taxes 8,599 - - 8,599
--------- ----- ---------- -------
Total liabilities 1,102,180 9,338 (230,323) 881,195
</TABLE>
<PAGE>
ALPINE AIR EXPRESS, INC.
(Formerly Riverside Ventures, Inc. and Alpine Aviation, Inc.)
PRO FORMA COMBINED BALANCE SHEET
April 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Alpine Riverside Pro forma
Aviation, Ventures, Increase Pro forma
Inc. Inc. (Decrease) Combined
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Stockholders' Equity:
Preferred stock,
1,000,000 shares
authorized, no shares
issued and
outstanding,
$.001 par value - - - -
Common stock, 20,000,000
shares authorized,
11,000,000 shares issued
and outstanding, $.001
par value 95,361 1,000 (85,361) 11,000
Paid-in capital- 7,515 1,497,758 1,505,273
Cumulative unrealized
holding gains
on securities 59,195 - - 59,195
Retained earnings 4,648,984 (17,853) (952,267) 3,678,864
----------- ------- --------- ---------
Total stockholders'
equity 4,803,540 (9,338) 460,130 5,254,332
----------- ------- --------- ---------
Total liabilities and
stockholders'
equity $ 5,905,720 $ - $ 229,807 $6,135,527
=========== ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of the pro forma combined
financial statements.
<PAGE>
ALPINE AIR EXPRESS, INC.
(Formerly Riverside Ventures, Inc. and Alpine Aviation, Inc.)
PRO FORMA COMBINED STATEMENT OF INCOME
For the Six Months Ended April 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Alpine Riverside Pro forma
Aviation, Ventures, Increase Pro forma
Inc. Inc. (Decrease) Combined
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Operating Revenues $8,791,496 $ - $ - $8,791,496
Operating Expenses:
Direct operating
expenses 4,713,624 - - 4,713,624
General and
administrative 516,769 15,737 1,430,250 1,962,756
Depreciation 16,903 - - 16,903
--------- ---------- --------- ---------
Total operating
expenses 5,247,296 15,737 1,430,250 6,693,283
--------- --------- --------- ---------
Operating Income
(Loss) 3,544,200 (15,737) (1,430,250) 2,098,213
Other Income 122,202 - - 122,202
--------- --------- --------- ---------
Income (Loss)
Before Income
Taxes 3,666,402 (15,737) (1,430,250) 2,220,415
Income Tax Expense
(Benefit):
Current income
tax expense 1,500,892 - (460,130) 1,040,762
Deferred income
tax benefit (47,538) - - (47,538)
--------- --------- --------- ---------
Total income
tax expense
(benefit) 1,453,354 - (460,130) 993,224
---------- --------- --------- ---------
Net Income
(Loss) $ 2,213,048 $ (15,737) $ (970,120)$1,227,191
=========== =========== ============ =========
Net Income Per
Common Share -
Basic and Fully
Diluted $ .11
===========
Weighted Average
Shares Outstanding 11,000,000
==========
</TABLE>
The accompanying notes are an integral part of the pro forma combined
financial statements.
<PAGE>
ALPINE AIR EXPRESS, INC.
(Formerly Riverside Ventures, Inc. and Alpine Aviation, Inc.)
PRO FORMA COMBINED STATEMENT OF INCOME
For the Year Ended October 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Alpine Riverside Pro forma
Aviation, Ventures, Increase Pro forma
Inc. Inc. (Decrease) Combined
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Operating Revenues $12,477,816 $ - $ - $12,477,816
Operating Expenses:
Direct operating
expenses 7,756,988 - - 7,756,988
General and
administrative 1,672,480 633 1,430,250 3,103,363
Depreciation 33,001 - 33,001
----------- --------- ---------- ---------
Total operating
expenses 9,462,469 633 1,430,250 10,893,352
----------- --------- ---------- ----------
Operating Income
(Loss) 3,015,347 (633) (1,430,250) 1,584,464
Other Income (120,504) - - (120,504)
----------- --------- --------- ---------
Income (Loss)
Before Income
Taxes 2,894,843 (633) (1,430,250) 1,463,960
Income Tax Expense
Current income
tax expense 1,153,130 - (460,130) 693,000
Deferred income
tax expense (14,771) - - (14,771)
----------- --------- --------- ---------
Total income
tax expense
1,138,359 - (460,130) 678,229
----------- --------- --------- ---------
Net Income
(Loss) $ 1,756,484 $ (633) $(970,120) $ 785,731
=========== ========== ========= ==========
Net Income Per
Common Share -
Basic and Fully
Diluted $ .07
==========
Weighted Average
Shares Outstanding 11,000,000
==========
</TABLE>
The accompanying notes are an integral part of the pro forma combined
financial statements.
<PAGE>
ALPINE AIR EXPRESS, INC.
(Formerly Riverside Ventures, Inc. and Alpine Aviation, Inc.)
PRO FORMA COMBINED NOTES TO FINANCIAL STATEMENTS
Riverside Ventures, Inc. - The Company was incorporated under the laws of the
State of Delaware on April 20, 1994, for the purpose of seeking out business
opportunities, including acquisitions. The Company is a development stage
company and since inception, the Company's activities have been limited to
organizational matters and has not commenced its principal business
activities.
Alpine Aviation, Inc. - The Company was organized under the laws of the State
of Utah on October 3, 1975. The Company was formed for the purpose of, but
not limited to, hauling air freight, serving commuter routes, and providing
pilot training.
Pro forma Adjustments - Riverside acquired all of the issued and outstanding
shares of Alpine in exchange for 9,895,000 shares of previously authorized but
unissued common stock of Riverside with a par value of $.001. The acquisition
has been treated as a recapitalization of Alpine. In addition, as part of the
merger, an additional 105,000 shares were issued in the merger in satisfaction
of an obligation of Riverside to Smith Consulting Services (SCS). The
agreement required a total of 1,048,850 shares to be received in payment of
fees associated with the merger. Consequently, a pro forma adjustment has
been recorded for the total value of shares issued to SCS of $1,430,250.
Exhibits
2.1 Agreement and Plan of Reorganization
Exhibit A- Amended List of Stockholders of Alpine
Aviation, Inc.
Exhibit B- Riverside's Financial Statements for
the years ended 6/30/99 and 6/30/98
Exhibit B-1- Riverside's Financial Statements for the
period ended March 31, 2000.
Exhibit C- Riverside's Exceptions.
Exhibit D- Alpine Aviation, Inc. Financial
Statements for the years ended October
31, 1999 and 1998
Exhibit E- Alpine Exceptions.
Exhibit F- Investment Letters.
Exhibit G- Riverside's Compliance Certificate.
Exhibit H- Alpine's Compliance Certificate.
Exhibit I- Amended Finder's Agreements
2.2 Amendment to Agreement and Plan of Reorganization
3 Certificate of Amendment effecting the name change to
"Alpine Air Express, Inc."
10.1 Stock Purchase and Sale Agreement
10.2 Consulting Services Agreement with Smith Consulting
Services, Inc.
99 10-SB Registration Statement*
* Incorporated herein by reference.
Item 8. Change in Fiscal Year.
None; not applicable.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned hereunto duly authorized.
ALPINE AIR EXPRESS, INC.
Date: 8/30/00 By: /s/ Eugene R. Mallette
--------------- -------------------------------------
Eugene R. Mallette
CEO and Director
Date: 8/31/00 By: /s/ Bill Distenfano
--------------- --------------------------------------
Bill Distenfano
President and Director
Date: 8/31/00 By: /s/ Max A. Hansen
---------------- --------------------------------------
Max A. Hansen
Secretary/Treasurer and Director
