UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES ACT OF 1934
For the fiscal quarter ended OCTOBER 31, 1997 Commission file number 0-14361
TROPIC AIR CARGO, INC.
(f.k.a. Tropic Communications, Inc.)
(Exact Name of Company as Specified in Its Charter)
Delaware 31-1166419
(State or other jurisdiction of incorporation or organization) (I. R. S.
Employer I. D. Number)
3021 Bethel Road, Suite 208, Columbus, Ohio 43220
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (614) 538-0660
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
The Company has 5,579,361 shares of $0.90 par value common stock outstanding as
of December 12, 1997.
<PAGE>
TROPIC AIR CARGO, INC.
(f.k.a. Tropic Communications, Inc.)
FORM 10-Q
For the Quarter Ended October 31, 1997
INDEX
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<CAPTION>
Part I: Financial Information
Page
Item 1.
Financial Statements
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( a ) Consolidated Balance Sheets as of October 31, 1997 and
April 30, 1997 3
( b ) Statement of Consolidated Operations for the Three Months
Ended October 31, 1997 and 1996 4
( c ) Statement of Consolidated Operations for the Six Months
Ended October 31, 1997 and 1996 5
( d ) Statement of Consolidated Cash Flow for the Six Months
Ended October 31, 1997 and 1996 6
( e ) Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II: Other Information
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibit Index and Reports on Form 8-K 12
Signatures 14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I
Item 1. Financial Statements
TROPIC AIR CARGO, INC. (f.k.a. Tropic Communications, Inc.)
AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
October 31, April 30,
1997 1996
<S> <C> <C>
Current Assets:
Cash $ 20,753 $ 2,068
Deposits and accounts receivable (net of
allowance for doubtful accounts of $ - 0 -
and $2,500, respectively) 4,379,016 25,396
Equipment notes and accrued interest receivable - 198,700
Broadcast rights 46,449
Other current assets 10,500 -
---------- ------------
Total Current Assets 4,410,267 272,613
Leased property under capital lease, at
cost (net of accumulated amortization of
$41,711 and $3,567,799, respectively) - 270,915
Property and equipment, at cost (net of
accumulated depreciation of $364,620 and
$363,686, respectively) 4,416 65,859
Cost in excess of net assets acquired (net of
accumulated amortization of $55,180 and
$50,552, respectively) 3,816,075 141,955
Other assets 150 18,401
----------- ------------
Total Assets $ 8,230,640 $ 769,743
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
TROPIC AIR CARGO, INC. (f.k.a. Tropic Communications, Inc.)
AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
LIABILITIES AND SHAREHOLDERS' EQUITY
October 31, April 30,
1997 1997
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued expenses $ 4,136,248 $ 281,821
Note and accrued interest payable - related
party 315,440
Notes and accrued interest payable 454,325 592,799
Note and accrued interest payable - leased
equipment investment
Broadcast rights 46,449
Capital lease obligations and accrued
interest payable - 198,700
Accrued officer compensation and
interest payable 147,240
Other current liabilities 3,987 1,766
----------- ------------
Total Current Liabilities 4,594,560 1,584,215
----------- ------------
Shareholders' Equity (Deficit):
Preferred stock, $0.01 par value, 1,000,000
shares authorized, none issued and outstanding - -
Common stock, $0.90 par value, 50,000,000 shares
authorized, 5,579,761 and 542,427 shares 5,021,785 556,735
issued, respectively)
Stock subscriptions 880,189 -
Paid in capital 5,976,195 9,007,109
Retained deficit (7,350,312) (10,366,728)
----------- ------------
4,527,857 (802,884)
Treasury stock, at cost, 2,400 shares (11,588) (11,588)
Subscriptions receivable (880,189) -
----------- ------------
Total Shareholders' Equity (Deficit) 3,636,080 (814,472)
----------- ------------
Total Liabilities and Shareholders'
Equity (Deficit) $ 8,230,640 $ 769,743
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
TROPIC AIR CARGO, INC. (f.k.a. Tropic Communications, Inc.)
AND SUBSIDIARIES
Statement of Consolidated Operations
Three Months Ended October 31,
------------------------------
1997 1996
<S> <C> <C>
Revenues:
Freight revenues $ 4,698,574 $ -
Cost of freight operations 4,204,186 -
----------- ------------
Gross profit - freight operations 494,388 -
Cost and Expenses:
Marketing, administration and other 272,811 -
operating expenses
Depreciation and amortization of equipment 83 -
Amortization of cost in excess of net
assets acquired and other intangible assets 42,878 -
----------- ------------
Total Costs and Expenses 315,772 -
----------- ------------
Income (loss) from continuing operations
before provision for income taxes 178,616 -
Provision for income taxes 53,600 -
----------- ------------
Income (loss) from continuing operations 125,016 -
Discontinued operations (see Note )
Income (loss) from operation of
discontinued business segments (751,749) (320,770)
(Loss)gain on disposal of business
segments 1,832,905 -
----------- ------------
Income (loss) from discontinued 1,081,156 (320,770)
operations
----------- ------------
Net Income (Loss) $ 1,206,172 $ (320,770)
=========== ============
Primary Net Income (Loss) Per Share:
Income (loss) from continuing
operations $ 0.04 $ (0.00)
Income (loss) from discontinued
operations 0.32 (0.52)
----------- ------------
Primary Net Income (Loss) Per Share $ 0.36 $ (0.52)
=========== ============
Fully Diluted Net Income (Loss) Per Share:
Income (loss) from continuing
operations $ 0.04 $ (0.00)
Income (loss) from discontinued
operations 0.32 (0.52)
----------- ------------
Fully Diluted Net Income (Loss) Per Share $ 0.36 $ (0.52)
=========== ============
Average Number of Common and
Common Equivalent Shares:
Primary 3,362,963 613,579
Fully diluted 3,362,963 613,579
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TROPIC AIR CARGO, INC. (f.k.a. Tropic Communications, Inc.)
AND SUBSIDIARIES
Statement of Consolidated Operations
Six Months Ended October 31,
----------------------------
1997 1996
<S> <C> <C>
Revenues:
Freight revenues $ 4,698,574 $ -
Cost of freight operations 4,204,186
----------- ------------
Gross profit - freight operations 494,388 -
Cost and Expenses:
Marketing, administration and other
operating expenses 272,811 -
Depreciation and amortization of equipment 83 -
Amortization of cost in excess of net
assets acquired and other intangible assets 42,878 -
----------- ------------
Total Costs and Expenses 315,772 -
----------- ------------
Income (loss) from continuing operations
before provision for income taxes 178,616 134,521
Provision for income taxes 53,600 -
----------- ------------
Income (loss) from continuing operations 125,016 134,521
Discontinued operations (see Note )
Income (loss) from operation of
discontinued business segments (1,442,318) 134,521
(Loss)gain on disposal of business
segments 1,832,905 -
----------- ------------
Income (loss) from discontinued
operations 390,587 134,521
----------- ------------
Net Income (Loss) $ 515,602 $ 134,521
=========== ============
Primary Net Income (Loss) Per Share:
Income (loss) from continuing
operations $ 0.06 $ 0.00
Income (loss) from discontinued
operations 0.20 0.23
----------- ------------
Primary Net Income (Loss) Per Share $ 0.26 $ 0.23
=========== ============
Fully Diluted Net Income (Loss) Per Share:
Income (loss) from continuing
operations $ 0.06 $ 0.00
Income (loss) from discontinued
operations 0.20 0.23
----------- ------------
Fully Diluted Net Income (Loss) Per Share $ 0.26 $ 0.23
=========== ============
Average Number of Common and
Common Equivalent Shares:
Primary 1,990,579 587,316
Fully diluted 1,990,579 587,316
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TROPIC AIR CARGO, INC. (f.k.a. Tropic Communications, Inc.)
AND SUBSIDIARIES
Statement of Consolidated Cash Flows
Increase in Cash and Cash Equivalents
Six Months Ended October 31,
----------------------------
1997 1996
<S> <C> <C>
Cash Flows From Operating Activities:
Freight receipts $ 319,558 $ -
Commissions, fees and other receipts - 124,834
Cost of freight operation and
administrative expenses (386,645) -
Marketing, administrative and other
operating payments - (508,347)
Interest receipts - 3,096
Interest payments - (4,182)
----------- ------------
Net Cash Used For Operating
Activities (67,087) (384,599)
----------- ------------
Cash Flows From Investing Activities:
Purchase of property and equipment (4,228) (3,008)
Investment in unconsolidated subsidiaries - (300)
---------- ------------
Net Cash Used For Investing Activities (4,228) (3,308)
---------- ------------
Cash Flows From Financing Activities:
Proceeds from other borrowings 90,000 -
Proceeds from issuance of stock - 417,451
Principal payments under other borrowings - (21,500)
Principal payments under officer loans - (11,500)
Principal payments under capital lease
obligations and other financing - (2,867)
----------- ------------
Net Cash Provided By Financing
Activities 90,000 381,584
----------- ------------
Net Increase (Decrease) in Cash and
Cash Equivalents 18,685 (6,323)
Cash and Cash Equivalents at
Beginning of Period 2,068 14,021
----------- ------------
Cash and Cash Equivalents at
End of Period $ 20,753 $ 7,698
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
TROPIC AIR CARGO, INC. (f.k.a. Tropic Communications, Inc.)
AND SUBSIDIARIES
Statement of Consolidated Cash Flows
Reconciliation of Net Loss to
Net Cash Used For Operating Activities
Six Months Ended October 31,
----------------------------
1997 1996
<S> <C> <C>
Net income (loss) $ 125,016 $ 455,291
----------- ------------
Adjustment to reconcile net loss to net cash
used for operating activities:
Expenses and revenues not affecting
operating cash flows:
Depreciation and amortization of
equipment and intangible assets 42,961 70,143
Leasing interest income - (350,110)
Leasing interest expense - 350,110
Fee income recognized from stock
retained in unconsolidated affiliates - (800,000)
Changes in assets and liabilities:
Accrued interest income - 2,151
Accrued interest expense - 30,189
Note, accounts and commissions
receivable (4,379,016) 6,587
Other assets (10,650) (8,470)
Note and accounts payable, and
accrued expenses 4,150,615 (7,408)
Other 3,987 -
----------- ------------
Total Adjustments (192,103) (706,808)
----------- ------------
Net Cash Used for Operating Activities $ (67,087) $ (251,517)
=========== ============
</TABLE>
Supplemental Cash Flow Information
Investment in Finance Assets. The Company acquires leases of equipment and
leases receivable partially by assuming existing financing. Also, the Company
may sell or dispose of such assets with a commensurate transfer of any related
financing to the transferee. During the six months ended October 31, 1997
leasehold tenancy positions terminated which reduced the gross value of Leased
Property Under Capital Lease by $3,518,537 and accumulated amortization by an
equivalent amount.
On May 1, 1997 the Company acquired an interest in a leased paper processing
plant for $13,500,220 and issued a secured promissory note for 100% of the
purchase price of the investment (see Note 3).
See accompanying notes to consolidated financial statements.
<PAGE>
TROPIC AIR CARGO, INC. AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
Note 1. Notes to Unaudited Consolidated Financial Statements
The consolidated balance sheet as of October 31, 1997, the statement of
consolidated operations for the three months ended October 31, 1997, and the
statement of consolidated cash flows for the three months ended October 31,
1997, have been prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows at October 31, 1997, and for all periods presented, have been made.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these unaudited
consolidated financial statements be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
April 30, 1997 and 1996, annual Report to the Securities and Exchange Commission
on Form 10-K and the unaudited consolidated financial statements and notes
thereto included in the Company's July 31, 1997 quarterly Report to the
Securities and Exchange Commission on Form 10-Q.
Certain information and footnote disclosure contained in these unaudited
consolidated financial statements that are not historical facts are
forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, the
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those projections.
Note 2. Acquisition of R. A. Logistics, Inc.
On September 18, 1997 the Company issued 4,400,000 shares of its restricted $.90
par value common stock in exchange for 100% of the issued and outstanding
capital stock of R.A. Logistics, Inc., a Delaware corporation ("RALI" and the
"RALI Acquisition"). The acquisition has been recorded at a value of $3,960,000
with $3,858,953 recognized in the accompanying unaudited consolidated financial
statements as cost in excess of stated value with $42,878 recognized as
amortization expense.
Note 3. Discontinued Operations
During the current period the Company entered into agreements for the transfer
of its nonperforming businesses in exchange for the repayment of certain of the
Company's obligations and the assumption by the transferees of certain of the
liabilities associated with these businesses. The dispositions included an
agreement with CCJ Consultants, Inc. ("CCJ") for the liquidation of the
Company's obligations to CCJ pursuant to the Company's promissory note and
warrants issued to CCJ on August 4, 1994 in the unpaid amount of $63,903. The
agreement with CCJ provided for the transfer to CCJ of all of the issued and
outstanding capital stock of the Company's wholly-owned consulting company
subsidiary. The dispositions also included an agreement with Funders Trust
1992-A ("Trust") for the liquidation of the Company's obligations to the Trust
pursuant to the Company's promissory note and warrants issued to the Trust on
September 15, 1994 in the unpaid amount of $193,667. The agreement with the
Trust provided for the transfer to the Trust of all of the issued and
outstanding capital stock of the Company's wholly-owned broadcast subsidiary.
The accompanying unaudited consolidated financial statements for the three
months ended October 31, 1997 include $751,749 in operating losses from
discontinued operations and $1,832,905 in gain from the disposition of
discontinued operations, respectively (representing the amount of liabilities
over assets transferred).
Note 4. Capital Stock
The Company amended its Articles of Incorporation effective October 6, 1997
which provided for the increase in the par value of the Company's common stock
from $.15 per share to $.90 per share (a one-for-six reverse stock split). The
Company has entered into stock subscription agreements with three private
investment companies which provide for the issuance of an aggregate of 800,000
shares of the Company's $.90 par value common stock in exchange for an aggregate
investment of approximately $880,000 which has been recorded as stock
subscriptions receivable in the accompanying unaudited consolidated financial
statements.
The Company entered into an agreement with Firestar Holdings, Ltd. ("Firestar")
for the partial liquidation of all of the Company's obligations to Firestar
whereby Firestar loaned the Company an additional $153,000 and repaid Firestar
with the issuance of 371,666 shares of the Company's ninety cent par value
common stock in liquidation of all of the Company's obligations to Firestar.
Also, the Company entered into an agreement with Mr. John E. Rayl a shareholder,
director and an officer of the Company (and also an officer of CCJ) for the
issuance of 150,000 shares of the Company's ninety cent par value common stock
in liquidation of the Company's obligations to Mr. Rayl pursuant to the
Company's promissory note and warrants issued to him on September 15, 1994 in
the unpaid amount of $88,726.
Note 5. Earnings Per Share
For the three and six months ended October 31, 1997, primary and fully
diluted earnings per share amounts, are computed based on 2,980,355 and
1,799,274 shares, the weighted average number of common shares outstanding.
Included in the weighted average number of common shares outstanding at October
31, 1997 are 4,400,000 shares issued to acquire R. A. Logistics, Inc., 545,167
shares issued to liquidate obligations and 16,000 shares issued as compensation
to outside directors. In addition, the weighted average number of common shares
outstanding included 800,000 shares subscribed to by private investment
companies. If these shares had been issued at the beginning of the periods,
primary and fully diluted income per share would have been $0.19 and $0.08,
respectively. The employee stock options granted are not included in primary or
fully diluted earnings per share for the three and the six months ended October
31, 1997 since the dilutive effect is less than 3%.
For the three and six months ended October 31, 1996, primary and fully
diluted earnings per share amounts are computed based on 613,579 shares and
587,316 shares, respectively, the weighted average number of common shares
outstanding. Stock purchases rights are not included in primary or fully diluted
earnings per share for the three and six month periods ended October 31, 1996
since the dilutive effect is less than 3%.
All per share information has been restated to reflect the effect of the 1
for 6 reverse stock split.
<PAGE>
Item 2. Management's Discussion and Analysis
This Quarterly Report on Form 10-Q contains certain forward-looking statements
reflecting the Company's current expectations with respect to its operations,
performance, financial condition, and other developments. Such statements are
necessarily estimates reflecting the Company's best judgment based upon current
information and involve a number of risks and uncertainties. While it is
impossible to identify all such factors, factors which could cause actual
results to differ materially from expectations are: (1) the Company's ability to
maintain recent profitability; (2) competitive practices in the industries in
which the Company competes; (3) the Company's dependence on current management;
(4) the impact of current and future laws and governmental regulations affecting
the transportation industry in general and the Company's operations in
particular; (5) general economic conditions; and, (6) other factors which may be
identified from time to time in the Company's Securities and Exchange Commission
filings and other public announcements. There can be no assurance that these and
other factors will not affect the accuracy of such forward-looking statements.
Forward-looking statements are preceded by an asterisk (*).
Results of Operations
The following discussion relates to the combined results of operation of the
Company for the six month period May 1, 1997 through October 31, 1997, compared
to results of operation for the period May 1, 1996 through October 31, 1996. For
the period the accompanying unaudited consolidated financial statements include
as continuing operations the income and expenses related to RALI and the
Company's air cargo services which are included for the period September 2, 1997
to October 31, 1997. All other business activities have been reported as income
or loss from discontinued operations.
Six Months ended October 31, 1997 and 1996
Operating Revenue. Operating revenue for the three months ended October 31,
1997 consists of $4,698,574 earned by B. Airways Air Cargo, Inc.
Cost of Transportation. Cost of transportation represents approximately 89.5% of
the Company's operating revenue. Cost of transportation includes $2,133,960 and
$1,175,017 in aircraft and fuel costs respectively.
Gross Profit. Gross profit from air cargo services was 10.5% of operating
revenue for the period ending October 31, 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses from air cargo services was 5.8% of operating revenue
for the period ending October 31, 1997.
Income or Loss from Discontinued Operations. As a part of the Company's RALI
Acquisition, the Company agreed to dispose of its unrelated business activities
and arranged with certain of its creditors to liquidate a substantial portion of
its debt with the transfer of these activities to them. For the three months and
the six months ended October 31, 1997 the Company recognized $751,749 and
$1,442,318, respectively, in operating losses from discontinued operations and
during the current period the Company recognized $1,832,905 in gain on the
disposition of discontinued operations.
Liquidity and Capital Resources
During the six months ended October 31, 1997, net cash used by operating
activities was $67,087. Cash used in investing activities was $4,228, which
primarily consisted of capital expenditures.
* Working Capital Requirements. Cash needs of the Company are currently met by
funds generated from the operations of B. Airways Air Cargo, Inc. ("BAACI") and
credit extended by the BAACI's trade vendors. The Company believes that its
current financial resources will be sufficient to finance its operations and
obligations for the short term. However, the Company's actual working capital
needs for the long and short terms will depend upon numerous factors, including
the Company's operating results. To the extent the Company's long term working
capital needs are not met from these sources, additional financing will be
necessary. To meet additional capital requirements the Company may incur
additional debt and/or issue debt or equity securities. There is no assurance
that, in the event additional capital is required, the Company may be able to
acquire such capital through the issuance of its debt or equity securities or if
such capital becomes available that it will be available on acceptable terms and
conditions.
* Management's Plans. During prior fiscal years, the Company incurred
significant losses, primarily attributed to the Company's leasing and broadcast
subsidiaries all of which have been disposed of. Presently, the Company's
operations consisted solely of the operations of the Company's air cargo
transportation operation, B. Airways Air Cargo, Inc., which was acquired
effective September 2, 1997.
<PAGE>
PART II
Page
Item 4. Submission of Matters to Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during
the fiscal quarter ended October 31, 1997:
(1) Form 8-K dated September 18, 1997; and,
(2) Form 8-K dated October 6, 1997.
<PAGE>
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 thereunto duly authorized.
TROPIC AIR CARGO, INC.
(Registrant)
/s/ JOHN E. RAYL
Date: December 15, 1997 By:_____________________________
JOHN E. RAYL
Treasurer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL SUMMARY INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE STATEMENT OF CONSOLIDATED OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000791027
<NAME> Tropic Air Cargo, Inc.
(f.k.a. Tropic Communications, Inc.)
<MULTIPLIER> 1
<CURRENCY> U. S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> OCT-31-1997
<EXCHANGE-RATE> 1
<CASH> 20,753
<SECURITIES> 0
<RECEIVABLES> 4,379,016
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,410,267
<PP&E> 4,228
<DEPRECIATION> (82)
<TOTAL-ASSETS> 8,230,640
<CURRENT-LIABILITIES> 4,594,560
<BONDS> 0
0
0
<COMMON> 5,021,785
<OTHER-SE> (1,385,795)
<TOTAL-LIABILITY-AND-EQUITY> 8,230,640
<SALES> 4,698,574
<TOTAL-REVENUES> 4,698,574
<CGS> 4,204,186
<TOTAL-COSTS> 4,204,186
<OTHER-EXPENSES> 315,772
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 178,616
<INCOME-TAX> 53,600
<INCOME-CONTINUING> 125,016
<DISCONTINUED> 390,587
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 515,602
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
