FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended: September 30, 1996
Commission file number: 0-18729
Continental American Transportation, Inc.
(Exact name of registrant as specified in its Charter)
Colorado 84-1089599
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
495 Lovers Lane Road, Calhoun, Georgia 30701
(Address of principal executive offices)
(Zip Code)
(706) 629-8682
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the 12 months (or for such
shorter 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.....
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by court.
Not applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS
As of November 12, 1996, 4,862,635 shares of Common Stock were
outstanding.
Transitional Small Business Disclosure Format:
Yes..X..No.....
<PAGE>
Continental American Transportation, Inc. & Subsidiaries
Contents
Pages
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements and Information
Consolidated Balance Sheets.................................. 1
Consolidated Statements of Operations........................ 2
Consolidated Statements of Cash Flows........................ 3
Notes to the Consolidated Financial Statements............... 4
Item 2. Managements Discussions and Analysis of Financial
Condition and Results of Operations.......................... 5
Part II. OTHER INFORMATION
Item 1. Legal Proceedings............................... 7
Item 2. Changes in Securities........................... 8
Item 3. Defaults Upon Senior Securities................. 12
Item 4. Submission of Matters to a Vote
of Security Holders............................. 12
Item 5. Other Information............................... 12
Item 6. Exhibits and Reports on Form 8-K................ 12
<PAGE>
Continental American Transportation, Inc. and Subsidiaries
Consolidated Balance Sheet
September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Assets
Current Assets
<S> <C>
Cash and cash equivalents $ 1,116,003
Restricted cash 950,000
Trade accounts receivable, net of allowance for doubtful accounts of $924,958 10,513,973
Installments notes receivable - current portion 622,478
Inventories 309,441
Other current assets 2,776,343
Deferred income tax benefit - current portion 677,059
-------------
Total Current Assets 16,965,297
-------------
Property, plant and equipment 54,760,934
-------------
Other Assets
Note receivable - related party 450,000
Installment notes receivable, excluding current portion 397,978
Excess of purchase price over fair value of net assets acquired, net 4,527,474
Other assets 626,278
Deferred income tax benefits - noncurrent portion 177,387
-----------
Total Other Assets 6,179,117
-----------
Total Assets 77,905,348
============
Liabilities and Stockholders' Equity
Current Liabilities
Lines of credit 4,619,199
Current maturities of long-term debt 3,149,163
Current maturities of capital lease obligations 10,207,577
Accounts payable 6,259,765
Accrued expenses 3,071,942
Income taxes payable 572,258
-------------
Total Current Liabilities 27,879,904
Long-Term Debt, excluding current maturities 18,043,802
Capital Lease Obligations, excluding current maturities 26,179,209
-------------
Total Liabilities 72,102,915
-------------
Stockholders' Equity
Preferred stock, $1 par value, 10,000,000 shares authorized, 0 shares
issued and outstanding -
Common stock, no par value, 20,000,000 shares authorized,
4,862,635 shares issued, 4,827,635 shares outstanding 8,448,106
Retained earnings (deficit) (2,296,197)
Demand notes receivable from exercise of stock options and warrants (233,890)
Treasury stock, 35,000 shares, at cost (115,586)
------------
Total Stockholders' Equity 5,802,433
------------
Total Liabilities and Stockholders' Equity $ 77,905,348
===========
</TABLE>
1
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See notes to the consolidated financial statements.
Continental American Transportation, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
September 30,
-----------------------------------
1996 1995
--------------- ---------------
Operating Revenues $ 19,658,693 $ 3,044,361
--------------- ---------------
Operating Expenses
Salaries and fringes 6,210,808 1,275,904
Purchased transportation 1,719,951 504,367
Operating supplies and expenses 5,995,718 606,513
Depreciation and amortization 2,244,722 331,674
Claims and insurance 434,917 81,148
Operating taxes and licenses 131,479 88,134
Communication and utilities 354,225 33,998
General and administrative expenses 2,281,641 350,368
Net (gain) loss on sale of equipment 5,667 (34,495)
--------------- ---------------
Total Operating Expenses 19,379,128 3,237,611
--------------- ---------------
Operating Income (Loss) 279,565 (193,250)
--------------- ---------------
Other Income
Interest expense (981,698) (56,745)
Other income 23,784 16,529
--------------- ---------------
(957,914) (40,216)
--------------- ---------------
(Loss) Before Income Taxes (678,349) (233,466)
Provision for income taxes - -
--------------- ---------------
Net (Loss) $ (678,349) $ (233,466)
=============== ===============
(Loss) Per Share $ (.15) $ (.10)
=============== ===============
Weighted Average Common Shares Outstanding 4,623,153 2,312,656
=============== ===============
See notes to the consolidated financial statements.
2
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Continental American Transportation, Inc. & Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
September 30,
-----------------------------------
1996 1995
--------------- ---------------
Cash Flows From Operating Activities $ 3,280,318 $ (483,866)
--------------- ---------------
Cash Flows From Investing Activities 107,446 226,197
--------------- ---------------
Cash Flows From Financing Activities (2,661,840) 272,279
--------------- ---------------
Net Increase in Cash 725,924 14,610
Cash, Beginning of Period 1,340,079 480
--------------- ---------------
Cash, End of Period $ 2,066,003 $ 15,090
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the three months for
Interest $ 981,698 $ 56,745
=============== ===============
See notes to the consolidated financial statements.
3
<PAGE>
Continental American Transportation, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements
NATURE OF PRESENTATION
The consolidated financial statements reflect all adjustments which are of
a normal recurring nature and, in the opinion of management, necessary for a
fair presentation of the results for the interim periods.
CONVERTIBLE DEBT
On Auust 19, 1996, the Company sold $1,650,000 in aggregate original
principal 7% Convertible Debentures (the 7% Debentures). The 7% Debentures
mature and are due and payable as to their aggregate principal $1,640,000, and
accrued interest, if any on August 19, 1998; entitle its holder to receive
interest payments at the rate of 7% per annum, payable on a semi-annual basis,
commencing January 19, 1997, and; are convertible into the Common Shares of the
Company on the following basis: one-third of the principal amount of the 7%
Debentures may be convertible at any time from and after the 40th day following
the date of the 7% Debentures; two-thirds of the principal amount of the 7%
Debentures may be convertible at any time from and after the 70th day following
the date of the 7% Debentures, and; 100% of the principal amount of the 7%
Debentures may be convertible at any time from and after the 100th day following
the date of the 7% Debentures, at the conversion price equal to the lesser of
(i) the average closing bid price of the Company's Common Stock for the five (5)
consecutive trading days immediately prior to the date of the 7% Debentures or
(ii) seventh-eight (78%) percent of the average closing bid price of the
Company's Common Stock for the five (5) consecutive trading days immediately
prior to the conversion date.
4
<PAGE>
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The Company reported consolidated revenue of $19,658,693 and a net loss of
$678,349, or $.15 loss per share, compared to $3,044,361 and a net loss of
$233,466, or $.10 loss per share for the three months ending September 30, 1996
and 1995, respectively. The comparative results indicate while revenue increased
546%, the net loss increased 191%. The Company's operating income was $279,565,
an operating ratio of 99%, for the quarter ending September 30, 1996, compared
to an operating loss of $193,250, an operating ratio of 106% for the quarter
ending September 30, 1995. The Company's depreciation and amortization for the
three months ended September 30, 1996 was $2,244,722, compared to $331,674 for
the three months ended September 30, 1995.
The revenues of the Company are presented on a consolidated basis and
are the cumulative results from operations of the Company's three subsidiaries,
Blue Mack Transport, Inc., Carpet Transport, Inc. and Chase Brokerage, Inc. Blue
Mack reported revenue of $2,534,932 and a net loss of $76,948, or $.02 loss per
share for the three months ending September 30, 1996. Carpet Transport reported
revenue of $15,388,615, and a net loss of $191,550, or $.04 loss per share for
the three months ending September 30, 1996. Chase Brokerage reported revenue of
$1,713,934, and net income of $356,123, or $.07 income per share. The parent
reported revenue of $21,212, and a net loss of $468,265, or $.10 loss per share.
In addition, the Company posted a loss of $297,709, or $.06 loss per share,
attributable to depreciation of the excess value of the equipment and
amortization of goodwill resulting from the CTI acquisition.
The Company identified several factors that attributed to the lower
than expected revenues and the corresponding net loss for the quarter ending
September 30, 1996. The revenue reported by Carpet Transport was 18% lower than
anticipated. This was primarily attributable to poor utilization of this
subsidiar's revenue equipment. The 650 tractor fleet in the Carpet Transport
subsidiary averaged $7,870 in revenue per tractor per month during the three
months ending September 30, 1996. The industry average for revenue per tractor
per month is approximately $9,500, and management of the Company expected
revenue per tractor per month to be $9,300 for the quarter ending September 30,
1996. As a result, Carpet Transport's income from operations as a percentage of
revenue fell to 5% for the quarter ending September 30, 1996, compared to
approximately 10% for the previous quarter. During the quarter, Carpet Transport
did not experience the loss of any major customers and revenue generated by its
carpet consolidation held firm during the quarter. The decrease in operational
results is directly attributable to a reduction in the utilization of the
revenue equipment based on the quantitative information collected by management.
5
<PAGE>
For the period ending September 30, 1996, Blue Mack operating performance
improved as the loss from operations was $31,093, an operating ratio of 101% an
improvement from last year's performance of an $800,000 loss from operations for
the year, an operating ratio of 108%. The improvement is attributable to two
factors, the Blue Mack fleet averaged a better than expected $9,800 revenue per
tractor per month during the quarter ending September 30, 1996, and the 95
tractor fleet is comprised of more late model equipment, lowering maintenance
costs, during the quarter ending September 30, 1996 compared to the quarter
ending September 30, 1995.
The Company reported total assets of $77,905,345, total liabilities of
$72,102,915, and shareholders equity of $5,802,433. The Company reported total
current assets of $16,965,297 and total current liabilities of $27,879,904, a
current ratio of .61. As of September 30, 1996, the Company reported debt equity
of 8%.
The Company's cash flow from operating activities, investing
activities, and financing activities was a positive $3,280,318, $107,446, and a
negative $2,661,840 respectively, resulting in a net increase in cash of
$725,924 for the quarter ended September 30, 1996. The Company's cash flow from
operating activities, investing activities, and financing activities was a
negative $483,866, a positive $226,197, and $272,279 respectively, resulting in
a net increase in cash of $14,610 for the comparative three months ended
September 30, 1995. The Company paid $981,698 in interest expense during the
three months ended September 30, 1996 quarter, compared to $56,745 in interest
expense during the comparative three months ended September 30, 1995 period.
6
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is party to ordinary routine litigation incidental to its
business, primarily involving claims for personal injury or property damage
incurred in the transportation of freight. The Company maintains insurance to
cover liabilities in amounts in excess of self-insured retentions.
The Company has learned that a former shareholder of the Company filed
a complaint with the Securities and Exchange Commission alleging that the
Company illegally canceled his stock certificate being held in escrow. Following
a thorough internal audit, the Company has responded to this complaint alleging,
among other things, that this individual made a claim to these shares without
providing any proof of consideration or payment for them. On the basis of this
complaint, the Securities and Exchange Commission is conducting a preliminary
investigation into the Company's past stock trading activities. Company
management is fully cooperating with this preliminary investigation and intends
to vigorously defend against this action. Moreover, the Company has retained
independent counsel and has filed a lawsuit against this former shareholder, Mr.
William T. Denman, III, in the United States District Court, Northern District
of Georgia, seeking a declaratory judgment that its actions in canceling Mr.
Denman's shares were legal and justifiable under law.
Charles B. Prater, an employee of the Company and one of the former owners
of the Company's wholly owned subsidiaries, Carpet Transport, Inc. and Chase
Brokerage, Inc. (collectively the "CTI Companies"), is under indictment in a
pending criminal proceeding entitled United States of America v. Charles B.
Prater, et al., United States District Court, Northern District of Georgia,
Atlanta Division, Criminal Indictment No. 1:95-CR-460. The indictment charges
Mr. Prater, along with certain other parties, including Mr. Lynwood S. Warmack,
a former employee and co-owner of the CTI Companies, with the embezzlement of
several millions of dollars from the CTI Companies in addition to criminal fraud
and criminal tax evasion. In addition to the criminal penalties provided by
statute if convicted, the indictment seeks to assess a forfeiture penalty
against Mr. Prater and others in the amount of approximately $363,000.
As part of the consideration paid to the sellers of the CTI Companies,
the Company issued 500,000 shares of its common stock to Mr. Prater, rendering
him the beneficial owner of record of more than 5% of the Company's outstanding
common stock. In order to assist the Company following its acquisition of the
CTI Companies, the Company retained and continues to retain the services of
Charles Prater as an employee at will on a non-contractual basis.
7
<PAGE>
A&P Transportation, Inc. ("A&P") was sued in a wrongful death action in
Federal Court in West Virginia prior to its acquisition by the Company. Other
claims have also been made against A&P arising out of the same accident. Company
management believes that A&P's liability could exceed the $1,000,000 maximum
limit coverage provided by its current insurance policy. In the event the claims
arising out of this accident exceed this insurance coverage and A&P is found
liable therefor, the Company intends to seek indemnification from the previous
owners of A&P pursuant to the provisions of the acquisition agreement that
provides for such relief.
Blue Mack Transport, Inc. v. Trustee for Mural Transport, Inc.: Blue Mack
----------------------------------------------------------------
commenced a core proceeding in the U.S. Bankruptcy Court, Trenton, New Jersey,
seeking the return of a $100,000 loan it made to this debtor. Company management
has recently learned that the Bankruptcy Court has recognized this claim as
valid.
Mural Transport, Inc. v. GMAC: The Company and Blue Mack are defendants
------------------------------
in a core proceeding in the U.S. Bankruptcy Court, Trenton, New Jersey, in which
GMAC seeks payment for and/or lease payments allegedly due it as a result of the
alleged utilization of its revenue-generating equipment by these parties; the
Company and Blue Mack have, and continue to, vigorously prosecute their defense
against these claims. The Complainant has failed to specify any specific amount
of its claims against the Company and Blue Mack, and Company has filed a motion
for summary judgment in this matter.
Trustee for Mural Transport, Inc. v. Continental American Transportation,
--------------------------------------------------------------------------
Inc., et al: The Company and Blue Mack are defendants in a core proceeding in
- ------------
the U.S. Bankruptcy Court, Trenton, New Jersey, in which the Trustee is suing on
a $15,000 claim representing the alleged value of a piece of revenue equipment
allegedly in Defendants' possession.
Item 2. Changes in Securities
(a) & (b)
Not applicable.
(c) Recent Sales of Unregistered Securities
I. During the month of July, 1996, the Company delivered Common Stock
Purchase Warrants to 16 persons or entities for past services rendered to the
Company, entitling such grantees to purchase an aggregate 1,853,313
Common Shares for exercise prices ranging from $.25 to $7.50 per Common Share.
The names of the grantees, the amount of Company Common Shares purchasable and
the exercise prices are as follows:
8
<PAGE>
Name of Grantee Exercise Price Number of Shares
a. Meridian Holdings, Inc. $2.50 60,000
$5.00 20,000
$7.50 20,000
b. Global Financial Group, Inc. $2.50 4,500
$5.00 4,500
c. Ken Lucas $0.25 12,750
$2.50 44,625
$5.00 12,750
d. Craig Scott $0.25 4,250
$2.50 14,874
$5.00 4,250
e. Glenn Kennedy $0.25 6,375
$2.50 22,314
$5.00 6,375
f. Kevin Miller $0.25 4,500
$2.50 11,250
g. Scott Sieck $0.25 25,000
$2.50 25,000
h. Affiliated Services, Inc. $0.25 15,000
$2.50 60,000
i. Ocean Marketing Corp. $0.25 15,000
$2.50 60,000
j. Pyramid Holdings, Inc. $0.25 15,000
$2.50 60,000
k. Universal Solutions, Inc. $0.25 15,000
$2.50 60,000
l. Christie & Company $0.25 35,000
$2.50 40,000
m. Novaya $0.25 150,000
$2.50 50,000
$5.00 50,000
n. Vicbor $0.25 150,000
$2.50 50,000
$5.00 50,000
o. Arden Brown $0.25 35,000
$2.50 40,000
p. Explorer Financial Services, $0.25 300,000
Inc. $2.50 300,000
In the event any of the grantees exercise their Warrants, the proceeds
shall be utilized by the Company for working capital. Explorer Financial
Services, Inc. is owned by Mr. Christopher Bailey, the brother of Erik Bailey,
the Company's Chief Financial Officer.
The Company issued and distributed the above Warrants pursuant to the
private placement exemption from the registration requirements of the Securities
Act of 1933, as amended, provided by Section 4(2) promulgated thereunder on the
basis of the following facts:
9
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a. The issuance of the Warrants was to a limited number of grantees;
each of the transactions pursuant to which a Warrant was issued was negotiated
individually between the grantee and the Company and each grantee had a prior
existing business relationship with the Company.
b. All of the grantees received copies of the Company's most recent
reports filed with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended.
c. Each of the Common Stock Purchase Warrants issued to the
grantees is non-transferable and bears the following restrictive legend:
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON THE
EXERCISE HEREOF CAN ONLY BE TRANSFERRED IN COMPLIANCE
WITH THE SECURITIES ACT OF 1933, AS AMENDED AND
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT MAY
NOT BE SOLD, TRANSFERRED, OR ASSIGNED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT, UNLESS, IN
THE OPINION OF COUNSEL TO THE COMPANY, SUCH
REGISTRATION IS NOT THEN REQUIRED.
e. The Company has agreed to register all of the Common Shares
underlying all of the subject Warrants under the Securities Act of 1933,
as amended.
f. The Company did not pay any commissions or finder's fees to
any party in connection with the issuance of the subject Warrants.
II. On August 19, 1996, the Company sold $1,650,000 in aggregate original
principal amount of its 7% Convertible Debentures (the "7% Debentures") to
Cameron Capital Ltd., a corporation organized under the laws of the Country of
Bermuda and having its principal offices located at 10 Cavendish Road, Hamilton
HM 19, Bermuda, pursuant to a certain Regulation S Offshore Securities
Subscription Agreement between the parties and dated the date of the placement.
The Company utilized the services of Cameron Capital Management Ltd. as the
placement agent for the 7% Debentures and paid a commission by issuing to this
placement agent a Common Stock Purchase Warrant to purchase 200,000 shares of
the Company's Common Stock, no par value per share, at the exercise price of
$3.50 per share, exercisable at any time, in part or in whole, during the period
from August 19, 1996 through August 19, 2001, pursuant to a certain Offshore
Warrant Subscription Agreement, dated August 19, 1996, by and between the
Company and the placement agent. The 7% Debentures: mature and are due and
payable as to their aggregate principal $1,650,000, and accrued interest, if
any, on August 19, 1998; entitle its holder to receive interest payments at the
rate of 7% per annum, payable on a semi-annual basis, commencing January 19,
1997, and; are convertible into the Common Shares of the Company on the
following basis: one-third of the principal amount of the 7% Debentures may be
convertible at any time from and after the 40th day following the date of
Closing, August 19, 1996; two-thirds of the principal amount of the 7%
Debentures may be
10
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convertible at any time from and after the 70th day following the date of
Closing, August 19, 1996 and; 100% of the principal amount of the 7% Debentures
may be convertible at any time from and after the 100th day following the date
of Closing, August 19, 1996, at the conversion price equal to the lesser of (i)
the average closing bid price of the Company's Common Stock for the five (5)
consecutive trading days immediately prior to the date of Closing, August 19,
1996 or, (ii) seventy-eight (78%) percent of the average closing bid price of
the Company's Common Stock for the five (5) consecutive trading days period
immediately prior to the conversion date.
The Company relied upon the exemptions from the registration
requirements of the Securities Act of 1933, as amended (the "1933 Act") provided
by Regulation S promulgated thereunder, based upon the following facts:
1. The Regulation S Offshore Securities Subscription Agreement, dated
August 19, 1996, executed by and between the Company and Cameron Capital Ltd.
(the "Offshore Subscriber") as well as the Offshore Warrant Subscription
Agreement, dated August 19, 1996, executed by and between the Company and
Cameron Capital Management Ltd. (the "Offshore Placement Agent") contained,
among other covenants, the following representations and warranties made by the
Offshore Subscriber and the Offshore Placement Agent, respectively: (a) the
Offshore Subscriber and the Offshore Placement Agent, were not "U.S. person(s)"
as that term is defined in Rule 902(o) of Regulation S and that their true and
correct principal office, address and telephone number is 10 Cavendish Road,
Hamilton HM 19, Bermuda, (441)295-5455; (b) the Offshore Subscriber and the
Offshore Placement Agent were and will not be officer(s), director(s) or
affiliate(s) of the Company; (c) the Offshore Subscriber and the Offshore
Placement Agent agreed that all offers and sales of the 7% Debentures, the
Warrants and shares of the Company's Common Stock issuable upon conversion
and/or exercise thereof shall not be made to a U.S. person or for the account or
benefit of U.S. persons and shall otherwise be made in compliance with the
provisions of Regulation S; (d) the Offshore Subscriber and the Offshore
Placement Agent are not distributor(s) as that term is defined in Rule 902(c) of
Regulation S; (e) the offers and sales of the subject securities have not been
and will not be prearranged by the Offshore Subscriber or by the Offshore
Placement Agent with a purchaser located in the United States or a purchaser
which is a U.S. person, and; (f) neither the Offshore Subscriber nor the
Offshore Placement Agent had engaged nor will they engage in any activity for
the purpose of, or that could reasonably be expected to have the effective of,
conditioning the market in the United States for any of the 7% Debentures,
Warrants or any of the Common Shares issuable upon the conversion and/or
exercise thereof.
2. The Company's officers and directors at all times during the
negotiation and the subsequent consummation of the subject transaction with the
Offshore Subscriber and the Offshore Placement Agent conducted these activities
directly with such entities' representatives who were at all times located in
Bermuda; the Company's officers and directors made such investigation and
performed a due diligence review of the
11
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subject transaction, the Offshore Subscriber and the Offshore Placement Agent so
as to provide it with a reasonable basis to conclude that the subject
transaction was conducted in full compliance with all of the provisions of
Regulation S promulgated under the 1933 Act.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) not applicable.
(b) Registrant did not file any Current Reports during the subject
period.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Form 10-QSB for the period ending
September 30, 1996, to be signed on its behalf by the undersigned thereunto duly
authorized.
CONTINENTAL AMERICAN TRANSPORTATION, INC.
By: s/Erik Bailey
Erik Bailey, Vice President
Chief Financial Officer
Dated: November 18, 1996
catform8-10Q
