SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)of the Securities Exchange Act of 1934
Filed by the Registrant {X}
Filed by a Party other than the Registrant { }
Check the appropriate box:
{ } Preliminary Proxy Statement
{ } Confidential for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
{X} Definitive Proxy Statement
{ } Definitive Additional Materials
{ } Soliciting Material Pursuant to Section 240.14a-11(c)or Section 240.14a-12
CONTINENTAL AMERICAN TRANSPORTATION, INC.
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(Name of Registrant as Specified In Its Charter)
Not Applicable
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate Box):
{X} $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
{ } $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
{ } Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
-
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
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2
CONTINENTAL AMERICAN TRANSPORTATION, INC.
495 Lovers Lane Road
Calhoun, Georgia 30701
(706) 629-8682
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 15, 1997
TO THE SHAREHOLDERS OF CONTINENTAL AMERICAN TRANSPORTATION, INC.:
NOTICE HEREBY IS GIVEN that the Annual Meeting of Shareholders of
Continental American Transportation, Inc., a Colorado corporation (the
"Company"), will be held at 495 Lovers Lane Road, Calhoun, Georgia, 30701 on
Wednesday, January 15, 1997, at 10:00 A.M., for the following purposes (the
"Meeting"):
1. To elect three Directors of Company.
2. To approve the Company's 1996 Stock Option Plan.
3. To ratify the appointment of Rosenberg Rich Baker Berman &
Company as the Company's independent certified public
accountants. Approval of this proposal requires the
affirmative vote of a majority of the shares represented at
and entitled to vote on this proposal.
4. To transact such other business as may properly come
before the meeting or any adjournments thereof.
Only holders of record of the Company's Common Stock, no par value, at
the close of business on December 10, 1996, will be entitled to notice of and to
vote at the Meeting or at any adjournments thereof. The proxies are being
solicited by the Board of Directors of the Company.
All shareholders, whether or not they expect to attend the Annual
Meeting of Shareholders in person, are urged to sign and date the enclosed Proxy
and return it promptly in the enclosed envelope. Any person giving a proxy has
the power to revoke it at any time by following the instructions provided in the
Proxy Statement. The giving of a proxy will not affect your right to vote in
person if you attend the Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
s/Brian Henninger
BRIAN HENNINGER
SECRETARY
Calhoun, Georgia
Date: December 16, 1996
P R O X Y
CONTINENTAL AMERICAN TRANSPORTATION, INC.
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Timothy Holstein, Erik Bailey and Brian
Henninger, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote as designated below, all the shares of Common
Stock of Continental American Transportation, Inc. held of record by the
undersigned on December 10, 1996, at the Annual Meeting of Shareholders to be
held on Wednesday, January 15, 1997, at 10:00 A.M., or any adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED IN FAVOR OF ALL PROPOSALS SET FORTH
ABOVE.
THE DIRECTORS RECOMMEND A VOTE FOR THESE THREE PROPOSALS:
1. Election of Directors.
______ FOR (except as listed _____ WITHHOLD AUTHORITY to
below) vote for all nominees
listed below
Nominees: Erik Bailey
Timothy Holstein
Brian Henninger
If you desire to withhold authority to vote for any individual nominee,
please write the nominee's name on the space provided:
--------------------------------------------------------
2. Approval of the Company's 1996 Stock Option Plan.
_____ FOR _____ AGAINST _____ABSTAIN
3. Ratification of Rosenberg Rich Baker Berman & Company as
independent accountants.
_____ FOR _____ AGAINST _____ABSTAIN
In their discretion, the above-named proxies are authorized to vote upon such
other business as may properly come before the meeting or any adjournment
hereof.
Dated: , 199
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Signature
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Signature if held jointly
Please sign exactly as name appears hereon.
When shares are held by joint tenants, both should
sign. When signing as executor, administrator,
trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate name
by president or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE MEETING IN
ACCORDANCE WITH THE SHAREHOLDER'S SPECIFICATIONS ABOVE. THIS PROXY CONFERS
DISCRETIONARY AUTHORITY IN RESPECT TO MATTERS NOT KNOWN OR DETERMINED AT THE
TIME OF THE MAILING OF THE NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS TO THE
UNDERSIGNED.
2
CONTINENTAL AMERICAN TRANSPORTATION, INC.
495 Lovers Lane Road
Calhoun, Georgia 30701
(706) 629-8682
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 15, 1997
GENERAL INFORMATION
The enclosed Proxy is solicited by and on behalf of the Board of
Directors of Continental American Transportation, Inc., a Colorado corporation
(the "Company"), for use at the Company's Annual Meeting of Shareholders to be
held at 495 Lovers Lane Road, Calhoun, Georgia 30701, on Wednesday, January 15,
1997 at 10:00 A.M., or any adjournments thereof. It is anticipated that this
Proxy Statement and the accompanying Proxy will be mailed to the Company's
shareholders on or about December 20, 1996.
Any person signing and returning the enclosed Proxy may revoke it at
any time before it is voted by giving written notice of such revocation to the
Company, or by voting in person at the Meeting. The expense of soliciting
material to shareholders, will be borne by the Company. It is anticipated that
solicitations of proxies for the Meeting will be made only by use of the mails;
however, the Company may use the services of its directors, officers and
employees to solicit proxies personally or by telephone, without additional
salary or compensation to them. Brokerage houses, custodians, nominees and
fiduciaries will be requested to forward the proxy soliciting materials to the
beneficial owners of the Company's shares held of record by such persons, and
the Company will reimburse such persons for their reasonable out-of-pocket
expenses incurred by them in that connection.
All shares represented by valid proxies will be voted in accordance
therewith at the Meeting.
SHARES OUTSTANDING AND VOTING RIGHTS
All voting rights are vested exclusively in the holders of the
Company's Common Stock, with each share entitled to one vote. Only shareholders
of record at the close of business on December 10, 1996, are entitled to notice
of and to vote at the Meeting or any adjournments thereof. As of December 10,
1996, the Company had 5,014,689 shares of Common Stock outstanding, each share
of which is entitled to one vote on all matters to be voted upon at the Meeting.
For each proposal presented, under the Colorado Business Corporation
Act, abstentions and broker non-votes will be treated as shares present or
represented and entitled to vote for purposes of determining the presence of a
quorum, but will not be considered as votes case in determining whether a
particular proposal has been approved by the shareholders. As to any shares a
broker indicates on its Proxy that it does not have the authority to vote on any
particular matter because it has not received direction from the
beneficial owner thereof, said shares will not be counted as voting on the
particular matter.
One half of the Company's outstanding Common Stock represented in
person or by Proxy shall constitute a quorum at the meeting.
2
PROPOSAL NUMBER ONE - ELECTION OF DIRECTORS
The Board of Directors consists of three (3) incumbent members, all of
whom are to be elected at the meeting to hold office until the next meeting of
shareholders and until their successors are elected and qualified.
INFORMATION CONCERNING DIRECTORS
Name Age Position with Company
Timothy Holstein 38 Director
President
Chief Executive Officer
Erik Bailey 28 Director
Vice President
Chief Financial Officer
Brian Henninger 48 Director
Secretary
Comptroller
Timothy Holstein has been the President, Chief Executive Officer and a
director of the Company since June 21, 1995. Prior to joining the Company, Mr.
Holstein was the majority owner of Blue Mack Transport, Inc., a
Pennsylvania-based private trucking company which he founded in 1986 and which
company was acquired on June 21, 1995 by the Company pursuant to a reverse
merger acquisition. Mr. Holstein was appointed to the Company's Board of
Directors and shall remain a director until the next annual meeting of the
Company's shareholders. Mr. Holstein is also an officer and director of Bio-Dyne
Corporation, a reporting company under the Securities Exchange Act of 1931, as
amended, (the "Exchange Act").
Erik Bailey has been the Vice President, Chief Financial Officer and a
director of the Company since June 21, 1995. Prior to his appointment as a
member of the Board of Directors, Mr. Bailey was the Chief Financial Officer of
Blue Mack Transport, Inc., a Pennsylvania-based private trucking company, since
April, 1995. Prior to that time, Mr. Bailey served as a consultant to private
and public companies. Mr. Bailey was appointed to the Company's Board of
Directors and shall remain a director until the next annual meeting of the
Company's shareholders. Mr. Bailey is also an officer and director of Bio-Dyne
Corporation, a reporting company under the Exchange Act. Mr. Bailey also serves
as a consultant to several private and public companies with respect to merger
and acquisition analysis and advice.
Brian Henninger has been the Secretary and a director of the
Company since March 27, 1995. Prior to his appointment, Mr.
Henninger served as a financial consultant to several private
3
companies. For the approximate ten year period prior to November,
1995, Mr. Henninger served as the comptroller for a nationwide
transportation company. Mr. Henninger also serves as an officer
and director of Bio-Dyne Corporation, a reporting company under the
Exchange Act. Mr. Henninger also serves on the Boards of Directors
for several private companies not engaged in the transportation
industry business.
During the fiscal year ended June 30, 1996, the Company's Board of
Directors held 20 meetings. All of the Directors attended all of these meetings.
Board members are elected by the shareholders to serve until the next annual
meeting; Company officers are appointed by the Board of Directors.
4
COMPENSATION OF EXECUTIVES AND DIRECTORS
The following table sets forth the compensation paid by the Company to
its chief executive officer, its two (2) other executive officers and the four
(4) highest paid employees of the Company during the fiscal year ended June 30,
1996.
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation
- - - - - - - -----------------------------------------------------------------
(a) b) (c) (f) (i)
Name Restricted All Other
and Stock Compen-
Principal Award(s) sation
Position Year Salary ($) ($)
Timothy Holstein
CEO 1996 $ 78,800 -- --
Erik Bailey
Chief Financial
Officer 1996 $ 56,100 -- --
Brian Henninger
Comptroller 1996 $ 17,300 36,000+ $30,000*
Charles B. Prater 1996 $300,000 -- --
Employee
Lynwood S.Warmack 1996 $300,000 -- --
Employee
Robert Herr 1996 $ 75,000 -- --
Employee
Wayne S. Herr 1996 $ 75,000 -- --
Employee
5
There were no grants or exercises of stock options pursuant to the
Company's Stock Incentive Plan during the fiscal year ended June 30,
1996 to the named officers. Stock appreciation rights are not granted
under the Stock Incentive Plan. The Company does not currently have in
effect a Long-Term Incentive Plan ("LTIP") and, consequently, no such
awards were granted to Company executives in fiscal years covered
above.
* The Company loaned Mr. Henninger $30,000 to cover relocation
expenses; pursuant to the terms of Mr. Henninger's agreement with the
Company, $10,000 of such principal balance shall be forgiven over the
course of each of the next three years as long as Mr. Henninger remains
in the employ of the Company. The loan does not require Mr. Henninger
to pay interest.
+ Mr. Henninger received non-qualified stock options to purchase 36,000
Company common shares: see, "Employment Agreements" below.
6
Employment Agreements
The Company signed an Employment Agreement with Brian Henninger, dated
June 15, 1996, pursuant to the general terms of which Mr. Henninger was retained
for a 3-year period to serve as Vice President-Finance and Secretary of the
Company. The Agreement provides for annual salaries of $78,000, $104,000 and
$130,000 during the first, second and third years of the Agreement,
respectively. In addition, the Company agreed to loan to Mr. Henninger $30,000
for relocation expenses concerning his move to Calhoun, Georgia, and to forgive
$10,000 of such amount at the end of each year of Mr. Henninger's Agreement
provided he is in the employ of the Company at such times. The Company, as a
further inducement to Mr. Henninger, included in the Agreement a non-qualified
stock option to purchase 36,000 Company common shares at an exercise price equal
to the lesser amount of (i) the trading price of the Company's common stock on
the date of exercise, less a 20% discount, or (ii) $2.25 per share.
On September 1, 1996, the Company and Mr. Timothy Holstein entered into
a 3-year Employment Agreement providing that Mr. Holstein would be retained as
the President and Chief Executive Officer of the Company. The Agreement provides
that the Company shall pay Mr. Holstein annual salaries of $200,000, $250,000
and $300,000 for the first, second and third years of the Agreement,
respectively. In addition, the Agreement provides that Mr. Holstein shall
receive an incentive bonus during each year of the Agreement equal to 5% of the
first $1,000,000 of pre-tax profits; 6% of the next $500,000 of pre-tax profits,
and; 7% of the pre-tax profits of the Company over $1,500,000.
The Company also entered into an Employment Agreement with Mr. Erik
Bailey on September 1, 1996, to retain his services as the Company's Vice
President and Chief Financial Officer for a 3 year term. Mr. Bailey will receive
annual salaries of $104,000, $130,000 and $156,000 during the first, second and
third years of the term of the Agreement, respectively. The Agreement also
provides that the Company will pay Mr. Bailey an incentive bonus equal to 5% of
the first $1,000,000 of the pre-tax profit; 6% of the next $500,000, and; 7% of
the Company's pre-tax profit over $1,500,000 for each year during the term of
the Agreement the Company earns pre-tax profits.
The Company's 1994 Stock Incentive Plan
The Company has terminated its 1994 Stock Incentive Plan on December 2,
1996.
The Company's 401(k) Plans
Carpet Transport, Inc. and Blue Mack Transport, Inc., two of
the Company's subsidiaries, maintain and sponsor qualified profit-
7
sharing plans for the benefit of their respective employees. Both plans are
qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended,
and allow employees thereof to make tax deferred contributions under the terms
of the Plans. The 401(k) Plan for Blue Mack Transport, Inc. provides that the
employer shall match employee contributions equal to 25% of such employee's
contribution to the Plan; the 401(k) Plan for Carpet Transport, Inc. provides
that the employer, in its sole and absolute discretion, may contribute an amount
equal to an employee's contribution. No employer contributions were made under
either Plan by these employers during the fiscal year ended June 30, 1996.
The Company had no other executive officers other than Mr.
Holstein, Mr. Bailey and Mr. Henninger at June 30, 1996.
Compensation of Directors
None of the Company's directors receive any compensation for
participation in Board of Directors meetings.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is information concerning stock ownership obtained by
Company management from the certified list of Company stockholders
provided by its transfer agent, United Stock Transfer, as of the record
date of June 30, 1996, of (1) each person known by Company to own
beneficially 5% or more of Company's common stock, (2) each named
director and officer and (iii) all directors and officers of Company as
a group, based upon the number of common shares outstanding on June 30,
1996.
Title of Name and Address of Amount and Nature of Percent of
Class Beneficial Owner Beneficial Ownership Class
Common
Stock
Timothy Holstein 739,521 16.93%
c/o Continental American
Transportation, Inc.
Chief Executive Officer
President and Director
175 Hammon Road
Calhoun, GA 30701
Erik Bailey 519,897 11.90%
Chief Financial Officer
and Director
1039 Legacy Walk
Woodstock, GA 30189
8
Brian Henninger 46,300* 1.06%
Vice President-Secretary
and Director
275 Saddlebrook Drive
Calhoun, GA 30701
Charles B. Prater 500,000** 11.45%
877 Plainville Road
Plainville, GA 30733
Robert Herr 257,500+ 5.89%
349 Buck Road
Quarryville, PA 17566
Wayne S. Herr 257,500+ 5.89%
349 Buck Road
Quarryville, PA 30733
All directors and
officers as a group 1,805,718** 41.34%
* Includes non-qualified stock options to purchase 36,000 common shares, see,
"Employment Agreements" above.
+ Includes 51,500 common shares held of record by each of Robert Herr and Wayne
S. Herr as well as 154,500 common shares held by Herr's Motor Express, Inc., a
company owned and controlled by these persons.
** Mr. Prater is not a director or executive officer of the Company but is a
"named executive officer" as defined in Item 402(a)(2) of Regulation S-B and his
share holdings are included in the total number of common shares held by all
directors and officers as a group for this reason.
9
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors and beneficial owners of more than
10% of any class of equity securities of the Company registered pursuant to
Section 12 of the 1934 Act to file reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors, and beneficial
owners of more than 10 per cent of any class of equity securities of the Company
registered under the 1934 Act are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms filed.
Based solely on the review of the certified list of shareholders
provided by the Company's transfer agent and on the review of the Exchange Act
forms furnished to the Company, the Company believes that the following
reporting delinquencies occurred during the Company's fiscal year ended June 30,
1996:
Section 16(a) Reporting Delinquencies
1. Form 4, Statement of Changes of Beneficial Ownership of Securities,
due on or about October 10, 1995: Erik Bailey failed to file this Form when he
sold all of his interest in Explorer Capital, Inc., the holder of record of
180,000 shares of the Company's Series B Convertible Preferred Shares at the
time of such sale occurring on June 21, 1995.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(1) On October 15, 1995, the Company entered into a Finder's Fee
Agreement with Knobloch Bay Cove Trust, an offshore entity. The Trustee and
Director of Knobloch Bay Cove Trust ("Bay Cove") is Herbert Bailey, the father
of Erik Bailey, an officer and director of the Company. Pursuant to the terms of
the Finder's Fee Agreement, the Company authorized Bay Cove to identify
potential acquisition candidates in the transportation industry. In the event
that the Company consummated an acquisition brought to its attention through the
efforts of Bay Cove, the Agreement provided that the Company would pay to Bay
Cove compensation equal to the traditional Lehman Formula, plus various costs
and expenses, at the closing of any such transaction.
On November 29, 1995, Bay Cove executed and submitted an Offshore
Securities Subscription Agreement, which was accepted by the Company on that
date, and pursuant to which the Company sold 600,000 of its common shares to Bay
Cove for $1,200,000. Bay Cove paid the purchase price by delivering its
promissory note in the principal amount of the purchase price, accruing interest
at 7% per annum, with the outstanding principal balance and accrued interest due
on November 29, 1997.
Subsequently, Bay Cove acted as the finder and proposed Carpet
Transport, Inc., A&P Transportation, Inc. and Chase Brokerage, Inc. (the "CTI
Companies") as acquisition candidates to the Company. Pursuant to a certain
Restated Stock and Assets Purchase Agreement, dated February 29, 1996, the
10
Company acquired the CTI Companies. In accordance with the aforementioned
Finder's Fee Agreement, Bay Cove claimed a finder's fee in the amount of
$910,000 and expenses of $290,000. After negotiations, the Company agreed to
forgive Bay Cove's $1,200,000 promissory note as payment of this finder's fee
and expenses due under the subject Agreement.
(2) On September 15, 1995, the Company entered into an Investment
Advisor Agreement with Explorer Financial Services, Inc. ("Explorer"). Pursuant
to the terms of this Agreement, the Company appointed Explorer as its
non-exclusive agent to seek and identify potential sources of capital as well as
potential acquisition candidates in the transportation industry for the Company.
The Agreement authorized Explorer, among other things, to negotiate and present
to the Company the proposed terms of any equity or debt financings and/or the
terms of any acquisition proposal. In the event the Company closes any equity or
debt financing proposal or consummates an acquisition identified and provided to
it by Explorer, the Company agreed to pay to Explorer a fee equal to the amount
of 2% of the amount of any such financing and/or the value of any such
transaction consummated, at the closing of any such transactions. Mr.
Christopher Bailey is the sole owner of Explorer and is the brother of Erik
Bailey, an officer and director of the Company.
(3) On June 30, 1996, the Company entered into a $1,000,000 Revolving
Credit Agreement with Bio-Dyne Corporation, a Georgia corporation having its
principal offices located at 5400 Bucknell Drive, S.W., Atlanta, Georgia 30336
("Bio-Dyne"), pursuant to the principal terms of which the Company agreed to
provide a $1,000,000 facility over a two-year period. Interest accrues on any
amount of the outstanding principal balance at the rate of 12%, per annum, with
interest payable monthly and accrued interest, if any, together with the unpaid
principal balance due at the end of the term. As part of this Agreement, the
Company had the right to designate up to three (3) members of Bio-Dyne's five
(5) member Board of Directors and has designated three (3) members to date,
Messrs. Timothy Holstein, Erik Bailey and Brian Henninger, representing all of
the members of the Company's current Board of Directors. As of June 30, 1996,
Bio-Dyne has drawn down an aggregate of $450,000 against this credit facility.
(4) On August 22, 1995, the Company purchased certain assets of Herr's
Motor Express, Inc. and all of the issued and outstanding shares of HMX, Inc.,
corporations owned and controlled by Robert Herr and Wayne S. Herr, for (i) the
issuance of 200,000 common shares of the Company (ii) the assumption of debt
associated with certain of the assets purchased in the aggregate amount of
$1,103,567 (iii) the delivery of Company promissory notes in the aggregate
principal amount of $1,268,927, and (iv) the assumption of shareholder loans in
the amount of $208,000. The Company granted the sellers certain "piggy-back"
registration rights in connection with the Company's common shares delivered as
practical consideration in the transaction. The aggregate amount of Company
common shares issued to Robert Herr, Wayne S. Herr and Herr's Motor Express,
Inc., a company owned and controlled by the sellers, rendered these persons as a
group, a beneficial owner of more than 5% of the Company's issued and
outstanding common shares at June 30, 1996. In addition, each of Robert Herr and
Wayne S. Herr entered into a two-year
11
term Employment Agreement with the Company providing for the payment to each of
them of an annual salary in the amount of $75,000 and which provides an
incentive bonus in the amount of 1% of the pre-tax profits of the Company during
such term.
(5) Blue Mack, the Company's wholly owned Pennsylvania subsidiary,
leases approximately 4.5 acres containing a building consisting of 4,000 square
feet of office space, a 10-bay maintenance facility and a 2,000 square foot
warehouse located in Pottstown, Pennsylvania from Mr. Timothy Holstein, an
officer and director of the Company, pursuant to a 5-year lease on a triple net
basis, with monthly rental payments of $5,200 per month.
(6) Mrs. Linda Bailey paid and or loaned certain funds and securities
to and/or on behalf of the Company and Blue Mack Transport, Inc. in the
aggregate amount of $150,000 as of June 30, 1996.
(7) Carpet Transport, Inc. has a receivable due from All Carpet, Inc.,
a corporation in which employee Charles Prater has an ownership interest, in
the amount of $149,000. This receivable existed on the books of Carpet
Transport, Inc. prior to the acquisition by the Company of the CTI Companies.
PROPOSAL ONE: ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
ELECTION OF THE THREE DIRECTORS, AS DISCUSSED UNDER "ELECTION OF DIRECTORS."
12
PROPOSAL NUMBER TWO: APPROVAL OF THE 1996 STOCK OPTION PLAN
DESCRIPTION OF THE PLAN
The Board of Directors elected to begin reliance on the new Rule 16b-3
as of December 10, 1996. The current 1994 Stock Option Plan will be replaced by
the 1996 Stock Option Plan which is intended to allow the Company to utilize the
greater flexibility available under the new rule.
General. The Plan was adopted by the Board of Directors effective
December 10, 1996. The current 1994 Stock Incentive Plan will be replaced by the
1996 Stock Option Plan which is intended to allow the Company to utilize the
greater flexibility available under the new rule.
Administration of the Plan. The Plan is to be administered by a
committee of at least two non-employee members of the Board of Directors (the
"Board"). The Board may from time to time adopt such rules and regulations as it
deems advisable for the administration of the Plan, and may alter, amend or
rescind any such rules and regulations in its discretion. The Board has the
power to interpret, amend or discontinue the Plan.
Grant of Options. Options may be granted under the Plan for a total of
500,000 shares of Common Stock. The Board determines the terms of options
granted under the Plan, including the type of option (which can be incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or non-qualified stock options), the exercise
price, the number of shares subject to the option, and the exercisability
thereof. The Board also determines, at the time of grant, the period during
which the option will be exercisable.
Terms and Conditions of Options. The Board may impose on an option any
additional terms and conditions which it deems advisable and which are not
inconsistent with the Plan. The exercise price of any stock option granted under
the Plan must not be less than 100% of the fair market value of a share of
Common Stock as of the date prior to the date of grant, except that as to an
optionee who at the time an incentive stock option is granted owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company, the exercise price of such incentive stock option must be
at least equal to 110% of the fair market value of the shares as of the date
prior to the date of the grant. In addition, no incentive stock option can be
granted to any employee where the aggregate fair market value of the shares
(determined at the date of such option grant) for which such incentive stock
options are exercisable for the first time in any calendar year exceeds
$100,000. In connection with a merger, sale of all of the Company's assets, or
other transaction which results in the replacement of the Company's Common Stock
with the stock of another corporation, the Board may terminate stock options,
accelerate the exercise date of stock options, or provide for the assumption or
replacement of stock options with comparable options of such other corporation.
13
Exercise of Options. An optionee may exercise less than all of the
matured portion of an option, in which case such unexpected, matured portion
shall continue to remain exercisable, subject to the terms of the Plan, until
the option terminates.
Each option granted under the Plan terminates on the earlier of (i) the
number of years after the date of grant as is designated by the Board, or (ii)
in the case of an incentive stock option (a) three months following the
termination, for any reason other than death or disability, of employment by the
Company, or by its parent or subsidiary, of the employee to whom the option is
granted, or (b) one year following the termination, on account of death or
disability, of employment by the Company or by its parent or subsidiary, of the
employee to whom the option is granted (in which case the employee will be
deemed to have completed the full vesting period during which such employee died
or becomes disabled). The Board of Directors may provide, at the time of grant,
that the termination date for a non-qualified stock option could be as long as
twenty (20) years from the grant date, and the termination date for an incentive
stock option could be as long as ten (10) years from the grant date.
FEDERAL INCOME TAX CONSEQUENCES.
Incentive Stock options. The Company anticipates that all options
granted under the Plan and treated by the Company as "incentive stock options,"
that is, a stock option described in Section 422 of the Code, will have the
following anticipated (but not guaranteed) federal income tax consequences,
among others:
The optionee will recognize no income at the time of grant.
Upon exercise of the incentive stock option, no income will result to
any party.
If there is no disposition of the shares until a date that is both (i)
two years from the grant of an incentive stock option and (ii) one year from its
exercise, no amount will be ordinary income and, upon disposition in a taxable
transaction, the employee will receive long-term capital gain or loss treatment
equal to the difference between his amount realized and the option price. Any
gain realized upon a disposition other than as set forth above may result in
ordinary income tax treatment to the optionee.
In the event of the tax treatment to the employee described in (c)
above, the Company receives no deduction in connection with the transaction.
Certain optionees may incur alternative minimum tax treatment under the
Code upon exercise of an incentive stock option.
Non-qualified Stock Options. The Company anticipates that all
non-qualified stock options granted under the Plan will have the following
anticipated (but not guaranteed) federal income tax consequences, among others:
14
The optionee will recognize no income at the time of grant.
Upon exercise of the non-qualified stock option, the individual to whom
the option is granted should be deemed to receive ordinary income at the time of
exercise equal to the excess, if any, of the fair market value of the acquired
shares at such time over the option price for such shares.
If the shares acquired upon the exercise of a non-qualified stock
option are disposed of in a taxable transaction, the individual disposing of
such shares will have a realized and recognized capital gain or loss equal to
the difference, if any, between the amount realized and the adjusted basis of
such shares to him. Such gain or loss will be long-term or short-term depending
on whether such shares are held for longer than six months (one year for stock
acquired prior to June 23, 1984), or not. The adjusted basis usually (but not
always) will include the option price plus any ordinary income described in (b)
with respect to such shares.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE COMPANY'S
1996 STOCK OPTION PLAN.
15
PROPOSAL NUMBER THREE: RATIFICATION OF APPOINTMENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has appointed Rosenberg Rich Baker Berman &
Company as independent certified public accountants, to serve as auditors for
Fiscal Year 1997. A representative of Rosenberg Rich Baker Berman & Company is
expected to be present at the meeting to make a statement to the Shareholders if
he should decide to do so and to respond to questions from the Shareholders.
Recommendation and Vote Required
Management recommends that the stockholders vote "FOR" the ratification
of Rosenberg Rich Baker Berman & Company as independent certified public
accountants, to serve as the Company's auditors for Fiscal Year 1997. The
affirmative vote of a majority of the shares represented at the Meeting and
entitled to vote on this Proposal will be required for ratification of the
appointment of Rosenberg Rich Baker Berman & Company.
Changes in and Disagreements on Accounting and Financial Disclosure.
(a)(1)(i) Prior to the change of control of the Company and the
takeover of its affairs by current Company management, effective on June 21,
1995, by virtue of the reverse merger acquisition of Blue Mack Transport, Inc.,
on July 29, 1994, the former Board of Directors of the Company dismissed the
firm of J. Roger Gregg, CPA as accountants for the Company. On the same date,
the Company engaged the firm of Rosenberg, Rich, Baker, Berman & Company
("Rosenberg, Rich"), CPA as accountants for the Company.
(ii) J. Roger Gregg's reports on the financial statements for the years
ended June 30, 1994, 1992, and 1991 contained adverse opinions and disclaimers
of opinion and qualification.
(iii)(A)(B) The Company's Board of Directors made the decision to
engage Rosenberg, Rich and J. Roger Gregg. The Company has no audit or
similar committee.
(iv) During the Company's two preceding fiscal years and any subsequent
interim period preceding such dismissal, Company is not aware of any
disagreements with J. Roger Gregg on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure.
(v) J. Roger Gregg's opinion covering the fiscal years ended June 30,
1994, 1992 and 1991 contained an adverse opinion which, in effect, stated that,
based upon the Company's prior management's lack of disclosure, cooperation, and
absence of corporate records relating to its business activities during these
periods, Mr. Gregg was required to issue an adverse opinion on the subject
financial statements corresponding to the periods indicated. Mr. Gregg's opinion
is contained in the Company's Form 10-K for the year ended June 30, 1994 (the
"1994 Form 10-K").
16
(a)(3) The Company requested J. Roger Gregg, to review the disclosures
contained in the 1994 Form 10-K and that firm was given an opportunity to
furnish the Company with a letter addressed to the Commission containing any new
information, clarification of the Company's expression of its views, or the
respect in which it does not agree with the statements made by the Company
herein. Mr. Gregg furnished the Company with a letter, dated February 24, 1995,
addressed to the Commission, a copy of which is annexed as Exhibit G to the 1994
Form 10-K which is herein incorporated by reference, stating that he has had no
disagreements with current management with respect to accounting principles or
as to any completed transactions. Mr. Gregg further stated that he performed no
services for the Company relating to any subsidiary of the Company not
previously located in Asheville, North Carolina during his period of engagement,
nor did current management make him aware that the Company had any subsidiaries
other than those located in Asheville, North Carolina, including Mural
Transport, Inc. and/or any other company during the period ending June 30, 1994.
SHAREHOLDER PROPOSALS
All proposals shareholders intended to be included in the proxy
statement to be presented at the next annual meeting of shareholders must be
received at the Company's corporate offices at 495 Lovers Lane Road, Calhoun,
Georgia 30701 Attention: Corporate Secretary, on or before August 15, 1997.
OTHER BUSINESS
Management of the Company knows of no other matter which may come
before the Meeting. However, if any additional matters are properly presented at
the meeting, it is intended that the persons named in the enclosed Proxy
Statement, or their substitutes, will vote such Proxy in accordance with their
prompt judgment on such matters.
ANNUAL REPORT TO SHAREHOLDERS
The Company's Annual Report for the year ended June 30, 1996 is being
sent to all shareholders with this Proxy Statement but is not incorporated
herein by reference and is not to be considered a part of the Proxy Materials.
By Order of the Board of Directors,
s/Brian Henninger
Brian Henninger, Secretary
catproxy.97
17
Continental American Transportation
Continental American Transportation, Inc.
1996 Annual Report
About the Company
Continental American Transportation, Inc. is a trucking and
logistics management company.
It's subsidiary, Carpet Transport, Inc. (CTI), headquartered in
Calhoun, Georgia, primarily transports carpet goods, textiles and produce
nationwide. CTI utilizes 17 terminals to consolidate shipments for the carpet
and textile manufacturing industries. CTI was acquired by the Company effective
February 29, 1996; and its affiliate, A&P Transportation, Inc., was since merged
into CTI.
Another subsidiary, Chase Brokerage, Inc., was also affiliated with CTI
and acquired by the Company effective February 29, 1996. Chase operates a
freight brokerage and logistics business from its principal offices located in
Palatka, Florida.
Its subsidiary, Blue Mack Transport, Inc., located in Pottstown,
Pennsylvania, is a short to medium-haul, dry van and refrigerated truckload
carrier, operating primarily east of the Mississippi River, from the States of
Maine to Florida. Blue Mack transports general commodities, including consumer
goods, packaged foods, and paper, plastic and beverage products. Blue Mack was
acquired on June 30, 1995 together with the assets of Herr's Motor Express,
Inc., a Pennsylvania based regional truckload carrier, specializing in the
transportation of dry goods. Herr's Motor Express has since been merged into
Blue Mack.
As of June 30, 1996, Continental American Transportation, Inc.
maintained a fleet of 733 tractors and 1,645 trailers, together with 18
terminals throughout the United States.
The Company is headquartered in Calhoun, Georgia, and has 1,035
full-time employees system-wide.
2
Financial Highlights
June 30, 1996 ProForma*
Operations Data
Operating revenue $36,801,423 $97,131,514
Net loss (673,214) (2,160,760)
Net loss per share $(.21) $(.67)
Weighted average common
shares outstanding 3,228,717 3,228,717
Balance Sheet Data
Total assets $79,477,950
Total long-term debt 45,440,200
Total liabilities 73,002,363
Total stockholders'
equity 6,475,587
* Pro forma numbers take into account Carpet Transport, Inc. (CTI) and its
affiliated companies' operations for the entire fiscal 1996 (as if CTI had
been acquired at the beginning of fiscal 1996 instead as of February 29,
1996).
1
To Our Stockholders:
Continental American Transportation's fiscal year was highlighted by
enormous growth through acquisitions from no revenues in fiscal 1995 to revenues
of $36.8 million in fiscal 1996.
Just at the close of the last fiscal year, on June 30, 1995, your
Company acquired Blue Mack transport, Inc. (a Pennsylvania-based truckload
carrier specializing in the transportation of frozen and dry food) and the
assets of Herr's Motor Express, Inc. (a Pennsylvania-based regional truckload
carrier specializing in the transportation of dry goods).
Carpet Transport, Inc. (CTI) was by far our largest acquisition and
took place in April of 1996 with an effective date of February 29, 1996. This
acquisition included two affiliated companies, A&P Transportation, Inc. and
Chase Brokerage, Inc. CTI and A&P are the trucking industry's premier carriers
of textile products, operating 750 late-model tractors and 1,500 late-model
trailers through 17 terminals nationwide. Chase is engaged in the common carrier
brokerage and logistics business.
We are currently reviewing several additional acquisition candidates
considered synergistic to our near and long-term growth plans. In this respect,
we have signed a Letter of Intent to merge with Country Wide Transport Services,
Inc. (a California-based nationwide truckload carrier of temperature controlled
commodities and its New York-based freight brokerage and complete logistics
services subsidiary, Vertex Transportation, Inc.)
To improve operating efficiencies and customer service, we relocated
our corporate headquarters to Calhoun, Georgia. This state-of-the-art trucking
facility was obtained as part of our CTI acquisition. It is a showpiece site,
more centrally located for our business activities, and a large part of our
staff was already in place in Calhoun.
The acquisitions brought with them a change in management. On June 21,
1995, Timothy Holstein became President, Chief Executive Officer and a Director
of the Company; and Erik Bailey became Vice President, Chief Financial Officer
and a Director. Prior to joining the Company, Timothy Holstein was the majority
owner of Blue Mack Transport, a private trucking company which he founded in
1986. Erik Bailey was the Chief Financial Officer of Blue Mack Transport. He was
also a consultant to several private and public companies with respect to merger
and acquisition analysis.
Revenues for the year ended June 30, 1996 were $36,801,000 and the net
loss amount to $673,000 or $.21 per share. This compares to no revenues for the
prior year and a net loss of $171,000 or $.21 per share. Fiscal 1996 results
include the year-long operations of Blue Mack Transport and Herr's Motor
Express, however, only four months of Carpet Transport, Inc. Therefore, if
taking into account CTI's operations for the entire year, the results for fiscal
1996 on a pro forma basis would include revenues of $97,132,000 and a net loss
of $1,161,000 or $.67 per share.
Revenues were mainly derived from our carrier operations and, to a
lesser degree, from the freight brokerage business.
We embarked on a cost reduction program subsequent to the CTI acquisition,
2
which management believes will decrease operating expenses without affecting
service to our customers. In addition, we are focusing on the improvement of our
information systems, operational procedures as well as equipment utilization.
At June 30, 1996, we operated a fleet of 733 tractors, 264 refrigerated
trailers and 1,381 dry van trailers. Management concentrates on acquiring
premium tractors to assist in the hiring and retention of qualified drivers, to
promote safety, and to minimize maintenance and repair costs. Our fleet is
relatively new and we will replace existing equipment every 36 months. We have a
comprehensive maintenance program at our headquarters facility with the goal of
minimizing down time.
To better serve our customers, we have a network of 18 regional
terminals and offices strategically located throughout the United States. This
allows us to respond more quickly to the customers' ever changing distribution
requirements.
Your Company maintains a strong commitment to customer relations and
marketing. We assign a member of our management team to each of the largest
customers in order to provide the maximum amount of support. We continue to
target large carpet manufacturers which our CTI subsidiary has been serving for
over twenty years and has been able to retain as customers based on excellent
service, timely deliveries, and the availability of specialized Company-owned
equipment. We will continue to rely on these well-established service and
equipment priorities in order to expand our market share in the carpet
manufacturing industry.
During the second quarter, your Board of Directors declared a 3% stock
dividend in appreciation of our stockholders' support. The dividend represented
the most immediate way to provide a reasonable return to our stockholders, since
we felt that the stock price at the time did not reflect the true value of the
Company.
In April we announced our intent to purchase up to 250,000 shares of
the Company's common stock on the open market over the next 12 months. Through
this stock buy-back we are demonstrating our faith in the future of your
Company.
Management is looking forward to the complete integration and resulting
synergies of the various acquisitions. We will focus on our cost reduction
programs initiated in May of 1996, as well as on the greater utilization of our
equipment. The infusion of new tractors and the implementation of a modern
management information system in the near future are all part of the ingredients
needed to meet our planned goals for the coming year.
Sincerely,
Timothy Holstein
Chairman, President and
Chief Executive Officer
3
Item 6: Management's Discussion and Analysis or Plan
of Operation
(a) Plan of Operation.*
The Company's plan of operation for the fiscal year ending June 30,
1997, includes a plan to refinance its debt encumbering its revenue generating
equipment, raising $25 to $30 million of long-term debt (5-year term) to
restructure its balance sheet and to provide capital for future acquisitions as
well as to provide the financing for the purchase of 300 tractors to expand and
replace the Company's existing fleet. The Company is in discussions with various
underwriters in an attempt to structure an offering of its debt securities
pursuant to the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"). If the Company is successful in reducing its
financing and interest costs, the Company will be able to utilize these savings
to better meet its current cash requirements. In addition, the Company
anticipates restructuring its existing liabilities encumbering its revenue
equipment. Absent the consummation of the planned refinancing of its revenue
generating equipment, the Company will be obligated to meet its future cash
needs through offerings of its equity or debt securities under the Securities
Act or pursuant to offerings exempt from the registration requirements thereof.
The Company has signed a purchase order for 300 Freightliner Tractors
for unit prices ranging from $74,200 to $76,100, per tractor. Assuming the
successful completion of this equipment transaction, delivery of these units is
scheduled to occur throughout the 1996-1997 fiscal year.
* May contain "forward-looking statements".
4
The Company has executed a Letter of Intent with Country Wide Transport
Services, Inc., a California-based truckload carrier ("Country Wide") which
includes it subsidiary, a New York-based freight brokerage and logistics concern
("Vertex"), pursuant to the general terms of which Country Wide will merge with
and into a wholly owned subsidiary of the Company pursuant to (I) a share
exchange on the basis of 1 Company Common share for 5 Country Wide common shares
held of record and (ii) the issuance to Country Wide common shareholders of 1
Company warrant to purchase 1 Company common share at the exercise price of
$4.25 per share for each 20 Country Wide common shares held of record. The
Letter of Intent is subject to various conditions, including but not limited to
the parties executing and delivering a definitive agreement and bilateral due
diligence reviews. In the event that the proposed transactions are consummated,
the Company will have a substantial operations center in Corona, California,
and; significant customer business going from the west coast eastward that the
Company anticipates will translate into a more efficient utilization of its
revenue equipment which currently at times either returns eastward from delivery
points on the west coast without sufficient cargo, or on a "dead Head" basis, or
which may remain at some western location for extended periods of time before
freight can be located and shipped eastward. The Company also anticipates
increased utilization of the Country Wide fleet by providing greater revenue
producing shipments from the southeast to the west coast. In addition, the
Company anticipates improvement in the utilization of its revenue equipment on
shipments originating from the Northeast through the use of Vertex's customer
base.
5
(b) Management's Discussion and Analysis of Financial
Condition and Results of Operations
Introduction
The financial statements of the Company for the fiscal year ended June
30, 1996, include the financial results of its recently acquired companies,
Carpet Transport, Inc. ("CTI"), A&P Transportation, Inc. ("A&P") and Chase
Brokerage, Inc. ("Chase") (collectively, the "CTI Companies") for the last four
months of the fiscal year ended June 30, 1996. Prior to March 1, 1996, the
Company's financial statements reflect only the financial condition and results
of operations of its sole operating subsidiary, Blue Mack Transport, Inc. ("Blue
Mack"), acquired by the Company through a reverse merger acquisition on June 21,
1995, with an effective date of June 30, 1995. Accordingly, these recent Company
acquisitions do not permit a meaningful period to period comparison. Prior to
its acquisition of Blue Mack, the Company had no significant operating
businesses nor did it own any significant assets.
From June 30, 1995 to June 30, 1996, the Company's gross revenues grew
from $0 to $36,801,423, while the net loss increased from $171,196 to $673,214
during the same period. From June 30, 1995 to June 30, 1996, the Company's total
assets increased from $7,096,735 to $79,477,950, while shareholder's equity
improved from $2,587,089 to $6,475,587 during this same period. These results
are primarily attributable to the fact that the Company did not own any
operating companies until its acquisition of Blue Mack and certain assets of
Herr's Motor Express, Inc., effective June 30, 1995, and its subsequent
acquisition of the CTI Companies on April 4, 1996, effective as of February 29,
1996. As a result, a comprehensive comparative analysis would not be meaningful.
The Company's revenues were chiefly derived from its carrier operations
and, to a lesser degree, from its freight brokerage business. The increase in
revenue and asset growth was due primarily to the Company's acquisition of the
CTI Companies. At June 30, 1995, the Company operated a fleet comprised of 128
tractors, 76 refrigerated trailers and 463 dry van trailers. At June 30, 1996,
the Company operated a fleet comprised of 733 tractors, 264 refrigerated
trailers, and 1,381 dry van trailers.
6
Results of Operations
The following table sets forth the percentage relationships of expense
items to operating revenues for the periods indicated:
Year ended June 30, 1996
Revenue Percentage
Operating revenue......................... $36,801,423 100.00%
Operating expenses:
Purchased transportation.................. 3,180,456 8.64%
Salaries and benefits.....................10,920,292 29.67%
Operating expenses........................13,541,344 36.80%
Operating taxes and licenses.............. 333,684 .91$
Claims and insurance...................... 1,654,116 4.49%
Communications and utilities.............. 734,887 2.00%
General and administrative................ 2,422,063 6.58%
(Gain)/Loss on sale of equipment.......... (189,934) ( .52)%
Depreciation and amortization............. 4,568,109 12.41%
Total operating expenses............ 37,165,017 100.99%
(Loss) from operations................... (363,954) ( .99)%
Total other income (expense)............. (787,375) (2.14)%
(Loss) before income taxes............... (1,150,969) (3.13)%
(Provision for) Benefit from
income taxes........................ 477,755 1.30%
Net income (loss)........................ $(673,214) (1.83)%
Fiscal 1996
The Company's operating revenues on a consolidated basis were
$36,801,423 in 1996. The Company recognized revenue for twelve months from its
subsidiary, Blue Mack, of $10,258,378, and a net loss of $272,291. The
acquisition of the CTI Companies on April 4, 1996, effective as of February 29,
1996, accounted for a significant increase in revenues. The Company recognized
revenue for four months from its subsidiary, Carpet Transport Holdings Corp.
(the "CTI Companies"), of $27,772,736, and net income of $1,512,302, prior to
eliminations and adjustments for intercompany revenues and expenses. During this
period, CTI recorded revenue of $21,959,597, and
7
net income of $1,424,765, A&P recorded revenue of $2,860,198, and a net loss of
$123,327, and Chase recorded revenue of $2,952,941, and net income of $210,864.
During this period, management of the Company, merged A&P into CTI in order to
eliminate redundant personnel and administrative functions, reduce insurance
costs, and improve revenue equipment utilization. The Company expects annual
savings and benefits in excess of $800,000 from this internal merger.* As a
result, A&P shall be reported as a discontinued operation, effective May 1,
1996.
The Company embarked on a cost cutting program during the last three
months of fiscal 1996 which management believes will decrease operating expenses
without affecting service to its customers. As a result of the cost cutting
program, 75 administrative, maintenance, and terminal positions were eliminated
from which the Company expects to realize annual savings of approximately
$1,950,000.*
The Company anticipates improved operating results emanating from these
cost cutting initiatives. If, however, fuel prices continue to escalate and
excess capacity in the transportation industry continues, it could cause the
continuation of competitive pressures that could adversely affect equipment
utilization and revenue per mile.*
* May contain "forward-looking statements".
8
Liquidity and Capital Resources.
The growth of the Company's business has required a significant
investment in new revenue equipment. The Company's primary source of liquidity
has been funds provided by operations, term borrowings to finance equipment
purchases and from capital raised through the private placements of the
Company's securities. Net cash used in operating activities totaled
approximately negative $1,369,859 for the year ended June 30, 1996.
Capital expenditures for the purchase of revenue equipment, office
equipment and leasehold improvements totaled $26,719 for the year ended June 30,
1996. The Company realized $1,519,963 in proceeds from the sale of property and
equipment for the year ended June 30, 1996. Net cash provided by investing
activities totaled approximately $431,443 for the year ended June 30, 1996. The
Company projects that capital expenditures for property and equipment, will be
approximately $24.5 million for the fiscal year ending June 30, 1997, to be used
primarily to acquire new revenue equipment to expand and replace the Company's
fleet, to upgrade existing facilities, and to make several technological
advancements of the Company's operational and administrative facilities.*
Net cash used in financing activities amounted to $2,278,975 for the
year ended June 30, 1996. The Company's financing activities were primarily the
result of increasing debt, to finance the operational losses, purchase the CTI
Companies, and provide for the growth of the Blue Mack subsidiary. At June 30,
1996, the Company's equipment-related long-term debt totaled $47,242,848 million
and matures in installments over various periods through 2001.
The Company maintains a $5,000,000 line of credit to finance working
capital for its CTI operation. In addition, the Company has a separate $500,000
line of credit to finance working capital for its Blue Mack operation. As of
June 30, 1996, the Company had borrowed $4,834,378 against these two lines of
credit.
The Company has adequate liquidity to meet its current needs. While the
current ratio of the Company is .59, and the debt to equity is 8.87%, the
Company believes that through the refinancing of its revenue equipment debt,
proceeds from the sale of equipment, and a private placement of long-term debt
(5-year notes) of the Company's securities, the Company will be able to meet its
short-term obligations.* Due to the capital intensive nature of the trucking
industry with respect to purchasing revenue equipment, the Company will continue
to have significant capital requirements over the long term, which shall require
the Company to incur additional debt.* If the Company is unable to refinance its
existing equipment debt, finance new revenue equipment, or complete the
aforementioned private placement, the Company may seek to raise additional
equity capital.* The availability of this capital will depend upon prevailing
market conditions,, the market price of the
9
common stock and other factors over which the Company has no control, as well as
the Company's financial condition and results of operations.*
* May contain "forward-looking statements".
10
Seasonality.
In the transportation industry, results of operations generally show a
seasonal pattern as customers reduce shipments during and after the winter
holiday season. The Company's operating expenses also tend to increase in the
winter months primarily due to increased operating costs in colder weather and
higher fuel consumption due to increased idle time.
Inflation.
Many of the Company's operating expenses, including fuel costs and fuel
taxes, are sensitive to the effects of inflation, which could result in higher
operating costs. The effects of inflation on the Company's business during 1996
and 1995 generally were not significant.
11
Continental American Transportation, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 1996
Assets
Current Assets
Cash and cash equivalents $ 640,079
Restricted cash 700,000
Trade accounts receivable, net of allowance for
doubtful accounts of $924,958 11,120,874
Installments notes receivable - current portion 695,087
Inventories 335,612
Other current assets 2,161,918
Deferred income tax benefit - current portion 677,059
---------------
Total Current Assets 16,330,629
---------------
Property, plant and equipment 57,008,832
---------------
Other Assets
Note receivable - related party 450,000
Installment notes receivable, excluding
current portion 435,306
Excess of purchase price over fair value
of net assets acquired, net 4,535,564
Other assets 540,232
Deferred income tax benefits - noncurrent portion 177,387
---------------
Total Other Assets 6,138,489
---------------
Total Assets 79,477,950
===============
Liabilities and Stockholders' Equity
Current Liabilities
Lines of credit 4,834,378
Current maturities of long-term debt 3,822,762
Current maturities of capital lease obligations 10,768,645
Accounts payable 5,417,982
Accrued expenses 2,146,138
Income taxes payable 572,258
---------------
Total Current Liabilities 27,562,163
Long-Term Debt, excluding current maturities 17,364,622
Capital Lease Obligations, excluding current maturities 28,075,578
---------------
Total Liabilities 73,002,363
---------------
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, 4,407,544 shares issued,
4,377,544 shares outstanding 8,428,106
Retained earnings (deficit) (1,617,848)
Demand notes receivable from exercise of stock
options and warrants (233,890)
Treasury stock, 30,000 shares, at cost (100,781)
---------------
Total Stockholders' Equity 6,475,587
---------------
Total Liabilities and Stockholders' Equity $ 79,477,950
===============
See notes to the consolidated financial statements.
12
Continental American Transportation, Inc. and Subsidiaries
Consolidated Statements of Operations
Year Ended June 30,
-----------------------------------
1996 1995
--------------- ---------------
Operating Revenues $ 36,801,423 $ -
--------------- ---------------
Operating Expenses
Salaries and benefits 10,920,292 -
Purchased transportation 3,180,456 -
Operating supplies and expenses 13,541,344 -
Depreciation and amortization 4,568,109 -
Claims and insurance 1,654,116 -
Operating taxes and licenses 333,684 -
Communications and utilities 734,887 -
General and administrative 2,422,063 171,196
Net gain on disposal of equipment (189,934) -
--------------- ---------------
Total Operating Expenses 37,165,017 171,196
--------------- ---------------
(Loss) from operations (363,594) (171,196)
--------------- ---------------
Other Income (Expenses)
Interest and other income 828,743 -
Interest expense (500,920) -
Interest expense - TRAC leases (1,115,198) -
--------------- ---------------
Total Other Income (Expense) (787,375) -
--------------- ---------------
(Loss) Before Income Taxes (1,150,969) (171,196)
Benefit from income taxes 477,755 -
--------------- ---------------
Net (Loss) (673,214) (171,196)
=============== ===============
Net (Loss) Per Share $ (.21) $ (.21)
=============== ===============
Weighted Average Common Shares Outstanding 3,228,717 825,668
=============== ===============
See notes to the consolidated financial statements.
13
Consolidated Statement of Changes in Stockholders' Equity
Demand
Notes
Receivable
Common Stock Exercise Of
------------------------ Stock
Retained Options Demand Notes
Number of Earnings Treasury and Receivable From Sale
Shares Amount (Deficit) Stock Warrants of Stock
------------ ---------- --------------- ---------- ---------- -------------------
Balance at June 30, 1994 20,100,000 $ 384,620 $ (488,559) $ - $ - $ -
Issuance of shares to relat-
ed party creditor of
Blue Mack Transport, Inc. 750,000 52,000 - - - -
Reverse stock split
1 for 25 shares (20,015,990) - - - - -
Exchange of shares to acquire
100% of Buckhead Trans-
port, Inc. and Subsidiary 1,075,000 17,266 - - - -
Exchange of shares to
acquire 100% of HMX, Inc. 50,000 208,000 - - - -
Issuance of shares relating to
acquisition of Herr's Motor
Express, Inc. Fixed assets 150,000 1,529,958 - - - -
Exercise of stock options 120,000 206,250 - - (206,250) -
Net loss, year ended
June 30, 1995 - - (171,196) - - -
------------ ---------- --------------- ---------- ---------- -------------------
Balance at June 30, 1995 2,229,010 2,398,094 (659,755) - (206,250) -
Prior period adjustments - - 66,010 - - -
------------ ---------- --------------- ---------- ---------- -------------------
Balance at June 30, 1995,
as adjusted 2,229,010 2,398,094 (593,745) - (206,250) -
Issuance of common stock
to various shareholders 801,937 1,642,023 - - (125,000) (1,200,000)
Cancellation of various
shareholders'common stock (136,460) - - - - -
Payments received on de-
mand notes receivable
from exercise of stock
options - - - - 193,750 -
Exercise of stock options 44,000 100,000 - - (60,000) -
Exercise of stock warrants 160,000 400,000 - - (36,390) -
Issuance of preferred
stock, Series A - - - - - -
Conversion of preferred
stock, Series A&B 635,757 1,755,000 - - - -
Issuance of common stock
to employees 30,000 182,100 - - - -
Issuance for common stock
relating to acquisition
of CTI,A&P and Chase 500,000 1,500,000 - - - 1,200,000
Issuance of 3% common
stock divided 100,254 350,889 (350,889) - - -
Conversion of a convert-
ible promissory note 43,046 100,000 - - - -
Acquisition of 30,000
shares of treasury stock - - - (100,781) - -
Net loss, year ended
June 30, 1996 - - (673,214) - - -
----------- ---------- ------------- ---------- ---------- -------------------
Balance at June 30, 1996 4,407,544 $ 8,428,106 $ (1,617,848) $ (100,781) $ (233,890) $ -
=========== ========== ============= ========== ========== ===================
See notes to the consolidated financial statements.
14
Continental American Transportation, Inc. and Subsidiaries
Consolidated Statements 1f Cash Flows
Year Ended June 30,
-----------------------------------
1996 1995
--------------- ---------------
Cash Flows From Operating Activities:
Net (Loss) $ (673,214) $ (171,196)
--------------- ---------------
Adjustments to Reconcile Net Income to Net Cash (Used in) Operating
Activities
Depreciation and amortization 4,568,109 -
Gain on sale of equipment (189,934) -
Deferred income taxes (477,755) -
Increase in accounts receivable and other assets (7,374,579) -
Increase in accounts payable and other liabilities 2,826,627 32,000
Increase in taxes payable (49,113) -
--------------- ---------------
Total Adjustments (696,645) 32,000
--------------- ---------------
Net Cash (Used in) Operating Activities (1,369,859) (139,196)
--------------- ---------------
Cash Flows From Investing Activities:
Cash received in purchase of subsidiaries 324,285 480
Cash paid in purchase of subsidiaries (1,300,000) -
Principal payments received on notes receivable 310,476 -
Proceeds from sale of property and equipment 1,519,963 -
Purchases of equipment 26,719 -
Loans made to related party (450,000) -
--------------- ---------------
Net Cash Provided by (Used in) Investing Activities 431,443 480
--------------- ---------------
Cash Flows From Financing Activities:
Proceeds from new borrowings 6,486,581 139,196
Principal payments on notes payable (1,739,104) -
Principal payments on obligations under capital leases (3,568,502) -
Proceeds from issuance of preferred and common stock 1,100,000 -
--------------- ---------------
Net Cash Provided by Financing Activities 2,278,975 139,196
--------------- ---------------
Net Increase in Cash and Cash Equivalents, Including Restricted Cash 1,340,559 480
Cash and Cash Equivalents, Including Restricted Cash - Beginning of Year 480 -
--------------- ---------------
Cash and Cash Equivalents, Including Restricted Cash - End of Year $ 1,340,079 $ 480
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 1,616,118 $ -
Income taxes $ 225,100 $ -
See notes to the consolidated financial statements.
15
Continental American Transportation, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
The Company acquired equipment aggregating $267,767 and $0 in satisfaction of
defaulted notes receivable for the years ended June 30, 1996 and 1995,
respectively.
On February 29, 1996, the Company purchased CTI, A&P and Chase. In
connection with the acquisition, the Company assumed long-term
debt and issued notes payable and common stock, and paid cash.
Fair value of assets acquired $ 75,644,048
Long-term debt assumed (58,654,048)
Notes payable issued (14,190,000)
Fair value of common stock issued (1,500,000)
---------------
Cash Paid $ 1,300,000
===============
On June 30, 1995, the Company purchased Buckhead Transport, Inc. and its wholly
owned subsidiary, Blue Mack Transport, Inc. In connection with the acquisition,
the Company assumed long-term debt and issued preferred and common stock.
Fair Value of assets acquired $ 3,031,185
Liabilities assumed (2,251,634)
---------------
Fair value of assets in excess of liabilities
assumed 779,551
Fair value of preferred stock - Series A,
Series B, and common stock
issued to shareholders of Buckhead Transport, Inc. (779,551)
---------------
$ -
===============
On June 30, 1995, the Company acquired property and equipment. In conjunction
with the acquisition, the Company assumed long-term debt, issued notes payable
and issued common stock.
Fair value of property and equipment acquired $ 3,841,525
Long-term debt assumed (1,103,567)
Notes payable issued (1,208,000)
Fair value of common stock issued (1,529,958)
---------------
$ -
===============
See notes to the consolidated financial statements.
16
Continental American Transportation, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
SUMMARY OF ACCOUNTING POLICIES
Nature of Organization
Continental American Transportation, Inc. (CAT) (the
Company), was incorporated in the State of Colorado in 1983. The Company is
engaged, through its wholly owned subsidiaries consisting of Blue Mack
Transport, Inc. (Blue Mack), HMX, Inc. (HMX), Carpet Transport, Inc. (CTI)
and A&P Transportation, Inc. (A&P), in the transportation industry as a
full truckload carrier operating throughout the contiguous United States.
The Company is also engaged in the common carrier freight brokerage and
logistics business through its wholly owned subsidiary, Chase Brokerage,
Inc.
Principles of Consolidation
The accompanying consolidated financial statements
include the accounts of CAT and those of its wholly owned subsidiaries as
of and from the effective date of their acquisition. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Cash and Equivalents
The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
Credit Risk
The Company maintains cash balances in numerous financial
institutions. Amounts at each institution are insured by the Federal
Deposit Insurance Corporation up to $100,000. At June 30, 1996, the
Companys uninsured cash balances total $402,903.
The Company extends credit in the form of equipment financing notes and trade
accounts receivable. Such amounts due the Company are subject to ongoing
credit evaluations and allowances are maintained for doubtful accounts
based on factors surrounding the credit risk of specific obligations,
adequacy of collateral and other pertinent information.
Inventories
Inventories for transportation operations, consisting primarily of
spare and replacement parts and supplies, are valued at the lower of cost
(first-in, first-out) or market.
Property and Equipment
Depreciation and amortization are provided for in amounts
sufficient to relate the cost of depreciable assets to operations over
their estimated service lives. Leased property under capital leases is
amortized over the lives of the respective leases or over the service lives
of the assets for those leases which substantially transfer ownership. The
straight-line method of depreciation is followed for all assets for
financial reporting purposes, but accelerated methods are used for tax
purposes.
Tires on new revenue equipment are capitalized as a component of the
related equipment. The cost of replacement tires is expensed as incurred.
Maintenance and repairs are charged to operations currently; replacements
and improvements are capitalized in the property and equipment accounts.
Intangible Assets
Intangible assets primarily represent the excess of the
purchase price of acquired companies over the fair value of the assets
acquired. Such excess costs are being amortized on a straight-line basis
over 15 to 40 years.
The realizability of such intangible assets is evaluated periodically as
events or circumstances indicate a possible inability to recover their
carrying value. Such evaluation, which necessarily involves significant
management 46 judgment, is based upon the estimated economic benefit to be
derived in future periods as a result of such acquisitions.
17
Continental American Transportation, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
SUMMARY OF ACCOUNTING POLICIES, Continued
Income Taxes The Company and its wholly-owned subsidiaries file consolidated
Federal corporation income tax returns.
The Company accounts for income taxes in accordance with Statement of
Financial Standards No. 109, Accounting for Income Taxes which
requires the use of the liability method of accounting for income
taxes. Accordingly, deferred tax liabilities and assets are determined
based on the difference between the financial statement and tax bases
of assets and liabilities, using enacted tax rates for the year in
which the differences are expected to reverse.
Claims and Insurance Accruals
The Company provides for the estimated
cost of claims incurred but not paid for which it retains a portion of
the risk under workmens compensation, health care, liability and
property damage programs.
Earnings Per Share
Earnings per share amounts are based on the
weighted average number of shares outstanding. Prior years have been
restated giving effect to a reverse stock split of 1 to 25 shares
which occurred as of June 30, 1995.
Primary and fully diluted earnings per share are the same. Common
share equivalents are not considered in computing earnings per share
as such inclusion would have an anti-dilutive effect.
Revenue Recognition Revenues consist principally of freight revenues.
Freight revenues are recognized as earned when freight is received from the
shipper. Estimated costs, consisting of all direct costs necessary to complete
delivery, are accrued at the end of each reporting period. This method is not
materially different from either recognizing all revenues and expenses at time
of delivery or recognizing revenues and expenses on a pro rata basis.
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 of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Accounting for Long-Lived Assets.
The Company has considered Financial Accounting Standards No. 121
Accounting for the Impairment of Long-Lived Assets which requires the Company
to compare the net carrying value of long-lived assets to the related estimates
of future cash flows, and other criteria, to determine if impairment has
occurred. The Company has determined that no such impairment has occurred and,
accordingly, the adoption of SFAS No. 121 has no effect on its financial
statements.
18
Continental American Transportation, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
BUSINESS ACQUISITIONS
Blue Mack and HMX
On June 30, 1995, the Company acquired Buckhead Transport, Inc.
(Buckhead) and its wholly-owned subsidiary, Blue Mack. Buckhead was
incorporated on April 14, 1994 and formed specifically to acquire Blue
Mack, a nationwide common carrier. On November 1, 1994, Buckhead
entered into a stock exchange agreement with Blue Mack whereby the
Blue Mack shareholder exchanged all his Blue Mack common shares for
1,000,000 common shares of Buckhead and $800,000 principal amount of
Buckhead preferred shares. Pursuant to the agreement, certain property
and equipment with a net book value of $285,257 as well as the
corresponding debt on such property and equipment in the amount of
$242,089 was excluded from the transaction and retained by the seller.
The Company exchanged 1,075,000 common shares, 800,000 Series A
preferred shares and 255,000 Series B preferred shares for all of the
issued and outstanding common and preferred stock of Buckhead in a
business combination accounted for as a purchase. Subsequent to the
business combination, Buckhead was dissolved and Blue Mack became a
direct subsidiary of the Company.
The purchase price of $779,551 equaled the fair value of the identifiable
assets acquired and liabilities assumed and therefore there was no excess of the
cost of the acquired company over the sum of amounts assigned to identifiable
assets and liabilities.
The results of operations of Blue Mack and HMX are not included in the
accompanying financial statements effective July 1, 1994.
The following summarized pro forma information assumes the acquisition had
occurred on July 1, 1994:
Year Ended
June 30, 1995
------------------
Operating revenues $ 6,696,981
Net Income (Loss) $ (104,316)
(Loss) per share $ (.13)
Also on June 30, 1995, the Company acquired HMX, a vehicle service company,
through the exchange of 50,000 CAT common shares for all the outstanding stock
of HMX in a business combination accounted for as a purchase.
The purchase price of $208,000 was greater than the fair value of the
identifiable assets acquired and liabilities assumed and therefore the excess of
the cost of the acquired company over the sum of amounts assigned to
identifiable assets and liabilities of $208,000 will be amortized over a life of
15 years.
19
Continental American Transportation, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
BUSINESS ACQUISITIONS, Continued
CTI, A&P and Chase
On April 4, 1996 CAT purchased all the issued and outstanding common stock
of CTI, A&P and Chase from their two stockholders effective as of February 29,
1996. CTI and A&P are nationwide common carriers, while Chase is engaged in the
common carrier freight broker and logistics business. This transaction was
accounted for as a business combination using the purchase method of accounting.
The total consideration was comprised thusly:
Cash payments $ 1,300,000
Non interest bearing unsecured demand promissory note to a former
shareholder 4,080,000
Non interest bearing unsecured demand promissory note to a former
shareholder 2,820,000
Promissory note due March 1, 2001 secured by a pledge of all common
shares of CTI Properties, Inc. (a wholly owned subsidiary of CAT
formed incidental to the above described transaction which owns real
property formerly owned by CTI) and bearing interest at 8% per
annum, payable monthly 7,290,000
Issuance to a former shareholder of 500,000 CAT common shares with
a
fair market value at date of issuance of $3 per share 1,500,000
Transfer of certain CTI, A&P and Chase assets, consisting primarily of
cash surrender value of certain life insurance policies, notes and
loans receivable and an aircraft to former shareholders 1,448,854
Payment of a finders fee amounting to $910,000 and a non-accountable
expense allowance of $290,000 by way of the issuance of 600,000
CAT common shares with a fair market value at the date that the
agreement was entered into of $2 per share (see Related Party
Transactions) 1,200,000
Capitalized acquisition costs consisting primarily of legal, accounting
and
other professional fees 479,167
------------------
$ 20,118,021
==================
On August 21, 1996 CAT and the former shareholders of CTI, A&P and Chase
entered into a Debt Restructure and Waiver Agreements whereby the parties agreed
that:
a. The $2,820,000 promissory note referred to above would bear
interest at 8% per annum and become due and payable on September 1,
1997.
b. The $4,080,000 promissory note referred to above (which had
been reduced to $2,005,000) would bear interest at 8% per annum and
become due and payable on September 1, 1997.
c. One-half (50%) of interest due on the $7,290,000 promissory note
referred to above would be payable on an annual basis to one former
shareholder in CAT common shares rather than monthly cash payments of
interest.
20
The purchase price of $20,118,021 exceeded the fair value of the
identifiable assets acquired and liabilities assumed and therefore the excess of
costs over the acquired companies over the sum of amounts assigned to
identifiable assets and liabilities of $4,437,876 will be amortized over a life
of 40 years.
21
Continental American Transportation, Inc. and Subsidiaries Notes to
the Consolidated Financial Statements
BUSINESS ACQUISITIONS, Continued
CTI, A&P and Chase
The results of operations of CTI, A&P and Chase are included in the
accompanying financial statements effective February 29, 1996.
The following summarized proforma information assumed the acquisition
occurred on July 1, 1994:
Year Ended Year Ended
June 30, 1996 June 30, 1995
------------------ -------------------
Operating revenues $ 86,752,507 $ 95,183,893
Net Income (Loss) $ (419,025) $ 1,415,789
Income (Loss) per share $ (.13) $ 1.71
For the year ended June 30, 1996 amortization of the excess cost of the
acquired companies (HMX, CTI, A&P and Chase) amounted to $110,312 and
accumulated amortization at June 30, 1996 amounted to $110,312.
ACQUISITION OF ASSETS
On June 30, 1995, the Company purchased revenue generating equipment
consisting of tractors and trailers with an aggregate value of $3,841,525 from
Herrs Motor Express, Inc. (Herrs). In exchange, the Company assumed the debt
associated with the equipment of $1,103,567, issued promissory notes amounting
to $1,000,000, assumed future payment for shareholder loans to Herrs of
$208,000 and issued 150,000 shares of the Companys common stock.
Details of promissory notes at June 30, 1996 are as follows:
Note payable, non-interest bearing, which was due August 28, 1995.
Subsequent to due date, interest shall accrue at 12% per annum on
the outstanding principal balance until paid. $ 164,927
Note payable, non-interest bearing, which was due September 11,
1995.
Subsequent to due date, interest shall accrue at 12% per annum on
the outstanding principal balance until paid. 104,000
---------------
$ 268,927
===============
As of October 11, 1996, the above obligations have not been paid by the
Company and payment has not been demanded by the payees.
RESTRICTED CASH
CTI has entered into an agreement with the Georgia State Board of Workmens
Compensation whereby CTI pays workers compensation claims as a self insurer.
The agreement is collateralized by certificates of deposit amounting to
$500,000. On July 17, 1996 such collateral was increased to $750,000 and CTIs
specific excess insurance self retention was reduced from $500,000 to $250,000
per occurrence.
Additionally at June 30, 1996, CTI had two certificates of deposit, each in
the amount of $100,000, collateralizing purchasing agreements with Com Data
Network and Harold Ives Trucking Company.
22
Continental American Transportation, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
INSTALLMENT NOTES RECEIVABLE
The Company finances the sale of revenue equipment to independent owner
operators. These notes require monthly payments of principal and interest over a
period ranging from twelve to forty-eight months with interest ranging
principally from 15% to 20% per annum. These notes mature on various dates
within the next five years. Title to such revenue equipment is retained by the
Company until the note is paid in full.
Total notes receivable $ 1,130,393
Less: current portion (695,087)
---------------
Long-Term Portion $ 435,306
===============
NOTE RECEIVABLE - RELATED PARTY
On May 23, 1996 CTI granted to Bio-Dyne Corporation, a two year unsecured
revolving credit facility in the maximum aggregate principal amount of
$1,000,000 with interest to be computed at the rate of twelve percent (12%) on
outstanding principal balances, payable quarterly. CTI is obligated to advance
funds five business days after a request is made by the borrower, which advances
amounted to $450,000 at June 30, 1996. Incidental to the execution of this
agreement, three directors of CTI were elected to Bio-Dyne Corporations five
member board of directors and these three same individuals were appointed
officers thereof.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including assets under capital leases,
consist of the following:
Land $ 3,045,000
Buildings 2,928,713
Leasehold improvements 2,320,505
Revenue equipment 76,298,418
Other operating equipment 1,287,122
Shop, furniture and office equipment 1,180,245
---------------
Total 87,060,003
Accumulated depreciation and amortization 30,051,171
---------------
Net Book Value $ 57,008,832
===============
Depreciatin charged to expense for the years ended June 30, 1996 and June
30, 1995 was $2,843,704 and $0, respectively.
LINES OF CREDIT
On April 8, 1996, CTI, A&P and Chase entered into a revolving credit
agreement, as to which CAT and two of its officers are guarantors. The credit
facility provides for advances not to exceed 80% of qualified accounts
receivable to a maximum amount of $5,000,000. This obligation is collateralized
by a security interest in all accounts receivable of CTI, A&P and Chase.
Interest is calculated based upon prime rate as defined in the agreement plus
4.75%. Additionally, CTI, A&P and Chase are assessed certain administrative and
service fees by the lender. At June 30, 1996, borrowings under the above credit
facility amounted to $4,384,625.
23
Continental American Transportation, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
LINES OF CREDIT, Continued
On May 6, 1996, Blue Mack entered into a revolving credit agreement as to
which CAT and two of its officers are guarantors. The credit facility provides
for advances not to exceed 80% of qualified accounts receivable up to a maximum
amount of $500,000. This obligation is collateralized by a security interestin
all accounts receivable of Blue Mack. Interest is calculated based upon prime
rate as defined in the agreement plus 2.5%. Additionally, Blue Mack is
assessed certain administrative and service fees by the lender. At
June 30, 1996, borrowings under the above credit facility amounted to
$449,753.
LONG-TERM DEBT
Long-term debt consists of the following:
Convertible promissory notes bearing interest at 10% per annum with
scheduled maturities in 1999. The notes are convertible into common
stock of the Company at a conversion price of either 20% less than the
days prior to conversion or 120% of the closing average bid price of
the Companys shares for the five trading days prior to issuance .
Interest is payable to the noteholder only if the note has been held
one calendar year. If any of the notes are converted prior to one year
from the date of issuance, the Company is not obligated to pay
interest on the note. As of June 30, 1996, $2,120,000 of notes were
issued with $100,000 having been converted into 43,046 shares of
common stock $ 2,020,000
Promissory note payable due August 28, 1995 (see
Acquisition of Assets) 164,927
Promissory note payable due September 11, 1995 (see Acquisition of Assets). 104,000
Note payable to a former shareholder of CTI, A&P and Chase (see Business
Acquisitions). 2,495,000
Note payable to a former shareholder of CTI, A&P and Chase (see Business
Acquisitions). 3,755,000
Various notes payable to financial institutions and other credit providers with
combined monthly payments of $166,051 including interest at rates ranging
principally from 7.5% to 14% per annum. These notes mature from
September, 1996 through April, 2001 and are collateralized by specific
equipment having a net book value of $7,223,630. 5,069,165
Note payable to the former shareholders of CTI, A&P and Chase. (see Business
Acquisitions). 7,290,000
Unsecured non-interest bearing demand notes payable to related parties 289,292
---------------
21,187,384
Less: current maturities 3,822,762
---------------
Long-Term Debt, Net of Current Maturities $ 17,364,622
===============
24
Continental American Transportation, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
LONG-TERM DEBT, Continued
Total maturities of long-term debt are as follows:
Year Ending June 30,
1997 $ 3,822,762
1998 6,719,067
1999 2,620,287
2000 571,495
2001 7,453,773
---------------
$ 21,187,384
===============
CAPITALIZED LEASE OBLIGATIONS
Leases meeting certain criteria are considered capital leases and the
related asset and lease obligations are recorded at their present value in the
financial statements. The interest rates of capital leases range from
incremental borrowing rate at the inception date of the lease or the lessors
implicit rate of return. Minimum future obligations on all capital leases in
effect as of June 30, 1996 are as follows:
Year Ending June 30,
1997 $ 13,290,336
1998 16,416,253
1999 10,054,800
2000 6,502,326
2001 846,823
Thereafter 2,240,361
---------------
Net Minimum Lease Payments 49,350,899
Less: Amount representing interest 10,506,676
---------------
Present Value of Net Minimum Lease Payments 38,844,223
Current maturities of capital lease obligations 10,768,645
---------------
Total Long-Term Lease Obligation $ 28,075,578
===============
Following is a summary of property held under capital leases included in
property, plant and equipment:
Office Equipment $ 214,702
Revenue Equipment 58,644,106
---------------
Subtotal 58,858,808
Less: Accumulated Amortization (19,951,268)
---------------
$ 38,907,540
===============
Amortization on assets under capital leases charged to expense for the
years ended June 30, 1996 and 1995 was $1,724,405 and $0, respectively.
25
Continental American Transportation, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
OPERATING LEASES
The Company leases warehouse terminal facilities and equipment in various
states under noncancelable operating leases with lease terms ranging from two to
five years. Certain of these leases have specific options, or if no renewal
option, certain of these leases give the Company a right of first refusal to
renegotiate the lease terms. Total rent expense for the year ended June 30, 1996
and 1995 amounted to $309,429 and $0, respectively.
The following is a schedule of future minimum rental payments required
under operating leases that have initial or remaining non-cancelable lease terms
in excess of one year as of June 30, 1996.
Year Ending June 30,
1997 $ 1,421,383
1998 872,430
1999 540,299
2000 375,586
2001 119,762
---------------
Total $ 3,329,460
===============
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating fair value disclosures for financial instruments.
Cash and equivalents and restricted cash - the carrying amount reported in
the balance sheet approximates fair value.
Installment notes receivable - The carrying amount reported in the balance
sheet approximates fair market value inasmuch as such instruments both bear
interest rates and repayment terms consistent with the Companys present
financing practices and such terms are consistent with comparable equipment
financing transactions in the commercial marketplace.
Note receivable - related party - Given the proximity of this transaction
(May 23, 1996) to the balance sheet date, the carrying amount reported in the
balance sheet is believed to approximate fair value.
Lines of credit - Given the proximity of these transactions (April 8, 1996
and May 6, 1996) to the balance sheet date, the carrying amount reported in the
balance sheet is believed to approximate fair value.
Long-term debt
Convertible promissory notes - Given the proximity of this transaction
(March and April, 1996) to the balance sheet date, the carrying amount
reported in the balance sheet is believed to approximate fair value.
Notes payable to former shareholders of CTI, A&P and Chase - Given the
proximity of this transaction (April 4, 1996) to the balance sheet
date, the carrying amount reported in the balance sheet is believed to
approximate fair value.
Equipment notes - a reasonable estimate of fair value could not be
made without incurring excessive costs. Such obligations are carried
in the aggregate amount of $5,069,165, with interest rates ranging
from 7.5% to 14% and maturities from September, 1996 through April 1,
2001.
Capitalized lease obligations - A reasonable estimate of fair value
could not be made without incurring excessive costs. Such obligations
are carried in the aggregate amount of $38,844,223, with effective
interest rates of 5% to 15% and maturities at various dates through 1999.
Promissory note - Herrs - the carrying amount reported in the balance
sheet approximates fair value.
Related party note - Given the non-arms length nature of this
transaction, a reasonable estimate of fair value could not be made.
26
Continental American Transportation, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
PREFERRED STOCK
Preferred stock, 10,000,000 shares authorized, is as follows:
Series A, $1.00 per share, 0 shares issued and outstanding. These shares
are entitled to a dividend at the rate of seven percent (7%), payable quarterly.
Dividends on Series A shares are cumulative and rank in priority over dividends
on the Companys Series B preferred shares or its common shares. The Series A
preferred shares are convertible into common shares of the Company at any time
during the period commencing August 1, 1996 through July 21, 2000. The amount of
Company common shares into which Series A preferred shares shall be converted is
based upon the average bid and ask price of the Companys common shares for the
twenty business days prior to the Company receiving notice of intent to convert.
The Board of Directors has the authority to issue preferred stock in one or more
series and to fix the rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series or the
designation of such series, without further vote or action by the stockholders.
Series B, $1.00 per shares, 0 shares authorized, issued and outstanding.
These shares are entitled to a dividend at the rate of seven percent (7%)
payable quarterly but commencing to accrue only thirty days after all
outstanding Series A shares have been converted to common shares Dividends on
Series B preferred shares are cumulative and rank in priority over the Companys
common shares. The Series B preferred shares are convertible into common shares
of the Company after the conversion of all Series A preferred shares into
Company common shares and during the period commencing August 1, 1996 through
July 31, 2000. The amount of Company common shares into which Series B preferred
shares shall be converted is based upon the average bid ask price of the
Companys common shares for the twenty business days prior to the Company
receiving notice of intent to convert. The Board of Directors has the authority
to issue preferred stock in one or more series and to fix the rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series or the designation of such series,
without further vote or action by the stockholders.
WARRANTS
The Company issued seven common stock purchase warrants on Septmber 1,
1995. Each warrant may be exercised in whole or part and entitles the holder to
purchase 120,000 common shares at $2.50 per share and expires on October 27,
1996. As of October 11, 1996, warrant holders of 630,000 of 840,000 common
shares have exercised their warrants.
In addition, the Company issued one warrant to its Placing Agent (the
Agent) of the Convertible Promissory Notes. The warrant entitles the Agent to
purchase 100,000 shares of the Companys common stock as follows:
Exercise
No. of Price
Shares Per Share Exercise Term
- - - - - - - ------------------ --------------- --------------------------------------
Start Expiration
_______________ __________________
60,000 $ 2.50 September 19, 1996 March 19, 1998
20,000 $ 5.00 March 19, 1997 September 19, 1998
20,000 $ 7.50 June 19, 1997 March 19, 1999
27
Continental American Transportation, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
STOCK OPTION PLAN
On April 11, 1994, the Company adopted its Stock Incentive Plan (the
Plan). The Plan provides that certain options granted thereunder are intended
to qualify as incentive stock options within the meaning of Section 422A of
the United States Internal Revenue Code of 1986, while non-qualified options may
also be granted under the Plan. The plan provides for authorization of up to
200,000 (post-split) shares. The option price per share of Stock purchasable
under an Incentive Stock Option shall be determined at the time of grant but
shall be not less than 100% of the Fair Market Value of the Stock on such date,
or, in the case of a 10% Stockholder, the option price per share shall be no
less than 110% of the Fair Market Value of the Stock on the date an Incentive
Stock Option is granted to such 10% Stockholder.
The following is a summary of transaction:
1996 1995
---------------------
Outstanding, beginning of year 44,000 -
Granted during the year 36,000 164,000
Exercised during the year (at prices ranging from $.25 to
$3.13 per share) (44,000) 120,000
-------- ---------
Outstanding, end of year (at prices ranging from $.25 to
$3.13 per share 36,000 44,000
======== =========
Eligible, end of year for exercise currently (at prices 36,000 44,000
ranging
from $.25 to $3.13 per share)
======== ========
At June 30, 1996 and 1995, there were 0 and 80,000 shares, respectively,
reserved for future grants.
DEMAND NOTES RECEIVABLE FROM EXERCISE OF STOCK OPTIONS
In conjunction with the exercise of the non-qualified stock options,
the Company received notes amounting to $233,890 which are non-interest
bearing and payable upon demand.
28
Continental American Transportation, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
INCOME TAXES
The benefit from income taxes consists of the following:
Year Ended June 30,
------------------------------------
1996 1995
--------------- ---------------
Current provision $ - $ -
Deferred provision 477,755 -
--------------- ---------------
$ 477,755 $ -
=============== ===============
The net current deferred tax and net long-term deferred tax liability as
presented in the accompanying balance sheet at June 30, 1996, consist of
the following amounts of deferred tax assets and liabilities:
Deferred Tax - Current
Deferred tax asset $ 677,059
Deferred tax liability -
---------------
Net Current Deferred Tax Asset 677,059
---------------
Deferred Tax - Long-Term
Deferred tax asset 423,178
Deferred tax liability (245,791)
---------------
Net Long-Term Deferred Tax Asset $ 177,387
===============
The components which give rise to deferred income tax benefit are temporary
differences in accumulated depreciation, net operating loss carryforwards,
allowance for losses on accounts receivable, installment sales and TRAC
leases as follows:
Year Ended June 30,
------------------------------------
1996 1995
--------------- ---------------
Depreciation $ 1,103,927 $ -
Net operating loss carryforwards 284,567 -
Allowance for losses on accounts
receivable 91,254 -
Installment sales 2,657 -
TRAC leases (1,004,650) -
--------------- ---------------
$ 477,755 $ -
=============== ===============
The Company has a net operating loss carryforward of approximately $748,861
for Federal purposes expiring June 30, 2010.
29
Continental American Transportation, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
RELATED PARTY TRANSACTIONS
On October 15, 1995 the Company entered into a finders fee agreement
pursuant to which it appointed Knoblock Bay Cove Trust (Bay Cove) as a
non-exclusive agent to seek and identify potential acquisition candidates in the
transportation industry. On November 29, 1995 Bay Cove acquired 600,000 shares
of CAT common stock by issuance to CAT of its promissory note in the principal
amount of $1,200,000. Upon Bay Coves introduction of CAT, A&P and Chase to CTI
culminating with CATs acquisition of these companies on April 4, 1996 a finders
fee of $910,000 and a non-accountable expense allowance of $290,000 became
payable to Bay Cove. The Company and Bay Cove agreed thereafter that the Company
would forgive the $1,200,000 promissory note in full and complete satisfaction
of its obligation under the finders fee agreement.
Blue Mack leases its facilities and office space under operating leases
from a certain shareholder of the Company who owns approximately 17% of the
Companys issued and outstanding shares.
The following is a schedule of future minimum rental payments required
under operating leases that have initial or remaining non-cancelable lease terms
in excess of one year as of June 30, 1996.
Year Ending June 30,
1997 $ 129,600
1998 86,400
1999 86,400
2000 28,800
---------------
$ 331,200
===============
The leases also contain provisions for taxes, insurance and building
maintenance expense.
EMPLOYMENT AGREEMENTS
On June 30, 1995, the Company entered into employment agreements with the
two shareholders of Herrs which provides a minimum annual salary of $75,000
each and incentives based on the Companys attainment of specified earnings. At
June 30, 1995, the total commitment, was $150,000. As part of the agreement, the
shareholders shall not directly or indirectly engaged in direct competition with
the Company in the freight transportation business for a period of two years.
The Company entered into three year employment agreements with two of its
officers effective September 1, 1996 providing for annual aggregate compensation
of $304,000, $380,000 and $456,000 for each of the ensuing three years,
respectively. Further, such officers are each entitled to an annual incentive
bonus equal to five percent (5%) of the first $1,000,000, six percent (6%) of
the net $500,000 and 7% of net income before income taxes in excess of
$1,500,000.
The Company entered into an agreement with an additional officer effective
June 15, 1996 providing for annual compensation of $78,000, $104,000 and
$130,000 for each of the ensuing three years, respectively. Further, this
officer was granted non-qualified stock options to purchase 36,000 shares of CAT
common stock and a $30,000 relocation advance to be reduced by $10,000 at the
end of each of the three years of the contract term.
EMPLOYEE BENEFIT PLANS
Two of the Companys subsidiaries sponsor qualified profit sharings for the
benefit of substantially all full-time employees. The plans qualify under
Section 401(k) of the Internal Revenue Code, thereby allowing such employees to
make tax deferred contributions to the plan. One such plan provides for an
employer match in contribution equal to 25% of the participants contribution to
the plan while the other provides for a discretionary matching contribution.
The total expense for the above plans amounted to $5,652 and $0 for the
years ended June 30, 1996 and 1995, respectively.
30
Continental American Transportation, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
CONTINGENT LIABILITIES
The former shareholders and officers of CTI, A&P and Chase are under
indictment in a pending criminal proceeding. The indictment charges these
individuals, along with certain other parties, with the embezzlement of
approximately $3,700,000 from CTI and A&P in addition to criminal fraud and
criminal tax evasion.
While CTI and A&P were not included as named defendants in the indictment,
the indictment states among other things that the Grand Jury believes CTI and
A&P failed to report gross income as follows:
Alleged
Understated
Revenue
---------------
Year Ending June 30,
1991 $ 308,123
1992 669,897
1993 1,748,561
1994 963,838
1995 23,909
The former shareholders and officers of CTI and A&P have advised present
management of the Company that expenses exist to fully offset any revenues not
included in gross revenue of CTI and A&P for the periods reflected above. Should
this be determined not to be the case, the Company could potentially be assessed
taxes, penalties and interest which could amount to approximately $3,400,000.
On February 29, 1996, the two former stockholders of the Company sold their
shares to CAT (see Business Acquisitions). As a component of this transaction,
the two former shareholders have agreed to be responsible for and satisfy any
and all tax related liabilities that might arise as a result of the allegations
described above. Further, CAT has the right to deduct from the principal amount
of 7,290,000 promissory note payable to such former shareholders any such
liabilities paid by the Company.
On March 18, 1996, litigation against A&P was instituted relating to a
motor vehicle accident which occurred on August 24, 1995 resulting in the death
of one individual and personal injury to two others. Counsel representing A&P in
this matter has opined that A&P may be liable for compensatory damages in excess
of liability insurance coverage as well as punitive damages. Should A&P be found
liable, and be obligated to pay any such damages, CAT has the right to deduct
such sums from the $7,290,000 promissory note describe above.
The Company has learned that one of its former shareholders filed a
complaint with the Securities and Exchange Commission alleging the Company
illegally canceled his stock certificate being held in escrow. The Company has
responded to this complaint alleging, among other things, that this individual
made a claim to these shares without paying any consideration for them. On the
basis of this complaint the Securities and Exchange Commission is conducting a
preliminary investigation into the Companys stock trading activities. Company
management is fully cooperating with this preliminary investigation and intends
to vigorously defend against this action.
Certain other claims, suits and complaints have been filed or are pending
against the Company. In the opinion of management, all matters are adequately
covered by insurance, or if not covered, are without merit or are of such kind,
or involved such amounts, as would not have a material effect of the results
of operations or the financial position of the Company if disposed of
unfavorably.
31
PRIOR PERIOD ADJUSTMENTS
The Company incurred $66,010 in prior period adjustments relating
substantially to accrued interest on a prior year loan, extinguishment of debt
and the recapture of amortization on the excess purchase price recognized on one
of its subsidiaries prior to its acquisition.
SUBSEQUENT EVENT
On or about July 23, 1996 the Company filed Form S-3 with the Security and
Exchange Commission to effect the registration of an aggregate of 1,810,000 CAT
common shares underlying 16 warrants with exercise prices ranging from $.25 to
$7.50 per share exercisable at any time through the twelve month period
commencing upon the effective date of the aforementioned registration statement
and from November 28, 1996 through the thirty six month period beginning on the
date that the aforementioned registration statement is declared effective by the
SEC.
32
Independent Auditors' Report
To the Board of Directors and Stockholders of
Continental American Transportation, Inc.
and Subsidiaries
We have audited the accompanying consolidated balance sheet of Continental
American Transportation, Inc. and Subsidiaries as of June 30, 1996, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the years ended June 30, 1996 and 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 text basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Continental American Transportation, Inc. and Subsidiaries as of June 30, 1996,
and the results of its operations, changes in stockholders' equity and cash
flows for the years ended June 30, 1996 and 1995 in conformity with generally
accepted accounting principles.
s/Rosenberg Rich Baker Berman & Company
Bridgewater, New Jersey
October 11, 1996
33
Corporate Information
Directors
Timothy Holstein
Chairman, President and Chief Executive Officer
Erik Bailey
Vice President and Chief Financial Officer
Brian Henninger
Secretary and Controller
Officers
Timothy Holstein
President and Chief Executive Officer
Erik Bailey
Vice President and Chief Financial Officer
Brian Henninger
Secretary and Controller
Corporate Offices
Continental American Transportation, Inc.
495 Lovers Lane Road
Calhoun, Georgia 30701
(800)445-5544
Stock Registrar and Transfer Agent
United Stock Transfer, Inc.
13275 East Fremont Place, Suite 302
Englewood, CO 80112
(303)792-3650
Independent Auditors
Rosenberg Rich Baker Berman & Company
Bridgewater, New Jersey
General Counsel
Joseph J. Tomasek, Esq.
Somerville, New Jersey
Annual Meeting of Stockholders
Wednesday, January 15, 1997 10:00 A.M.
Continental American Transportation, Inc.
495 Lovers Lane Road
Calhoun, Georgia
34
Form 10-K
A copy of Continental American Transportation, Inc.'s annual report on Form 10-K
filed with the Securities and Exchange Commission (excluding exhibits), will be
furnished without charge to stockholders of record upon written request to Erik
Bailey, Vice President and Chief Financial Officer, Continental American
Transportation, Inc., 495 Lovers Lane Road, Calhoun, GA 30701.
Securities Information
The common stock of Continental American Transportation, Inc. is currently
traded on the Electronic Bulletin Board of the National Association of
Securities Dealers, Inc., under the symbol COAW. The following is a summary of
the high and low bid prices per share of the Company's common stock as quoted
during the two preceding fiscal years based on information available to the
Company's management. These quotations reflect inter-dealer prices without
retail markup, markdown or commission and may not represent actual transactions.
High Low
Fiscal 1996 1st Quarter $12.14 $ .97
2nd Quarter 6.55 1.58
3rd Quarter 3.87 2.49
4th Quarter 4.75 2.25
Fiscal 1995 1st Quarter N/A N/A
2nd Quarter N/A N/A
3rd Quarter N/A N/A
4th Quarter .375 .25
As of June 30, 1996, there were approximately 286 stockholders of
record and approximately 325 beneficial stockholders.
35