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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
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Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995 Commission File No.: 0-26954
CONSOLIDATED DELIVERY & LOGISTICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3350958
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Mack Centre IV, 61 South Paramus Road
Paramus, New Jersey 07652
(201) 291-1900
(Address, including Zip Code, and telephone number, including area code, of
principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
Indicate by check mark whether: the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of voting stock held by nonaffiliates of the
registrant was $25,837,975 as of March 25, 1996.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Outstanding as of March 15, 1996
Common Stock, $.001 par value 6,629,569
Documents Incorporated by Reference: The information required by Part III
(other than the required information regarding executive officers) is
incorporated by reference from the registrant's definitive proxy statement,
which will be filed with the Commission not later than 120 days following
December 31, 1995.
31
TABLE OF CONTENTS
Page
PART I
Item 1. Business........................................................... 2
Item 2. Properties......................................................... 14
Item 3. Legal Proceedings.................................................. 14
Item 4. Submission of Matters to a Vote of Security Holders................ 15
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters.......................................................... 16
Item 6. Selected Financial Data............................................ 17
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 22
Item 8. Financial Statements and Supplementary Data........................F-1
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure...........................................F-160
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons of
the Registrant.................................................III-1
Item 11. Executive Compensation...........................................III-2
Item 12. Security Ownership of Certain Beneficial Owners and Management...III-2
Item 13. Certain Relationships and Related Transactions...................III-2
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...IV-1
Signatures........................................................IV-8
PART I
Item 1. Business
Consolidated Delivery & Logistics, Inc. (the "Company") was founded in
June 1994 to create a national, full service, same-day ground and air delivery
and logistics company. In November 1995 the Company consummated the acquisition
(the "Combination") of eleven established businesses providing same-day ground
and air delivery and logistics services (collectively, the "Founding Companies")
concurrently with the closing of the Company's initial public offering (the
"Offering"). The Company provides an extensive network of same-day ground and
air delivery and logistics services to a wide range of commercial, industrial
and retail customers. The Company's ground delivery operations currently are
concentrated on the East Coast, with a strategic presence in the Midwest and on
the West Coast. The Company's logistics services are provided on a national
basis and its air delivery services are provided throughout the United States
and to major cities around the world.
The Company's same-day delivery services are generally divided between
rush and scheduled delivery. Rush delivery service, provided via ground and air,
typically consists of delivering time-sensitive packages, such as critical
machine parts or emergency medical devices. Scheduled or routed delivery
services, provided on a recurring and often daily basis, include deliveries from
pharmaceutical suppliers to pharmacies, manufacturers to retailers, and the
interbranch distribution of financial documents. The Company's logistics
services include designing and managing systems created to maximize efficiencies
in transporting, warehousing, sorting and delivering customers' products.
The Company believes that it can enhance revenues and profitability by
systematically integrating the Founding Companies and by implementing an
opportunistic acquisition program once it has obtained sufficient financing for
such a program. The Company expects to realize internal growth opportunities by
offering customers a single source for their same-day ground and air delivery
and logistics needs and by internalizing services currently being purchased from
other delivery companies. The Company intends to achieve increased operating
efficiencies by rationalizing and consolidating operations to increase the
density of its delivery routes and to improve the productivity of existing
personnel, equipment and facilities. The Company also intends to pursue growth
through acquisitions designed to augment the Company's existing customer base
and services and to penetrate attractive new markets. The Company believes it
will be successful in attracting and acquiring other high quality delivery and
distribution companies as a result of its operating strategy, enhanced capital
base and increased visibility. However, in light of the recent decline in the
market value of the Common Stock, the Company will require significant
additional capital resources to finance its planned acquisition program. No
assurance can be given that the Company will obtain the financing necessary for
its acquisition program or as to the terms and timing thereof. See Item 1.
Business - Risk Factors and Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources.
Industry Overview
The ground and air delivery industry in the United States is composed
largely of companies providing same-day, next-day and two-day services. The
Company primarily services the same-day delivery market. In contrast, the
next-day and two-day delivery markets are dominated by large nationally
established entities, such as United Parcel Service, Inc. ("UPS") and FedEx
Corp. ("FedEx").
The Company believes that the same-day ground and air delivery and
logistics industry, which is currently serviced by a fragmented system of
approximately 10,000 companies, is undergoing substantial growth and
consolidation. The Company estimates that revenues generated by the same-day
delivery and logistics industry were in excess of $15 billion in 1995. The
Company believes that several factors, including the following, are driving the
growth and resulting consolidation of the industry:
Outsourcing. Commercial and industrial companies, which are major
consumers of same-day delivery and logistics services, have continued to follow
the trend toward controlling costs by outsourcing their delivery and logistics
requirements. Companies that can offer comprehensive, customized delivery and
logistics services at attractive prices will be able to capitalize on this
trend.
Vendor Consolidation. Businesses are increasingly seeking single-source
solutions for their same-day delivery and logistics needs in order to increase
efficiencies and improve service. As a result, the Company believes that
significant opportunities exist for delivery and logistics companies able to
provide a full range of services on a national or multi-regional basis.
Heightened Customer Expectations. Increased customer demand for
customized billing, enhanced tracking, storage and inventory management
capabilities favor companies with greater resources to devote to providing such
services.
New Market Opportunities. The significant growth in catalog and at-home
shopping and in-home medical care present substantial growth opportunities for
companies capable of economically providing more customized, reliable services.
Strategy
The Company's objective is to become the leading provider of same-day
ground and air delivery and logistics services. The Company's strategy consists
of the following three initiatives:
Realize Internal Growth Opportunities. As a result of the Combination,
the Company can offer the existing customer base of each of the Founding
Companies an expanded range of services and geographic coverage. In addition,
the Combination allows the Company to internalize business opportunities by
redirecting services purchased from other delivery companies. The Company also
expects to gain additional business by being able to offer new and existing
customers single source solutions for ground and air delivery and logistics
needs on a national and multi-regional basis.
Achieve Increased Operating Efficiencies. The Company expects to
achieve increased operating efficiencies by reducing costs and heightening
productivity. The Company intends to accomplish this by rationalizing and
consolidating operations to increase the density of its delivery routes and to
improve the productivity of personnel, equipment and facilities. In addition,
the Company believes that its size and purchasing power will enable it to
achieve significant economies in areas such as insurance coverage and vehicle
costs.
Pursue Growth Through Acquisitions. The Company's acquisition program
will focus on further penetrating existing markets and entering new geographic
regions. Acquisitions in existing markets will increase route density and the
Company expects to integrate the acquired companies' customer bases without a
corresponding increase in operating costs. At the same time, the Company
believes that such "tuck-in" acquisitions will provide enhanced cross selling
opportunities. The Company also intends to acquire leading service providers in
new regions that will serve as platforms from which the Company can consolidate
a given service area by completing and integrating additional "tuck-in"
acquisitions. The Company believes it will be successful in attracting and
acquiring other high quality delivery and logistics companies as a result of its
operating strategy, enhanced capital base and increased visibility. However, in
light of the recent decline in the market value of the Common Stock, the Company
will require significant additional capital resources to finance its planned
acquisition program. No assurance can be given that the Company will obtain the
financing necessary for its acquisition program or as to the terms and timing
thereof. See Item 1. Business - Risk Factors and Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources.
Services
The Company provides a full range of same-day ground and air delivery
and logistics services. In many cases, the Company combines several service
capabilities to meet the needs of its customers.
Ground Delivery
The Company's comprehensive same-day ground delivery services include:
Rush. In providing rush or on-demand services, Company messengers and
couriers respond to customer requests for immediate pick-up and delivery of
time-sensitive packages, such as emergency medical devices and supplies, or a
critical part necessary to repair a defective machine, as well as urgent
documents and other materials. The Company generally offers one-, two- and four-
hour service, seven days a week, twenty-four hours a day. Typical customers
include commercial and industrial companies, hospitals and service providers
such as accountants, lawyers, advertising and travel agencies and public
relations firms.
Scheduled and Routed. The Company's scheduled or routed delivery
services are provided on a recurring and often daily basis. These services
typically consist of picking up or receiving large shipments of products, which
the Company sorts, routes and delivers. These shipments are generally delivered
in accordance with a customer's demanding schedule calling for deliveries to be
made within an agreed upon time window. These services include deliveries from
pharmaceutical suppliers to pharmacies, from manufacturers to retailers, the
interbranch distribution of checks, payroll data and other documents, the
pick-up and delivery of state lottery tickets, and the delivery of
time-sensitive materials for banks, financial institutions, insurance companies
and photo-finishing laboratories. In addition, the Company provides these
services to large retailers seeking low-cost home-delivery capabilities,
including large cosmetic companies, door-to-door retailers, catalog marketers,
home health care distributors and other direct sales companies.
Air Services
The Company provides next-flight-out (rush) and scheduled air courier
and air freight services to its customers, both domestically and
internationally. The services provided include arranging for (i) the
transportation of a shipment from the customer's location to the airport, (ii)
air transportation and (iii) the delivery of the shipment to the destination.
The Company monitors the shipment throughout the delivery stream and provides
proof of delivery. In order to meet the needs of its customers, the Company has
established relationships with many major airlines and large air freight
companies from which the Company buys cargo space on an as-needed basis.
Logistics
The Company provides a wide range of logistics services to its
customers including the following:
Contract Logistics. The Company custom designs and manages integrated
networks for the transportation, warehousing, sorting, routing and distribution
of customers' products. The Company specializes in providing these logistics
services to companies which require timely distribution and tracking of a
product or promotion throughout a specific region or nationwide. A typical
logistics project entails coordinating the pick up, sorting and delivery of
large quantities of a promotional piece to thousands of retailers utilizing the
services of a large number of independent delivery companies. Typical customers
include consumer products companies, manufacturers and wholesalers of various
products.
Warehousing/Just-in-Time. The Company has facilities to warehouse and
deliver products on a just-in-time delivery basis. At many of these facilities,
bulk shipments are broken down for processing and local delivery by the Company
as part of its scheduled and routed delivery services. Typical customers include
computer and electronics manufacturers, automotive parts distributors and
pharmaceutical wholesalers.
Facilities Management. The Company provides mail room management
services, including the provision and supervision of mailroom personnel, mail
and package sorting, internal delivery and outside local messenger services.
Typical customers include commercial enterprises and professional firms.
Operations
Ground Delivery
The Company's delivery operations are currently managed on a local
basis. Most locations have operations centers staffed by dispatchers, as well as
order entry and operations personnel. The Company's ground delivery services are
provided on a rush or on demand basis or pursuant to established scheduled and
routing arrangements. Coordination and deployment of delivery personnel is
accomplished either through communications systems linked to the Company's
computers, through pagers or by radio. A dispatcher coordinates shipments for
delivery within a specific time frame. Shipments are routed according to the
type and weight of the shipment, the geographic distance between the origin and
destination and the time allotted for the delivery. In the case of scheduled and
routed deliveries, routes are designed to minimize the unit costs of the
deliveries and to enhance route density. Because the specific businesses of the
Founding Companies vary in terms of the types of ground services and the
geographic and time sensitive nature of the services provided, no general
standard exists for the systems used to operate those businesses. The Company
plans to obtain new hardware and software systems to enhance and centralize the
reporting and tracking of shipments through the ground system as well as to
simplify the process of designing delivery routes. The Company believes that
this investment in technology will reduce costs by streamlining the delivery
process and reducing back office expenses while enhancing the Company's tracking
capabilities.
Air Services
The Company's air courier and air freight service begins with a
customer placing an order which is then dispatched for pickup by a local driver.
Upon receipt by the driver, a tracking number is assigned to the shipment and
entered into the Company's computer system. The computer system then selects the
optimal route for the shipment based on delivery, destination and timing
considerations, tracks the shipment as it flows through the delivery stream
until it is ultimately delivered to the recipient and prepares the appropriate
billing charges. At the final destination, a "proof of delivery" is obtained to
conclude and confirm the delivery. At any point in the process, the Company is
able to inform the customer as to the exact location of its shipment within the
distribution network.
Logistics
The Company's logistics services are coordinated by trained logistics
specialists who have substantial experience in designing, implementing and
managing integrated networks for the transportation, warehousing, sorting,
routing and distribution of the customer's products and promotional materials.
The Company analyzes the customer's distribution requirements; identifies,
engages, coordinates and supervises the delivery services to be used to effect
the distribution; and generates customized reports to manage and track the
distribution.
Sales and Marketing
The Company believes that its customers for same-day ground and air
delivery and logistics services are most effectively reached by a direct sales
force and, accordingly, the Company does not currently engage in mass media
advertising. The Company markets directly to individual customers by designing
and offering customized service packages after determining a customer's specific
delivery, distribution and logistics requirements. The Company intends to
implement a coordinated "major account" strategy by building on relationships
established by the Founding Companies with their regional and national
customers. The Company also employs certain direct response marketing
techniques.
The Company intends to designate a senior executive to coordinate and
implement the Company's marketing strategy. No agreements or understandings have
been entered into as of the date hereof.
The Company anticipates that each of the Founding Companies will
operate under its own name for a period of time in order to preserve customer
relationships. As part of the Company's integration strategy, however, after
such transition period the names of each of the Founding Companies will be
changed to include the name "Consolidated Delivery & Logistics, Inc."
Many of the services provided by the Company, such as facilities
management, logistics, distribution services and scheduled and routed services
are determined on the basis of competitive bids. However, the Company believes
that quality and service capability are also important competitive factors. In
certain instances, the Company has obtained business by offering a superior
level of service, even though it was not the low bidder for a particular
contract. The Company derives a substantial portion of its revenues from
customers with whom it has entered into contracts. Virtually all scheduled and
routed services, dedicated vehicle services, facilities management services and
logistics services are provided pursuant to contracts. Many of these contracts
are terminable by the customer on relatively short notice without penalty.
Competition
The market for the Company's same-day ground and air delivery and
logistics services is highly competitive. The Company believes that the
principal competitive factors in the markets in which it competes are
reliability, quality and breadth of service and price. The Company competes on
all such factors. The Company's principal competitors in the same-day ground and
air delivery industry are other ground and air delivery companies and the
commercial and industrial businesses already using the Company's services. The
Company's principal competitors in the logistics market are national freight
carrier companies (including FedEx and UPS) and other logistics providers. In
addition, UPS and FedEx have recently begun to provide same-day air delivery
services.
Most of the Company's competitors in the same-day ground and air
delivery market are privately held companies that operate in only one location
or in a limited service area. However, there is a growing trend toward
consolidation in the industry. The Company's primary competitors in the same-day
ground delivery business are U.S. Delivery Systems, Inc. ("USDS") and United
Transnet, Inc. ("Transnet"). However, USDS does not currently compete with the
Company in the air delivery business and has only recently entered the logistics
market through acquisition. In addition, Transnet's business is heavily
concentrated in the banking industry and is dominated by scheduled deliveries of
checks and other items for processing. In addition to competing with the Company
for the provision of services, USDS and Transnet are also significant
competitors of the Company in the market for acquisition candidates. USDS was
recently acquired by Corporate Express, Inc.
In addition to the same-day ground and air delivery services provided
by the Company, customers also utilize next-day and two-day air services. The
market for next-day and second-day air services is primarily dominated by
nationwide network providers, such as FedEx and UPS, which have built large,
capital-intensive distribution channels that allow them to process a high volume
of materials. In order to effectively operate their networks, these companies
typically have fixed deadlines for next-day or second-day delivery services. In
contrast, the Company specializes in on-demand, next-flight-out deliveries or
services which, by their nature, are not governed by rigid time schedules. If a
customer is unable to meet a network provider's established deadline, the
Company can pick up the shipment, put it on the next available flight and
deliver it, in some cases, before the network provider's scheduled delivery
time. The Company's services are available twenty-four hours a day, seven days a
week.
The Company obtains space on scheduled airline flights to provide its
same-day air services and accordingly does not have to acquire or maintain an
expensive fleet of airplanes. As a result, the Company can provide a more
flexible, specialized service to its customers on demand without incurring the
high fixed overhead that the larger network providers must incur.
The Combination
In November 1995 the Company acquired eleven businesses providing
same-day ground and air delivery and logistics services. The aggregate
consideration paid by the Company for the Founding Companies was approximately
$29,604,000 in cash and 2,935,702 shares of Common Stock, par value $.001 per
share (the "Common Stock"), for an aggregate value of approximately $67,769,000.
The consideration paid for the Founding Companies was determined through
arms-length negotiations among the Company and representatives of the Founding
Companies. The factors considered by the parties in determining the purchase
prices included, among others, the historical operating results and the future
prospects of the Founding Companies.
A summary of certain terms of the acquisition of each of the Founding
Companies follows:
American. Under an agreement among Mr. Stephen J. Zrowka, who became a
director of the Company upon closing of the Offering, Mr. John LoPresti and Mr.
William Starace, the Company acquired by merger all of the issued and
outstanding stock of American Courier Express, Inc. ("American Courier").
American Courier, which is headquartered in Edison, New Jersey, has been
operating a same-day delivery service business for over six years. The
consideration paid by the Company for American Courier consisted of $536,000 in
cash and 102,485 shares of Common Stock. In connection with this transaction,
Mr. Zrowka, Mr. LoPresti and Mr. Starace each entered into a five-year
covenant-not-to-compete and a five-year employment agreement with the Company.
Bestway/Crown. Under an agreement with Mr. Philip Snyder, who became a
director of the Company upon closing of the Offering, and Mr. Norton Hight, the
Company acquired by merger all of the issued and outstanding stock of Bestway
Distribution Services, Inc. and Crown Courier Systems, Inc. ("Bestway/Crown").
Bestway/Crown, which is headquartered in Miami, Florida, has been operating a
same-day delivery service business for over 20 years and currently has
operations in Fort Myers, Miami, Orlando, Tampa and West Palm Beach, Florida.
The consideration paid by the Company for Bestway/Crown consisted of $1,921,000
in cash and 192,063 shares of Common Stock. In connection with this transaction,
Mr. Hight, Mr. Snyder and Mr. Martin Galinsky each entered into a five-year
covenant-not-to-compete and a five-year employment agreement with the Company.
Click. Under an agreement with Mr. Howard E. Kronick, who became a
director of the Company upon closing of the Offering, Mr. Andrew B. Kronick, Mr.
David Kronick, Mr. Kenneth J. Tunnell, Mr. Philip Panasci and certain other
stockholders, the Company acquired by merger all of the issued and outstanding
stock of Click Messenger Service, Inc. and related companies ("Click"). Click,
which is headquartered in Cranford, New Jersey, has been operating a same-day
delivery service business for over 35 years and currently has operations in
Kearny, New Jersey and Albany, Buffalo, Maspeth, New York City, Rochester and
Syracuse, New York. The consideration paid by the Company for Click consisted of
$1,772,000 in cash and 177,212 shares of Common Stock. In connection with this
transaction, Mr. Howard E. Kronick, Mr. Andrew B. Kronick, Mr. David Kronick,
Mr. Tunnell and Mr. Panasci will entered into a five-year
covenant-not-to-compete and an employment agreement with the Company for a term
of five years.
Court. Under an agreement with Mr. Juan Camandona, who became a
director of the Company upon closing of the Offering, and Mr. Jack McCorkell,
the Company acquired by merger all of the issued and outstanding stock of Court
Courier Systems, Inc. and a related company ("Court"). Court, which is
headquartered in Edison, New Jersey, has been operating a same-day delivery
service business for over 16 years and currently has operations in East
Hartford, Connecticut; Augusta, Maine; Milford, Massachusetts; Atlantic City and
Edison, New Jersey and Albany, Buffalo, Rochester and Syracuse, New York. The
consideration paid by the Company for Court consisted of $1,753,000 in cash and
175,362 shares of Common Stock. In connection with this transaction, Mr.
Camandona and Mr. McCorkell each entered into a five-year
covenant-not-to-compete and a five-year employment agreement with the Company.
DSI. Under an agreement with Mr. David Mathia, who became a director of
the Company upon closing of the Offering, the Company acquired by merger all of
the issued and outstanding stock of Distribution Solutions International, Inc.
("DSI"). DSI, which is headquartered in Traverse City, Michigan, has been
operating a logistics services business for over five years and has an
additional location in Philadelphia, Pennsylvania. The consideration paid by the
Company for DSI consisted of $1,372,000 in cash and 137,239 shares of Common
Stock. In connection with this transaction, Mr. Mathia entered into a five-year
covenant-not-to-compete and a five-year employment agreement with the Company.
National. Under an agreement with Mr. Labe Leibowitz, who became a
director of the Company upon closing of the Offering, Mr. Irwin Leibowitz and
another stockholder, the Company acquired by merger all of the issued and
outstanding stock of Clayton/National Courier Systems, Inc. and a related
company ("National"). National, which is headquartered in St. Louis, Missouri,
has been operating a same-day ground and air delivery service business for over
23 years and currently has operations in San Francisco, California, St. Louis,
Missouri and Seattle, Washington. The consideration paid by the Company for
National consisted of $3,154,000 in cash and 290,357 shares of Common Stock. In
connection with this transaction, Mr. Irwin Leibowitz and Mr. Labe Leibowitz
each entered into a five-year covenant-not-to-compete and a five-year employment
agreement with the Company.
Olympic. Under an agreement with Mr. Curtis Hight, who became a
director of the Company upon closing of the Offering, Mr. Norton Hight, Mr.
Philip Snyder, Mr. Neil Wattenberg, Mr. Jeffrey Kravet and Mr. Bruce Cohen, the
Company acquired by merger all of the issued and outstanding stock of Olympic
Courier Systems, Inc. and a related company ("Olympic"). Olympic, which is
headquartered in New York City, has been operating a same-day delivery service
business for over 12 years and currently has operations in Long Island City and
New York City, New York. The consideration paid by the Company for Olympic
consisted of $1,166,000 in cash and 116,644 shares of Common Stock. In
connection with this transaction, Mr. Curtis Hight, Mr. Norton Hight and Mr.
Snyder each entered into a five-year covenant-not-to-compete with the Company.
In addition, Mr. Curtis Hight entered into a five-year employment agreement with
the Company, Mr. Wattenberg entered into a four year employment agreement with
the Company and Mr. Kravet and Mr. Cohen each entered into three-year employment
agreements with the Company. As part of their employment agreements, each of Mr.
Wattenberg, Mr. Kravet and Mr. Cohen entered into a covenant not-to-compete for
a period of two years following the termination of their employment.
Orbit/Lightspeed. Under an agreement with Mr. Robert Wyatt, who became
a director of the Company upon closing of the Offering, Mr. Rick Katz, Mr.
Jeremy Weinstein and Mr. Stephen Gilchick, the Company acquired by merger all of
the issued and outstanding stock of Orbit/Lightspeed Courier Systems, Inc. and
related companies ("Orbit/Lightspeed"). Orbit/Lightspeed, which is headquartered
in New York City, has been operating a same-day delivery service business for
over five years and currently has operations in Bayonne, New Jersey and New York
City. The consideration paid by the Company for Orbit/Lightspeed consisted of
$1,890,000 in cash and 194,000 shares of Common Stock. In connection with this
transaction, Mr. Wyatt, Mr. Katz and Mr. Weinstein each entered into a five-year
covenant-not-to-compete and a five-year employment agreement with the Company.
In addition, Mr. Gilchick entered into a five-year covenant-not-to-compete and
an affiliate, Insight Plus, Inc., was retained by the Company as a consultant
for a period of three years.
Securities Courier. Under an agreement with Mr. Vincent Brana, who
became a director of the Company upon closing of the Offering, the Company
acquired by merger all of the issued and outstanding stock of Securities Courier
Corporation ("Securities Courier"). Securities Courier, which is headquartered
in South Hackensack, New Jersey, has been operating a same-day delivery service
business for over 22 years and currently has operations in South Hackensack, New
Jersey and at 17 customer locations throughout New Jersey and New York City. The
consideration paid by the Company for Securities Courier consisted of $3,740,000
in cash and 357,301 shares of Common Stock. In connection with this transaction,
Mr. Brana entered into a five-year covenant-not-to-compete and a five-year
employment agreement with the Company. In connection with the acquisition of
Securities Courier, the Company acquired all of the outstanding stock of Liberty
Transfer Corp., a contractor to Securities Courier, in exchange for 16,667
shares of Common Stock and entered into a five-year employment agreement and a
five-year non-compete agreement with that company's president, Mr. John Bailey.
Silver Star. Under an agreement with Mr. Michael Brooks, who became a
director of the Company upon closing of the Offering, and Ms. Bonnie Silver, the
Company acquired by merger all of the issued and outstanding stock of Silver
Star Express, Inc. and related companies ("Silver Star"). Silver Star, which is
headquartered in Miami, Florida, has been operating a same-day delivery service
business for over seven years and currently has operations in Fort Myers,
Jacksonville, Miami, Orlando and Tampa, Florida; Atlanta and Valdosta, Georgia;
Indianapolis, Indiana; New Orleans and Shreveport, Louisiana; Baltimore,
Maryland; Cinnaminson and Elizabeth, New Jersey; Saugerties, New York; Akron and
Dayton, Ohio and Nashville, Tennessee. The consideration paid by the Company for
Silver Star consisted of $3,338,000 in cash and 307,327 shares of Common Stock.
In connection with this transaction, Mr. Michael Brooks, Ms. Silver and Mr.
Peter Silver each entered into a five-year covenant-not-to-compete and Mr.
Michael Brooks and Mr. Silver each entered into a five-year employment agreement
with the Company. In addition, Mr. Harry Brooks entered into a five-year
covenant-not-to-compete and was retained by the Company as a consultant for a
period of three years.
SureWay. Under an agreement with Mr. William Beaury and Mr. Thomas
LoPresti, each of whom became a director of the Company upon closing of the
Offering, Mr. Joseph Caruvana, Mr. Randall Catlin and Mr. Michael Berry, the
Company acquired by merger all of the issued and outstanding stock of SureWay
Air Traffic Corporation and a related company ("SureWay"). SureWay, which is
headquartered in Long Island City, New York, has been operating a same-day air
delivery service business for 20 years. In addition, SureWay provides logistics
and ground delivery services. SureWay currently has operations in Los Angeles,
California; Washington, D.C.; Chicago, Illinois; Clifton, New Jersey; Long
Island City, New York and Greensboro, North Carolina, and sales agent locations
in Phoenix, Arizona; Atlanta, Georgia; Miami and Tampa, Florida; Boston,
Massachusetts; Detroit, Michigan; Minneapolis, Minnesota; Cincinnati, Ohio;
Philadelphia, Pennsylvania and Dallas and Houston, Texas. The consideration paid
by the Company for SureWay consisted of $8,962,000 in cash and 869,045 shares of
Common Stock. In connection with this transaction, Mr. Beaury, Mr. Caruvana, Mr.
Catlin and Mr. LoPresti each entered into a five-year covenant-not-to-compete
and a five-year employment agreement with the Company. Mr. Berry entered into a
five-year covenant-not-to-compete and a two-year employment agreement with the
Company.
In addition to the acquisition of the Founding Companies as described
above, simultaneously with the Combination, the Company acquired certain
additional assets (comprised primarily of customer lists and other assets) from
other entities to supplement and enhance the assets and expertise of the
Founding Companies. The assets acquired in those transactions were not material
to the Company.
Since the Combination, the Company has begun to rationalize the
operations of the other Founding Companies by, among other things, combining
operations where feasible and eliminating redundant facilities. In this regard,
Orbit/Lightspeed and Click's Manhattan operations have been consolidated into
Olympic. Recently, the Company appointed General Managers for each of its
Northeast and Southeast Regions to better coordinate the operations of the
Founding Companies and to manage the integration process.
Regulation
The Company's delivery operations are subject to various state and
local regulations and, in many instances, require permits and licenses from
state authorities. To a limited degree, state and local authorities have the
power to regulate the delivery of certain types of shipments and operations
within certain geographic areas. Interstate and intrastate motor carrier
operations are also subject to safety requirements prescribed respectively, by
the United States Department of Transportation (the "DOT") and by State
Departments of Transportation. Failure of the Company to comply with the
applicable regulations could result in substantial fines or possible revocation
of one or more of the Company's operating permits.
Safety
The Company seeks to ensure that all employee drivers meet safety
standards established by the Company and its insurance carriers as well as the
DOT. In addition, where required by the DOT or state or local authorities, the
Company requires independent owner/operators utilized by the Company to meet
required safety standards. The Company reviews prospective drivers to ensure
that they meet all applicable requirements.
Intellectual Property
The Company has applied for Federal service mark registration of
"Consolidated Delivery & Logistics, Inc." and the associated Company logo. No
assurance can be given that any such registration will be granted or that if
granted, such registration will be effective to prevent others from (i) using
this or a similar service mark concurrently or (ii) preventing the Company from
using the service mark in certain locations. The Company is not aware of any
other entity using the name "Consolidated Delivery & Logistics, Inc."
Employees and Independent Owner/Operators
At December 31, 1995, the Company employed approximately 2,800 people,
1,500 of whom were employed as drivers, 500 as messengers, 400 in operations,
200 in clerical and administrative positions, 50 in sales and 150 in management.
The Company is not a party to any collective bargaining agreements although the
Company is subject to union organizing activity from time to time. See Item 3.
Legal Proceedings. The Company has not experienced any work stoppages and
believes that its relationship with its employees is good.
The Company also had contracts with approximately 900 independent
owner/operators as of December 31, 1995. From time to time, federal and state
authorities have sought to assert that independent owner/operators in the
transportation industry, including those utilized by the Company, are employees,
rather than independent contractors. The Company believes that the independent
owner/operators utilized by the Company are not employees under existing
interpretations of federal and state laws. However, there can be no assurance
that federal and state authorities will not challenge this position, or that
other laws or regulations, including tax laws, or interpretations thereof, will
not change. If, as a result of any of the foregoing, the Company is required to
pay for and administer added benefits to independent owner/operators, the
Company's operating costs would increase.
See "Risk Factors - Independent Owner/Operators."
Risk Factors
Prospective investors should consider carefully the following risk
factors as well as the other information contained in this Annual Report on Form
10-K.
Limited Combined Operating History
The Company was founded in June 1994 and conducted no operations prior
to consummating the Combination. The Founding Companies operated as separate
independent entities prior to their acquisition by the Company. There can be no
assurance that the Company will be able to integrate these businesses in an
economic manner or that the recently assembled management group will be able to
oversee the combined entity and implement the Company's operating or growth
strategies. Failure to properly integrate these businesses and to implement the
Company's operating and growth strategy could have a material adverse impact on
the Company's operating results. See Item 1. Business - The Combination. During
the course of the preparation of its 1995 financial statements, the Company
discovered certain errors in the preliminary information provided to it by the
individual Founding Companies relating to results for the fourth quarter of
1995. These errors related solely to the fourth quarter of 1995 and did not
affect any other fiscal period. The financial statements for the fourth quarter
of 1995 and for the year ended December 31, 1995 contained herein reflect the
correction of these errors. The Company has begun to take certain actions,
including the hiring of additional experienced supervisors, to improve the
training and supervision of its accounting staff so that senior management
receives accurate financial information on a timely basis. See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Overview.
Acquisition Strategy
One of the Company's business strategies is to increase its revenues by
acquiring other companies performing similar ground and air delivery and
logistics services. There can be no assurance that the Company will be able to
acquire, profitably manage or successfully integrate such additional companies
into the Company. In addition, there can be no assurance that future
acquisitions will further the successful implementation of the Company's overall
strategy, or that such acquisitions will ultimately produce returns that justify
the investment therein. See Item 1. Business - Strategy.
The Company currently intends to use Common Stock for all or a portion
of the consideration to be paid in future acquisitions. However, the recent
decline in the market value of the Company's Common Stock has reduced the
attractiveness of the Common Stock as an acquisition medium. As a result, the
Company will be required to utilize more of its cash resources, if available, in
order to effect its acquisition program. The Company currently does not have
sufficient cash resources to fund its acquisition program. Accordingly, the
Company's growth through acquisitions will be limited unless it is able to
obtain additional capital through additional debt or equity financings. The
Company is currently discussing the terms of a proposed credit facility with an
institutional lender. However, there can be no assurance that the Company will
be able to obtain such financing if and when it is needed or that, if available,
it will be available on terms the Company deems acceptable. See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources. As a result, the Company might be
unable to implement successfully its acquisition strategy.
Competition
The markets for the Company's same-day ground and air delivery and
logistics services are highly competitive. Price competition is often intense,
particularly in the market for basic delivery services where entry barriers are
low. Major participants in the next-day and second-day air delivery market, such
as UPS and FedEx, provide logistics services and have recently begun to provide
same-day air delivery services. The Company's primary competitors in the
same-day ground delivery business are USDS and Transnet. In addition to
competing with the Company for the provision of services, USDS and Transnet are
also significant competitors of the Company in the market for acquisition
candidates. USDS was recently acquired by Corporate Express, Inc. Furthermore,
other companies with significantly greater capital and other resources than the
Company that do not currently operate same-day ground and air delivery and
logistics services businesses may enter the industry in the future. See Item 1.
Business - Competition.
Independent Owner/Operators
From time to time, federal and state authorities have sought to assert
that independent owner/operators in the transportation industry, including those
utilized by the Company, are employees, rather than independent contractors. The
Company believes that the independent owner/operators utilized by the Company
are not employees under existing interpretations of federal and state laws.
However, there can be no assurance that federal and state authorities will not
challenge this position, or that other laws or regulations, including tax laws,
or interpretations thereof, will not change. If, as a result of any of the
foregoing, the Company is required to pay for and administer added benefits to
independent owner/operators, the Company's operating costs would increase.
See Item 1. Business - Employees and Independent Owner/Operators.
In addition, certain of the Company's employees own and operate their
own vehicles in the course of their employment. In certain cases, the Company
has reimbursed those employees for all or a portion of the costs of operating
those vehicles. The Company believes that these reimbursement arrangements do
not represent additional compensation to those employees. However, there can be
no assurance that federal and state taxing authorities will not seek to
recharacterize some or all of such payments as additional compensation. If such
amounts were so recharacterized, the Company would have to pay additional
employment-related taxes on such amounts.
Claims Exposure
The Company utilizes the services of approximately 1,500 drivers, and
from time to time such drivers are involved in accidents. The Company currently
carries liability insurance of at least $25,000,000 for each such accident
(subject to applicable deductibles), and requires its independent
owner/operators to maintain liability insurance of at least the minimum amounts
required by state and federal law. However, there can be no assurance that
claims against the Company will not exceed the amount of coverage. In addition,
the Company's increased visibility and financial strength as a public company
may create additional claims exposure. If the Company were to experience a
material increase in the frequency or severity of accidents, liability claims or
workers' compensation claims, or unfavorable resolutions of claims, the
Company's operating results could be materially affected. In addition,
significant increases in insurance costs would reduce the Company's
profitability.
Shares Eligible for Future Sale
The market price of the Common Stock could be adversely affected by the
sale of substantial amounts of Common Stock in the public market. As of March
15, 1996, 6,629,569 shares of Common Stock were issued and outstanding. The
3,200,000 shares sold in the Offering are generally freely tradeable, except for
shares acquired by affiliates of the Company.
Simultaneously with the closing of the Offering, the stockholders of
the Founding Companies received, in the aggregate, 2,935,702 shares of Common
Stock as a portion of the consideration for their businesses. Certain other
stockholders of the Company held, in the aggregate, an additional 493,867 shares
of Common Stock. None of these 3,429,569 shares were issued in transactions
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and, accordingly, such shares may not be sold except in transactions registered
under the Securities Act or pursuant to an exemption from registration,
including the exemption contained in Rule 144 under the Securities Act.
In September 1995, the Company issued $2,000,000 in aggregate principal
amount of its 8% Subordinated Convertible Debentures due August 2000 (the
"Debentures") to certain individuals. The Debentures are convertible into
180,995 shares of Common Stock. None of these shares will have been acquired in
transactions registered under the Securities Act, and, accordingly, such shares
may not be transferred except in transactions registered under the Securities
Act or pursuant to an exemption from registration. Pursuant to the terms of the
Debentures, the Company has agreed to register the shares of Common Stock into
which the Debentures are convertible.
All of the stockholders of the Founding Companies, the holders of the
Debentures, the existing stockholders of the Company and the officers and
directors of the Company have agreed for a period ending May 18, 1996 (the
"Lockup Period") not to request or demand the filing of a registration statement
with respect to, offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock (or any securities convertible into or exercisable or
exchangeable for Common Stock) or grant any options or warrants to purchase any
shares of Common Stock without the prior written consent of PaineWebber
Incorporated ("PaineWebber"). The Company has also agreed during the Lockup
Period not to register for sale, file a registration statement with respect to,
offer, sell, contract to sell or otherwise dispose of or issue any shares of
Common Stock (or any securities convertible into or exercisable or exchangeable
for Common Stock) or grant any options or warrants to purchase any shares of
Common Stock without the prior written consent of PaineWebber except for (i) the
grant of up to 490,559 options pursuant to the Company's Employee Stock
Compensation Program (the "Employee Stock Compensation Program") and the grant
of 4,500 options pursuant to the Company's 1995 Stock Option Plan for
Independent Directors (the "Director Plan" and, together with the Employee Stock
Compensation Program, the "Stock Option Plans"), provided that at least 100,000
of the options that may be granted pursuant to the Employee Stock Compensation
Program must be granted at an exercise price per share equal to the greater of
(a) $13 per share and (b) the fair market value of the Common Stock on the date
of grant, (ii) the issuance of shares of Common Stock upon the exercise by the
holders thereof of their right to convert the Debentures into shares of Common
Stock, (iii) the issuance of shares of Common Stock in connection with future
acquisitions, provided that the Company may issue such shares only if the party
to whom such shares are issued agrees in writing not to offer, sell, contract to
sell or otherwise dispose of any such shares or grant any options or warrants to
purchase any such shares without the prior written consent of PaineWebber for
the balance of the Lockup Period, (iv) the filing of a shelf registration
statement to register an additional 5,000,000 shares of Common Stock for use by
the Company as all or a portion of the consideration to be paid in future
acquisitions and (v) the filing of the registration statements described below
to register the shares of Common Stock reserved for issuance under the Stock
Option Plans.
As of March 15, 1996, the Company had outstanding under the Stock
Option Plans options to purchase an aggregate of 494,319 shares of Common Stock,
none of which were exercisable as of that date. The Company intends to file
registration statements on Form S-8 in the near future registering the shares of
Common Stock issuable upon the exercise of options granted under the Stock
Option Plans. As a result, such shares will be eligible for resale in the public
market, unless held by affiliates of the Company.
Reliance on Key Personnel
The Company's operations are dependent on the continued efforts of its
executive officers and on the senior management of the Founding Companies.
Furthermore, the Company will likely be dependent on the senior management of
companies that may be acquired in the future. If any of these people elect not
to continue in their present roles, or if the Company is unable to attract and
retain other skilled employees, the Company's business could be adversely
affected. See Item 10. Directors, Executive Officers, Promoters and Control
Persons of the Registrant and Item 1. Business - Strategy.
Permits and Licensing
The Company's delivery operations are subject to various state, local
and federal regulations that in many instances require permits and licenses.
Failure by the Company to maintain required permits or licenses, or to comply
with applicable regulations, could result in substantial fines or possible
revocation of the Company's authority to conduct certain of its operations.
Furthermore, delays in obtaining approvals for the transfer of permits or
licenses, or failure to obtain such approvals, could impede the implementation
of the Company's acquisition program. See Item 1. Business - Regulation.
No Future Dividends
The Company does not anticipate paying any cash dividends on shares of
the Common Stock in the foreseeable future and intends to retain future
earnings, if any, for use in its business. In addition, the Company intends to
obtain bank financing for working capital purposes. The Company anticipates that
its ability to pay cash dividends on the Common Stock may be limited by the
terms of that financing. See Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters - Dividends and Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources.
Effect of Certain Charter Provisions
The Board of Directors of the Company is empowered to issue preferred
stock without stockholder action. The existence of this "blank-check" preferred
stock could render more difficult or discourage an attempt to obtain control of
the Company by means of a tender offer, merger, proxy contest or otherwise and
may adversely affect the prevailing market price of the Common Stock. The
Company currently has no plans to issue shares of preferred stock. In addition,
Section 203 of the Delaware General Corporation Law prohibits certain persons
from engaging in business combinations with the Company.
Item 2. Properties
As of December 31, 1995, the Company operated from 64 leased facilities
(excluding 11 authorized sales agent locations of SureWay). These facilities are
principally used for operations, general and administrative functions and
training. In addition, several facilities also contain storage and warehouse
space. The table below summarizes the location of the Company's current
facilities (excluding the sales agent locations).
State Number of Facilities
- ----- --------------------
New York.................................................................... 23
Florida..................................................................... 10
New Jersey.................................................................. 10
California.................................................................. 2
Georgia...................................................................... 2
Louisiana.................................................................... 2
Ohio......................................................................... 2
Connecticut.................................................................. 1
Illinois..................................................................... 1
Indiana...................................................................... 1
Maine........................................................................ 1
Maryland..................................................................... 1
Massachusetts................................................................ 1
Michigan..................................................................... 1
Missouri..................................................................... 1
North Carolina............................................................... 1
Pennsylvania................................................................. 1
Tennessee.................................................................... 1
Washington................................................................... 1
Washington, D.C.............................................................. 1
The Company's corporate headquarters are located in Paramus, New
Jersey. The Company believes that its properties are generally well maintained,
in good condition and adequate for its present needs. Furthermore, the Company
believes that suitable additional or replacement space will be available when
required.
As of December 31, 1995, the Company owned and/or leased approximately
500 cars and 300 trucks of various types, which are primarily operated by
drivers employed by the Company. In addition, certain of the Company's employee
drivers own or lease their own vehicles. The Company also hires independent
contractors who typically provide their own vehicles and are required to carry
at least the minimum amount of insurance required by state law.
The aggregate rental expense for the combined Founding Companies prior
to the Combination (the "Combined Founding Companies") for the nine months ended
September 30, 1995 was approximately $3.7 million and the Company's rental
expense for the three months ended December 31, 1995 was approximately $1.9
million. See Note 12 to the Company's Consolidated Financial Statements and Note
13 to the Combined Founding Companies' Financial Statements for further
information relating to these leases.
Item 3. Legal Proceedings
Olympic, as the successor to Orbit/Lightspeed, is the respondent in an
administrative proceeding before the National Labor Relations Board ("NLRB")
arising out of a representation election held in November 1994 in which
Orbit/Lightspeed's messengers voted against a local of the International
Brotherhood of Teamsters ("Union") becoming their collective bargaining
representative. The administrative proceeding is based upon objections the Union
filed in November 1994 following the election, as well as unfair labor practice
charges first filed by the Union in September 1994, with respect to which
General Counsel for the NLRB went to complaint on February 16, 1995 and May 31,
1995. The Union and General Counsel seek an order directing a second election.
The Company is defending the action vigorously. In the event that the General
Counsel for the NLRB is successful, the Company believes that it would be
required to hold a new representation election.
In March 1996, a purported class action lawsuit was filed against
Olympic, Orbit/Lightspeed, Robert Wyatt, Rick Katz, Jeremy Weinstein and certain
related entities (collectively, the "Orbit/Lightspeed Parties") in the Supreme
Court of the State of New York, County of Kings, on behalf of former and current
messengers of Olympic, as the successor to Orbit/Lightspeed, alleging that the
Orbit/Lightspeed Parties unlawfully withheld certain amounts otherwise payable
to the messengers. A similar action had previously been filed against the
Orbit/Lightspeed Parties in October 1995 but was later voluntarily discontinued
by the plaintiffs. The suit, which claims violations of contract, minimum wage
and overtime statutes, and the civil provisions of the federal RICO statute,
seeks an unspecified amount of compensatory and punitive damages from the
Orbit/Lightspeed Parties, as well as attorney's fees and other expenses. The
Company believes that the plaintiff's claims are without merit and is defending
the action vigorously. The Company does not believe that this action will have a
material adverse effect on the financial position or results of operations of
the Company.
In January 1996, Assumption Holdings Corp. ("Assumption) filed suit
against the Company in the United States District Court for the District of New
Jersey alleging that Securities Courier had breached an agreement under which
Assumption was entitled to certain fees and 10% of Securities Courier's
authorized capital stock. The complaint seeks damages of approximately $1.1
million. The action is at a preliminary stage and, therefore, the Company is
unable at this time to determine whether the action is meritorious. Under the
terms of its acquisition of Securities Courier, the Company is entitled to
indemnification from Mr. Brana for any costs or damages in excess of $100,000.
Accordingly, the Company does not believe that this action will have a material
adverse effect on the financial position or results of operations of the
Company.
In February 1996, Liberty Mutual Insurance Company ("Liberty Mutual")
filed an action against Securities Courier, Mr. Brana and certain other parties
in the United States District Court for the Southern District of New York
alleging, among other things, that Securities Courier had fraudulently obtained
automobile liability insurance from Liberty Mutual in the late 1980s and early
1990s at below market rates. The suit, which claims common law fraud, fraudulent
inducement, unjust enrichment and violations of the civil provisions of the
federal RICO statute, among other things, seeks an unspecified amount of
compensatory and punitive damages from the defendants, as well as attorney's
fees and other expenses. The action is at a preliminary stage and, therefore,
the Company is unable at this time to determine whether the action is
meritorious. Under the terms of its acquisition of Securities Courier, the
Company is entitled to indemnification from Mr. Brana for any costs or damages
in excess of $100,000. Accordingly, the Company does not believe that this
action will have a material adverse effect on the financial position or results
of operations of the Company.
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for personal injury
and property damage incurred in connection with its same-day ground and air
delivery operations. Management believes that none of these actions, including
the actions described above, will have a material adverse effect on the
financial position or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Common Stock is included for quotation on the Nasdaq National
Market under the symbol "CDLI." The following table sets forth the high and low
sales prices for the Common Stock from November 20, 1995, the date of the
Offering, through March 25, 1996.
1995 Low High
Fourth Quarter (from November 20, 1995) $10.00 $13.50
1996 Low High
First Quarter (through March 25, 1996) $5.75 $11.75
On March 25, 1996, the last reported sale price of the Common Stock was
$6.25 per share. As of March 15, 1996, there were approximately 125 shareholders
of record of Common Stock and, based on security position listings, the Company
believes there were approximately 1,500 beneficial holders of the Common Stock.
Dividends
The Company has not declared or paid any dividends on its Common Stock.
The Company currently intends to retain earnings to support its growth strategy
and does not anticipate paying dividends in the foreseeable future. Payment of
future dividends, if any, will be at the discretion of the Company's Board of
Directors after taking into account various factors, including the Company's
financial condition, results of operations, current and anticipated cash needs
and plans for expansion. In addition, the Company intends to obtain bank
financing for working capital purposes. The Company anticipates that its ability
to pay cash dividends on the Common Stock will be limited by the terms of that
financing. See Item 1. Business - Risk Factors - No Future Dividends and Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources.
Item 6. Selected Financial Data
SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
Consolidated Delivery & Logistics, Inc. (the "Company") merged (the
"Combination") with the following 11 companies: American Courier Express, Inc.
("American"); Bestway Distribution Services, Inc. and Crown Courier Systems,
Inc. ("Bestway/Crown"); Click Messenger Service, Inc. and related companies
("Click"); Court Courier Systems, Inc. and a related company ("Court");
Distribution Solutions International, Inc. ("DSI"); Clayton/National Courier
Systems, Inc. and a related company ("National"); Olympic Courier Systems, Inc.
and a related company ("Olympic"); Orbit/Lightspeed Courier Systems, Inc. and
related companies ("Orbit/Lightspeed"); Securities Courier Corporation
("Securities Courier"); Silver Star Express, Inc. and related companies ("Silver
Star"); and SureWay Air Traffic Corporation and a related company ("SureWay")
(collectively the "Founding Companies") in exchange for shares of the Company's
common stock and cash.
The statement of operations data shown below for the years ended
December 31, 1991, 1992, 1993, and 1994 and the nine month period ended
September 30, 1995 and the balance sheet data as of December 31, 1991, 1992,
1993 and 1994 are that of the Combined Founding Companies prior to the
Combination (the "Combined Founding Companies") on a historical basis except for
pro forma data. During the periods presented, the Combined Founding Companies
were not under common control or management and some were not taxable entities.
Therefore the data presented may not be comparable to or indicative of
post-combination results to be achieved by the Company after the Combination.
The following selected financial data with respect to the Combined
Founding Companies' combined statements of operations for the years ended
December 31, 1993 and 1994 and the nine month period ended September 30, 1995
and with respect to the Combined Founding Companies' combined balance sheets as
of December 31, 1993 and 1994 have been derived from the Combined Founding
Companies' combined financial statements that appear elsewhere herein. The
selected financial data with respect to Consolidated Delivery & Logistics,
Inc.'s consolidated statement of operations for the three month period ended
December 31, 1995 and with respect to Consolidated Delivery & Logistics, Inc.'s
consolidated balance sheet as of December 31, 1995 have been derived from
Consolidated Delivery & Logistics, Inc.'s consolidated financial statements that
appear elsewhere herein. The financial data provided below should be read in
conjunction with these accompanying financial statements and notes thereto as
well as "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations."
SELECTED FINANCIAL DATA (Continued)
(In thousands, except per share amounts)
Income Statement Data:
Consolidated
Delivery &
Combined Founding Companies Logistics, Inc.
------------------------------------------- and Subsidiaries
------------------
For The
Nine For The
Months Year Ended
For The Years Ended December 31, Ended December
September 31, Pro
-------------------------------------------- 30, Forma
1991 1992 1993 1994 1995 1995(3) (1)
-------- -------- -------- -------- -------- ------- --------
(Unaudited)
Revenues $103,525 $111,972 $121,752 $137,544 $111,406 $39,036 $150,442
Cost of revenues 70,579 77,028 84,437 95,350 77,547 27,439 104,986
-------- -------- -------- -------- -------- ------- --------
Gross profit 32,946 34,944 37,715 42,194 33,859 11,597 45,456
Selling general and
administrative
expense 31,624 34,299 36,015 40,338 29,777 11,301 41,079
-------- -------- -------- -------- -------- ------- --------
Operating income1,322 645 1,300 1,856 4,082 296 4,377
Interest and other
income (expense), net (559) 349 58 (414) (425) 91 (333)
-------- -------- -------- -------- -------- ------- --------
Income before
income taxes 763 994 1,358 1,442 3,657 387 4,044
Pro forma provision
for income taxes (2) 374 632 636 721 1,475 582 2,057
-------- -------- -------- -------- -------- ------- --------
Net income (loss)$389 $362 $722 $721 $2,182 ($195) $1,987
======== ======== ======== ======== ======== ======= ========
Net loss per share ($.10)
=======
Pro forma net income
per share (3) $.29
========
Balance Sheet Data:
Consolidated
Delivery &
Logistics,
Inc. and
Combined Founding Companies Subsidiaries
---------------------------------------- -------------
December 31, December 31,
---------------------------------------- -------------
1991 1992 1993 1994 1995
------ --------- ---------- ---------- -------------
(Unaudited)
Working capital $887 $1,290 $3,211 $3,548 $7,542
Equipment and improvements,
net 1,992 3,255 3,651 3,102 3,925
Total assets 18,484 21,453 23,045 23,869 32,840
Long-term debt, net of
current maturities 2,407 3,226 3,680 1,164 3,027
Stockholders' equity 3,719 4,149 5,212 5,568 8,311
(1) Reflects the results of operations of the Combined Founding Companies for
the period from January 1 to September 30, 1995 and the results of
operations of Consolidated Delivery & Logistics, Inc. and Subsidiaries for
the year ended December 31, 1995.
(2) Pro forma income tax provisions have been provided for certain Founding
Companies. See Notes 3 and 11 to the Combined Founding Companies Financial
Statements.
(3) The computation of pro forma earnings per share for the year ended December
31, 1995 is based upon 6,810,564 shares of Common Stock outstanding, which
includes (i) 493,869 shares issued prior to the Combination, (ii) 2,935,700
shares issued to the stockholders of the Founding Companies in connection
with the Combination, (iii) 3,200,000 shares sold in the Offering, and (iv)
the dilution attributable to the debentures which are convertible into
180,995 shares of Common Stock. The conversion of the stock options
outstanding at December 31, 1995 are not included in the computation as the
effect would be antidilutive.
(4) The Company selected October 1, 1995 as the effective date of the Merger.
The assets and liabilities of the Founding Companies at September 30, 1995,
were recorded by CD&L at their historical amounts. The income statement
includes the results of operations of the Founding Companies from October
1, 1995 through December 31, 1995. The results of operations for
Consolidated Delivery & Logistics, Inc. prior to the Combination are not
significant.
The Founding Companies are collectively considered predecessors to the
Company. The following table represents selected information of the individual
Founding Companies for the three most recent fiscal years and the nine month
period ended September 30, 1995.
Year Ended Nine Months Ended
December 31, September 30,
--------------------------------
1992 1993 1994 1995
---- ---- ---- ----
(in thousands) (unaudited)
SureWay
Revenues. $29,644 $31,954 $36,662 $31,571
Gross profit 11,810 13,188 15,253 12,787
SG&A..... 11,459 12,855 14,535 11,005
Net income $ 176 $ 186 $ 399 $ 1,051
======= ======== ======= =======
Securities Courier
Revenues. $17,647 $17,804 $18,698 $12,802
Gross profit 1,874 1,503 2,197 1,712
SG&A..... 1,803 1,813 1,855 1,415
Net income (loss) $ (215) $ (346) $ 108 $ 150
======= ========= ======= =======
National
Revenues. $11,776 $12,472 $15,018 $11,996
Gross profit 4,811 5,016 5,673 4,636
SG&A..... 5,102 4,942 5,248 4,496
Net income $ 55 $ 137 $ 130 $ 2
======= ========== ======= =======
Silver Star
Revenues. $14,649 $14,972 $15,139 $10,143
Gross profit 3,869 3,549 4,026 2,467
SG&A..... 3,020 2,931 3,441 2,057
Net income $ 576 $ 346 $ 451 $ 276
======= ========= ======= =======
Click
Revenues. $7,132 $7,647 $8,861 $9,267
Gross profit 2,080 1,746 1,980 2,471
SG&A..... 2,065 1,699 1,935 1,890
Net income (loss) $ (31) $ 25 $ (10) $ 300
======= ======== ======= ======
Bestway/Crown
Revenues. $6,955 $6,686 $9,603 $8,206
Gross profit 3,031 2,961 3,735 2,901
SG&A..... 3,311 3,170 3,390 2,756
Net income (loss) $ (35) $ 7 $ 261 $ 147
======= ======== ======= ======
Court
Revenues. $5,690 $6,929 $8,768 $7,395
Gross profit 787 1,343 1,675 1,417
SG&A..... 907 1,211 1,498 1,274
Net income (loss) $ (162) $ (9) $ (165) $ (57)
======= ======== ======= ======
Orbit/Lightspeed
Revenues. $7,458 $7,777 $8,020 $6,442
Gross profit 2,128 2,245 2,205 1,827
SG&A..... 2,347 2,191 2,166 1,450
Net income (loss) $ (147) $ 48 $ 32 $ 223
======= ======== ====== ======
DSI
Revenues. $4,263 $6,796 $6,862 $6,217
Gross profit 1,113 1,803 1,480 964
SG&A..... 1,137 1,459 2,011 931
Net income (loss) $ (57) $ 205 $ (541) $ 6
======= ======= ====== ======
For The Nine
Months Ended
For the Years Ended December 31, September 30,
1992 1993 1994 1995
Olympic
Revenues. $5,163 $6,181 $5,766 $4,219
Gross profit 2,589 3,037 2,626 1,925
SG&A..... 2,510 2,916 2,610 1,905
Net income $ 38 $ 111 $ 29 $ 1
======== ======== ======== ========
American
Revenues. $1,596 $2,533 $4,146 $3,149
Gross profit 774 1,003 1,343 750
SG&A..... 637 829 1,422 598
Net income (loss) $ 68 $ 90 $ (62) $ 84
======= ====== ====== ========
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of the Company's results of operations and of
its liquidity and capital resources should be read in conjunction with the
Consolidated Financial Data of the Company, the Combined Financial Statements of
the Combined Founding Companies, the Financial Statements of the Founding
Companies and the related Notes thereto appearing elsewhere herein.
Overview
The following discussion of the Company's results of operations and of
its liquidity and capital resources should be read in conjunction with the
Consolidated Financial Statements of the Company and the related notes thereto
appearing elsewhere in this Report. Simultaneously, with the closing of the
Company's initial public offering in November, 1995, separate wholly-owned
subsidiaries of the Company merged with each of the eleven Founding Companies.
Prior to the Merger, each of the Founding Companies operated as a separate
independent entity. The Company selected October 1, 1995 as the effective date
of the Merger. For the nine months ended September 30, 1994 and 1995, the year
ended December 31, 1994 and the three months period ended December 31, 1994 the
combined Financial Statements included the accounts of the Founding Companies as
if the Founding Companies had always been members of the same operating group
without giving effect to the Mergers or the Offering. Results for the three
months ended December 31, 1995 reflect the consolidated operations of the
Company after giving effect to this Merger and the Offering. The pro-forma
results for the year ended December 31, 1995 is the sum of the nine month period
ended September 30, 1995 and the three month period ended December 31, 1995. As
a result, combined results may not be comparable to or indicative of future
performance.
The Founding Companies derive their revenues from fees charged for
ground and air delivery and logistics services. Although revenues from ground
delivery services account for the majority of total revenues, certain Founding
Companies have recently experienced higher revenue growth rates from air
delivery and logistics services. Management expects this trend to continue (i)
for logistics, as a result of increased emphasis on inventory management and
outsourcing and (ii) for air delivery, as a result of increased emphasis on
timely delivery.
Costs of revenues relating to ground delivery consist primarily of
salaries and fees paid to drivers, messengers and independent operators. These
fees are established as a percentage of the gross revenues generated. The
primary costs of revenues for air delivery services include purchased services
from commercial air carriers and other delivery agents. Costs of revenues for
logistics services consist primarily of purchased services for warehousing and
local ground and air delivery services. Gross profit margins tend to be lower in
the first half of the year due to lower revenue volume and higher costs incurred
during the winter months.
Prior to the Combination, most of the Founding Companies elected to be
treated as S Corporations under the Internal Revenue Code of 1986, as amended.
Upon consummation of the Combination, the Company terminated the S Corporation
elections of the Founding Companies. For purposes of the Combined Financial
Statements presented elsewhere herein, pro forma Federal income taxes have been
provided for the Founding Companies as if all of the Founding Companies had
filed C Corporation tax returns. See Notes 3 and 11 to the Consolidated
Financial Statements.
During the course of the preparation of its audited 1995 financial
statements, the Company discovered certain errors in the preliminary information
provided to it by the individual Founding Companies relating to results for the
fourth quarter of 1995. These errors related solely to the fourth quarter of
1995 and did not affect any other fiscal period. The financial statements for
the fourth quarter of 1995 and for the year ended December 31, 1995 contained
herein reflect the correction of these errors. The Company has begun to take
certain actions, including the hiring of additional experienced supervisors, to
improve the training and supervision of its accounting staff so that senior
management receives accurate financial information on a timely basis. See Item
1. Business - Risk Factors.
Disclosure Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward looking statements. Certain information contained in this
Form 10-K includes information that is forward looking, such as the Company's
expectations for future performance, its growth and acquisition strategies, its
anticipated liquidity and capital needs and its future prospects. The matters
referred to in such forward looking statements could be affected by the risks
and uncertainties related to the Company's business. These risks and
uncertainties include, but are not limited to, the effect of economic and market
conditions, the Company's lack of prior operating history, the ability of the
Company to successfully integrate the business of acquired companies, the impact
of competition, both for customers and for acquisition candidates, the need for
financing to implement the Company's strategic plan, as well as certain other
risks described elsewhere herein. Subsequent written and oral forward looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the cautionary statements contained
herein and elsewhere in this Form 10-K.
Results of Operations
Three Months Ended December 31, 1995 Compared to Historical Combined Three
Months Ended December 31, 1994
The combined results for the three month period ended December 31, 1994
may not be comparable to the consolidated results for the three month period
ended December 31, 1995 due to the effect of the merger and offering described
elsewhere.
Revenues for the fourth quarter of 1995 increased $2.7 million, or
7.4%, to $39.0 million from $36.3 million for the fourth quarter of 1994
primarily as a result of increased air and ground delivery revenues at Sureway,
Click and Bestway. These increases were partially offset by a decrease in
revenues at Securities Courier, resulting from a lost contract in the fourth
quarter of 1994, and at Silver Star, resulting from the sale of two terminals in
the fourth quarter of 1994. For the fourth quarter of 1995, ground delivery
revenues increased approximately $0.5 million (2.2%), air delivery revenues
increased approximately $1.0 million (9.9%) and logistics revenues increased by
approximately $1.2 million (37.3%) over the comparable period in 1994. Ground
delivery revenues increased primarily due to additional business from existing
customers as well as the addition of new customers in the consumer products and
pharmaceutical industries. The increase in air delivery revenues during the
fourth quarter of 1995 was largely attributable to new customers in the printing
and graphic arts industries and to increased demand from existing customers. The
increase in logistics revenues was primarily attributable to the addition of new
customers and increased demand from existing customers.
Operating income for the three month period ended December 31, 1995 of
$306,000 represented an increase of $178,000 from operating income of $128,000
for the three months ended December 31, 1994. The increase is attributable to
the revenue growth as discussed above.
Interest expense for the fourth quarter of 1995 decreased $49,000, or
15.2%, to $274,000 from $323,000 for the fourth quarter of 1994 primarily as a
result of a lower level of indebtedness.
The provision for income taxes for the fourth quarter of 1995 increased
$344,000, or 144.5%, to $582,000 from $238,000 for the fourth quarter of 1994
primarily as a result of a provision for potential tax matters and a higher
level of taxable income.
For the reasons discussed above, net loss for the fourth quarter of
1995 decreased $68,000, or 26.9%, to $185,000 from $253,000 for the fourth
quarter of 1994.
Nine Months Ended September 30, 1995 Compared to Nine Months Ended September 30,
1994 (Unaudited)
Revenues for the nine months ended September 30, 1995 increased $10.2
million, or 10.1%, to $111.4 million from $101.2 million for the nine months
ended September 30, 1994 primarily as a result of internal growth by SureWay,
Click, National and Court. For the nine months ended September 30, 1995, ground
delivery revenues increased approximately $3.6 million (5.6%), air delivery
revenues increased approximately $4.5 million (16.6%) and logistics revenues
increased by approximately $2.1 million (21.1%) over the comparable period of
1994. Ground delivery revenues increased primarily due to additional business
from existing customers of Click, National and Court, offset in part by declines
in revenues at Securities Courier and Silver Star for the reasons described
above. Ground delivery revenues also increased as a result of the addition of
new customers in the consumer products and pharmaceutical industries. The
increase in air delivery revenues during the nine months ended September 30,
1995 was largely attributable to new customers in the printing and graphic arts
industries and to increased demand from existing customers of SureWay. The
increase in logistics revenues was primarily attributable to additional business
from existing customers of Bestway/Crown and DSI in the pharmaceutical,
publishing and consumer products industries.
Gross profit for the nine months ended September 30, 1995 increased
$5.0 million, or 17.3%, to $33.9 million from $28.9 million for the nine months
ended September 30, 1994 primarily as a result of increased revenues at SureWay,
Click and National. These increases were partially offset by a decrease in
revenues at Silver Star for the reasons described above. Gross profit margin
increased to 30.4% for the nine months ended September 30, 1995 from 28.6% for
the nine months ended September 30, 1994. The increase in gross profit margin
resulted primarily from higher air delivery revenues at SureWay and increased
efficiencies achieved by Click and National in their ground delivery operations.
SG&A for the nine months ended September 30, 1995 increased $2.6
million, or 9.6%, to $29.8 million from $27.2 million for the nine months ended
September 30, 1994. As a percentage of revenues, SG&A decreased to 26.7% for the
nine months ended September 30, 1995 from 26.9% for the nine months ended
September 30, 1994. The increase in the dollar amount of SG&A resulted primarily
from increased costs relating to ongoing staff and facility expansion to
generate and support the increased revenue volume as discussed above. The
decrease in SG&A as a percentage of revenues was primarily attributable to
spreading costs over increased revenues.
For the reasons described above, operating income for the nine months
ended September 30, 1995 increased $2.4 million, or 141.2%, to $4.1 million from
$1.7 million for the nine months ended September 30, 1994. Operating margin
increased to 3.7% for the nine months ended September 30, 1995 from 1.7% for the
comparable period in 1994.
Interest expense for the nine months ended September 30, 1995 increased
$80,000, or 15.2%, to $608,000 from $528,000 for the nine months ended September
30, 1994 primarily as a result of increased borrowings.
For the reasons discussed above, net income for the nine months ended
September 30, 1995 increased $1.5 million, or 214.3%, to $2.2 million from
$700,000 for the nine months ended September 30, 1994.
Pro Forma Year Ended December 31, 1995 Compared to Historical Combined Year
Ended December 31, 1994
Revenues for 1995 increased $12.9 million, or 9.4%, to $150.4 million
from $137.5 million for 1994 primarily as a result of internal growth by
SureWay, Click, Bestway and Court, offset in part by a revenue decline at
Securities Courier. For 1995, ground delivery revenues increased approximately
$4.1 million (4.7%), air delivery revenues increased approximately $5.5 million
(14.8%) and logistics revenues increased by approximately $3.3 million (25.2%)
over 1994. Ground delivery revenues increased primarily due to additional
business from existing customers of Click, Bestway and Court, offset in part by
declines in revenues at Securities Courier and Silver Star for the reasons
described above. Ground delivery revenues also increased as a result of the
addition of new customers in the consumer products and pharmaceutical
industries. The increase in air delivery revenues during 1995 was largely
attributable to new customers in the printing and graphic arts industries and to
increased demand from existing customers of SureWay. The increase in logistics
revenues was primarily attributable to additional business from existing
customers of Bestway/Crown and DSI in the pharmaceutical, publishing and
consumer products industries and new logistics customers for SureWay.
Gross profit for 1995 increased $3.3 million, or 7.7%, to $45.5 million
from $42.2 million for 1994 primarily as a result of increased revenues at
SureWay and Click. These increases were partially offset by a decrease in
revenues at Silver Star for the reason described above.
SG&A for 1995 increased $741,000, or 1.8%, to $41.1 million from $40.3
million for 1994. As a percentage of revenues, SG&A decreased to 27.3% for 1995
from 29.3% for 1994. The increase in the dollar amount of SG&A resulted
primarily from increased costs relating to ongoing staff and facility expansion
to generate and support the increased revenue volume as discussed above. The
decrease in SG&A as a percentage of revenues was primarily attributable to
spreading costs over increased revenues.
For the reasons described above, operating income for 1995 increased
$2.5 million, or 135.8%, to $4.4 million from $1.9 million for 1994. Operating
margin increased to 2.9% for 1995 from 1.3% for 1994.
Interest expense for 1995 decreased $28,000, or 3.1%, to $882,000 from
$910,000 for 1994 primarily as a result of repayments of certain indebtedness in
connection with the Combination.
For the reasons discussed above, net income for 1995 increased $1.3
million, or 175.6%, to $2.0 million from $721,000 for 1994.
Historical Combined Year Ended December 31, 1994 Compared to Historical Combined
Year Ended December 31, 1993
Revenues for 1994 increased $15.7 million, or 12.9%, to $137.5 million
from $121.8 million for 1993 primarily as a result of internal growth by
SureWay, Bestway/Crown and National. In 1994, ground delivery revenues increased
by approximately $9.5 million (12.3%), air delivery revenues increased by
approximately $4.9 million (15.3%) and logistics revenues increased by
approximately $1.3 million (11.2%) over 1993 results. The increase in ground
delivery revenues was primarily attributable to new customers in the
pharmaceutical and consumer products industries in New Jersey, New York, Maine
and Connecticut. The growth in air delivery revenues resulted primarily from the
addition of new sales agency offices by SureWay and increased demand from
existing customers of SureWay and National in the advertising and entertainment
industries. The increase in logistics revenues was primarily attributable to the
entry into the logistics business by Bestway/Crown.
Gross profit for 1994 increased $4.9 million, or 13.1%, to $42.2
million from $37.3 million for 1993 primarily as a result of increased revenues
at SureWay, Bestway/Crown and Securities Courier. These increases were partially
offset by a decrease in revenues at DSI and at Olympic. Gross profit margin
remained consistent from the previous period despite the impact in 1994 of the
unexpected cancellation by a customer of DSI of a significant logistics project.
SG&A for 1994 increased $4.3 million, or 11.9%, to $40.3 million from
$36.0 million for 1993. As a percentage of revenues, SG&A decreased slightly due
to the spreading of costs over increased revenues. The increase in the dollar
amount of SG&A resulted primarily from increased costs relating to ongoing staff
and facility expansion to generate and support the increased revenue volume as
discussed above.
For the reasons discussed above, operating income for 1994 increased
$600,000, or 46.2%, to $1.9 million from $1.3 million for 1993. Operating margin
increased to 1.3% from 1.1% for the comparable period.
Other income for 1994 decreased $353,000, or 44.6%, to $438,000 from
$791,000 for 1993. Other income during both 1994 and 1993 consists primarily of
gains on sales of certain assets by National and Silver Star.
Interest expense for 1994 increased $120,000, or 15.2%, to $910,000
from $790,000 in 1993 due to increased borrowings for working capital needs at
an interest rate of 33.6% by Court. The Company repaid this debt with a portion
of the net proceeds of the Offering.
For the reasons discussed above, net income remained relatively
unchanged from the previous period.
Liquidity and Capital Resources
On November 27, 1995, the Company completed the Offering, which
involved the public sale of 3,200,000 shares of Common Stock at a price of $13
per share. The net proceeds of the Offering were approximately $33.2 million. Of
this amount, $29.6 million was used to pay the cash portion of the purchase
price for the Founding Companies. The Company also used the net proceeds to
repay approximately $2.3 million of debt during 1995.
During 1995, net cash provided by operating activities was $1.9
million. Capital expenditures in 1995 totaled $2.1 million. These expenditures
were used primarily to upgrade equipment and maintain and expand facilities in
the ordinary course of business. In many cases, drivers provide their own
delivery vehicles, which reduces the Companies capital expenditures and overhead
costs. In addition to the uses described above, these expenditures will be
incurred to improve and enhance existing systems and to conduct a comprehensive
evaluation with respect to the establishment of an integrated information
management system.
The Company used $495,000 in investing activities during 1995, relating
primarily to capital expenditures and the purchases of businesses. These uses
were offset in part by the repayment of stockholder loans by certain of the
former stockholders of the Founding Companies.
During 1995, net cash provided by financing activities was $2.8
million, relating primarily to the Offering, the issuance of the Debentures and
the net proceeds from short-term borrowings and long-term debt. These amounts
were offset in part by repayments, distributions paid to the former stockholders
of the Founding Companies in connection with the Combination and certain other
distributions paid to stockholders.
Total indebtedness of the Company was approximately $9.3 million as of
December 31, 1995, consisting primarily of bank loans, capitalized leases, notes
due to the stockholders of the Founding Companies, equipment loans, other
working capital loans and $2.0 million in aggregate principal amounts of
Debentures. Such indebtedness bears interest at rates ranging from 5.0% to 27.0%
with weighted average interest rate of approximately 11.8%.
Management believes that cash flow from operations, together with its
current sources of liquidity and borrowing capacity, are sufficient to support
the Company's operations and general business and capital liquidity
opportunistic acquisition program. The Company currently intends to use Common
Stock for all or a portion of the consideration to be paid in future
acquisition. However, the recent decline in the market value of the Company's
Common Stock has reduced the attractiveness of the Common Stock as an
acquisition medium. As a result, the Company will be required to utilize more of
its cash resources, if available, in order to effect its acquisition program.
The Company currently does not have sufficient cash resources to fund its
acquisition program. Accordingly, the Company's growth through acquisitions will
be limited unless it is able to obtain additional capital through additional
debt or equity financing. The company is currently discussing the terms of a
proposed credit facility with an institutional lender. However, there can be no
assurance that the Company will be able to obtain such financing if and when it
is needed or that, if available, it will be available on terms the Company deems
acceptable. As a result, the Company might be unable to implement successfully
its acquisition strategy.
The Financial Accounting Standards Board has issued a new standard,
"Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires that
an entity account for employee stock compensation under a fair value based
method. However, SFAS 123 also allows an entity to continue to measure
compensation cost for employee stock-based compensation plans using the
intrinsic value based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees", ("Opinion 25"). Entities electing to
remain with accounting under Opinion 25 are required to make pro forma
disclosures of net income and earnings per share as if the fair value based
method of accounting under SFAS 123 had been applied. The Company expects to
continue to account for employee stock-based compensation under Opinion 25 and
provide the required pro forma disclosures.
Inflation
Inflation has not had a material impact on the Company's results of
operations for the last three years.
SureWay Results of Operations
Three Months Ended December 31, 1995 Compared to pro forma Combined Three Months
Ended December 31, 1994
The combined results for the three month period ended December 31, 1994
may not be comparable to the consolidated results for the three month period
ended December 31, 1995 due to the effect of the merger and offering described
elsewhere.
Revenues increased $2.1 million for the three months ended December 31,
1995 to $11.6 million from $9.5 million for the three months ended December 31,
1994 primarily as a result of increased demand from existing customers and an
increased demand from new customers in SureWay Logistics Division.
Operating income increased by $655,000 from an operating loss of
$77,000 for the three months ended December 31, 1994 to an operating profit of
$579,000 for the three months ended December 31, 1995.
For the reasons discussed above, net income increased from a loss of
$54,000 for the three months ended December 31, 1994 by $214,000 to $160,000 for
the three months ended December 31, 1995.
Nine Months Ended September 30, 1995 Compared to Nine Months Ended September 30,
1994 (Unaudited)
Revenues for the nine months ended September 30, 1995 increased $4.4
million, or 16.2%, to $31.6 million from $27.2 million for the nine months ended
September 30, 1994 primarily as a result of internal growth from new customers
in the printing and graphic arts industries as well as increased demand from
existing customers.
Gross profit for the nine months ended September 30, 1995 increased
$1.9 million, or 17.4%, to $12.8 million from $10.9 million for the nine months
ended September 30, 1994 primarily as a result of increased revenues as
described above. Gross profit margin remained relatively unchanged for the nine
months ended September 30, 1995.
SG&A for the nine months ended September 30, 1995 increased $900,000,
or 8.9%, to $11.0 million from $10.1 million for the nine months ended September
30, 1994. As a percentage of revenues, SG&A decreased to 34.9% for the nine
months ended September 30, 1995 from 37.3% for the nine months ended September
30, 1994. The increase in the dollar amount of SG&A resulted primarily from
increased costs relating to ongoing staff and facility expansion to generate and
support the increased revenue volume as discussed above. The decrease in SG&A as
a percentage of revenues was primarily attributable to spreading costs over
increased revenues.
For the reasons described above, operating income for the nine months
ended September 30, 1995 increased $1,005,000, or 126.4%, to $1.8 million from
$795,000 for the nine months ended September 30, 1994. Operating margin
increased to 5.6% for the nine months ended September 30, 1995 from 2.9% for the
comparable period of 1994.
Interest expense for the nine months ended September 30, 1995 increased
$19,000, or 27.5%, to $88,000 from $69,000 for the nine months ended September
30, 1994 primarily as a result of increased borrowings.
For the reasons discussed above, net income for the nine months ended
September 30, 1995 increased $647,000, or 142.8%, to $1.1 million from $453,000
for the nine months ended September 30, 1994.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Revenues for 1994 increased $4.7 million, or 14.7%, to $36.7 million
from $32.0 million for 1993 primarily as a result of the addition of new sales
agency offices and increased demand from existing customers in the advertising
and entertainment industries.
Gross profit for 1994 increased $2.1 million, or 15.9%, to $15.3
million from $13.2 million for 1993 primarily as a result of increased revenues
as described above. Gross profit margin increased to 41.6% for 1994 from 41.3%
for 1993. The increase in gross profit margin resulted primarily from increased
efficiencies.
SG&A for 1994 increased $1.7 million, or 13.2%, to $14.6 million from
$12.9 million for 1993. As a percentage of revenues, SG&A decreased to 39.6% for
1994 from 40.2% for 1993. The increase in the dollar amount of SG&A resulted
primarily from increased costs relating to ongoing staff and facility expansion
to generate and support the increased revenue volume as discussed above. The
decrease in SG&A as a percentage of revenues was primarily attributable to
spreading costs over increased revenues.
For the reasons described above, operating income for 1994 increased
$385,000, or 115.6%, to $718,000 from $333,000 for 1993. Operating margin
increased to 2.0% for 1994 from 1.1% for 1993.
Interest expense for 1994 decreased $3,000, or 3.1%, to $97,000 from
$100,000 for 1993 primarily as a result of decreased borrowings.
For the reasons discussed above, net income for 1994 increased
$213,000, or 114.5%, to $399,000 from $186,000 for 1993.
Year Ended December 31, 1993 Compared to Year Ended December 31, 1992
Revenues for 1993 increased $2.4 million, or 8.1%, to $32.0 million
from $29.6 million for 1992 primarily as a result of the addition of new sales
agency offices and from new customers in the entertainment, advertising and
financial industries .
Gross profit for 1993 increased $1.4 million, or 11.9%, to $13.2
million from $11.8 million for 1992 primarily as a result of increased revenues
as described above. Gross profit margin increased to 41.3% for 1993 from 39.8%
for 1992. The increase in gross profit margin resulted primarily from increased
efficiencies.
SG&A for 1993 increased $1.4 million, or 12.2%, to $12.9 million from
$11.5 million for 1992. As a percentage of revenues, SG&A increased to 40.2% for
1993 from 38.7% for 1992. The increase in the dollar amount of SG&A resulted
primarily from increased costs relating to ongoing staff and facility expansion
to generate and support the increased revenue volume as discussed above.
For the reasons described above, operating income for 1993 decreased
$18,000, or 5.1%, to $333,000 from $351,000 for 1992. Operating margin remained
relatively unchanged for 1993.
Interest expense for 1993 decreased $35,000, or 25.9%, to $100,000 from
$135,000 for 1992 primarily as a result of decreased borrowings.
For the reasons discussed above, net income for 1993 increased $10,000,
or 5.7%, to $186,000 from $176,000 for 1992.
Securities Courier Results of Operations
Three Months Ended December 31, 1995 Compared to pro forma Combined Three Months
Ended December 31, 1994
The combined results for the three month period ended December 31, 1994
may not be comparable to the consolidated results for the three month period
ended December 31, 1995 due to the effect of the merger and offering described
elsewhere.
Revenues for the three months ended December 31, 1995 decreased by
$464,000 from $4.6 million for the three months ended December 31, 1994 to $4.1
million primarily as the result of a contract lost in the fourth quarter of
1995.
Operating income fell by $268,000 from $154,000 for the three months
ended December 31, 1994 to a loss of $114,000 for the three months ended
December 31, 1995 primarily attributable to the decline in revenues discussed
above.
Net income decreased $137,000 from $52,000 for the three months ended
December 31, 1994 to a net loss of $84,000 for the three months ended December
31, 1995 primarily due to the reduction in Revenues discussed above.
Nine Months Ended September 30, 1995 Compared to Nine Months Ended September 30,
1994 (Unaudited)
Revenues for the nine months ended September 30, 1995 decreased $1.3
million, or 9.2%, to $12.8 million from $14.1 million for the nine months ended
September 30, 1994 primarily as a result of a contract lost in the fourth
quarter of 1994.
Gross profit for the nine months ended September 30, 1995 increased
$100,000, or 6.3%, to $1.7 million from $1.6 million for the nine months ended
September 30, 1994 primarily as a result of operating efficiencies and lower
insurance costs. Gross profit margin increased to 13.4% for the nine months
ended September 30, 1995 from 11.0% for the nine months ended September 30,
1994. The increase in gross profit margin resulted primarily from the operating
efficiencies and lower insurance costs referred to above.
SG&A for the nine months ended September 30, 1995 remained relatively
unchanged for the nine months ended September 30, 1994. As a percentage of
revenues, SG&A increased to 11.1% for the nine months ended September 30, 1995
from 9.7% for the nine months ended September 30, 1994 primarily as a result of
the decreased revenues described above.
For the reasons described above, operating income for the nine months
ended September 30, 1995 increased $108,000, or 57.1%, to $297,000 from $189,000
for the nine months ended September 30, 1994. Operating margin increased to 2.3%
for the nine months ended September 30, 1995 from 1.3% for the comparable period
of 1994.
Interest expense for the nine months ended September 30, 1995 decreased
$49,000, or 26.1%, to $139,000 from $188,000 for the nine months ended September
30, 1994 primarily as a result of decreased borrowings.
For the reasons discussed above, net income for the nine months ended
September 30, 1995 increased $95,000, or 172.7%, to $150,000 from $55,000 for
the nine months ended September 30, 1994.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Revenues for 1994 increased $900,000, or 5.1%, to $18.7 million from
$17.8 million for 1993 primarily as a result of internal growth.
Gross profit for 1994 increased $700,000, or 46.7%, to $2.2 million
from $1.5 million for 1993 primarily as a result of increased revenues as
described above and operating efficiencies. Gross profit margin increased to
11.8% for 1994 from 8.4% for 1993. The increase in gross profit margin resulted
primarily from a reduction in vehicle operating and rental expenses.
SG&A for 1994 increased $100,000, or 5.6%, to $1.9 million from $1.8
million for 1993. As a percentage of revenues, SG&A decreased to 9.9% for 1994
from 10.1% for 1993. The increase in the dollar amount of SG&A resulted
primarily from increased costs relating to ongoing staff and facility expansion
to generate and support the increased revenue volume as discussed above. The
decrease in SG&A as a percentage of revenues was primarily attributable to
spreading costs over increased revenues.
For the reasons described above, operating income for 1994 increased
$653,000, or 210.6%, to $343,000 from an operating loss of $310,000 for 1993.
Operating margin increased to 1.9% for 1994 from a negative 1.7% for 1993.
Interest expense for 1994 decreased $28,000, or 10.4%, to $240,000 from
$268,000 for 1993 primarily as a result of decreased borrowings and the effects
of interest rate reductions on certain municipal indebtedness.
For the reasons discussed above, net income for 1994 increased
$454,000, or 131.2%, to $108,000 from a net loss of $346,000 for 1993.
Year Ended December 31, 1993 Compared to Year Ended December 31, 1992
Revenues for 1993 increased $200,000, or 1.1%, to $17.8 million from
$17.6 million for 1992 primarily as a result of internal growth.
Gross profit for 1993 decreased $400,000, or 21.1%, to $1.5 million
from $1.9 million for 1992 primarily as a result of increased insurance
expenses. Gross profit margin decreased to 8.4% for 1993 from 10.6% for 1992.
The decrease in gross profit margin resulted primarily from the increased costs
described above.
SG&A for 1993 remained relatively unchanged from 1992.
For the reasons described above, operating income for 1993 decreased
$381,000, or 536.6%, to an operating loss of $310,000 from operating income of
$71,000 for 1992. Operating margin also decreased to a negative 1.7% for 1993
from 0.4% for 1992.
Interest expense for 1993 decreased $27,000, or 9.2%, to $268,000 from
$295,000 for 1992 primarily as a result of the effects of interest rate
reductions on certain municipal indebtedness.
For the reasons discussed above, net loss for 1993 was $346,000
compared to a net loss of $215,000 for 1992.
National Results of Operations
Three Months Ended December 31, 1995 Compared to pro forma Combined Three Months
Ended December 31, 1994
The combined results for the three month period ended December 31, 1994
may not be comparable to the consolidated results for the three month period
ended December 31, 1995 due to the effect of the merger and offering described
elsewhere.
Revenues remained consistent at $4.3 million for the three months ended
December 31, 1995 and 1994.
Operating income increased by $87,000 from an operating loss of $24,000
for the three months ended December 31, 1994 to an operating income of $63,000
for the three months ended December 31, 1995 as a result of increased
efficiencies in operations.
Net income increased by $77,000 from a net loss of $13,000 for the three
months ended December 31, 1994 to a net income of $64,000 for the three months
ended December 31, 1995.
Nine Months Ended September 30, 1995 Compared to Nine Months Ended September 30,
1994 (Unaudited)
Revenues for the nine months ended September 30, 1995 increased $1.3
million, or 12.1%, to $12.0 million from $10.7 million for the nine months ended
September 30, 1994 primarily as a result of internal growth.
Gross profit for the nine months ended September 30, 1995 increased
$700,000, or 17.9%, to $4.6 million from $3.9 million for the nine months ended
September 30, 1994 primarily as a result of increased revenues as described
above. Gross profit margin increased to 38.6% for the nine months ended
September 30, 1995 from 36.3% for the nine months ended September 30, 1994. The
increase in gross profit margin resulted primarily from increased efficiencies.
SG&A for the nine months ended September 30, 1995 increased $600,000,
or 15.4%, to $4.5 million from $3.9 million for the nine months ended September
30, 1994. As a percentage of revenues, SG&A increased to 37.5% for the nine
months ended September 30, 1995 from 36.3% for the nine months ended September
30, 1994. The increase in the dollar amount of SG&A resulted primarily from
increased costs relating to ongoing staff and facility expansion to generate and
support the increased revenue volume as discussed above.
For the reasons described above, operating income for the nine months
ended September 30, 1995 increased $146,000 to $141,000 from an operating loss
of $5,000 for the nine months ended September 30, 1994. Operating margin
increased to 1.1% for the nine months ended September 30, 1995.
Interest expense for the nine months ended September 30, 1995 increased
$24,000, or 55.8%, to $67,000 from $43,000 for the nine ended September 30, 1994
primarily as a result of increased borrowings.
For the reasons discussed above, net income for the nine months ended
September 30, 1995 increased $1,000, or 50.0%, to $2,000 from $1,000 for the
nine months ended September 30, 1994.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Revenues for 1994 increased $2.5 million, or 20.0%, to $15.0 million
from $12.5 million for 1993 primarily as a result of increased demand from
existing customers in the computer and medical services industries.
Gross profit for 1994 increased $700,000, or 14.0%, to $5.7 million
from $5.0 million for 1993 primarily as a result of increased revenues as
described above. Gross profit margin decreased to 37.8% for 1994 from 40.2% for
1993. The decrease in gross profit margin resulted primarily from a changing
customer mix resulting in a higher amount of lower margin business.
SG&A for 1994 increased $300,000, or 6.1%, to $5.2 million from $4.9
million for 1993. As a percentage of revenues, SG&A decreased to 34.9% for 1994
from 39.6% for 1993. The increase in the dollar amount of SG&A resulted
primarily from increased costs relating to ongoing staff and facility expansion
to generate and support the increased revenue volume as discussed above. The
decrease in SG&A as a percentage of revenues was primarily attributable to
spreading costs over increased revenues.
For the reasons described above, operating income for 1994 increased
$351,000, or 474.3%, to $425,000 from $74,000 for 1993. Operating margin
increased to 2.9% for 1994 from 0.6% for 1993.
Other income for 1994 decreased $375,000, or 183.8%, to an expense of
$171,000 from income of $204,000 in 1993. Other income in 1993 resulted
primarily from the sale of certain assets.
Interest expense remained relatively unchanged for 1994.
For the reasons discussed above, net income for 1994 decreased $7,000,
or 5.1%, to $130,000 from $137,000 for 1993.
Year Ended December 31, 1993 Compared to Year Ended December 31, 1992
Revenues for 1993 increased $700,000, or 5.9%, to $12.5 million from
$11.8 million for 1992 primarily as a result of increased demand from existing
customers in the computer and medical services industries.
Gross profit for 1993 increased $200,000, or 4.2%, to $5.0 million from
$4.8 million for 1992 primarily as a result of increased revenues as described
above. Gross profit margin decreased to 40.2% for 1993 from 40.9% for 1992. The
decrease in gross profit margin resulted primarily from a changing customer mix
resulting in a higher amount of lower margin business.
SG&A for 1993 decreased $200,000, or 3.9%, to $4.9 million from $5.1
million for 1992. As a percentage of revenues, SG&A decreased to 39.6% for 1993
from 43.3% for 1992. The decrease in the dollar amount of SG&A resulted
primarily from the sale of certain assets in 1993, offset in part by increased
costs relating to ongoing staff and facility expansion to generate and support
the increased revenue volume as discussed above. The decrease in SG&A as a
percentage of revenues was primarily attributable to such sale and the spreading
of costs over increased revenues.
For the reasons described above, operating income for 1993 increased
$365,000, or 125.4%, to $74,000 from an operating loss of $291,000 for 1992.
Operating margin increased to 0.6% for 1993 from a loss of 2.4% for 1992.
Other income for 1993 decreased $253,000, or 55.4%, to $204,000 from
$457,000 in 1992. Other income in 1993 and 1992 resulted primarily from the
sale of certain assets.
Interest expense for 1993 decreased $23,000, or 32.9%, to $47,000 from
$70,000 for 1992 primarily as a result of decreased borrowings.
For the reasons discussed above, net income for 1993 increased $82,000,
or 149.1%, to $137,000 from $55,000 for 1992.
F-8
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Page
Consolidated Delivery & Logistics, Inc.
Report of Independent Public Accountants.................................F-3
Balance Sheet............................................................F-4
Statement of Operations..................................................F-5
Statement of Stockholders' Equity........................................F-6
Statement of Cash Flows..................................................F-7
Notes to Financial Statements............................................F-8
Combined Founding Companies
Report of Independent Public Accountants................................F-17
Combined Balance Sheets.................................................F-18
Combined Statements of Income...........................................F-19
Combined Statements of Stockholders' Equity.............................F-20
Combined Statements of Cash Flows.......................................F-21
Notes to Combined Financial Statements..................................F-23
SureWay Air Traffic Corporation
Report of Independent Public Accountants................................F-36
Consolidated Balance Sheets.............................................F-37
Consolidated Statements of Income.......................................F-38
Consolidated Statements of Stockholders' Equity.........................F-39
Consolidated Statements of Cash Flows...................................F-40
Notes to Consolidated Financial Statements..............................F-41
Securities Courier Corporation
Report of Independent Public Accountants................................F-48
Balance Sheets..........................................................F-49
Statements of Operations................................................F-50
Statements of Stockholders' Deficit.....................................F-51
Statements of Cash Flows................................................F-52
Notes to Financial Statements...........................................F-53
National Courier, Inc. and National Express, Inc.
Report of Independent Public Accountants................................F-59
Combined Balance Sheets.................................................F-60
Combined Statements of Operations ......................................F-61
Combined Statements of Stockholders' Equity.............................F-62
Combined Statements of Cash Flows.......................................F-63
Notes to Combined Financial Statements..................................F-64
Silver Star Express, Inc. and Related Companies
Report of Independent Public Accountants................................F-70
Combined Balance Sheets.................................................F-71
Combined Statements of Income...........................................F-72
Combined Statements of Stockholders' Equity.............................F-73
Combined Statements of Cash Flows.......................................F-74
Notes to Combined Financial Statements .................................F-75
Page
Click Messenger Service, Inc. and Related Companies
Report of Independent Public Accountants................................F-82
Combined Balance Sheets.................................................F-83
Combined Statements of Operations.......................................F-84
Combined Statements of Stockholders' Equity (Deficit)t..................F-85
Combined Statements of Cash Flows.......................................F-86
Notes to Combined Financial Statements..................................F-87
Crown Courier Systems, Inc. and Bestway Distribution Services, Inc.
Report of Independent Public Accountants................................F-93
Combined Balance Sheets.................................................F-94
Combined Statements of Operations.......................................F-95
Combined Statements of Stockholders' Equity.............................F-96
Combined Statements of Cash Flows.......................................F-97
Notes to Combined Financial Statements..................................F-98
Court Courier Systems, Inc.
Report of Independent Public Accountants...............................F-104
Consolidated Balance Sheets............................................F-105
Consolidated Statements of Operations..................................F-106
Consolidated Statements of Stockholders' Deficit.......................F-107
Consolidated Statements of Cash Flows..................................F-108
Notes to Consolidated Financial Statements ............................F-109
Orbit/Lightspeed Courier Systems, Inc. and Related Companies
Report of Independent Public Accountants...............................F-116
Combined Balance Sheets................................................F-117
Combined Statements of Operations .....................................F-118
Combined Statements of Stockholders' Equity............................F-119
Combined Statements of Cash Flows......................................F-120
Notes to Combined Financial Statements.................................F-121
Distribution Solutions International, Inc.
Report of Independent Public Accountants...............................F-127
Balance Sheets.........................................................F-128
Statements of Operations...............................................F-129
Statements of Stockholder's Equity (Deficit)...........................F-130
Statements of Cash Flows...............................................F-131
Notes to Financial Statements..........................................F-132
Olympic Courier Systems, Inc. and Related Company
Report of Independent Public Accountants...............................F-139
Combined Balance Sheets................................................F-140
Combined Statements of Income..........................................F-141
Combined Statements of Stockholders' Equity............................F-142
Combined Statements of Cash Flows......................................F-143
Notes to Combined Financial Statements.................................F-144
American Courier Express, Inc.
Report of Independent Public Accountants...............................F-149
Balance Sheets.........................................................F-150
Statements of Operations...............................................F-151
Statements of Stockholders' Equity.....................................F-152
Statements of Cash Flows..............................................F-153
Notes to Financial Statements..........................................F-154
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
ASSETS
December 31,
--------------------------------------
1994 1995
------------------ ------------------
CURRENT ASSETS:
Cash and cash equivalents (Note 3) $2 $6,589
Accounts receivable, less allowance for
doubtful accounts of $1,285 in 1995
(Note 9) 0 18,555
Deferred income taxes (Note 11) 0 660
Prepaid expenses and other current
assets (Note 5) 0 1,652
------------------ ------------------
Total current assets 2 27,456
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net
(Notes 3 and 6) 0 3,925
OTHER ASSETS (Notes 3 and 7) 0 1,459
------------------ ------------------
Total assets $2 $32,840
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings (Note 9) $0 $2,803
Current portion of long-term debt
(Note 9) 0 3,477
Accounts payable 0 5,986
Accrued expenses and other current
liabilities (Note 8) 0 5,637
Income taxes payable (Note 11) 0 957
Deferred revenue (Note 3) 0 1,054
------------------ -------------------
Total current liabilities 0 19,914
------------------ -------------------
LONG-TERM DEBT (Note 9) 0 3,027
------------------ -------------------
DEFERRED INCOME TAXES PAYABLE (Notes 3 and 11) 0 1,543
------------------ -------------------
OTHER LONG-TERM LIABILITIES 0 45
------------------ -------------------
COMMITMENTS AND CONTINGENCIES (Notes 12
and 14) STOCKHOLDERS' EQUITY (Notes 13
and 14):
Preferred stock, $.001 par value;
2,000,000 shares authorized; no shares
issued and outstanding 0 0
Common stock, $.001 par value;
20,000,000 and 30,000,000 shares
authorized, respectively; 2,100,000
and 6,629,569 shares issued and outstanding,
respectively 2 7
Additional paid-in capital 0 8,499
Accumulated deficit 0 (195)
------------------ -------------------
Total stockholders' equity 2 8,311
------------------ -------------------
Total liabilities and stockholders' equity $2 $32,840
================== ===================
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share data)
For The Period
From Inception
(June 30, 1994) For The Year
Through Ended December
December 31, 31,
1994 1995
---------------- -------------------
REVENUES (Note 3) $0 $39,036
COST OF REVENUES 0 27,439
---------------- -------------------
Gross profit 0 11,597
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 0 11,301
---------------- -------------------
Operating income 0 296
OTHER INCOME (EXPENSE):
Other income, net 0 348
Interest income 0 17
Interest expense 0 (274)
---------------- -------------------
0 91
---------------- -------------------
INCOME BEFORE INCOME TAXES........... 0 387
PROVISION FOR INCOME TAXES (Notes 3
and 11) 0 582
---------------- -------------------
Net income (loss) $0 ($195)
================ ===================
NET LOSS PER SHARE (Note 3) ($.10)
===================
WEIGHTED AVERAGE SHARES OUTSTANDING (Note 3) 2,059,894
===================
The accompanying notes to consolidated financial statements are an
integral part of these statements.
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Note 13)
FOR THE PERIOD FROM INCEPTION (JUNE 30, 1994) THROUGH DECEMBER 31, 1994 AND
FOR THE YEAR ENDED DECEMBER 31, 1995
(in thousands except share data)
Additional Total
Common Stock Paid-In Stockholders'
---------------- Accumulated
Shares Amount Capital Deficit Equity
--------- --- ------- ----- -------
Issuance of Common Stock 2,100,000 $ 2 $ 0 $ 0 $ 2
--------- --- ------- ----- -------
BALANCE AT
DECEMBER 31, 1994 2,100,000 2 0 0 2
Repurchase of shares pursuant
to a termination agreement (1,400,000) (1) 0 0 (1)
Reduction in ownership of
shares pursuant to a
management agreement (305,577) 0 0 0 0
Issuance of common stock:
Public offering, net of offering
costs 3,200,000 3 33,148 0 33,151
Acquisition of Founding
Companies 2,935,700 3 (3) 0 0
Distributions to Founding
Companies' Stockholders 0 0 (29,604) 0 (29,604)
Shares issued in connection
with termination agreement 99,446 0 0 0 0
Equity of Founding Companies 0 0 5,972 0 5,972
Distributions to Stockholders 0 0 (949) 0 (949)
Charge to capital in an amount
equal to the current income
tax benefit of S Corporations 0 0 (65) 0 (65)
Net loss 0 0 0 (195) (195)
--------- --- ------- ----- -------
BALANCE AT
DECEMBER 31, 1995 6,629,569 $7 $8,499 ($195) $8,311
========= === ======= ===== =======
The accompanying notes to consolidated financial statements are an
integral part of these statements.
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For The
Period From
Inception For The
(June 30, 1994) Year
Through Ended
December 31, December
CASH FLOWS FROM OPERATING ACTIVITIES: ...................... 1994 31, 1995
-------- --------
Net income (loss) .........................................$ 0 ($ 195)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities -
Adjustment to conform fiscal year-ends of certain Founding
Companies ............................................ 0 0
Loss on disposal of equipment and leasehold improvements . 0 63
Depreciation and amortization ............................ 0 452
Capital contribution equal to current income taxes of
S Corporations ....................................... 0 (65)
Deferred income tax expense .............................. 0 77
Changes in operating assets and liabilities
(Increase) decrease in -
Accounts receivable, net ............................. 0 (108)
Prepaid expenses and other current assets ............ 0 2,469
Other assets ......................................... 0 140
Increase (decrease) in -
Accounts payable, accrued liabilities and income taxes
payable ......................................... 0 (537)
Deferred revenue ..................................... 0 (260)
Other long-term liabilities .......................... 0 (33)
-------- --------
Net cash provided by operating activities .... 0 2,003
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment and leasehold improvements ........ 0 (730)
Purchases of businesses .................................. 0 (651)
Decrease in loans from stockholders ...................... 0 0
Other, net ............................................... 0 (26)
-------- --------
Net cash used in investing activities ........ 0 (1,407)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net ............................... 0 550
Proceeds from 8% Subordinated Convertible Debentures ..... 0 2,000
Proceeds from long-term debt ............................. 0 1,083
Repayments of long-term debt ............................. 0 (1,411)
Issuance of Common Stock, net of offering costs .......... 2 33,151
Cash acquired through acquisition of Founding Companies .. 0 1,172
Distributions to stockholders ............................ 0 (949)
Distributions to Founding Companies' Stockholders ........ 0 (29,604)
Repurchase of Common Stock ............................... 0 (1)
-------- --------
Net cash provided by financing activities . 2 5,991
-------- --------
Net increase in cash and cash equivalents .. 2 6,587
CASH AND CASH EQUIVALENTS, beginning of year ............. 0 2
======== ========
CASH AND CASH EQUIVALENTS, end of year .................. $ 2 $ 6,589
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ................................ $ 0 $ 177
Cash paid for income taxes ............................ 0 383
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Capital lease obligations incurred .................... $ 0 $ 238
======== ========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share data)
(1) ORGANIZATION AND BUSINESS:
Consolidated Delivery & Logistics, Inc. ("CD&L") was founded in June 1994. The
Company provides an extensive network of same-day ground and air delivery and
logistics services to a wide range of commercial, industrial and retail
customers. The Company's ground delivery operations currently are concentrated
on the East Coast, with a strategic presence in the Midwest and on the West
Coast. The Company's logistics services are provided on a national basis and its
air delivery services are provided throughout the United States and to major
cities around the world.
In November 1995, CD&L acquired eleven businesses (the "Combination")
simultaneously with the closing of an initial public offering (the "Offering").
Consideration for the acquisition of these businesses consisted of a combination
of cash and common stock of CD&L, par value $0.001 per share (the "Common
Stock"). These eleven businesses are referred to herein as the ("Founding
Companies"). CD&L and its subsidiaries are collectively referred to herein as
the "Company."
(2) BASIS OF PRESENTATION:
The accompanying consolidated financial statements include results of the
Founding Companies subsequent to September 30, 1995. October 1, 1995 has been
used as the effective date of the acquisition of the Founding Companies for
accounting purposes. The assets and liabilities of the Founding Companies at
September 30, 1995, were recorded by CD&L at their historical amounts. See the
combined financial statements of the Founding Companies included elsewhere
herein.
The following footnotes do not present comparative balance sheet information as
consolidated balance sheet items for CD&L were not significant at December 31,
1994.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation -
The consolidated financial statements include the accounts of CD&L and its
wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Use of Estimates in Preparation of the Financial Statements -
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.
Cash and Cash Equivalents -
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. Cash equivalents are carried at
cost, which approximates market value.
Equipment and Leasehold Improvements -
Equipment is recorded at cost. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets. Leasehold improvements and
assets subject to capital leases are amortized over the shorter of the terms of
the leases or lives of the assets.
Deferred Financing Costs -
Debt issuance costs are included in other assets in the accompanying
consolidated balance sheets and are expensed over the life of the related debt.
Revenue Recognition -
Revenue is recognized when the shipment is completed, or for the logistics
business, when services are rendered to customers and expenses are recognized as
incurred. Certain customers pay in advance, giving rise to deferred revenue.
Income Taxes -
Certain of the Founding Companies were S Corporations for income tax purposes
and, accordingly, any income tax liabilities for the periods prior to the
acquisition date are the responsibility of the respective stockholders. For
purposes of the consolidated financial statements, Federal and state income
taxes have been provided as if these companies had filed C Corporations tax
returns for the pre-acquisition periods. The current income tax expense of the S
Corporations is reflected in the consolidated financial statements as an
adjustment to additional paid-in capital. The Company has implemented Statement
of Financial Accounting Standards No. 109 "Accounting for Income Taxes." This
statement provides for a liability approach to accounting for income taxes.
Deferred income taxes are provided for differences in the recognition of revenue
and expense for tax and financial reporting purposes. Temporary differences
result primarily from accelerated depreciation and amortization for tax
purposes, various accruals and reserves being deductible for tax purposes in
future periods and certain acquired businesses reporting on the cash basis for
income tax purposes prior to their acquisition by the Company.
Long-Lived Assets -
During 1995, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed of," ("SFAS 121"). SFAS 121
requires, among other things, that an entity review its long-lived assets and
certain related intangibles for impairment whenever changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable. As a
result of its review, the Company does not believe that any impairment currently
exists related to its long-lived assets.
Stock Based Compensation -
The Financial Accounting Standards Board has issued a new standard, Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 requires that an entity account for
employee stock compensation under a fair value based method. However, SFAS 123
also allows an entity to continue to measure compensation cost for employee
stock-based compensation plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees," ("Opinion 25"). Entities electing to remain with accounting under
Opinion 25 are required to make pro forma disclosures of net income and earnings
per share as if the fair value based method of accounting under SFAS 123 had
been applied. The Company expects to continue to account for employee
stock-based compensation under Opinion 25 and provide the required pro forma
disclosures.
Net Income (Loss) Per Share -
The computation of net loss per share for the year ended December 31, 1995 is
based upon 2,059,894 weighted average shares outstanding which includes (i) the
weighted average portion of 2,100,000 shares issued in 1994 for the formation of
CD&L, (ii) the weighted average portion of 1,705,577 shares redeemed and
canceled and 99,446 shares subsequently reissued related to a termination
agreement (see Note 13) and (iii) the weighted average portion of 6,135,700
shares issued in connection with the Offering. The conversion of the debentures
(see Note 9) and stock options (see Note 14) is not included in the computation
as the effect would be antidilutive.
(4) BUSINESS COMBINATIONS:
In November 1995, the Company purchased through one of its subsidiaries certain
assets from National Metro Courier ("National Metro"). The assets acquired
include customer lists, machinery and equipment and various other assets. The
purchase price of $150 is payable as follows: $50 upon signing of the agreement
and $50 on each of the first two anniversary dates of signing the agreement.
In November 1995, the Company purchased through one of its subsidiaries certain
assets from Medexpress Systems, Inc. ("Medexpress"). The assets acquired include
accounts receivable, customer lists, machinery and equipment and various other
assets. The purchase price will be calculated as 10% of Medexpress' total 1995
and 1996 revenues and 5% of 1997 revenues, not to exceed $750. For the year
ended December 31, 1995, Medexpress' revenues totaled approximately $1,500.
Medexpress was 50% owned by stockholders of CD&L.
The acquisitions have been treated as purchases and the results of National
Metro and Medexpress have been reflected in the accompanying consolidated
statements of operations since their respective acquisition dates. The results
of operations of National Metro and Medexpress prior to their acquisitions are
not material to CD&L's consolidated statements of operations.
(5) PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following as of
December 31, 1995 -
Prepaid insurance ..................... $ 768
Prepaid office supplies ............... 387
Employee advances and other receivables 130
Other ................................. 367
------
$1,652
======
(6) EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Equipment and leasehold improvements consists of the following as of
December 31, 1995 -
Useful Lives
Transportation and warehouse equipment ......... 3-5 years $ 3,823
Office equipment ............................... 5-8 years 4,943
Other equipment ................................ 5-8 years 907
Leasehold improvements ......................... Lease period 1,103
--------
10,776
Less - accumulated depreciation and amortization (6,851)
--------
$ 3,925
========
Leased equipment under capital leases (included above) consists of the following
as of December 31, 1995 -
Equipment ..................... $ 1,103
Less - accumulated amortization (459)
-------
$ 644
=======
(7) OTHER ASSETS:
Other assets consist of the following as of December 31, 1995 -
Intangibles, amortized on a straight-line basis over 5 years $ 514
Security deposits .......................................... 489
Other ...................................................... 456
------
$1,459
======
(8) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the following as of
December 31, 1995 -
Payroll and related expenses ......... $2,345
Workers compensation and medical ..... 1,125
Rent and professional fees ........... 1,139
Amounts due to independent contractors 367
Other ................................ 661
------
$5,637
======
(9) SHORT-TERM BORROWINGS AND LONG-TERM DEBT:
Short-term borrowings -
At December 31, 1995, the Company had available lines of credit totaling $3,050.
The Company's outstanding borrowings on such lines of credit are payable to
various banks and total $2,803 at December 31, 1995. The lines of credit bear
interest at rates ranging from prime plus 0.75% (9.25% at December 31, 1995) to
prime plus 1.5% (10% at December 31, 1995). These lines of credit are
collateralized by certain Founding Companies accounts receivable and guaranteed
by certain stockholders. Borrowings under the lines of credit averaged
approximately $2,445 with an average interest rate of 9.75% for the year ended
December 31, 1995. Maximum borrowings were approximately $2,853 for the year
ended December 31, 1995.
Long-Term Debt -
Long-term debt consists of the following as of December 31, 1995 -
Term loans payable to various banks due through September
1998. Interest ranging from 5% to 12.5%, interest and principal
payable monthly and secured by various assets of the Founding
Companies (a) ....................................................... $1,593
8% Subordinated Convertible Debentures (b) .......................... 2,000
Notes payable to various stockholders of the Founding Companies
due on various dates through April 1998. Interest ranging from
6% to prime plus .5% (9% at December 31, 1995) with interest and
principal payable in varying amounts ranging from due on demand
to April 1998 ....................................................... 905
Notes payable due on various dates through April 1998. Interest
ranging from 7.25% to 10% with interest and principal payable
monthly, secured by various assets of the Founding Companies ........ 1,139
Various equipment and vehicle notes payable to banks and finance
companies due through January 2000 with interest ranging from 8.9%
to 15% and secured by various assets of certain Founding Companies .. 321
Capital lease obligations due through January 2000 with interest
at rates ranging from 8% to 27% and secured by the related property . 428
Small business administration loan with monthly principal and
interest payments and a final payment due in December 1998. Interest
is payable at prime plus 1% (9.5% at December 31, 1995) and secured
by all of the assets of a subsidiary of the Company and a personal
guarantee of a former shareholder of the subsidiary ................. 74
Other ............................................................... 44
------
6,504
Less - Current maturities ........................................... 3,477
------
$3,027
======
a) One of the term loan agreements contains certain financial covenants which,
among other things, requires a subsidiary of the Company to maintain minimum net
worth, working capital, total liabilities to net worth and debt service coverage
ratios, as defined. The subsidiary is further prohibited from paying dividends,
spending in excess of $125 on equipment purchases, entering into certain capital
lease agreements or merging. The subsidiary is not in compliance with those loan
covenants, as a result of the merger with CD&L. Therefore, amounts due under the
line of credit are classified as short-term in the accompanying consolidated
financial statements.
b) In September 1995, the Company issued $2 million in the aggregate principal
amount of its 8% Subordinated Convertible Debentures due 2000 (the
"Debentures"). The Debentures mature on August 21, 2000. Interest on the
Debentures accrues at the rate of 8% per annum from the date of issuance and is
payable quarterly on each February 21, May 21, August 21 and November 21,
commencing February 21, 1996. The Debentures are redeemable at the option of the
Company, in whole or in part, without premium or penalty at any time on or after
August 18, 1998, at their face amount plus accrued and unpaid interest, if any,
to the date of redemption. The Debentures are redeemable at the option of the
holder, in whole but not in part, without premium or penalty, at any time after
August 21, 1998. The Debentures are convertible into 180,995 shares of Common
Stock at the option of the holder commencing and ending on August 20, 2000 at a
conversion price equal to 85% of the initial public offering price ($11.05).
The aggregate amounts of annual principal maturities of long-term obligations
(excluding capital lease obligations) are as follows as of December 31, 1995 -
1996 $3,329
1997 526
1998 200
1999 20
2000 2,001
------
Total $6,076
======
The Company leases certain transportation equipment under capital lease
agreements which expire at various dates. At December 31, 1995, minimum annual
payments under capital leases, including interest, are as follows -
1996 $173
1997 138
1998 100
1999 69
2000 30
----
Total minimum payments ................................. 510
Less - Amounts representing interest ..................... 82
----
Net minimum payments ................................... 428
Less - Current portion of obligations under capital leases 148
----
Long-term portion of obligations under capital leases .. $280
====
(10) EMPLOYEE BENEFIT PLANS:
Several of the Founding Companies have defined contribution plans, which allow
for voluntary pretax contributions by the employees. The Founding Companies pay
all general and administrative expenses of the plans and in some cases make
matching contributions on behalf of the employees. For the year ended December
31, 1995 the Founding Companies had expenses of $17,000 related to contributions
to these plans. The Company intends to merge all such plans into a Company
sponsored plan to be adopted during 1996.
(11) INCOME TAXES:
CD&L will file a consolidated Federal income tax return which includes the
operations of all Founding Companies and acquired business for periods
subsequent to the acquisition date. The Founding Companies intend to file
"short-period" Federal tax returns through November 30, 1995. For purposes of
preparing the consolidated financial statements, Federal and state income taxes
have been provided as if all companies were C Corporations for income tax
purposes. The S Corporation status of acquired S Corporations terminated
effective with the closing date of the acquisitions.
Federal and state income taxes for the year ended December 31, 1995 are as
follows -
Federal-
Current $424
Deferred 77
State-
Current 81
----
$582
====
The differences in Federal income taxes provided and the amounts determined by
applying the Federal statutory tax rate (34%) to income before income taxes for
the year ended December 31, 1995 result from the following -
Tax at statutory rate ................. $ 132
Add (deduct) the effect of-
State income taxes .................. 53
Nondeductible expenses and other, net 27
Provision for potential tax matters . 400
Other ............................... (30)
-----
$ 582
=====
As discussed above, the Founding Companies intend to file "short-period" Federal
tax returns through November 30, 1995. In connection with such filings the
Company has provided $400 to cover any potential exposures related to the
filings.
The components of deferred income tax liabilities and assets as of December 31,
1995 are as follows -
Deferred income tax liabilities -
Cash to accrual differences, net ........ ($1,158)
Accumulated depreciation and amortization (385)
=======
Total deferred income tax liabilities ($1,543)
=======
Deferred income tax assets -
Allowance for doubtful accounts ......... $ 513
Reserves and other, net ................. 147
=======
Total deferred income tax assets .... $ 660
=======
Total net deferred income tax liabilities .. ($ 883)
=======
(12) COMMITMENTS AND CONTINGENCIES:
Operating Leases -
Rent expense related to operating leases amounted to approximately $1,926 for
the year ended December 31, 1995. The approximate minimum rental commitments of
the Company, under existing agreements as of December 31, 1995, are as follows -
1996 $2,891
1997 2,414
1998 2,003
1999 1,707
2000 1,128
Thereafter 1,431
======
Litigation -
The Company and its subsidiaries are from time to time, parties to litigation
arising in the normal course of their business, most of which involves claims
for personal injury and property damage incurred in connection with their
operations. Management believes that none of these actions will have a material
adverse effect on the financial position or results of operations of the Company
and its subsidiaries.
Sales Agency Agreements -
The Company has entered into sales agency agreements with independent
contractors with varying terms to perform courier services on behalf of the
Company. The independent contractors provide marketing and sales services and
the Company provides the resources to perform courier services. In connection
with these transactions the Company pays the independent contractors a fee for
services rendered of approximately 10% of revenues less direct costs associated
with the performance of the services. For the year ended December 31, 1995, the
Company paid approximately $1,007 under such agreements.
(13) STOCKHOLDERS' EQUITY:
In September 1995, CD&L amended its Articles of Incorporation to increase the
number of authorized shares of Common Stock from 20,000,000 to 30,000,000 and to
authorize 2,000,000 shares of Preferred Stock. The Company's Board of Directors
may direct the issuance of the Company's $.001 par value Preferred Stock in
series and may, at the time of issuance, determine the rights, preferences and
limitations of each series.
Pursuant to a Representation Agreement, dated November 15, 1994 (as amended, the
"Representation Agreement"), between the Company and CTA Group, LLC ("CTA"),
David T. Lardier agreed to lend or otherwise advance to the Company all funds
necessary to effect the Combination and to provide CTA with all funds necessary
to provide the services to be provided by CTA under the Representation
Agreement, including but not limited to, the funds necessary to retain and pay
certain professional expenses incurred in connection therewith. In exchange, the
Company agreed upon completion of the Combination to reimburse Mr. Lardier for
the amounts advanced.
At June 30, 1995, CTA had incurred expenses totaling approximately $1,300 in
connection with the Combination (consisting primarily of professional fees and
expenses) for which it had not been reimbursed by Mr. Lardier. Under the terms
of the Representation Agreement, Messrs. Mattei and Wojak had the right to
require the Company to repurchase the 1,400,000 shares of common stock held by
Mr. Lardier at a price of $1 (his original purchase price) in the event that Mr.
Lardier did not advance funds needed to complete the Combination.
Pursuant to Mr. Lardier's failure to perform under the Representation Agreement,
CTA redeemed his shares for his original purchase price. Pursuant to a
Termination Agreement, dated August 14, 1995 (the "Termination Agreement") the
Company agreed to permit Mr. Lardier to assign 99,446 shares of common stock and
his contingent right to repayment of funds advanced plus interest (fixed at
$1,150) to certain of Mr. Lardier's creditors in exchange for their releases of
all claims against CTA and the Company. In addition, Mr. Lardier agreed that CTA
was not entitled to any fee upon the completion of the Combination. The Company
has also agreed to release Mr. Lardier from any obligation to fund the
unreimbursed expenses incurred by CTA prior to the date of the Termination
Agreement and his continuing obligation to fund future expenses.
Under a management agreement, certain officers agreed to reduce their ownership
of Common Stock by 305,577 shares to an aggregate of 394,423 shares.
(14) STOCK OPTION PLANS:
Employee Stock Compensation Program -
In September 1995, the Board of Directors adopted, and the stockholders of the
Company approved the Company's Employee Stock Compensation Program (the
"Employee Stock Compensation Program"). The Employee Stock Compensation Program
authorizes the granting of incentive stock options, non-qualified supplementary
options, stock appreciation rights, performance shares and stock bonus awards to
key employees of the Company, including those employees serving as officers or
directors of the Company. The Company has reserved 1,400,000 shares of Common
Stock for issuance in connection with the Employee Stock Compensation Program.
The Employee Stock Compensation Program is administered by a committee of the
Board of Directors (the "Administrators") made up of directors who are
disinterested persons. Options and awards granted under the Employee Stock
Compensation Program will have an exercise or payment price as established by
the Administrators provided that the exercise price of incentive stock options
may not be less than the fair market value of the underlying shares on the date
of grant. Unless otherwise specified by the Administrators, options and awards
will vest in four equal installments on the first, second, third and fourth
anniversaries of the date of grant.
On November 27, 1995, the Board granted 390,500 options to employees at an
exercise price of $13 per share, the price of the Company's stock at the
Offering date. No options have been exercised as of December 31, 1995.
1995 Stock Option Plan for Independent Directors -
In September 1995, the Board of Directors adopted, and the stockholders of the
Company approved, the Company's 1995 Stock Option Plan for Independent Directors
(the "Director Plan"). The Director Plan authorizes the granting of
non-qualified stock options to non-employee directors of the Company. The
Company has reserved 100,000 shares of Common Stock for issuance in connection
with the Director Plan. The Director Plan is administered by a committee of the
Board of Directors (the "Committee"), none of whom will be eligible to
participate in the Director Plan. The Director Plan provides for an initial
grant of an option to purchase 1,500 shares of Common Stock upon election as a
director of the Company, a second option to purchase 1,000 shares of Common
Stock upon the one-year anniversary of such director's election and subsequent
annual options for 500 shares of Common Stock upon the anniversary of each year
of service as a director. Options granted under the Director Plan will have an
exercise price per share equal to the fair market value of the underlying shares
on the date of grant and are fully exercisable one year after the date of grant.
On November 27, 1995, the Board granted 1,500 shares to each of three directors
at $13 per share, the price of the Company's stock at the date of the Offering.
No shares have been exercised as of December 31, 1995.
(15) RELATED PARTY TRANSACTIONS:
Note Payable To Stockholders -
A director and a stockholder of the Company together with their spouses obtained
a $500 bank line of credit which is used to provide working capital. The line,
which expires in August of 1996, bears interest at prime plus 1/2% (9% at
December 31, 1995), and is guaranteed by a subsidiary of the Company.
Leasing Transactions -
Certain subsidiaries of the Company paid an aggregate of $217 for the year ended
December 31, 1995 in rent to certain directors, stockholders or Companies owned
and controlled by directors or stockholders of the Company.
Rent is paid for office, warehouse facilities and transportation equipment.
Administrative Fees and Other -
The Company paid sales and consulting fees of $229 to companies affiliated
through common ownership with directors or stockholders of the Company.
In connection with the merger discussed in Note 2, stockholders of the Founding
Companies entered into five-year covenants-not-to-compete with CD&L.
Additionally, certain of the stockholders received employment contracts.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
COMBINED FOUNDING COMPANIES
COMBINED BALANCE SHEETS
(in thousands)
ASSETS
December 31,
--------------------
1993 1994
-------- --------
CURRENT ASSETS:
Cash and cash equivalents ........................... $ 1,675 $ 2,399
Accounts receivable, less allowance for doubtful
accounts of $822 and $1,092 in 1993 and 1994,
respectively (Notes 9 and 14) ..................... 13,601 13,918
Prepaid expenses and other current assets (Note 4) .. 1,178 1,478
Loans receivable from stockholders (Note 14) ........ 122 2,195
-------- --------
Total current assets .......................... 16,576 19,990
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, 3,651 3,102
net (Notes 3 and 6)
NOTES RECEIVABLE FROM STOCKHOLDERS
(Note 14) ........................................... 2,020 67
OTHER ASSETS (Notes 3 and 7) ........................... 798 710
-------- --------
Total assets .................................. $ 23,045 $ 23,869
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings (Note 9) ...................... $ 1,369 $ 2,021
Current portion of long-term debt (Note 9) .......... 2,317 3,403
Accounts payable .................................... 4,914 6,150
Accrued expenses and other current liabilities(Note 8) 3,572 4,234
Income taxes payable (Note 11) ...................... 73 276
Deferred revenue (Note 3) ........................... 1,120 358
-------- --------
Total current liabilities ..................... 13,365 16,442
LONG-TERM DEBT (Note 9) ................................ 3,680 1,164
DEFERRED INCOME TAXES PAYABLE (Notes 3 and 11) ......... 679 615
OTHER LONG-TERM LIABILITIES ............................ 109 80
COMMITMENTS AND CONTINGENCIES (Notes 13 and 14)
STOCKHOLDERS' EQUITY (Note 12):
Common stock ........................................ 91 92
Additional paid-in capital .......................... 2,489 2,704
Retained earnings ................................... 3,718 4,142
Less - Treasury stock ............................... (1,086) (1,370)
-------- --------
Total stockholders' equity ........................... 5,212 5,568
-------- --------
Total liabilities and stockholders' equity .... $ 23,045 $ 23,869
======== ========
The accompanying notes to combined financial statements are an
integral part of these balance sheets.
COMBINED FOUNDING COMPANIES
COMBINED STATEMENTS OF INCOME
(in thousands)
For The Nine
For The Year Ended Months Ended
December 31, September
----------------------
1993 1994 30, 1995
--------- --------- ---------
REVENUES (Note 3) ....................... $ 121,752 $ 137,544 $ 111,406
COST OF REVENUES ........................ 84,437 95,350 77,547
--------- --------- ---------
Gross profit ................... 37,315 42,194 33,859
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES .............................. 36,015 40,338 29,777
--------- --------- ---------
Operating income ............... 1,300 1,856 4,082
--------- --------- ---------
OTHER INCOME (EXPENSE):
Other income .......................... 791 438 130
Interest income ....................... 57 58 53
Interest expense ...................... (790) (910) (608)
--------- --------- ---------
58 (414) (425)
--------- --------- ---------
INCOME BEFORE INCOME TAXES 1,358 1,442 3,657
PRO FORMA PROVISION FOR INCOME TAXES
(Notes 3 and 11) ...................... 636 721 1,475
--------- --------- ---------
Net income ........................... $ 722 $ 721 $ 2,182
========= ========= =========
The accompanying notes to combined financial statements are an
integral part of these statements.
COMBINED FOUNDING COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(in thousands except share data)
Additional Total
Common Stock Paid-In Retained Treasury Stock-
--------------- holders'
Shares Amt Capital Earnings Stock Equity
----------- --- ------- -------- -------- --------
BALANCE AT DECEMBER 31, 1992 1,124,978 $ 91 $ 1,908 $ 3,247 ($ 1,097)$ 4,149
Distribution to stockholders 0 0 0 (251) 0 (251)
Capital contribution equal
to the current income
taxes of S Corporation .. 0 0 602 0 0 602
(Purchase) Retirement of
treasury stock .......... (125) 0 (21) 0 11 (10)
Net income ................ 0 0 0 722 0 722
--------- ----- ------- -------- -------- -------
BALANCE AT DECEMBER 31, 1993 1,124,853 91 2,489 3,718 (1,086) 5,212
Issuance of common stock .. 1,000 1 0 0 0 1
Distribution to stockholders 0 0 (33) (297) 0 (330)
Capital contribution equal
to the current income
taxes of S Corporation .. 0 0 248 0 0 248
Purchase of treasury stock 0 0 0 0 (284) (284)
Net income ................ 0 0 0 721 0 721
--------- ----- ------- -------- -------- -------
BALANCE AT DECEMBER 31, 1994 1,125,853 92 2,704 4,142 (1,370) 5,568
Distribution to stockholders 0 0 (55) (2,109) 0 (2,164)
Capital contribution equal
to the current income
taxes of S Corporation .. 0 0 281 0 0 281
Adjustment to conform year-
end...................... 0 0 (13) 118 0 105
Net income ................ 0 0 0 118 0 105
--------- ----- ------- -------- -------- -------
BALANCE AT SEPTEMBER 30,1995 1,125,853 $ 92 $ 2,917 $ 4,333 ($ 1,370)$ 5,972
========= ===== ======= ======== ======== =======
The accompanying notes to combined financial statements are an
integral part of these statements.
COMBINED FOUNDING COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
For The Nine
For The Year Ended Months Ended
December 31, September
------------------
1993 1994 30, 1995
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................ $ 722 $ 721 $ 2,182
Adjustments to reconcile net income
to net cash provided by operating
activities -
Adjustment to conform fiscal
year-ends of certain Founding ..... 0 0 105
Companies
Loss on disposal of equipment and
leasehold improvements ............ 10 219 229
Depreciation and amortization ..... 1,168 1,347 884
Capital contribution equal to
current income taxes of ........... 602 248 281
S Corporations
Deferred income tax expense ....... 44 (64) 249
Changes in operating assets and
liabilities
(Increase) decrease in -
Accounts receivable, net .......... (2,071) (317) (4,334)
Prepaid expenses and other current (221) (300) (332)
assets
Other assets ...................... 313 88 (352)
Increase (decrease) in -
Accounts payable and accrued ...... 437 2,100 1,977
liabilities
Deferred revenue and other current
liabilities ....................... 740 (762) 1,626
Other long-term liabilities ....... 76 (29) (264)
------- ------- -------
Net cash provided by operating ..... 1,820 3,251 2,251
activities
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment and leasehold
improvements ....................... (1,476) (1,016) (1,397)
(Increase) decrease in loans
receivable from stockholders ....... 382 (120) (39)
------- ------- -------
Net cash used in investing activities (1,094) (1,136) (1,436)
COMBINED FOUNDING COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
For The Nine
For The Year Ended Months Ended
December 31, September
------------------
1993 1994 30, 1995
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings .......... $ 360 $ 652 $ 442
Principal payments on long-term debt (3,798) (1,849) (2,203)
Proceeds from long-term borrowings . 2,572 135 1,883
Issuance of stock .................. 0 1 0
Distributions to stockholders ...... (251) (330) (2,164)
Purchase of treasury stock ......... (10) 0 0
------- ------- -------
Net cash used in financing
activities ......................... (1,127) (1,391) (2,042)
------- ------- -------
Net increase (decrease) in cash and
cash equivalents ................... (401) 724 (1,227)
CASH AND CASH EQUIVALENTS, beginning
of period .......................... 2,076 1,675 2,399
------- ------- -------
CASH AND CASH EQUIVALENTS, end of ... $ 1,675 $ 2,399 $ 1,172
period
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest ............. $ 814 $ 855 $ 584
Cash paid for income taxes ......... 295 295 656
======= ======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES:
Issuance of note payable to purchase
treasury stock ..................... $ 0 $ 284 $ 0
Capital lease obligations incurred . 99 0 78
======= ======= =======
The accompanying notes to combined financial statements are an integral part
of these statements.
COMBINED FOUNDING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(in thousands except share data)
(1) ORGANIZATION AND BUSINESS:
The following companies are collectively referred to herein as the "Founding
Companies;" American Courier Express, Inc. ("American"), Bestway Distribution
Systems, Inc.("Bestway"), Click Messenger Service, Inc. ("Click"), Court Courier
Systems, Inc. ("Court"), Distributions Solutions International, Inc. ("DSI"),
National Courier, Inc. ("National"), Olympic Courier Systems, Inc. ("Olympic"),
Orbit/Lightspeed Courier Systems, Inc.("Orbit"), Securities Courier Corporation
("Securities"), Silver Star Express, Inc.("Silver Star") and SureWay Air Traffic
Corporation ("SureWay"). The Founding Companies are in the business of providing
same day ground and air delivery and logistics services.
(2) BASIS OF PRESENTATION:
On November 27, 1995, simultaneously with the Closing of its initial public
offering (the Offering), Consolidated Delivery and Logistics, Inc. (CDL)
acquired by merger each of the Founding Companies (the "Merger"). The
accompanying combined financial statements are presented on a combined basis
without giving effect to the Merger or the Offering. The assets and liabilities
of the Combined Founding Companies are reflected at their historical amounts.
By September 30, 1995, in management's opinion, effective control of the
Founding Companies had been transferred to CDL with all assets and liabilities
being recorded at their historical cost. Therefore, all operating results of the
Founding Companies from September 30, 1995 forward have been recognized in the
consolidated financial statements of CDL and subsidiaries.
Court and American have previously reported on a March 31 and January 31 fiscal
year-end, respectively. However, to be consistent with the other Founding
Companies, the financial statements for the nine months ended September 30, 1995
have been combined with the other Founding Companies. The duplication of Court's
three months and American's one month of operations for the nine months ended
September 30, 1995 have been reflected as an adjustment to retained earnings.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates in the Preparation of the Financial Statements
The preparation of the combined 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 combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents-
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. Cash equivalents are carried at
cost which approximates market value.
Equipment and Leasehold Improvements-
Equipment is recorded at cost. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets. Leasehold improvements and
assets subject to capital leases are amortized over the shorter of the terms of
the leases or lives of the assets.
Deferred Financing Costs -
Debt issuance costs are included in prepaid expenses and current assets (Note 4)
and other assets (Note 7) in the accompanying combined balance sheets and are
expensed over the life of the related debt.
Revenue Recognition -
Revenue is recognized when the shipment is completed or, in the case of the
Founding Companies' logistics businesses, when services are rendered to
customers and expenses are recognized as incurred. Certain customers pay in
advance, giving rise to deferred revenue.
Income Taxes -
Certain of the Founding Companies elected to be treated for Federal income tax
purposes as S Corporations and, accordingly, any income tax liabilities were the
responsibility of the respective stockholders. For purposes of these financial
statements, pro forma Federal income taxes have been provided for the Founding
Companies as if all of the Founding Companies had filed C Corporation tax
returns. The current income tax expense is reflected as an increase to
additional paid-in capital. The Founding Companies' S Corporation status
terminated with the effective date of the Merger discussed in Note 2.
Deferred income taxes are provided for differences in the recognition of revenue
and expense for tax and financial reporting purposes. Temporary differences
result primarily from accelerated depreciation and amortization for tax purposes
and various accruals and reserves being deductible for tax purposes in future
periods.
(4) PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following -
December 31,
1993 1994
------ ------
Prepaid insurance ........................................... $ 799 $ 929
Employee advances and other receivables ..................... 17 111
Prepaid rent ................................................ 92 62
Notes receivable (Note 5) ................................... 65 168
Deferred financing costs .................................... 0 54
Other ....................................................... 205 154
------ ------
$1,178 $1,478
====== ======
(5) NOTES RECEIVABLE:
Notes receivable consist of the following -
December 31,
1993 1994
---- ----
Notes receivable (a) ............................................ $ 70 $ 77
Affiliate note receivable (b) ................................... 0 100
Other note receivable ........................................... 0 28
---- ----
70 205
Less- Current portion (Note 4) .................................. 65 168
---- ----
Long-term portion (Note 7) ........................ ............. $ 5 $ 37
==== ====
(a) In 1992 and 1994 in three separate transactions, Silver Star sold
distribution routes, customer lists and related equipment in certain terminals.
In connection with these sales, Silver Star received notes in the aggregate
amount of $206. The notes are payable in monthly installments. In connection
with these sales, Silver Star entered into three-year noncompete agreements, as
defined, with two of the purchasers. Silver Star recorded a gain on the sale of
approximately $164 which is included in other income in the accompanying 1994
combined statements of income.
(b) This note is receivable from an affiliate through common ownership.
Interest is payable semiannually at 8% and the principal is due on demand.
(6) EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Equipment and leasehold improvements consist of the following -
Useful December 31,
Lives 1993 1994
---------- ------ ------
Transportation and warehouse equipment
3-5 years $3,909 $3,955
Office equipment ............................... 5-8 years 3,675 4,060
Other equipment ................................ 5-8 years 190 97
Leasehold improvements ..................... Over the
lease period 674 697
------ ------
8,448 8,809
Less- Accumulated depreciation ............................... 4,797 5,707
------ ------
$3,651 $3,102
====== ======
Leased equipment under capital leases (included above) consists of the
following -
December 31,
1993 1994
------ ------
Equipment .................... $1,849 $1,621
Less- Accumulated amortization 971 1,173
------ ------
$ 878 $ 448
====== ======
(7) OTHER ASSETS:
Other assets consist of the following -
December 31,
1993 1994
---- ----
Security deposits ................ $325 $403
Deferred financing costs ......... 75 2
Long-term note receivable (Note 5) 5 37
Rent receivable .................. 41 65
Deferred software costs .......... 16 62
Other ............................ 336 141
---- ----
$798 $710
==== ====
(8) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the following -
December 31,
1993 1994
-------------- --------------
Payroll and related expenses $2,100 $2,306
Workers compensation and medical 484 624
Commissions and rebates 222 223
Rent and professional fees 92 116
Amounts due to independent contractors 175 94
Other 499 871
-------------- --------------
$3,572 $4,234
============== ==============
(9) SHORT-TERM BORROWINGS AND LONG-TERM DEBT:
Lines of Credit -
Lines of credit payable to various banks, in the outstanding amounts of $1,369
and $2,021 at December 31, 1993 and 1994, respectively, bear interest at rates
ranging from 7.05% to 8.00% and 6.75% to 33.60% in 1993 and 1994, respectively.
These lines of credit are collateralized by certain Founding Companies accounts
receivable and guaranteed by certain stockholders.
Borrowings under the lines of credit averaged approximately $1,457, $1,794 and
$2,364 with average interest rates of 7.46%, 12.26% and 12.23%, respectively,
for the years ended December 31, 1993 and 1994 and for the nine months ended
September 30, 1995. Maximum borrowings were approximately $1,433, $1,996 and
$3,296 for the years ended December 31, 1993 and 1994 and for the nine months
ended September 30, 1995, respectively.
Long-Term Debt -
Long-term debt consists of the following -
December 31,
1993 1994
------------------ ----------------
Term loans payable to various banks due through May 2000. Interest ranging from
5% to prime plus 1.5%, interest and principal payable
monthly secured by various assets of the Founding Companies (a) $2,776 $2,076
Notes payable to various stockholders of the Founding Companies due on
various dates through August 1996. Interest ranging from 5% to 10% with
interest and principal payable monthly (See Note 14) 488 619
Notes payable to various customers due on various dates through
February 1997. Interest ranging from 8.5% to 13.7% with interest and
principal payable quarterly, secured by various assets of the Founding
Companies 188 138
Notes payable to various suppliers due through 1995. Payments due monthly
383 229
Note payable to D&D Partners by Securities with monthly payments of $9,
final payment due July 1995, interest at 10% 0 69
Loan payable to the parents of a shareholder of American. The loan is
payable in equal monthly installments of $1, including interest at
10.375%, through 2001 47 41
December 31,
1993 1994
------------------ ----------------
Liability for nonpayment of unemployment taxes for certain employees,
payable $1 each month, with final payment due August 15, 1997 $34 $32
Various equipment and vehicle notes payable to banks and financing
companies due through January 2000, interest ranging from 6% to 21%,
secured by various assets of certain Founding Companies 900 774
Capital lease obligations due through January 2000 with interest at rates
ranging from 8% to 27%, secured by the related property 994 494
Small business administration loan, monthly principal and interest
payments of $2, with a final payment due in December 1998, interest rate at
prime plus 1%, secured by all of the assets of DSI and a
personal guarantee of its shareholder 114 95
Other 73 0
----------------- ----------------
5,997 4,567
Less - Current maturities 2,317 3,403
----------------- ----------------
$3,680 $1,164
================= ================
(a) One of the term loan agreements contains certain financial covenants which,
among other things, requires SureWay to maintain minimum net worth, working
capital, total liabilities to net worth and debt service coverage ratios, as
defined. SureWay is further prohibited from paying dividends, spending in excess
of $125 on equipment purchases, entering into certain capital lease agreements
or merging. SureWay has not met certain of these requirements and it has
obtained a waiver from the bank. In May 1995, SureWay renegotiated its term loan
with the bank and increased the term loan to $1,400 from $1,350. The
renegotiated terms of the loan agreement are substantially similar to the
existing agreement except for monthly payments of principal of $23 with final
maturity in May 2000. SureWay is required to maintain minimum financial
covenants, as newly defined, and is prohibited from entering into certain
transactions as set forth above.
The aggregate amounts of annual principal maturities of long-term obligations
(excluding capital lease obligations) are as follows -
December 31
-------------------
1995 $3,010
1996 674
1997 316
1998 49
1999 19
2000 5
Thereafter 0
------------------
Total $4,073
==================
The Founding Companies lease certain transportation equipment under capital
lease agreements which expire at various dates. At December 31, 1994, minimum
annual payments under capital leases including interest are as follows -
December 31
------------------
1995 $414
1996 66
1997 46
1998 1
------------------
Total minimum payments 527
Less - Amounts representing interest 33
-----------------
Net minimum payments 494
Less - Current portion of obligations under capital leases 393
-----------------
Long-term portion of obligations under capital leases $101
=================
(10) EMPLOYEE BENEFIT PLANS:
Several of the Founding Companies have defined contribution plans, which allow
for voluntary pretax contributions by the employees. The Founding Companies pay
all general and administrative expenses of the plans and in some cases make
matching contributions on behalf of the employees. For the years ended December
31, 1993 and 1994 and for the nine months ended September 30, 1995, the Founding
Companies had expenses of approximately $60, $62 and $47, respectively, related
to contributions to these plans.
(11) INCOME TAXES:
CDL and subsidiaries intend to file a consolidated Federal income tax return for
the year ended December 31, 1995 and thereafter. The Founding Companies intend
to file "short-period" Federal tax returns through November 30, 1995. For
purposes of preparing these combined financial statements, Federal and state
income taxes have been provided for certain of the Founding Companies (which
filed as S Corporations prior to their merger with CDL) as if these companies
were C Corporations for income tax purposes.
The Founding Companies have implemented Statement of Financial Accounting
Standards No. 109 for all periods. This statement provides for a liability
approach to accounting for income taxes.
Combined Federal and state income taxes are as follows -
For The Nine
For The Years Ended Months Ended
December 31, September 30,
1993 1994 1995
-------------- --------------- -------------------
Federal -
Current $503 $497 $955
Deferred (55) (60) 183
State -
Current 188 284 337
-------------- --------------- -------------------
$636 $721 $1,475
============== =============== ===================
The differences in Federal income taxes provided and the amounts determined by
applying the Federal statutory tax rate (34%) to income before income taxes
result from the following -
For The Nine
For The Years Ended Months Ended
December 31, September 30,
1993 1994 1995
-------------- --------------- -------------------
Tax at statutory rate $462 $490 $1,243
Add (deduct) the effect of -
State income taxes 124 188 222
Nondeductible expenses and other, net 32 66 82
Other 18 (23) (72)
-------------- --------------- -------------------
$636 $721 $1,475
============== =============== ===================
(12) STOCKHOLDERS' EQUITY:
Common Stock of the Founding Companies consists of the following-
December 31,
1993 1994
-------- --------
Sure Way Air Traffic Corporation and Subsidiary
Common Stock, $.02 par value: 300,000 shares authorized, 100,000 issued and $2 $2
outstanding
Securities Courier Corporation
Common Stock, $30 par value: 100 shares authorized, issued and outstanding 3 3
National Courier, Inc. and National Express, Inc.
National Courier, Inc., Common Stock, $10 par value: 3,000 shares authorized,
340 issued and outstanding 3 3
National Express, Inc., Common Stock, $1 par value: 50,000 shares authorized,
20,000 issued and outstanding 20 20
Silver Star Express, Inc. and Related Companies
Silver Star Express, Inc., Common Stock, $10 par value: 100 shares authorized,
20 issued and outstanding 0 0
Silver Star Express North, Inc., Common Stock, $1 par value: 1,000 shares
authorized, 100 issued and outstanding 0 0
All World Brokers, Inc., Common Stock, $10 par value: 100 shares authorized, 25
issued and outstanding 1 1
Parcel Delivery Company of Florida, Inc., Common Stock, $1 Par Value, 10,000
shares authorized, 1,000 issued and outstanding 1 1
Click Messenger Service, Inc., and Related Companies
Common Stock, no par value, 3,300 shares authorized, 410 shares issued and 20 20
outstanding
Crown Courier Systems, Inc., and Bestway Distribution Services, Inc.
Crown Courier Systems, Inc., Common Stock, $10 par value: 100 shares authorized,
issued, and outstanding 1 1
Bestway Distribution Services, Inc., Common Stock, $1 par value, 1,000 shares
authorized, 200 issued and outstanding 1 1
Court Courier Systems, Inc., and Subsidiary
Common Stock, $.001 Par Value: 10,000,000 shares authorized, 1,000,000 issued
and outstanding 1 1
Orbit/Lightspeed Courier Systems, Inc.
Orbit/Lightspeed Courier Systems, Inc., Common Stock, no par value: 200 shares
authorized, 60 issued and outstanding 31 31
O/L Warehousing, Inc., Common Stock, no par value: 200 shares authorized, issued
and outstanding 0 0
BMBA, Inc., Common Stock, no par value: 200 shares authorized, issued and 0 0
outstanding
NWC Trucking Corporation, Common Stock, no par value: 1,000 shares authorized,
issued and outstanding 0 1
Orbit/Lightspeed Courier Systems, Inc., Preferred Stock, $250 par value: 400
shares authorized, no shares issued or outstanding 0 0
Distribution Solutions International, Inc.
Common Stock, $1 Par Value: 50,000 shares authorized, 1,000 shares issued and
outstanding 1 1
Olympic Courier Systems, Inc. and Related Company
Common Stock, no par value: 140 shares issued and outstanding 0 0
American Courier Express, Inc.
Common Stock, no par value: 2,400 shares authorized, 958 issued and outstanding 6 6
------- -------
$91 $92
======= =======
(13) COMMITMENTS AND CONTINGENCIES:
Operating Leases -
Rent expense related to operating leases amounted to approximately $4,399,
$4,482 and $3,681 for the years ended December 31, 1993 and 1994 and for the
nine months ended September 30, 1995, respectively.
The approximate minimum rental commitments of the Company, under existing
agreements, are as follows -
December 31
------------------
1995 $2,523
1996 2,363
1997 2,271
1998 1,499
1999 1,285
2000 2,819
Thereafter 0
Litigation -
The Founding Companies are, from time to time, parties to litigation arising in
the normal course of their business, most of which involves claims for personal
injury and property damage incurred in connection with their operations.
Management believes that none of these actions will have a material adverse
effect on the financial position or results of operations of the Founding
Companies.
Sales Agency Agreements -
SureWay has entered into sales agency agreements with independent contractors
with varying terms to perform courier services on behalf of SureWay. The
independent contractors provide marketing and sales services and SureWay
provides the resources to perform courier services. In connection with these
transactions SureWay pays the independent contractors a fee for services
rendered of approximately 10% of revenues less direct costs associated with the
performance of the services. For the years ended December 31, 1993 and 1994 and
for the nine months ended September 30, 1995, SureWay paid approximately $3,330,
$3,827 and $2,638, respectively under such agreements.
(14) RELATED PARTY TRANSACTIONS:
Related Party Receivables -
At December 31, 1993 and 1994, certain of the Founding Companies had receivables
from the stockholders and officers of approximately $2,142 and $2,262 ,
respectively which are included in the accompanying combined balance sheets.
Such receivables consist primarily of amounts due from a stockholder of
Securities. The loan is unsecured, and is noninterest bearing. These notes were
paid in full upon completion of the Merger.
Note Payable To Stockholders -
The stockholders of Bestway and their spouses obtained a $500 bank line of
credit which is used to provide working capital for Bestway and another entity
owned by the stockholders (the "Affiliate"). The line, which expired in August
of 1995, bears interest at prime (6.0% and 8.5% at December 31, 1993 and 1994,
respectively) plus 1/2%, is guaranteed by Bestway and the Affiliate and, the
amount which may be borrowed at any given time, is limited to percentages of
accounts receivable of Bestway and the Affiliate, as defined. The trade
receivables of Bestway and the Affiliate are pledged as collateral for the line.
The average borrowings by Bestway were approximately $259, $245 and $120, with
corresponding average interest rates of 7.25%, 8.25% and 9.36% for the years
ended December 31, 1993 and 1994 and the nine months ended September 30, 1995,
respectively.
Leasing Transactions -
Crown rents one of its facilities on a month to month basis from an affiliate
related through common ownership. Rents paid to the affiliate, included in rent
expense, amounted to $226, $160 and $120, for the years ended December 31, 1993
and 1994 and for the nine months ended September 30, 1995, respectively.
Orbit also leases one of its three offices from a twenty five percent
shareholder. The rent paid to the shareholder for the years ended December 31,
1993 and 1994 and the nine months ended September 30, 1995, was approximately
$98, $76 and $35, respectively.
Silver Star leases various facilities from affiliates related through common
ownership. Rents paid to these affiliates, included in rent expense, amounted to
$41, $101 and $90 for the years ended December 31, 1993 and 1994 and for the
nine months ended September 30, 1995, respectively.
On January 5, 1991, SureWay financed the purchase of a telephone system from a
majority shareholder in the amount of $41 over five years at 15% interest per
year.
Securities leases transportation equipment from a company which is partially
owned by a stockholder. Lease expense related to these transactions was
approximately $1,200, $425 and $170, for the years ended December 31, 1993 and
1994 and for the nine months ended September 30, 1995, respectively.
Click rents office space in a building owned by a stockholder. Rent expense
related to these transactions was approximately $24, $24 and $18, for the years
ended December 31, 1993 and 1994 and for the nine months ended September 30,
1995, respectively.
National leases transportation equipment from a company which is partially owned
by its stockholders. Lease expense related to these transactions was
approximately $184, $163 and $112, for the years ended December 31, 1993 and
1994 and for the nine months September 30, 1995, respectively.
National rents office space in a building owned by a stockholder. Rent expense
related to these transactions was approximately $73, $75 and $64 for the years
ended December 31, 1993 and 1994 and for the nine months ended September 30,
1995, respectively.
Administrative Fees -
Crown charged an affiliate through common ownership an administrative fee,
included in other income for management and bookkeeping services which
approximated $119, $34 and $34, for the years ended December 31, 1993 and 1994
and for the nine months ended September 30, 1995, respectively. In addition,
Crown performed delivery services for the affiliate and revenues from this
affiliate were approximately $14, $49 and $21, for the years ended December 31,
1993 and 1994 and for the nine months ended September 30, 1995, respectively.
For the years ended December 31, 1993 and 1994 and for the nine months ended
September 30, 1995, Orbit paid approximately $236, $238 and $102, respectively,
in consulting fees to a corporation owned by a twenty five percent shareholder.
DSI paid salary and medical benefits for an employee of a company which is owned
by the stockholder of DSI. Payroll related expenses for the employee
approximated $75, $82 and $87 for the years ended December 31, 1993 and 1994 and
for the nine months ended September 30, 1995, respectively.
During 1995, Securities entered into a consulting agreement with a corporation
owned by a principal shareholder. For the nine months ended September 30, 1995,
Securities paid approximately $34, under this agreement.
Other -
In 1994, SureWay repurchased 14,200 shares of stock at $284 from a former
shareholder's spouse.
SureWay has a sales and consulting agreement with J.P.J. Express, Inc., an
entity one-third of which is owned by the brother of a principal stockholder of
the Company. SureWay paid commissions to J.P.J. Express, Inc. of approximately
$580 and $607 in 1993 and 1994, respectively. For the nine months ended
September 30, 1995, SureWay paid commissions to J.P.J. Express, Inc. of
approximately $506. Such agreement terminates January 1, 1999, subject to
automatic renewal for additional three year periods.
In connection with the Merger discussed in Note 2, stockholders of the Founding
Companies entered into five-year covenants-not-to-compete with CDL.
Additionally, the Merger agreements provided for certain of the stockholders to
receive employment contracts and for certain stockholders to be appointed to
CDL's Board of Directors.
(15) ACQUISITIONS:
Asset Purchase -
Effective January 30, 1995, Crown purchased substantially all of the assets,
including the assignment of customer contracts, of a delivery service in
Florida. The purchase price is a maximum of $132 but limited based on the
measurement of income, as defined, over a 180-day period. In connection with the
acquisition, which is being accounted for as a purchase, the principals of the
purchased company entered into a five-year noncompete agreement with Crown.
Additionally, Crown entered into a three-year employment agreement with one of
the principals.
Purchase Of Customer List -
On April 28, 1995, Crown purchased a customer list from a delivery service in
Florida. The purchase price will be equal to 10% of gross revenue, as defined,
received over a two-year period.
In March 1995, Securities signed a contract with an entity to provide services
to Securities such as labor, vehicles, insurance coverage and other costs
relative to the courier aspect of the business. In connection with the Merger
the Company will also acquire this entity.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
SUREWAY AIR TRAFFIC CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31
-----------
1993 1994
--------- ---------
CURRENT ASSETS:
Cash and cash equivalents............................................................ $309,313 $284,929
Accounts receivable, less allowance for doubtful accounts of $251,444
and $276,966 in 1993 and 1994, respectively (Notes 7 and 8).......................... 4,817,847 5,940,018
Prepaid expenses and other current assets (Note 3)................................... 128,888 295,418
--------- ---------
Total current assets.......................................................... 5,256,048 6,520,365
EQUIPMENT, net (Notes 2 and 4)......................................................... 341,007 354,563
OTHER ASSETS (Notes 5 and 9)........................................................... 128,788 145,986
--------- ---------
Total assets.................................................................. $5,725,843 $7,020,914
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit (Note 7).............................................................. $0 $150,000
Current portion of long-term debt (Note 8)........................................... 359,637 572,124
Accounts payable..................................................................... 1,857,790 2,454,801
Accrued expenses and other current liabilities (Note 6).............................. 605,270 1,147,640
Income taxes payable (Note 9)........................................................ 13,272 66,002
--------- ---------
Total current liabilities..................................................... 2,835,969 4,390,567
--------- ---------
LONG-TERM DEBT (Note 8)................................................................ 724,570 350,352
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY:
Common stock......................................................................... 2,000 2,000
Additional paid-in capital........................................................... 1,195,300 1,195,300
Retained earnings.................................................................... 2,031,822 2,430,513
Less - Treasury stock; at cost 18,070 shares in 1993 and 32,270 shares
in 1994 (Note 11).................................................................... (1,063,818) (1,347,818)
--------- ---------
Total stockholders' equity.................................................... 2,165,304 2,279,995
--------- ---------
Total liabilities and stockholders' equity.................................... $5,725,843 $7,020,914
========= =========
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets.
SUREWAY AIR TRAFFIC CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Nine
Months Ended
For The Years Ended December 31 September 30,
1993 1994 1995
----------- ----------- -----------
REVENUES (Note 2)........................................................ $31,953,823 $36,662,104 $31,570,734
COST OF REVENUES......................................................... 18,765,863 21,408,837 18,783,469
----------- ----------- -----------
Gross profit.................................................... 13,187,960 15,253,267 12,787,265
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES.................................................. 12,855,059 14,535,049 11,004,592
----------- ----------- -----------
Operating income................................................ 332,901 718,218 1,782,673
----------- ----------- -----------
OTHER INCOME AND EXPENSE:
Other income........................................................... 102,000 125,850 57,285
Interest expense....................................................... (99,702) (96,728) (87,725)
----------- ----------- -----------
2,298 29,122 (30,440)
----------- ----------- -----------
Income before income taxes...................................... 335,199 747,340 1,752,233
PROVISION FOR INCOME TAXES (Notes 2 and 9)............................... 149,085 348,649 700,893
----------- ----------- -----------
Net income...................................................... $186,114 $398,691 $1,051,340
=========== =========== ===========
The accompanying notes to consolidated financial statements are
an integral part of these statements.
SUREWAY AIR TRAFFIC CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
Total
Common Stock Additional Retained Treasury Stockholders'
Shares Amount Paid-In Capital Earnings Stock Equity
BALANCE AT DECEMBER 31, 1992 100,000 $2,000 $1,195,300 $1,845,708 $(1,063,818) $1,979,190
Net income................................ 0 0 0 186,114 0 186,114
-------- ------ ---------- ---------- ----------- ----------
BALANCE AT DECEMBER 31, 1993 100,000 2,000 1,195,300 2,031,822 (1,063,818) 2,165,304
Purchase of treasury stock (Note 11) 0 0 0 0 (284,000) (284,000)
Net income................................ 0 0 0 398,691 0 398,691
-------- ------ ---------- ---------- ----------- ----------
BALANCE AT DECEMBER 31, 1994 100,000 2,000 1,195,300 2,430,513 (1,347,818) 2,279,995
Net income................................ 0 0 0 1,051,340 0 1,051,340
-------- ------ ---------- ---------- ----------- ----------
BALANCE AT SEPTEMBER 30, 1995 100,000 $2,000 $1,195,300 $3,481,853 $(1,347,818) $3,331,335
======== ====== ========== ========== =========== ==========
The accompanying notes to consolidated financial statements are
an integral part of these statements.
SUREWAY AIR TRAFFIC CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine
For The Years Ended Months Ended
December 31 September 30,
1993 1994 1995
-------- -------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................................... $186,114 $398,691 $1,051,340
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization............................................... 158,869 129,203 113,991
Changes in operating assets and liabilities-
Increase in accounts receivable............................................. (295,041) (1,122,171) (2,147,610)
(Increase) decrease in prepaid expenses and other
current assets............................................................ (121,053) (166,530) 46,346
(Increase) decrease in other assets......................................... (22,870) (17,198) (43,501)
Increase (decrease) in accounts payable..................................... 77,327 597,011 (140,676)
Increase in accrued expenses, other current liabilities
and income taxes payable.................................................. 163,828 595,100 763,468
-------- -------- ----------
Net cash provided by (used in) operating activities....................... 147,174 414,106 (356,642)
-------- -------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment........................................................... (174,190) (142,759) (650,102)
-------- -------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on long-term debt..................................................... 0 0 1,515,110
Payments on long-term debt....................................................... (379,957) (445,731) (893,295)
Net borrowings under line of credit.............................................. 0 150,000 100,000
-------- -------- ----------
Net cash provided by (used in) financing
activities.............................................................. (379,957) (295,731) 721,815
-------- -------- ----------
Net decrease in cash and cash
equivalents............................................................. (406,973) (24,384) (284,929)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................................... 716,286 309,313 284,929
-------- -------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD......................................... $309,313 $284,929 $0
============= =============== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest........................................................... $99,702 $104,269 $104,487
Cash paid for income taxes....................................................... 202,442 239,414 292,152
============= =============== =============
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Issuance of note payable to purchase treasury stock
of the Company................................................................ $0 $284,000 $0
============= =============== =============
The accompanying notes to consolidated financial statements are
an integral part of these statements.
SUREWAY AIR TRAFFIC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION:
SureWay Air Traffic Corporation (the "Company") is in the air
courier/express industry, providing domestic and international delivery of
freight. It has offices in New York and four other states.
The Company and its stockholders entered into a definitive agreement
with Consolidated Delivery & Logistics, Inc. ("CDL") pursuant to which the
Company merged with CDL (the "Merger") on November 27, 1995. All outstanding
shares of the Company were exchanged for cash and shares of CDL's common stock
concurrent with the consummation of the initial public offering of the common
stock of CDL.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles Of Consolidation -
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary Sureway Logistics. All significant
intercompany transactions have been eliminated.
Use of Estimates in the Preparation of the Financial Statements -
The preparation of the consolidated 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 consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Equipment -
Equipment is recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets.
Revenue Recognition -
Revenue is recognized when the shipment is completed or, in the case of
the logistics business, when services are rendered to customers and expenses are
recognized as incurred.
Income Taxes -
Deferred income taxes result from temporary differences in the
recognition of accounting transactions for tax and financial reporting purposes
as a result of using the liability method of accounting for income taxes.
Temporary differences result primarily from accelerated depreciation and
amortization for tax purposes and various accruals and reserves being deductible
for tax purposes in future periods.
Reclassifications-
Certain reclassifications have been made to prior years' financial
statements to conform to the current period presentation.
(3) PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following -
December 31
1993 1994
-------- --------
Loans to employees............................................................ $0 $53,030
Prepaid rent.................................................................. 0 26,676
Prepaid insurance............................................................. 62,172 180,141
Prepaid income taxes.......................................................... 55,954 0
Other......................................................................... 10,762 35,571
-------- --------
$128,888 $295,418
======== ========
(4) EQUIPMENT:
Equipment consists of the following -
December 31
Useful Lives 1993 1994
------------ -------- --------
Transportation equipment........................... 3-5 years $470,470 $498,474
Other and communication equipment.................. 5-7 years 296,863 327,145
Furniture and fixtures............................. 5-8 years 102,265 90,248
Data processing equipment.......................... 5 years 159,708 188,150
Leasehold improvements............................. Over the lease
period -------- --------
206,643 213,516
-------- --------
Subtotal.................................. 1,235,949 1,317,533
Less - Accumulated depreciation and amortization...
(894,942) (962,970)
-------- --------
Total..................................... $341,007 $354,563
======== ========
(5) OTHER ASSETS:
Other assets consist of the following -
December 31
1993 1994
-------- --------
Security deposits........................................................... $82,694 $112,815
Deferred income tax asset................................................... 21,094 33,171
Other....................................................................... 25,000 0
-------- --------
$128,788 $145,986
======== ========
(6) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the
following -
December 31
1993 1994
-------- ---------
Payroll and related costs............................................... $277,264 $421,952
Self-insured medical costs.............................................. 52,540 109,217
Commissions and sales licensee fees..................................... 199,458 209,314
Professional fees....................................................... 55,290 79,197
Other................................................................... 20,718 327,960
-------- ---------
$605,270 $1,147,640
======== ==========
(7) LINE OF CREDIT:
The Company has a line of credit of $500,000 available from a bank
which expired on June 30, 1995 and was renewed for the same amount. During April
and May of 1995, the Company had an additional $300,000 outstanding on a bridge
loan which was repaid in June 1995. At December 31, 1994, the Company had
$150,000 outstanding on this line which was subsequently paid in full. The line
is secured by accounts receivable and is guaranteed by the officers of the
Company. Borrowings bear interest at a rate of 1.0% above the Bank's prime rate
(8.5% at December 31, 1994). The maximum balance outstanding was $300,000 and
$800,000 and the average balance outstanding was $75,000 and $529,500 for
December 31, 1994 and September 30, 1995, respectively.
(8) LONG-TERM DEBT:
Long-term debt consists of the following -
December 31
1993 1994
--------- --------
Notes payable to shareholder in monthly installments through August 15, 1996
bearing interest at 5% and 10%, to repurchase Company stock....
$29,274 $193,241
Term loan payable in monthly installments through May 2000, bearing interest at
the bank's prime rate (8.5% at December 31, 1994) plus 1.5%. The loan is
collateralized by accounts receivable and is guaranteed by
officers of the Company (a)......................................... 1,031,250 712,500
Various equipment and vehicle notes payable in monthly installments, with
original average maturities of three years, at interest rates ranging
from 8.5% to 21%, secured by the equipment and vehicles............. 23,683 16,735
--------- --------
Subtotal.................................................... 1,084,207 922,476
Less - Current maturities............................................. (359,637) (572,124)
--------- --------
Total long-term debt......................................... $724,570 $350,352
========= ========
(a) The term loan agreement contains certain financial covenants which,
among others, requires the Company to maintain a minimum net worth, working
capital, total liabilities to net worth and debt service coverage ratios, as
defined. The Company is further prohibited from paying dividends, spending in
excess of $125,000 on equipment purchases, entering into certain capital lease
agreements or merging, as defined. The Company has not met certain of these debt
requirements and it has obtained a waiver from the bank. In May 1995, the
Company renegotiated its term loan with the bank and increased the term loan to
$1,400,000 from $1,350,000. The renegotiated terms of the loan agreement are
substantially similar to the existing agreement, except for monthly payments of
principal of $23,333 with final maturity in May 2000. The Company is required to
maintain the minimum financial covenants as newly defined and is prohibited from
similar transactions defined above.
The aggregate amounts of annual principal maturities of long-term
obligations are as follows -
December 31
1995................................................................................. $572,124
1996................................................................................. 345,178
1997................................................................................. 3,449
1998................................................................................. 1,725
1999................................................................................. 0
2000................................................................................. 0
-----------------
Total....................................................................... $922,476
=================
(9) INCOME TAXES:
The following income tax information is presented in accordance with
Statement of Financial Accounting Standards No. 109. The income tax provision
and deferred income tax assets and liabilities for the three years ended
December 31, 1994, and the nine months ended September 30, 1995 have been
determined in accordance with such statement.
The components of the provision for income taxes are as follows -
For The Nine
For The Years Ended Months Ended
December 31 September 30,
1993 1994 1995
------------- -------- --------
Federal................................................... $103,823 $222,231 $543,192
State..................................................... 45,262 126,418 157,701
------------- -------- --------
$149,085 $348,649 $700,893
============= ======== ========
Deferred income taxes are provided for differences in the recognition
of revenues and expenses for tax and financial reporting purposes. Temporary
differences result primarily from accelerated depreciation and various reserves
being deductible for tax purposes in future periods.
The differences in federal income taxes provided and the amounts
determined by applying the statutory tax rate (34%) to income before income
taxes result from the following -
For The Nine
For The Years Ended Months Ended
December 31 September 30,
1993 1994 1995
-------- -------- --------
Income tax at statutory rate......................... $113,968 $254,096 $595,759
Add (deduct) -
State income taxes (net)........................... 29,873 83,436 104,083
Nondeductible expenses............................. 5,244 11,117 1,051
-------- -------- --------
Income tax expense.......................... $149,085 $348,649 $700,893
======== ======== ========
(10) COMMITMENTS AND CONTINGENCIES:
Litigation -
The Company is, from time to time, a party to litigation arising in the
normal course of business. Management believes that none of these actions will
have a material adverse effect on the financial position or results of
operations of the Company.
Sales Agency Agreements -
The Company has entered into a sales agency agreement with independent
contractors with varying terms to perform courier services on behalf of the
Company. The independent contractors provide marketing and sales services and
the Company provides the resources to perform courier services. In connection
with these transactions, the Company pays the independent contractors a fee for
services rendered of approximately 10% of revenues less direct costs associated
with the performance of the services. For the years ended December 31, 1993 and
1994, and for the nine months ended September 30, 1995, the Company paid
$3,330,067, $3,826,531 and $2,638,212 and under such agreements, which is
included in selling, general and administrative expenses in the accompanying
statements of income.
Commitments -
The Company leases office space and office and transportation equipment
under operating leases with varying terms. Rent expense related to these leases
amounted to $560,575, $687,000 and $620,727 for the years ended December 31,
1993 and 1994 and for the nine months ended September 30, 1995, respectively.
The approximate minimum annual rental commitments of the Company, under
existing lease agreements, over the next five years, are as follows -
December 31
----------
1995..................................................................... $519,563
1996..................................................................... 509,408
1997..................................................................... 513,121
1998..................................................................... 517,230
1999..................................................................... 534,044
Thereafter............................................................... 825,595
----------
$3,418,961
==========
(11) RELATED PARTY TRANSACTIONS:
On January 5, 1991, the Company financed the purchase of a telephone
system from a majority shareholder in the amount of $41,000 over five years at
15% interest per year. During 1994, the Company repurchased 14,200 shares of
stock from a former shareholder's wife for $284,000.
The Company has a sales and consulting agreement with J.P.J. Express,
Inc., an entity one-third of which is owned by the brother of a principal
stockholder of the Company. The Company paid commissions to J.P.J. Express, Inc.
of approximately $580,000, $607,000 and $506,000 in 1993 and 1994 and for the
nine months ended September 30, 1995, respectively. Such agreement terminates
January 1, 1999, subject to automatic renewal for additional three year periods.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
SECURITIES COURIER CORPORATION
BALANCE SHEETS
ASSETS
December 31
1993 1994
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents...................................................... $12,915 $15,525
Accounts receivable, less allowance for doubtful accounts of $22,000
and $20,000 at December 31, 1993 and 1994 510,213 453,897
Loan receivable from stockholder (Note 10)..................................... 0 2,026,173
Prepaid expenses and other current assets (Note 3)............................. 567,853 528,145
---------- ----------
Total current assets.................................................... 1,090,981 3,023,740
EQUIPMENT, net (Notes 2 and 4)................................................... 876,978 476,751
LONG-TERM LOAN RECEIVABLE FROM STOCKHOLDER (Note 10)............................. 2,019,592 0
OTHER ASSETS (Notes 2 and 5)..................................................... 112,464 67,500
---------- ----------
Total assets............................................................ $4,100,015 $3,567,991
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt (Note 7)..................................... $900,159 $1,973,391
Accounts payable............................................................... 657,705 797,490
Accrued expenses and other current liabilities (Note 6)........................ 457,636 842,159
Deferred revenue (Note 2)...................................................... 604,627 215,668
---------- ----------
Total current liabilities............................................... 2,620,127 3,828,708
---------- ----------
LONG-TERM DEBT (Note 7).......................................................... 1,932,659 75,287
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' DEFICIT:
Common stock, $30 par value: 100 shares authorized, issued and
outstanding................................................................. 3,000 3,000
Additional paid-in capital..................................................... 0 8,300
Accumulated deficit............................................................ (455,771) (347,304)
---------- ----------
Total stockholders' deficit............................................. (452,771) (336,004)
---------- ----------
Total liabilities and stockholders' deficit............................. $4,100,015 $3,567,991
========== ==========
The accompanying notes to financial statements are an
integral part of these balance sheets.
SECURITIES COURIER CORPORATION
STATEMENTS OF OPERATIONS
For The Nine
Months Ended
For The Years Ended December 31 September 30
1993 1994 1995
----------- ----------- -----------
REVENUES (Notes 2 and 11).............................................. $17,804,310 $18,698,399 $12,801,686
COST OF REVENUES....................................................... 16,301,604 16,500,939 11,089,413
----------- ----------- -----------
Gross profit.................................................. 1,502,706 2,197,460 1,712,273
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 10).................
----------- ----------- -----------
1,812,803 1,854,936 1,415,437
----------- ----------- -----------
Operating income (loss)....................................... (310,097) 342,524 296,836
----------- ----------- -----------
OTHER INCOME AND EXPENSE:
Other income and expense............................................. 66,300 113,065 92,931
Interest expense (Note 7)............................................ (267,920) (240,122) (138,941)
----------- ----------- -----------
(201,620) (127,057) (46,010)
----------- ----------- -----------
Income (loss) before income taxes.................................... (511,717) 215,467 250,826
PRO FORMA PROVISION (BENEFIT) FOR INCOME TAXES (Notes 2 and 8)......... (166,200) 107,000 100,330
----------- ----------- -----------
Net income (loss)............................................. $(345,517) $108,467 $150,496
=========== =========== ===========
The accompanying notes to financial statements are an
integral part of these statements.
SECURITIES COURIER CORPORATION
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
Total
Common Stock Additional Accumulated Stockholders'
Shares Amount Paid-In Capital Deficit Equity
------ ------ --------------- ----------- ------------
BALANCE AT DECEMBER 31, 1992.......................... 100 $3,000 $0 $(110,254) $(107,254)
Net loss............................................ 0 0 0 (345,517) (345,517)
------ ------ --------------- ----------- ------------
BALANCE AT DECEMBER 31, 1993.......................... 100 3,000 0 (455,771) (452,771)
Capital contribution equal to current income
taxes of S corporation............................ 0 0 8,300 0 8,300
Net income.......................................... 0 0 0 108,467 108,467
------ ------ --------------- ----------- ------------
BALANCE AT DECEMBER 31, 1994.......................... 100 3,000 8,300 (347,304) (336,004)
Net income.......................................... 0 0 0 150,496 150,496
------ ------ --------------- ----------- ------------
BALANCE AT SEPTEMBER 30, 1995......................... 100 $3,000 $8,300 $(196,808) $(185,508)
====== ====== =============== =========== ============
The accompanying notes to financial statements are an
integral part of these statements.
SECURITIES COURIER CORPORATION
STATEMENTS OF CASH FLOWS
For The Nine
Months Ended
For The Years Ended September 30
December 31
1993 1994 1995
--------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................................. $(345,517) $108,467 $150,496
Adjustments to reconcile net income to net cash provided by (used in) operating
activities -
Loss on disposal of equipment.................................................. 0 0 198,947
Depreciation and amortization.................................................. 432,263 496,773 162,529
Decrease in accounts receivable................................................ 151,582 56,316 72,788
(Increase) decrease in prepaid expenses and other current assets............... (554,378) 44,964 11,099
(Increase) decrease in other assets............................................ (118,734) 24,661 (73,391)
Increase (decrease) in accounts payable........................................ (437,831) 139,785 74,105
Increase (decrease) in accrued expenses and other
current liabilities.......................................................... 182,454 384,523 (65,866)
Increase (decrease) in deferred revenue........................................ 224,812 (388,959) 324,129
--------- -------- --------
Net cash provided by (used in) operating activities........................ (465,349) 866,530 854,836
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment............................................................ (284,005) (81,499) (130,054)
Increase (decrease) in stockholder loan receivable................................ 368,628 (6,581) (15,185)
Capital contribution for taxes of S Corporation................................... 0 8,300 0
--------- -------- --------
Net cash provided by (used in) investing activities........................ 84,623 (79,780) (145,239)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under short-term obligations............................................. (200,000) 0 0
Proceeds from long-term debt...................................................... 2,097,744 192,000 115,485
Principal payments under long-term debt and capital lease obligation.............. (1,520,031) (976,140) (675,902)
--------- -------- --------
Net cash provided by (used in) financing activities........................ 377,713 (784,140) (560,417)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents (3,013) 2,610 149,180
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................................... $15,928 $12,915 15,525
--------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.......................................... $12,915 $15,525 $164,705
========= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................................................ $311,454 $234,066 $137,881
Cash paid for income taxes........................................................ 0 1,464 45,720
========= ======== ========
The accompanying notes to financial statements are an
integral part of these statements.
SECURITIES COURIER CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION:
Securities Courier Corporation (the "Company") provides courier
services to banks and brokerage firms in New Jersey, New York and Pennsylvania.
The Company and its stockholders entered into a definitive agreement
with Consolidated Delivery & Logistics, Inc. ("CDL") pursuant to which the
Company merged with CDL (the "Merger") on November 27, 1995. All outstanding
shares of the Company were exchanged for cash and shares of CDL's common stock
concurrent with the consummation of the initial public offering of the common
stock of CDL.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates in the Preparation of the Financial Statements -
The preparation of the 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.
Equipment -
Equipment is recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. Assets
subject to capital leases are amortized over the terms of the leases.
Deferred Financing Costs -
Debt issuance costs of $75,234 net of accumulated amortization of
$6,270 and $21,317 at December 31, 1993 and 1994, respectively, are included in
other assets and other current assets in the accompanying balance sheets and are
expensed over the life of the related debt. These costs relate to the
refinancing of certain bank loans in 1993.
Revenue Recognition -
Revenue is recognized when the shipment is completed and expenses are
recognized as incurred. Certain customers pay in advance, giving rise to
deferred revenue.
Income Taxes -
The Company has elected to be treated for Federal and state income tax
purposes as an S Corporation and, accordingly, any income tax liabilities are
the responsibility of the stockholders. For purposes of these financial
statements, Federal and state income taxes have been provided for the Company as
if the Company had filed C Corporation tax returns. The current income tax
expense (benefit) is reflected as an adjustment to additional paid-in capital.
The Company's S Corporation status terminated with the effective date of the
Merger discussed in Note 1.
Reclassifications-
Certain reclassifications have been made to prior years' financial
statements to conform to the current period presentation.
(3) PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following -
December 31
1993 1994
-------- --------
Prepaid insurance............................................................. $390,646 $373,700
Prepaid income taxes.......................................................... 174,000 99,400
Deferred financing costs...................................................... 0 53,917
Other......................................................................... 3,207 1,128
-------- --------
$567,853 $528,145
======== ========
(4) EQUIPMENT:
Equipment consists of the following -
Useful December 31
Lives 1993 1994
--------- ---------- ----------
Transportation equipment........................... 3-5 years $1,556,330 $1,685,472
Other equipment.................................... 3-5 years 114,960 56,027
---------- ----------
1,671,290 1,741,499
Less -- Accumulated depreciation and amortization..
---------- ----------
(794,312) (1,264,748)
---------- ----------
$876,978 $476,751
========== ==========
Leased transportation equipment under capital leases included in
equipment above consists of the following -
December 31
1993 1994
---------- ----------
Equipment.......................................................... $1,263,827 $1,252,616
Less -- Accumulated amortization................................... (561,764) (960,570)
---------- ----------
$702,063 $292,046
========== ==========
(5) OTHER ASSETS:
Other assets consist of the following -
December 31
1993 1994
---------- ----------
Deferred financing costs.............................................. $68,964 $0
Rent receivable....................................................... 40,500 64,500
Other................................................................. 3,000 3,000
---------- ----------
$112,464 $67,500
========== ==========
(6) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the
following -
December 31
1993 1994
---------- ----------
Payroll and related benefits.......................................... $197,396 $604,819
Other accrued liabilities............................................. 260,240 237,340
---------- ----------
$457,636 $842,159
========== ==========
(7) LONG-TERM DEBT:
Long-term debt consists of the following -
December 31
----------------------
1993 1994
---------- ----------
Note payable to bank (a)........................................ $1,368,888 $1,063,443
Note payable to bank (b)........................................ 246,269 234,765
Vehicle loans from banks and financing companies (c)............ 132,356 127,580
Notes payable to financing company (d).......................... 208,245 173,163
Note payable to insurance company (e)........................... 175,370 55,371
Note payable to investment partnership (f)...................... 0 69,441
Capital lease obligations (g)................................... 701,690 324,915
---------- ----------
2,832,818 2,048,678
Less -- Current maturities...................................... (900,159) (1,973,391)
---------- ----------
$1,932,659 $75,287
========== ==========
(a) Monthly principal payments of $7,779, with a final balloon
payment due July 1998, interest rate is at prime (8.5% at December 31, 1994,
respectively) plus 1%, collateralized by Company assets. The Company repaid
this debt upon the completion of the Merger (see Note 1).
(b) Monthly principal and interest payments of $1,977, with a final
balloon payment due July 1998, interest rate is at 5%, collateralized by Company
assets. The Company repaid this debt upon the completion of the Merger (see Note
1).
(c) Various loans for transportation equipment, aggregate monthly
payments of $6,020, final payments due in 1996 and 1997, interest rates ranging
from 9% to 9.5%, secured by certain transportation equipment.
(d) Various notes payable to financing company for financing of
Company insurance policies which matured in 1995.
(e) Note payable to insurance company for workers' compensation
premiums, monthly payments of $5,000, noninterest bearing with final payment in
October 1995.
(f) Note payable to D&D Partners with monthly payments of
$9,009 with a final payment made in July 1995 and interest at 10%.
(g) Various lease obligations for transportation equipment, maturing in
1995 and 1997, interest is imputed at 9%, secured by vehicles under these lease
obligations.
The aggregate amounts of annual principal maturities of long-term debt
(excluding capital lease obligations) are as follows -
December 31
----------
1995............................................................................... $1,663,460
1996............................................................................... 44,765
1997............................................................................... 15,538
----------
Total..................................................................... $1,723,763
==========
The Company leases certain transportation equipment under capital lease
agreements which expire at various dates. Minimum annual payments under capital
leases are as follows -
December 31
----------
1995................................................................................. $321,171
1996................................................................................. 6,336
1997................................................................................. 10,439
----------
Total minimum payments..................................................... 337,946
Less -- Amounts representing interest................................................ (13,031)
----------
Net minimum payments........................................................ 324,915
Less -- Current portion of obligations under capital leases.......................... (309,931)
----------
Long-term portion of obligations under capital leases................................ $14,984
==========
(8) INCOME TAXES:
The following income tax information is presented in accordance with
Statement of Financial Accounting Standard No. 109 as if the Company had been
subject to Federal and state income taxes throughout the periods presented.
The components of the provision for income taxes are as follows -
For The Nine
Months Ended
December 31 September 30,
1993 1994 1995
--------- -------- --------
Federal................................................... $(174,000) $82,900 $77,756
State..................................................... 7,800 24,100 22,574
--------- -------- --------
$(166,200) $107,000 $100,330
========= ======== ========
The differences in federal income taxes provided and the amounts
determined by applying the statutory tax rate (34%) to income before income
taxes result from the following -
For The Nine
Months Ended
December 31 September 30,
1993 1994 1995
--------- -------- --------
Income tax (benefit) at statutory rate.................... $(174,000) $73,300 $85,300
Add -
State income taxes net of Federal benefit............... 5,100 15,900 14,900
Nondeductible expenses.................................. 2,700 17,700 130
Other................................................... 0 100 0
--------- -------- --------
$(166,200) $107,000 $100,330
--------- -------- --------
(9) COMMITMENTS AND CONTINGENCIES:
Litigation -
The Company is, from time to time, a party to litigation arising in the
normal course of business. Management believes that none of these actions will
have a material adverse effect on the financial position or results of
operations of the Company.
Commitments -
The Company leases, under operating leases, office and transportation
equipment with lease terms of greater than one year. Rent expense related to
these leases amounted to $1,626,384, $1,346,947 and $1,348,192 for the years
ended December 31, 1993 and 1994 and the nine months ended September 30, 1995,
respectively.
The approximate minimum annual rental commitments of the Company, under
existing lease agreements, over the next five years, are as follows -
December 31
------------------
1995.......................................................................................... $273,568
1996.......................................................................................... 196,657
1997.......................................................................................... 189,750
1998.......................................................................................... 189,750
1999.......................................................................................... 189,750
Thereafter.................................................................................... 0
------------------
$1,039,475
==================
(10) RELATED PARTY TRANSACTIONS:
Leasing Transactions -
The Company leases transportation equipment from a company which is
partially owned by a stockholder. Lease expense related to these transactions
was approximately $1,200,000, $425,000 and $169,000, for the years ended
December 31, 1993 and 1994 and for the nine months ended September 30, 1995,
respectively.
Related Party Receivables -
The Company had a noninterest bearing loan receivable from its
president and majority stockholder of $2,019,592 and $2,026,173 at December 31,
1993 and 1994, respectively. The loan, which has no repayment terms, was repaid
in conjunction with the acquisition of the Company's common stock by CDL and the
initial public offering of CDL's common stock (see Note 1).
(11) ACQUISITIONS:
In March 1995, the Company signed a contract with an entity to provide
services to the Company such as labor, vehicles, insurance coverage and other
costs relative to the courier aspect of the business. The results of operations
and financial position of this entity have been included in the accompanying
financial statements since that entity's inception.
(12) SIGNIFICANT CUSTOMERS:
Included in revenues are three customers who accounted for
approximately 72%, 68%, and 75% of revenues for the years ended December 31,
1993 and 1994, and for the nine months ended September 30, 1995, respectively.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
NATIONAL COURIER, INC. AND NATIONAL EXPRESS, INC.
COMBINED BALANCE SHEETS
ASSETS
December 31
1993 1994
CURRENT ASSETS:
Cash and cash equivalents.................................................................... $164,044 $84,786
Accounts receivable, less allowance of $59,000 in 1993 and $45,000 in 1994 for
doubtful accounts (Note 7)................................................................... 1,530,665 1,886,398
Prepaid expenses and other current assets (Note 3)........................................... 197,955 317,324
--------------- ------------
Total current assets.................................................................. 1,892,664 2,288,508
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net (Notes 2 and 4)...................................... 300,913 303,632
OTHER ASSETS (Note 5).......................................................................... 21,920 183,613
--------------- ------------
Total assets.......................................................................... $2,215,497 $2,775,753
=============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving lines of credit (Note 7)........................................................... $638,784 $834,825
Accounts payable............................................................................. 513,671 756,119
Accrued expenses and other current liabilities (Note 6)...................................... 434,028 342,656
Due to stockholders (Note 12)................................................................ 0 17,998
--------------- ------------
Total current liabilities............................................................. 1,586,483 1,951,598
--------------- ------------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Note 11):
Common stock................................................................................. 23,400 23,400
Additional paid-in capital................................................................... 129,019 193,821
Retained earnings............................................................................ 476,595 606,934
--------------- ------------
Total stockholders' equity............................................................ 629,014 824,155
--------------- ------------
Total liabilities and stockholders' equity............................................ $2,215,497 $2,775,753
=============== ============
The accompanying notes to combined financial statements are an
integral part of these balance sheets.
NATIONAL COURIER, INC. AND NATIONAL EXPRESS, INC.
COMBINED STATEMENTS OF OPERATIONS
For The Nine
Months Ended
For The Years Ended September 30
1993 1994 1995
----------- ----------- -----------
REVENUES (Notes 2 and 13)............................................. $12,472,258 $15,018,440 $11,995,900
COST OF REVENUES...................................................... 7,456,230 9,345,411 7,359,690
----------- ----------- -----------
Gross profit........................................................ 5,016,028 5,673,029 4,636,210
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 8).................
4,942,313 5,248,339 4,495,705
----------- ----------- -----------
Operating income ............................................ 73,715 424,690 140,505
OTHER INCOME AND EXPENSE:
Sale of division (Note 14).......................................... 337,027 0 0
Other expense ...................................................... (133,510) (171,175) (92,235)
Interest expense.................................................... (46,517) (48,541) (67,323)
----------- ----------- -----------
157,000 (219,716) (159,558)
----------- ----------- -----------
Income (loss) before income taxes............................ 230,715 204,974 (19,053)
PRO FORMA PROVISION FOR (BENEFIT FROM) INCOME TAXES (Notes 2 and 9)... 94,035 74,635 (21,016)
----------- ----------- -----------
Net income................................................... $136,680 $130,339 $1,963
=========== =========== ===========
The accompanying notes to combined financial statements are an
integral part of these statements.
NATIONAL COURIER, INC. AND NATIONAL EXPRESS, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
Common Stock
---------------------- Total
(Note 11) Additional Retained Stockholders'
Shares Amount Paid-In Capital Earnings Equity
BALANCE AT DECEMBER 31, 1992............................. 20,340 $23,400 $37,637 $371,247 $432,284
Distributions to stockholders.......................... 0 0 0 (31,332) (31,332)
Capital contribution equal to current income taxes
of S corporations................................... 0 0 91,382 0 91,382
Net income............................................. 0 0 0 136,680 136,680
---------- --------- --------- ---------- ----------
BALANCE AT DECEMBER 31, 1993............................. 20,340 23,400 129,019 476,595 629,014
Capital contribution equal to current income taxes
of S corporations................................... 0 0 64,802 0 64,802
Net income............................................. 0 0 0 130,339 130,339
---------- --------- --------- ---------- ----------
BALANCE AT DECEMBER 31, 1994............................. 20,340 23,400 193,821 606,934 824,155
Distributions to stockholders.......................... 0 0 (76,370) 0 (76,370)
Charge to capital in an amount equal to current
income tax benefit of S corporations................ 0 0 (27,760) 0 (27,760)
Net income............................................. 0 0 0 1,963 1,963
---------- --------- --------- ---------- ----------
BALANCE AT SEPTEMBER 30, 1995............................ 20,340 $23,400 $89,691 $608,897 $721,988
========== ========= ========= ========== ==========
The accompanying notes to combined financial statements are an
integral part of these statements.
NATIONAL COURIER, INC. AND NATIONAL EXPRESS, INC.
COMBINED STATEMENTS OF CASH FLOWS
For The Nine
For The Years Ended Months Ended
December 31 September 30
----------- ------------
1993 1994 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................................... $136,680 $130,339 $1,963
------------ ----------- --------------
Adjustments to reconcile net income to net cash provided by (used in) operating
activities -
Loss on disposal of equipment and leasehold improvements..................... 7,871 7,186 0
Depreciation and amortization of equipment and leasehold improvements 112,510 106,354 113,345
Charge to capital in an amount equal to current income tax
benefit of S corporations................................................ 91,382 64,802 (27,760)
Changes in operating assets and liabilities -
Increase in accounts receivable............................................ (101,589) (355,733) (343,001)
(Increase) decrease in prepaid expenses and other current assets.......... 270,716 (119,369) 138,348
(Increase) decrease in other assets........................................ 118,853 (161,693) (32,804)
Increase (decrease) in accounts payable ................................... (182,944) 242,448 59,646
Increase (decrease) in accrued expenses and other current liabilities...... 89,136 (91,372) 32,948
Increase (decrease) in due to stockholders................................. 0 17,998 (17,998)
------------ ----------- --------------
Total adjustments.......................................................... 405,935 (289,379) (77,276)
------------ ----------- --------------
Net cash provided by (used in) operating activities........................ 542,615 (159,040) (75,313)
------------ ----------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements................................. ------------ ----------- --------------
(86,280) (116,259) (133,103)
------------ ----------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings............................................... 200,000 196,041 123,630
Principal payments of short-term obligations...................................... (500,000) 0 0
Distributions to stockholders..................................................... (31,332) 0 (76,370)
Principal payments under capital lease obligations................................ (21,596) 0 0
------------ ----------- --------------
Net cash provided by (used in) financing activities........................ (352,928) 196,041 123,630
------------ ----------- --------------
Net increase (decrease) in cash and cash equivalents....................... 103,407 (79,258) (84,786)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................................... 60,637 164,044 84,786
------------ ----------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.......................................... $164,044 $84,786 $0
============ =========== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest....................................................................... $46,517 $48,541 $65,235
Income taxes................................................................... 1,567 1,514 90,101
============ =========== ==============
The accompanying notes to combined financial statements are an
integral part of these statements.
NATIONAL COURIER, INC. AND NATIONAL EXPRESS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION:
The accompanying combined financial statements include the accounts of
National Courier, Inc. and National Express, Inc. (collectively, the "Company").
The Company provides courier and package delivery services to most major cities
in the United States utilizing public carriers and out-of-town courier services.
The Company and its stockholders entered into a definitive agreement
with Consolidated Delivery & Logistics, Inc. ("CDL") pursuant to which the
Company merged with CDL (the "Merger") on November 27, 1995. All outstanding
shares of the Company were exchanged for cash and shares of CDL's common stock
concurrent with the consummation of the initial public offering of the common
stock of CDL.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis Of Presentation -
The companies discussed in Note 1 were under the common control of the
two stockholders. All significant intercompany transactions have been eliminated
in combination.
Use of Estimates in the Preparation of the Financial Statements -
The preparation of the combined 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 combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Equipment And Leasehold Improvements -
Equipment is recorded at cost. Leasehold improvements are amortized
over the lives of the respective leases or the lives of the improvements,
whichever is shorter. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the assets.
Revenue Recognition -
Revenue is recognized when the shipment is completed and expenses are
recognized as incurred.
Income Taxes -
The Company has elected to be treated for Federal and state income tax
purposes as an S Corporation and, accordingly, any income tax liabilities are
the responsibility of the stockholders. For purposes of these financial
statements, Federal and state income taxes have been provided for the Company as
if the Company had filed C Corporation tax returns. The current income tax
expense (benefit) is reflected as an adjustment to additional paid-in capital.
The Company's S Corporation status terminated with the effective date of the
Merger discussed as in Note 1.
Reclassifications -
Certain reclassifications have been made to the prior years' financial
statements to conform to the current period presentation.
(3) PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following -
December 31
1993 1994
------------- ------------
Supplies........................................................................ $138,974 $111,392
Prepaid insurance............................................................... 50,059 28,753
Other........................................................................... 8,922 177,179
------------- ------------
$197,955 $317,324
============= ============
(4) EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Equipment and leasehold improvements consist of the following -
December 31
Useful Lives 1993 1994
------------ ---- ----
Office equipment.......................................... 5-7 years $869,798 $910,982
Leasehold improvements.................................... 3 years 358,368 368,705
--------------- ------------
1,228,166 1,279,687
Less- Accumulated depreciation and amortization........... (927,253) (976,055)
--------------- ------------
$300,913 $303,632
(5) OTHER ASSETS:
Other assets consist of the following -
December 31
1993 1994
----------- ---------
Deferred software costs......................................................... $15,633 $61,622
Security deposits............................................................... 6,287 50,081
Maintenance agreements.......................................................... 0 71,910
----------- ---------
$21,920 $183,613
=========== =========
Certain development costs related to computer software have been
capitalized and are included in other assets. Amortization is computed on a
straight-line basis over the estimated economic life of the asset, generally
three years.
(6) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the
following -
December 31
1993 1994
------------- ----------
Accrued payroll and payroll taxes............................................. $417,359 $323,812
Other current liabilities..................................................... 16,669 18,844
------------- ----------
$434,028 $342,656
============= ==========
(7) REVOLVING LINES OF CREDIT:
Borrowings outstanding under revolving lines of credit from a bank,
which are secured by the Company's accounts receivable and the personal
guarantee of the owners, were $638,784 and $834,825 at December 31, 1993 and
1994, respectively. The lines of credit expire on May 1, 1996. Interest is at
the bank's prime lending rate plus 3/4% (9 1/4% at December 31, 1994).
Short-term borrowings under the lines are as follows -
For The Nine
For The Years Ended Months Ended
December 31 September 30
----------- ------------
1993 1994 1995
---- ---- ----
Average amount outstanding during the period (total of monthly outstanding
principal balances divided by the number of months)................. $652,910 $849,566 $952,380
Weighted average interest rate during the period (actual interest expense
on short-term borrowings divided by average short-term borrowings
outstanding)........................................................ 7.05% 7.70% 9.61%
(8) EMPLOYEE BENEFIT PLANS:
During 1994, the Company established a 401(k) profit sharing plan
covering substantially all full-time employees of the Company who have one year
of service and are age twenty-one or older. At its discretion, the Company can
contribute up to 25% of participant contributions up to a maximum of 6% of the
eligible employee's salary. The Company recorded charges of $9,775 and $8,588
for matching contributions for the year ended December 31, 1994 and nine months
ended September 30, 1995.
(9) INCOME TAXES:
The following income tax information is presented in accordance with
Statement of Financial Accounting Standards No. 109 as if the Company had been
subject to Federal and state income taxes throughout the periods presented. The
components of the provision for (benefits from) income taxes are summarized as
follows -
For The Nine
For The Years Ended Months Ended
December 31 September 30
1993 1994 1995
---- ---- ----
Federal............................................................ $72,845 $59,737 $(16,287)
State.............................................................. 21,190 14,898 (4,729)
----------- --------- ----------
$94,035 $74,635 $(21,016)
=========== ========= ==========
The differences in federal income taxes provided and the amounts
determined by applying the statutory tax rate (34%) to income (loss) before
income taxes result from the following -
For The Nine
For The Years Ended Months Ended
December 31 September 30
----------- ------------
1993 1994 1995
---- ---- ----
Income tax (benefit) at statutory rate................................ $78,443 $69,691 $(6,478)
Add (deduct) -
State income taxes, net of Federal benefit.......................... 13,985 9,833 (3,121)
Nondeductible expenses and other.................................... 1,607 (4,889) (11,147)
------- ------- --------
Income tax (benefit) expense................................. $94,035 $74,635 $(21,016)
======= ======= ========
(10) COMMITMENTS AND CONTINGENCIES:
Litigation -
The Company is, from time to time, a party to litigation arising in the
normal course of business. Management believes that none of these actions will
have a material adverse effect on the financial position or results of
operations of the Company.
Commitments -
The Company leases office space and equipment under operating leases
with lease terms of greater than one year. For the years ended December 31, 1993
and 1994 and the nine months ended September 30, 1995, rent expense amounted to
$268,448, $222,613 and $173,166 , respectively.
The approximate minimum annual rental commitments of the Company, under
existing lease agreements, are as follows -
December 31
-----------------
1995...................................................................................... $159,628
1996...................................................................................... 161,628
1997...................................................................................... 99,939
1998...................................................................................... 12,168
1999...................................................................................... 12,168
Thereafter................................................................................ 121,680
-----------------
$567,211
=================
(11) COMMON STOCK:
Common stock of each of the combined entities at December 31, 1993 and
1994, is as follows -
Shares
Par Issued and Common
Value Authorized Outstanding Stock
----------- ---------- ---------
National Courier, Inc.......................................... $10 3,000 340 $3,400
National Express, Inc.......................................... 1 50,000 20,000 20,000
----------- ---------- ---------
53,000 20,340 $23,400
=========== ========== =========
(12) RELATED PARTY TRANSACTIONS:
At December 31, 1994, the Company had a noninterest bearing loan
payable to its stockholders of $17,998 which was repaid during the nine months
ended September 30, 1995.
National leases transportation equipment from a company which is
partially owned by its stockholders. Lease expense related to these transactions
was approximately $184,300, $162,600, and $112,200 for the years ended December
31, 1993 and 1994 and for the nine months ended September 30, 1995,
respectively.
National rents office space in a building owned by a stockholder. Rent
expense related to these transactions was approximately $73,200, $75,200 and
$64,200 for the years ended December 31, 1993 and 1994 and for the nine months
ended September 30, 1995, respectively.
(13) SIGNIFICANT CUSTOMERS:
Included in revenues is one customer who accounted for approximately
10% of revenues in 1994. No other customer individually accounted for more than
10% of the Company's revenues for the years ended December 31, 1993 or 1994 or
the nine months ended September 30, 1995.
(14) SALE OF DIVISION:
Included in other income and expense in 1993 are the results of
operations of the Company's former Air Courier Division. In December 1992 the
Company decided to restructure its Air Courier Division and in connection
therewith sold such business in April 1993. Proceeds of the sale were
approximately $760,000 and were offset by disposal costs of approximately
$456,000.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
SILVER STAR EXPRESS, INC. AND RELATED COMPANIES
COMBINED BALANCE SHEETS
ASSETS
December 31
1993 1994
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents.................................................................... $733,088 $1,329,070
Accounts receivable.......................................................................... 1,057,234 835,281
Prepaid expenses and other current assets (Note 3)........................................... 114,514 179,486
Stockholder receivables (Note 13)............................................................ 113,466 167,434
Notes receivable - current (Note 4).......................................................... 64,500 168,513
---------- ----------
Total current assets.................................................................. 2,082,802 2,679,784
EQUIPMENT, net (Notes 2, 5 and 8).............................................................. 794,105 650,350
NOTES RECEIVABLE (Note 4)...................................................................... 5,000 36,000
OTHER ASSETS (Note 6).......................................................................... 211,064 53,600
---------- ----------
Total assets......................................................................... $3,092,971 $3,419,734
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 8)................................................... $187,348 $195,727
Accounts payable............................................................................. 134,287 160,114
Accrued expenses and other current liabilities (Note 7)...................................... 573,232 445,783
---------- ----------
Total current liabilities............................................................ 894,867 801,624
---------- ----------
LONG-TERM DEBT (Note 8)........................................................................ 589,826 394,099
---------- ----------
DEFERRED INCOME TAXES (Note 10)................................................................ 32,052 55,771
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY (Note 12):
Common stock................................................................................. 1,550 1,550
Additional paid-in capital................................................................... 713,546 983,991
Retained earnings............................................................................ 861,130 1,182,699
---------- ----------
Total stockholders' equity........................................................... 1,576,226 2,168,240
---------- ----------
Total liabilities and stockholders' equity........................................... $3,092,971 $3,419,734
========== ==========
The accompanying notes to combined financial statements are an
integral part of these balance sheets.
SILVER STAR EXPRESS, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF INCOME
For The Nine
For The Years Ended Months Ended
December 31 September 30
----------- ------------
1993 1994 1995
----------- ----------- -----------
REVENUES (Notes 2 and 14)....................................................... $14,972,465 $15,139,278 $10,142,990
COST OF REVENUES................................................................ 11,423,611 11,113,019 7,675,631
----------- ----------- -----------
Gross profit........................................................... 3,548,854 4,026,259 2,467,359
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 9)........................... 2,930,762 3,440,729 2,057,201
----------- ----------- -----------
Operating income....................................................... 618,092 585,530 410,158
----------- ----------- -----------
OTHER INCOME AND EXPENSE:
Other income (expense) (Note 4)............................................... 31,859 249,830 92,556
Interest expense.............................................................. (69,830) (73,682) (42,046)
----------- ----------- -----------
(37,971) 176,148 50,510
----------- ----------- ----------
Income before income taxes............................................. 580,121 761,678 460,668
PRO FORMA PROVISION FOR INCOME TAXES (Notes 2 and 10)........................... 234,297 310,609 184,267
----------- ----------- -----------
Net income............................................................. $345,824 $451,069 $276,401
=========== =========== ===========
The accompanying notes to combined financial statements are an
integral part of these statements.
SILVER STAR EXPRESS, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
Common Stock Additional Total
(Note 12) Paid-In Retained Treasury Stockholders'
Shares Amount Capital Earnings Stock Equity
------ ------- -------- -------- -------- ----------
BALANCE AT DECEMBER 31, 1992........................ 1,170 $1,800 $524,672 $692,743 $(20,912) $1,198,303
Distributions to stockholders..................... 0 0 0 (177,437) 0 (177,437)
Capital contribution equal to the current income
taxes of S corporation.......................... 0 0 209,536 0 0 209,536
Retirement of treasury stock...................... (25) (250) (20,662) 0 20,912 0
Net income........................................ 0 0 0 345,824 0 345,824
------ ------- -------- -------- -------- ----------
BALANCE AT DECEMBER 31, 1993........................ 1,145 1,550 713,546 861,130 0 1,576,226
Distributions to stockholders..................... 0 0 0 (129,500) 0 (129,500)
Capital contribution equal to the current income
taxes of S corporation.......................... 0 0 270,445 0 0 270,445
Net income........................................ 0 0 0 451,069 0 451,069
------ ------- -------- -------- -------- ----------
BALANCE AT DECEMBER 31, 1994........................ 1,145 1,550 983,991 1,182,699 0 2,168,240
Distributions to stockholders..................... 0 0 (39,653) (1,459,100) 0 (1,498,753)
Capital contribution equal to the current income
taxes of S corporation.......................... 0 0 144,170 0 0 144,170
Net income........................................ 0 0 0 276,401 0 276,401
------ ------- -------- -------- -------- ----------
BALANCE AT SEPTEMBER 30, 1995....................... 1,145 $1,550 $1,088,508 $0 $0 $1,090,058
====== ======= ========== ======== ======== ==========
The accompanying notes to combined financial statements are an
integral part of these statements.
SILVER STAR EXPRESS, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
For The Nine
For The Years Ended Months Ended
December 31 September 30
1993 1994 1995
-------- --------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................................ $345,824 $451,069 $276,401
Adjustment to reconcile net income to net cash provided by operating activities-
Loss on disposal of equipment......................................................... 0 40,369 17,176
Depreciation and amortization......................................................... 138,240 186,990 182,070
Gain on terminal sales................................................................ 0 (163,585) 0
Deferred income tax expense........................................................... 12,722 23,719 10,200
Current income taxes of S Corporation................................................. 209,536 270,445 144,170
Changes in operating assets and liabilities -
(Increase) decrease in -
Accounts receivable, net.......................................................... (348,115) 221,953 229,625
Prepaid expenses and other current assets......................................... 29,792 (64,972) (185,537)
Other assets...................................................................... 50,285 157,464 (8,700)
Increase (decrease) in -
Accounts payable and accrued liabilities.......................................... (65,310) (101,622) 82,392
-------- --------- -------
Net cash provided by operating activities.................................... 372,974 1,021,830 747,797
-------- --------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment................................................... (428,549) (85,019) (83,792)
Proceeds from terminal sales.......................................................... 0 93,000 0
(Advances to) repayments from stockholders............................................ 12,862 (53,968) 35,753
(Increase) decrease in notes receivable............................................... 48,000 (63,013) 43,351
-------- --------- -------
Net cash used in investing activities........................................ (367,687) (109,000) (4,688)
-------- --------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:......
Principal payments on long-term debt.................................................. (397,974) (187,348) (170,657)
Proceeds from long-term borrowings.................................................... 326,928 0 0
Distributions to stockholders......................................................... (177,437) (129,500) (1,498,753)
-------- --------- -------
Net cash used in financing activities........................................ (248,483) (316,848) (1,669,410)
-------- --------- -------
Net increase (decrease) in cash and cash equivalents......................... (243,196) 595,982 (926,301)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........................................ 976,284 733,088 1,329,070
-------- --------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.............................................. $733,088 $1,329,070 $402,769
======== ========= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest................................................................ $69,829 $73,682 $45,363
======== ========= =======
The accompanying notes to combined financial statements are an
integral part of these statements.
SILVER STAR EXPRESS, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION:
The accompanying combined financial statements include the accounts of
Silver Star Express, Inc., Silver Star Express North, Inc., All World Brokers,
Inc., and Parcel Delivery Company of Florida, Inc. (collectively, the
"Company"). The Company provides delivery and distribution services in ten
states.
The Company and its stockholders entered into a definitive agreement
with Consolidated Delivery & Logistics, Inc. ("CDL") pursuant to which the
Company merged with CDL (the "Merger") on November 27, 1995. All outstanding
shares of the Company were exchanged for cash and shares of CDL's common stock
concurrent with the consummation of the initial public offering of the Common
Stock of CDL.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation -
The companies discussed in Note 1 were under the common control of two
stockholders. All significant intercompany transactions have been eliminated in
combination.
Use of Estimates in the Preparation of the Financial Statements -
The preparation of the combined 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 combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Equipment -
Equipment is recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets.
Revenue Recognition -
Revenue is recognized when the shipment is completed and expenses are
recognized as incurred.
Income Taxes -
The Company (except for Parcel Delivery Company of Florida, Inc., a C
Corporation) has elected to be treated for Federal and state income tax purposes
as an S Corporation and, accordingly, any income tax liabilities are the
responsibility of the stockholders. For purposes of these financial statements,
Federal and state income taxes have been provided for the Company as if the
Company had filed C Corporation tax returns. The current income tax expense is
reflected as an increase to additional paid-in capital. The Company's S
Corporation status terminated with the effective date of the Merger discussed in
Note 1.
Reclassifications-
Certain reclassifications have been made to prior years' financial
statements to conform to the current period presentation.
(3) PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following -
December 31
1993 1994
-------- --------
Prepaid insurance............................................................. $94,969 $108,179
Other receivables............................................................. 7,696 52,430
Other......................................................................... 11,849 18,877
-------- --------
$114,514 $179,486
======== ========
(4) NOTES RECEIVABLE:
Notes receivable consist of the following -
December 31
1993 1994
-------- --------
Note receivable (a)............................................................ $0 $72,000
Note receivable (b)............................................................ 34,500 0
Note receivable (c)............................................................ 35,000 5,000
Note receivable (d)............................................................ 0 100,000
Other note receivable.......................................................... 0 27,513
-------- --------
69,500 204,513
Less -- Current portion...................................................... 64,500 168,513
-------- --------
$5,000 $36,000
======== ========
(a) In 1994, the Company sold distribution routes, customer lists and related
equipment in certain terminals in Ashland, Massachusetts and Bloomfield,
Connecticut. In connection with this sale, the Company received a non-interest
bearing note receivable in the amount of $72,000, payable in 24 monthly
installments of $3,000 commencing February 1995. The Company recorded a gain on
the sale of approximately $164,000 which is included in other income in the
accompanying 1994 combined statement of income.
(b) In 1992, the Company sold distribution routes, customer lists and related
equipment in certain terminals in Ames, Iowa; Bloomington, Illinois; Davenport,
Iowa; and Omaha, Nebraska. In connection with this sale, the Company received a
non-interest bearing note receivable in the amount of $59,000, payable $5,000,
three months from the closing date and thereafter in 36 monthly installments of
$1,500 commencing December 1992. As of December 31, 1994, the note was paid in
full. In connection with this sale, the Company entered into a three year
noncompete agreement, as defined, with the purchaser.
(c) In 1992, the Company sold distribution routes, customer lists and related
equipment in a terminal in Chicago, Illinois. In connection with this sale, the
Company received a non-interest bearing note receivable in the amount of
$75,000, payable in 30 monthly installments of $2,500 commencing September 1992.
In connection with this sale, the Company entered into a three year noncompete
agreement, as defined, with the purchaser.
(d) This note is receivable from an affiliate through common ownership.
Interest is payable semiannually at 8% and the principal is due on demand.
(5) EQUIPMENT:
Equipment consists of the following -
Useful December 31
Lives 1993 1994
------- --------- ---------
Transportation equipment................................. 5 years $935,079 $973,299
Office equipment......................................... 5 years 72,608 82,489
Other equipment.......................................... 5 years 57,045 18,005
--------- ---------
1,064,732 1,073,793
Less --Accumulated depreciation.......................... (270,627) (423,443)
--------- ---------
$794,105 $650,350
========= =========
(6) OTHER ASSETS:
Other assets consist of the following -
December 31
1993 1994
-------- -------
Security deposits.............................................................. $54,495 $53,600
Other.......................................................................... 156,569 0
-------- -------
$211,064 $53,600
======== =======
(7) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the
following -
December 31
1993 1994
-------- -------
Payroll and payroll related costs............................................. $391,977 $331,052
Other accrued liabilities..................................................... 181,255 114,731
-------- -------
$573,232 $445,783
======== ========
(8) LONG-TERM DEBT:
Long-term debt consists of the following -
December 31
1993 1994
-------- --------
Note payable (a)...................................................... $75,000 $75,000
Note payable (a)...................................................... 112,500 62,500
Equipment notes payable (b)........................................... 586,477 452,326
Other................................................................. 3,197 0
-------- --------
777,174 589,826
Less -- Current maturities............................................ (187,348) (195,727)
-------- --------
$589,826 $394,099
======== ========
(a) In 1992, the Company purchased certain rights to distribute products from a
significant customer. In connection with this purchase, the Company issued a
$75,000 promissory note ("Note Payable 1") and received a $250,000 working
capital loan ("Note Payable 2") from the customer. Note Payable 1 is payable at
maturity, January 1997, and interest is payable annually at 8.5%. Note Payable 2
is payable in quarterly installments of $12,500, bears interest at 13.7% and
matures in February 1997. Both notes are secured by the accounts receivable of
the Company and there are no prepayment penalties.
(b) These notes were issued at various dates to provide vehicle and equipment
financing for the Company. The notes secured by the vehicles and equipment
purchased are payable in monthly principal and interest installments aggregating
$14,818 in 1993 and 1994, respectively, and mature through December 1997. The
notes bear interest at rates ranging from 8.24% to 8.50%.
The aggregate amounts of annual principal maturities of long-term debt
are as follows -
December 31
---------------
1995.................................................................................. $195,727
1996.................................................................................. 170,802
1997.................................................................................. 223,297
---------------
Total......................................................................... $589,826
===============
(9) EMPLOYEE BENEFIT PLANS:
The Company maintains a 401(k) profit sharing plan covering
substantially all full-time employees who have completed one year of service and
are age twenty-one or older. At its discretion, the Company can contribute up to
25% of participant contributions up to a maximum of 6% of the eligible
employee's salary. The Company recorded charges $22,855, $23,040 and $13,628 for
matching contributions to the plan for the years ended December 31, 1993 and
1994 and for the nine months ended September 30, 1995, respectively.
(10) INCOME TAXES:
The following income tax information is presented in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," as if the Company had been subject to Federal and state income taxes
throughout the periods presented.
The components of the provision for income taxes are as follows -
For The Nine
For The Years Ended Months Ended
December 31 September 30
----------- ------------
1993 1994 1995
-------- -------- --------
Federal -
Current......................................................... $168,779 $216,898 $132,607
Deferred........................................................ 12,722 23,719 10,200
State............................................................. 52,796 69,992 41,460
-------- -------- --------
$234,297 $310,609 $184,267
======== ======== ========
The differences in Federal income taxes provided and the amounts
determined by applying the statutory tax rate (34%) to income before income
taxes result from the following -
For The Nine
For The Years Ended Months Ended
December 31 September 30
----------- ------------
1993 1994 1995
-------- -------- --------
Income tax at statutory rate............................................... $197,241 $258,971 $156,627
Add -
State income taxes, net of Federal benefit............................... 34,845 46,195 27,364
Nondeductible expenses................................................... 2,211 5,443 276
-------- -------- --------
Income tax expense......................................................... $234,297 $310,609 $184,267
======== ======== ========
At December 31, 1993 and 1994, the Company had deferred income tax
liabilities of $32,052 and $55,771, respectively. The deferred income tax
liabilities resulted primarily from accelerated depreciation for tax purposes
and accrued expenses being deductible for tax purposes in future periods.
(11) COMMITMENTS AND CONTINGENCIES:
Litigation -
The Company is, from time to time, a party to litigation arising in the
normal course of business. Management believes that none of these actions will
have a material adverse effect on the financial position or results of
operations of the Company.
Commitments-
The Company leases office and warehouse space under operating leases
with lease terms of greater than one year. For the years ended December 31, 1993
and 1994 and for the nine months ended September 30, 1995 rent expense amounted
to $443,723, $491,256, and $317,606, respectively.
The approximate minimum annual rental commitments of the Company, under
existing lease agreements, are as follows -
December 31
------------------
1995..................................................................................... $218,534
1996..................................................................................... 147,600
1997..................................................................................... 56,400
------------------
$422,534
==================
In addition to the operating leases above, the Company leases delivery
equipment under operating leases for which lease terms are committed for a
period of one year from the inception of the lease and on a month-to-month basis
thereafter. For the years ended December 31, 1993 and 1994 and for the nine
months ended September 30, 1995, rent expense related to these leases amounted
to $272,823, $281,284, and $158,416, respectively.
(12) COMMON STOCK:
Common stock of each of the combined entities at December 31, 1993 and
1994 is as follows -
Shares
Par Value Issued and Common
Authorized Outstanding Stock
------ ----- ------
Silver Star Express, Inc........................................ $10 100 20 $200
Silver Star Express North, Inc.................................. 1 1,000 100 100
All World Brokers, Inc.......................................... 10 100 25 250
Parcel Delivery Company of Florida, Inc......................... 1 10,000 1,000 1,000
------ ----- ------
11,200 1,145 $1,550
====== ===== ======
(13) RELATED PARTY TRANSACTIONS:
Leasing Transactions -
The Company leases various facilities from affiliates related through
common ownership. Rents paid to these affiliates, included in rent expense,
amounted to $40,800, $100,900, and $89,500 for the years ended December 31, 1993
and 1994 and for the nine months ended September 30, 1995, respectively.
Stockholder Receivables -
The Company has receivables from a stockholder and a family member
which aggregated $113,466 and $167,434 at December 31, 1993 and 1994,
respectively.
(14) SIGNIFICANT CUSTOMER:
Included in revenues are amounts from two customers who accounted for
approximately 89%, 88%, and 81% of net sales for the years ended December 31,
1993, and 1994 and for the nine months ended September 30, 1995, respectively.
No other customer individually accounts for more than 10% of the Company's net
sales.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
CLICK MESSENGER SERVICE, INC. AND RELATED COMPANIES
COMBINED BALANCE SHEETS
ASSETS
December 31
1993 1994
---- ----
CURRENT ASSETS:
Cash and cash equivalents.................................................................. $12,118 $50,095
Accounts receivable, less allowance of $44,946 and $74,946 for doubtful accounts in 1993 and
1994, respectively......................................................................... 782,048 897,735
Prepaid expenses and other current assets.................................................. 16,772 3,755
Deferred tax asset (Notes 2 and 8)......................................................... 18,063 42,176
-------------- ------------
Total current assets................................................................ 829,001 993,761
EQUIPMENT, net (Notes 2 and 3)............................................................... 95,480 71,125
OTHER ASSETS (Note 5)........................................................................ 78,340 100,028
-------------- ------------
Total assets........................................................................ $1,002,821 $1,164,914
============== ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease obligations (Note 7)................... $444,999 $376,952
Accounts payable........................................................................... 387,026 567,149
Accrued expenses and other current liabilities (Note 6).................................... 215,309 287,341
Income taxes payable (Notes 2 and 8)....................................................... 1,605 0
Deferred revenue (Note 2).................................................................. 0 26,084
-------------- ------------
Total current liabilities........................................................... 1,048,939 1,257,526
-------------- ------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (Note 7)........................................ 75,205 79,512
-------------- ------------
OTHER LIABILITIES............................................................................ 13,387 4,999
-------------- ------------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' DEFICIT:
Common stock, no par value, 3,300 shares authorized, 410 shares issued
and outstanding.......................................................................... 19,843 19,843
Additional paid-in capital................................................................. 93,626 60,932
Accumulated deficit........................................................................ (248,179) (257,898)
-------------- ------------
Total stockholders' deficit......................................................... (134,710) (177,123)
-------------- ------------
Total liabilities and stockholders' deficit......................................... $1,002,821 $1,164,914
============== ============
The accompanying notes to financial statements are an
integral part of these balance sheets.
CLICK MESSENGER SERVICE, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF OPERATIONS
For The Nine
For The Years Ended Months Ended
December 31 September 30
----------- ------------
1993 1994 1995
---- ---- ----
REVENUES (Note 2).......................................................... $7,647,163 $8,860,598 $9,267,422
COST OF REVENUES........................................................... 5,901,294 6,880,151 6,796,319
------------- -------------- -----------------
Gross profit...................................................... 1,745,869 1,980,447 2,471,103
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
(Note 11)................................................................ ------------- -------------- -----------------
1,698,775 1,935,091 1,890,323
------------- -------------- -----------------
Operating income ................................................. 47,094 45,356 580,780
------------- -------------- -----------------
OTHER INCOME AND EXPENSE:
Other income (expense)................................................... 64,340 7,355 (37,098)
Interest expense (Note 7)................................................ (69,165) (62,595) (41,120)
------------- -------------- -----------------
(4,825) (55,240) (78,218)
------------- -------------- -----------------
Income (loss) before income taxes................................. 42,269 (9,884) 502,562
PRO FORMA PROVISION FOR (BENEFIT FROM) INCOME TAXES (Notes 2 and 8)........
------------- -------------- -----------------
17,561 (165) 202,928
------------- -------------- -----------------
Net income (loss)................................................. $24,708 $(9,719) $299,634
============= ============== =================
The accompanying notes to combined financial statements are an
integral part of these statements.
CLICK MESSENGER SERVICE, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1993 AND 1994 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
Retained Total
Additional Earnings Stockholders'
Paid-In (Accumulated Equity
Shares Amount Capital Deficit) (Deficit)
--------- -------- -------- --------- ---------
BALANCE AT DECEMBER 31, 1992.................................. 410 $19,843 $93,626 $(272,887) $(159,418)
Net income.................................................. 0 0 0 24,708 24,708
--------- -------- -------- --------- ---------
BALANCE AT DECEMBER 31, 1993.................................. 410 19,843 93,626 (248,179) (134,710)
Distributions to stockholders............................... 0 0 (32,694) 0 (32,694)
Net loss.................................................... 0 0 0 (9,719) (9,719)
--------- -------- -------- --------- ---------
BALANCE AT DECEMBER 31, 1994.................................. 410 19,843 60,932 (257,898) (177,123)
Distributions to stockholders............................... 0 0 (28,321) 0 (28,321)
Net income.................................................. 0 0 0 299,634 299,634
--------- -------- -------- --------- ---------
BALANCE AT SEPTEMBER 30, 1995................................. 410 $19,843 $32,611 $41,736 $94,190
========= ======== ======== ========= =========
The accompanying notes to combined financial statements are an
integral part of these statements.
CLICK MESSENGER SERVICE, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
For The Nine
For The Years Ended Months Ended
December 31 September 30
----------- ------------
1993 1994 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................................. $24,708 $(9,719) $299,634
Adjustment to reconcile net income (loss) to net cash provided by operating
activities -
Depreciation and amortization.................................................. 31,238 23,619 25,554
Deferred income taxes.......................................................... (18,063) (24,113) (4,999)
Loss on sale of equipment...................................................... 0 5,789 0
(Increase) decrease in accounts receivable, net................................ (37,808) (115,687) (565,016)
(Increase) decrease in prepaid expenses and other current assets............... (6,988) 12,248 (12,173)
(Increase) decrease in other assets............................................ 59,948 (11,072) (15,149)
Increase (decrease) in accounts payable........................................ (2,384) 180,123 607,296
Increase (decrease) in accrued expenses and other current liabilities
and income taxes payable............................................... 1,686 70,427 (84,414)
Increase in deferred revenue................................................... 0 26,084 0
Increase (decrease) in other liabilities....................................... 13,388 (8,389) 6,001
----------- -------- ----------
Net cash provided by operating activities.................................. 65,725 149,310 256,734
----------- -------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment............................................................ (37,206) (7,174) (43,142)
----------- -------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to stockholders..................................................... 0 (32,694) (28,321)
Proceeds from long-term debt...................................................... 0 136,988 58,230
Principal payments under long-term debt and capital lease obligations............. (43,930) (208,453) (85,006)
----------- -------- ----------
Net cash used in financing activities...................................... (43,930) (104,159) (55,097)
----------- -------- ----------
Net increase (decrease) in cash and cash equivalents (15,411) 37,977 158,495
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................................... 27,529 12,118 50,095
----------- -------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.......................................... $12,118 $50,095 $208,590
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest............................................................ $50,903 $46,397 $41,366
Cash paid for income taxes........................................................ 35,164 3,867 0
=========== =========== ===========
NONCASH TRANSACTION:
Capital lease obligations incurred................................................ $5,906 $7,725 $0
=========== =========== ===========
The accompanying notes to combined financial statements are an
integral part of these statements.
CLICK MESSENGER SERVICE, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION:
Click Messenger Service, Inc. and Related Companies (the "Company")
provide courier services primarily to firms in New Jersey and New York.
The accompanying financial statements include Click Messenger Service,
Inc., as well as Click Messenger Service of N.Y., Inc., Meteor Messenger
Service, Inc., DMK Services, Ltd., Cassidy, Ltd. and Group 4 Distribution
Network, Inc. The companies are under common ownership and are being accounted
for as part of one economic entity. All significant intercompany accounts and
transactions have been eliminated.
The Company and its stockholders entered into a definitive agreement
with Consolidated Delivery & Logistics, Inc. ("CDL") pursuant to which the
Company merged with CDL (the "Merger") on November 27, 1995. All outstanding
shares of the Company were exchanged for cash and shares of CDL's common stock
concurrent with the consummation of the initial public offering of the common
stock of CDL.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates in the Preparation of the Financial Statements -
The preparation of the combined 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 combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Equipment -
Equipment is recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets.
Revenue Recognition -
Revenue is recognized when the shipment is completed and expenses are
recognized as incurred. Certain customers pay in advance, giving rise to
deferred revenue.
Income Taxes -
The Company has elected to be treated for certain Federal and state
income tax purposes as an S Corporation and, accordingly, those income tax
liabilities are the responsibility of the stockholders. For purposes of these
financial statements, Federal and state income taxes have been provided for the
Company as if the Company had filed C Corporation tax returns. The current
income tax provision (benefit) for the years ended December 31, 1993 and 1994,
and for the nine months ended September 30, 1995 is reflected as an adjustment
to additional paid-in capital. The Company's S Corporation status terminated
upon the effective date of the Merger discussed in Note 1.
Deferred income taxes are provided for differences in the recognition
of revenue and expense for tax and financial reporting purposes. Temporary
differences result primarily from accelerated depreciation and amortization for
tax purposes and various accruals and reserves which are deductible for tax
purposes in future periods.
Reclassifications -
Certain reclassifications have been made to the prior year' financial
statements to conform to the current period presentation.
(3) EQUIPMENT:
Equipment consists of the following -
December 31
Useful Lives 1993 1994
------------ ---- ----
Office equipment........................................... 5-7 years $334,783 $350,542
Transportation equipment................................... 3-7 years 110,982 87,860
Other equipment............................................ 5-7 years 25,036 24,144
---------------- -----------
470,801 462,546
Less - Accumulated depreciation and amortization........... (375,321) (391,421)
---------------- -----------
$95,480 $71,125
================ ===========
Leased office and transportation equipment under capital leases
included in equipment above consists of the following -
December 31
1993 1994
---- ----
Equipment................................................................. $66,966 $66,966
Less - Accumulated amortization........................................... (44,241) (52,909)
------------- -----------
$22,725 $14,057
============= ===========
(4) INTANGIBLE ASSETS:
The Company has purchased messenger service customer lists. The
purchase prices were allocated to certain intangible assets that were acquired.
Intangible assets consist of the following -
Useful December 31
Lives 1993 1994
----- ---- ----
Covenant not-to-compete........................................... 4 years $44,725 $59,900
Customer list..................................................... 5 years 18,000 36,829
----------- ---------
62,725 96,729
Less - Accumulated amortization................................... (2,250) (26,408)
----------- ---------
$60,475 $70,321
=========== =========
(5) OTHER ASSETS:
Other assets consist of the following -
December 31
1993 1994
Security deposits.............................................................. $17,865 $29,707
Intangible assets (Note 4)..................................................... 60,475 70,321
----------- ---------
$78,340 $100,028
=========== =========
(6) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the
following -
December 31
1993 1994
---- ----
Payroll and related benefits.................................................... $104,416 $248,555
Other accrued liabilities....................................................... 110,893 38,786
------------- --------
$215,309 $287,341
============= ========
(7) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:
Long-term debt consists of the following -
December 31
1993 1994
---- ----
Notes payable to principal stockholder (a).............................. $381,428 $349,346
Equipment loans (b)..................................................... 79,677 52,248
Note payable (c)........................................................ 33,592 32,250
Capital lease obligations (d)........................................... 25,507 22,620
--------------- --------
520,204 456,464
Less - Current maturities............................................... (444,999) (376,952)
--------------- --------
$75,205 $79,512
=============== ========
(a) Notes payable to principal stockholder, due on demand, interest rates
ranging from 6% to prime (8.5% at December 31, 1994) plus 1%.
(b) Loans for office and communication equipment, maturing in 1996 and
1998, interest ranging from 6% to 14.9%, collateralized by the related
equipment.
(c) Liability for nonpayment of unemployment taxes for certain employees payable
to the State of New Jersey, monthly payments of $1,000, final payment due August
15, 1997.
(d) Various lease obligations for office and transportation equipment, maturing
in 1995, 1996 and 1997, interest ranging from 8% to 24%, secured by equipment
under these lease obligations.
The aggregate amounts of annual principal maturities of long-term debt
(excluding capital lease obligations) are as follows -
December 31,
--------
1995.................................................................................. $364,779
1996.................................................................................. 53,430
1997.................................................................................. 15,024
1998.................................................................................. 611
--------
Total........................................................................ $433,844
========
The Company leases certain office and transportation equipment under
capital lease agreements which expire at various dates. Minimum annual payments
under capital leases are as follows -
December 31,
-----------------
1995........................................................................................ $12,173
1996........................................................................................ 14,028
1997........................................................................................ 587
-----------------
Total minimum payments............................................................. 26,788
Less - Amounts representing interest........................................................ (4,168)
-----------------
Net minimum payments............................................................... 22,620
Less - Current portion of obligations under capital leases.................................. (12,173)
-----------------
Long-term portion of obligations under capital leases....................................... $10,447
=================
(8) INCOME TAXES:
The following income tax information is presented in accordance with
Statement of Financial Accounting Standards No. 109 as if the Company had been
subject to Federal and state income taxes throughout the periods presented.
The components of the provision for (benefit from) income taxes are as
follows -
For The Nine
For The Years Ended Months Ended
December 31 September 30
----------- ------------
1993 1994 1995
---- ---- ----
Federal....................................................... $9,250 $(5,752) $157,697
State......................................................... 8,311 5,587 45,231
------------ ------- --------
$17,561 $(165) $202,928
============ ======= ========
The differences in Federal income taxes provided and the amounts
determined by applying the statutory tax rate (34%) to income before income
taxes result from the following -
For The Nine
For The Years Ended Months Ended
December 31 September 30
----------- ------------
1993 1994 1995
---- ---- ----
Income tax (benefit) at statutory rate..................................... $14,371 $(3,361) $170,871
Add (deduct) -
State income taxes, net of Federal benefit............................... 5,485 3,687 29,852
Nondeductible expenses and other......................................... (2,295) (491) 2,205
----------- ------- --------
$17,561 $(165) $202,928
=========== ======= ========
(9) COMMITMENTS AND CONTINGENCIES:
Litigation -
The Company is, from time to time, a party to litigation arising in the
normal course of business. Management believes that none of these actions will
have a material adverse effect on the financial position or results of
operations of the Company.
Commitments -
The Company leases, under operating leases, office space with lease
terms of greater than one year. Rent expense related to these leases amounted to
$104,201, $109,932, and $160,406 for the years ended December 31, 1993 and 1994,
and for the nine months ended September 30, 1995, respectively.
The approximate minimum annual rental commitments of the Company, under
existing lease agreements, over the next five years, are as follows -
December 31,
------------------
1995.................................................................................. $187,076
1996.................................................................................. 208,333
1997.................................................................................. 106,174
1998.................................................................................. 31,277
1999.................................................................................. 15,007
------------------
$547,867
==================
(10) EMPLOYEE BENEFIT PLANS:
The Company maintains a 401(k) profit sharing plan covering
substantially all full-time employees of the Company who have one year of
service and are age twenty-one or older. At its discretion, the Company may make
contributions on behalf of the eligible employees. For the years ended December
31, 1993 and 1994 and for the nine months ended September 30, 1995, the Company
did not make any contributions to the plan.
(11) RELATED PARTY TRANSACTIONS:
Rental Transactions -
The Company rents office space in a building owned by a stockholder.
Rent expense related to these transactions was approximately $24,000, $24,000
and $18,000 for the years ended December 31, 1993 and 1994 and for the nine
months ended September 30, 1995, respectively.
(12) ACQUISITION:
In August 1995, the Company entered into agreements to purchase the
assets of a company for $50,000 at closing, employ the previous sole shareholder
of the acquired company for three years at $40,000 each year and engage this
sole shareholder as a consultant for a three year period. Renumeration for the
consulting services is 5%, 4.5% and 4% of "gross sales," as defined, for the
years ended September 30, 1995, 1996 and 1997, respectively.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
CROWN COURIER SYSTEMS, INC. AND
BESTWAY DISTRIBUTION SERVICES, INC.
COMBINED BALANCE SHEETS
ASSETS
December 31
1993 1994
--------------- ----------
CURRENT ASSETS:
Cash and cash equivalents (Note 8)........................................................ $278,261 $525,054
Accounts receivable, less allowance for doubtful accounts of $78,723 and
$115,106 at December 31, 1993 and 1994, respectively (Note 7).......................... 583,637 759,418
Prepaid expenses and other current assets (Note 3)......................................... 41,748 55,970
--------------- ----------
Total current assets............................................................... 903,646 1,340,442
LEASEHOLD IMPROVEMENTS AND EQUIPMENT, net (Notes 2 and 4)................................... 155,808 175,208
OTHER ASSETS (Note 5)........................................................................ 82,635 82,607
--------------- ----------
Total assets........................................................................ $1,142,089 $1,598,257
=============== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to stockholders (Note 7)..................................................... $280,000 $210,000
Accounts payable........................................................................... 114,851 246,675
Accrued expenses and other current liabilities (Notes 6 and 8)............................ 170,381 169,983
Deferred revenue (Note 2).................................................................. 53,431 64,677
Deferred income taxes (Notes 2 and 9)...................................................... 48,493 46,005
--------------- ----------
Total current liabilities........................................................... 667,156 737,340
--------------- ----------
COMMITMENTS AND CONTINGENCIES (Note 10) STOCKHOLDERS' EQUITY (Notes 1 and 11):
Common stock............................................................................... 1,300 1,300
Additional paid-in capital................................................................. 57,578 242,454
Retained earnings.......................................................................... 416,155 617,263
Less - Treasury stock...................................................................... (100) (100)
--------------- ----------
Total stockholders' equity.......................................................... 474,933 860,917
--------------- ----------
Total liabilities and stockholders' equity.......................................... $1,142,089 $1,598,257
=============== ==========
The accompanying notes to combined financial statements are an
integral part of these balance sheets.
CROWN COURIER SYSTEMS, INC. AND
BESTWAY DISTRIBUTION SERVICES, INC.
COMBINED STATEMENTS OF OPERATIONS
For The Nine
For The Years Ended December 31 Months Ended
September 30
1993 1994 1995
---- ---- ----
REVENUES (Notes 2 and 13)................................................. $6,685,959 $9,603,142 $8,205,613
COST OF SALES............................................................. 3,724,598 5,868,599 5,305,085
--------------- ---------- ----------
Gross profit...................................................... 2,961,361 3,734,543 2,900,528
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............................... 3,170,289 3,390,486 2,755,920
--------------- ---------- ----------
Operating income (loss)........................................... (208,928) 344,057 144,608
--------------- ---------- ----------
OTHER INCOME AND EXPENSE:
Other income............................................................ 237,585 113,602 111,920
Interest expense........................................................ (15,158) (14,163) (12,070)
--------------- ---------- ----------
222,427 99,439 99,850
--------------- ---------- ----------
Income before income taxes........................................ 13,499 443,496 244,458
PRO FORMA PROVISION FOR INCOME TAXES (Notes 2 and 9)....................... 6,083 182,388 97,784
--------------- ---------- ----------
Net income ....................................................... $7,416 $261,108 $146,674
=============== ========== ==========
The accompanying notes to combined financial statements are an
integral part of these statements.
CROWN COURIER SYSTEMS, INC. AND
BESTWAY DISTRIBUTION SERVICES, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
Common Stock Additional Total
(Note 11) Paid-in Retained Treasury Stockholders'
Shares Amount Capital Earnings Stock Equity
BALANCE AT DECEMBER 31, 1992................... 400 $1,300 $0 $408,739 $(100) $409,939
Capital contribution equal to the current
income taxes of S Corporations............ 0 0 57,578 0 0 57,578
Net income................................... 0 0 0 7,416 0 7,416
Net retirement of common stock in
connection with the merger of Bestway
Cartage Corporation and Bestway
Distribution Services, Inc. (Note 1)...... (100) 0 0 0 0 0
---------- --------- --------------- --------------- ------------ -------------
BALANCE AT DECEMBER 31, 1993................... 300 1,300 57,578 416,155 (100) 474,933
Distributions to stockholders................ 0 0 0 (60,000) 0 (60,000)
Capital contribution equal to the current
income taxes of S Corporations............ 0 0 184,876 0 0 184,876
Net income................................... 0 0 0 261,108 0 261,108
---------- --------- --------------- --------------- ------------ -------------
BALANCE AT DECEMBER 31, 1994................... 300 1,300 242,454 617,263 (100) 860,917
Distribution to stockholders................. 0 0 0 (320,000) 0 (320,000)
Capital contribution equal to the current
income taxes of S Corporation............. 0 0 71,676 0 0 71,676
Net income................................... 0 0 0 146,674 0 146,674
---------- --------- --------------- --------------- ------------ -------------
BALANCE AT SEPTEMBER 30, 1995.................. 300 $1,300 $314,130 $443,937 $(100) $759,267
========== ========= =============== =============== ============ =============
The accompanying notes to combined financial statements are an
integral part of these statements.
CROWN COURIER SYSTEMS, INC. AND
BESTWAY DISTRIBUTION SERVICES, INC.
COMBINED STATEMENTS OF CASH FLOWS
For The Nine
For The Years Ended Months Ended
December 31 September 30
----------- ------------
1993 1994 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................................ $7,416 $261,108 $146,674
Adjustments to reconcile net income to net cash provided by
operating activities -
Loss on disposal of leasehold improvements and equipment..................... 2,376 0 4,385
Depreciation and amortization................................................ 48,968 66,113 54,739
Current tax for S Corporation................................................ 57,578 184,876 71,676
(Increase) decrease in -
Accounts receivable, net................................................... 59,955 (175,781) (191,348)
Prepaid expenses and other current assets.................................. 2,690 (14,222) (50,495)
Other assets............................................................... (23,233) 28 (113,986)
Increase in -
Accounts payable, accrued liabilities and other current liabilities........ 49,419 140,184 189,918
------------ ------- -------
Net cash provided by operating activities.............................. 205,169 462,306 111,563
------------ ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to leasehold improvements and equipment................................. (83,376) (85,513) (148,381)
------------ ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on note payable to stockholders, net........................... (18,000) (70,000) 0
Proceeds from long-term borrowings................................................ 0 0 32,643
Principal payments on long-term debt.............................................. (10,684) 0 (66,875)
Distributions to stockholders..................................................... 0 (60,000) (320,000)
------------ ------- -------
Net cash used in financing activities................................... (28,684) (130,000) (354,232)
------------ ------- -------
Net increase (decrease) in cash and cash equivalents.................... 93,109 246,793 (391,050)
CASH AND CASH EQUIVALENTS, beginning of period...................................... 185,152 278,261 525,054
------------ ------- -------
CASH AND CASH EQUIVALENTS, end of period............................................ $278,261 $525,054 $134,004
============ ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................................................ $15,158 $14,163 $9,300
Cash paid for income taxes ....................................................... 0 0 138,963
============ ======== ========
The accompanying notes to combined financial statements are an integral
part of these statements.
CROWN COURIER SYSTEMS, INC. AND
BESTWAY DISTRIBUTION SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION:
The accompanying combined financial statements include the accounts
of Crown Courier Systems, Inc. and Bestway Distribution Services, Inc.
(collectively, the "Company"). The Company provides courier, delivery,
warehouse and distribution services throughout South Florida.
On June 30, 1993, Bestway Distribution Services, Inc. issued 100 shares
of its common stock for all of the outstanding common stock of Bestway Cartage
Corporation ("Cartage"). The business combination was accounted for as a pooling
of interest. Cartage was owned by the same stockholders as Bestway Distribution
Services and provided similar services. The accompanying combined financial
statements include the operations of Cartage from January 1, 1993 through June
30, 1993.
The Company and its stockholders entered into a definitive agreement
with Consolidated Delivery & Logistics, Inc. ("CDL") pursuant to which the
Company merged with CDL (the "Merger") on November 27, 1995. All outstanding
shares of the Company were exchanged for cash and shares of CDL's common stock
concurrent with the consummation of the initial public offering of the Common
Stock of CDL.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation -
The Company, as discussed in Note 1, was under the common control of
two stockholders. All significant intercompany transactions have been eliminated
in combination.
Use of Estimates in the Preparation of the Financial Statements -
The preparation of the combined 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 combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Leasehold Improvements and Equipment -
Leasehold improvements and equipment are recorded at cost. Depreciation
is computed using the straight-line method over the estimated useful lives of
the assets or the life of the lease, whichever is shorter.
Revenue Recognition -
Revenue is recognized when the shipment is completed or, in the case of
the logistics business, when services are rendered to customers and expenses are
recognized as incurred. Certain customers pay in advance, giving rise to
deferred revenue.
Income Taxes -
The Company has elected to be treated for Federal and state income tax
purposes as an S Corporation and, accordingly, any income tax liabilities are
the responsibility of the stockholders. For purposes of these financial
statements, Federal and state income taxes have been provided for the Company as
if the Company had filed C Corporation tax returns. The current income tax
expense is reflected as an increase to additional paid-in capital. The Company's
S Corporation status terminated with the effective date of the Merger discussed
in Note 1.
Reclassifications-
Certain reclassifications have been made to prior years' financial
statements to conform to the current period presentation.
(3) PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following -
December 31
1993 1994
------------ ----------
Prepaid insurance................................................................... $31,914 $40,352
Other................................................................................ 9,834 15,618
------------ ----------
$41,748 $55,970
============ ==========
(4) LEASEHOLD IMPROVEMENTS AND EQUIPMENT:
Leasehold improvements and equipment consists of the following -
December 31
Useful Lives 1993 1994
------------ ---- ----
Office equipment......................................... 5-7 years $160,616 $191,264
Communication equipment.................................. 5-7 years 99,381 110,549
Warehouse equipment...................................... 5-7 years 104,808 102,835
Leasehold improvements................................... 2-5 years 37,083 40,849
--------------- -----------
401,888 445,497
Less - Accumulated depreciation and amortization......... (246,080) (270,289)
--------------- -----------
$155,808 $175,208
=============== ===========
(5) OTHER ASSETS:
Other assets consist of the following -
December 31
1993 1994
------------ ---------
Security and other deposits...................................................... $45,292 $45,421
Other............................................................................ 37,343 37,186
------------ ---------
$82,635 $82,607
============ =========
(6) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the
following -
December 31
1993 1994
---- ----
Accrued expenses.............................................................. $67,386 $33,171
Accrued independent contractor fees........................................... 0 43,000
Due to independent contractors (Note 8)....................................... 102,995 93,812
------------- ---------
$170,381 $169,983
============= =========
(7) NOTE PAYABLE TO STOCKHOLDERS:
The stockholders of the Company and their wives obtained a $500,000
bank line of credit which is used to provide working capital for the Company and
another entity owned by the stockholders (the "Affiliate"). The line, which
expires in July, 1996 bears interest at prime (8.5% at December 31, 1994) plus
1/2%, is guaranteed by the Company and the Affiliate and is limited to
percentages of accounts receivable of the Company and the Affiliate, as defined.
The trade receivables of the Company and the Affiliate are pledged as collateral
for the line. The average borrowings by the Company were approximately $259,000,
$245,000 and $120,255 with corresponding average interest rates of 7.25%, 8.25%,
and 9.36% for the years ended December 31, 1993 and 1994 and for the nine months
ended September 30, 1995, respectively.
(8) DUE TO INDEPENDENT CONTRACTORS:
The Company withholds 5% of contract drivers' compensation up to $5,000
per driver to pay for any claims against that driver. The funds are deposited in
an escrow account held by the Company and are included in cash and cash
equivalents on the accompanying balance sheets. Any unexpended funds are due to
drivers. At December 31, 1993 and 1994, there were no claims exceeding the
amounts withheld from drivers.
(9) INCOME TAXES:
The following income tax information is presented in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," as if the Company had been subject to Federal and state income taxes
throughout the periods presented.
The components of the provision for income taxes are as follows-
For The Nine
For The Years Ended Months Ended
December 31 September 30
----------- ------------
1993 1994 1995
---- ---- ----
Federal............................................................ $4,712 $140,889 $75,783
State.............................................................. 1,371 41,099 22,001
-------------- ----------- ----------
$6,083 $182,388 $97,784
============== =========== ==========
The differences in Federal income taxes provided and the amounts
determined by applying the statutory tax rate (34%) to income before income
taxes result from the following -
For The Nine
For The Years Ended Months Ended
December 31 September 30
----------- ------------
1993 1994 1995
---- ---- ----
Tax at statutory rate...................................................... $4,590 $150,789 $83,116
Add (deduct) - State income taxes, net of Federal benefit.................. 905 27,125 14,521
Nondeductible expenses..................................................... 588 4,474 147
--------- --------- --------
Income tax expense......................................................... $6,083 $182,388 $97,784
========= ========= ========
At December 31, 1993 and 1994, the Company had net deferred income tax
liabilities of $48,493 and $46,005, respectively. The net deferred income tax
liabilities resulted from differences in the amount of the provision for
doubtful accounts and the deduction allowed under tax law and accrual to cash
differences.
(10) COMMITMENTS AND CONTINGENCIES:
Litigation -
The Company is, from time to time, a party to litigation arising in the
normal course of business. Management believes that none of these actions will
have a material adverse effect on the financial position or results of
operations of the Company.
Commitments -
The Company leases office and transportation equipment under operating
leases with lease terms of greater than one year. For the years ended December
31, 1993 and 1994 and for the nine months ended September 30, 1995,
respectively, rent expense amounted to $338,852, $439,775 and $348,393,
respectively.
The approximate minimum annual rental commitments of the Company, under
existing lease agreements, are as follows -
December 31
------------------
1995..................................................................................... $308,462
1996..................................................................................... 305,123
1997..................................................................................... 260,667
1998..................................................................................... 137,529
------------------
$1,011,781
==================
(11) COMMON STOCK:
Common stock of each of the combined entities at December 31, 1993 and
1994 is as follows -
Shares
Par Value Issued and Common
Authorized Outstanding Stock
--------------- --------- ---------
Crown Courier Systems, Inc...................................... $10 100 100 $1,000
Bestway Distributions Services, Inc............................. 1 1,000 200 300
--------------- --------- ---------
1,100 300 $1,300
=============== ========= =========
(12) RELATED PARTY TRANSACTIONS:
Leasing Transactions -
The Company rents one of its facilities on a month to month basis from
an affiliate related through common ownership. Rents paid to the affiliate,
included in rent expense, amounted to $226,100, $160,200 and $120,200 and for
the years ended December 31, 1993 and 1994 and for the nine months ended
September 30, 1995, respectively.
Administrative Fee and Affiliated Sales -
The Company charged an affiliate, through common ownership, an
administrative fee, included in other income, for management and bookkeeping
services which amounted to approximately $119,000, $34,000 and $34,000 for the
years ended December 31, 1993 and 1994 and for the nine months ended September
30, 1995, respectively. In addition, revenues from this affiliate were $14,300,
$48,600 and $21,000 for the years ended December 31, 1993 and 1994 and for the
nine months ended September 30, 1995, respectively.
(13) SIGNIFICANT CUSTOMERS:
Included in revenues are two customers for the year ended December 31,
1993, one customer for the year ended December 31, 1994, and one customers for
the nine months ended September 30, 1995 who accounted for approximately 28%,
21%, and 25% of revenues for the respective periods then ended. No other
customer individually accounts for more than 10% of the Company's revenue.
(14) ACQUISITIONS:
Asset Purchase -
Effective January 30, 1995, the Company purchased substantially all of
the assets, including the assignment of customer contracts, of a delivery
service in Florida. The purchase price is a maximum of $132,000 but limited
based on the measurement of income over a 180-day period, as defined. In
connection with the acquisition, which is being accounted for as a purchase, the
principals of the purchased company entered into a five-year noncompete
agreement with the Company. Additionally, the Company entered into a three-year
employment agreement with one of the principles.
Purchase of Customer List -
On April 28, 1995, the Company purchased a customer list from a
delivery service in Florida. The purchase price will be equal to 10% of gross
revenue received over a two-year period, as defined.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
COURT COURIER SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31
1994 1995
---- ----
CURRENT ASSETS:
Cash and cash equivalents..................................................................... $26,391 $23,068
Accounts receivable, less allowances for doubtful accounts of $115,215 and
$284,606 at March 31, 1994 and 1995, respectively (Note 3)................................. 461,710 585,321
Prepaid expenses and other current assets (Note 4)............................................ 56,446 82,705
------------- -----------
Total current assets................................................................... 544,547 691,094
EQUIPMENT, net (Notes 2 and 5)................................................................. 374,296 380,332
OTHER ASSETS (Note 6)........................................................................... 42,659 41,413
------------- -----------
Total assets........................................................................... $961,502 $1,112,839
============= ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Short-term borrowings (Note 8)................................................................ $0 $298,430
Current maturities of long-term debt (Note 9)................................................. 45,421 38,485
Current portion of obligations under capital leases (Note 10)................................. 33,521 13,648
Due to factor (Note 3)........................................................................ 72,378 0
Accounts payable.............................................................................. 193,662 383,470
Accrued expenses and other current liabilities (Note 7)....................................... 426,133 324,890
Income taxes payable.......................................................................... 55,255 57,569
------------- -----------
Total current liabilities.............................................................. 826,370 1,116,492
------------- -----------
LONG-TERM DEBT (Note 9)......................................................................... 13,289 67,523
------------- -----------
CAPITAL LEASE OBLIGATIONS (Note 10)............................................................. 39,416 31,868
------------- -----------
OTHER LIABILITY (Note 11)....................................................................... 96,000 75,200
------------- -----------
COMMITMENTS AND CONTINGENCIES (Note 13).........................................................
STOCKHOLDERS' DEFICIT:
Common stock, $.001 per share, authorized 10,000,000 shares;
issued and outstanding 1,000,000 shares.................................................... 1,000 1,000
Additional paid-in capital.................................................................... 165,491 165,491
Accumulated deficit........................................................................... (180,064) (344,735)
------------- -----------
Total stockholders' deficit............................................................ (13,573) (178,244)
------------- -----------
Total liabilities and stockholders' deficit............................................ $961,502 $1,112,839
============= ===========
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets.
COURT COURIER SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Nine
For The Years Ended March 31 Months Ended
September 30
1994 1995 1995
---- ---- ----
REVENUES (Notes 2 and 15)................................................... $6,929,421 $8,768,122 $7,394,824
COST OF REVENUES............................................................ 5,586,194 7,092,724 5,977,389
--------------- ----------- ------------
Gross profit....................................................... 1,343,227 1,675,398 1,417,435
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................................ 1,210,795 1,498,493 1,274,130
--------------- ----------- ------------
Operating income................................................... 132,432 176,905 143,305
--------------- ----------- ------------
OTHER INCOME (EXPENSE):
Interest Income........................................................... 1,238 0 0
Interest Expense.......................................................... (121,096) (298,121) (174,341)
Other Income (Expense).................................................... 5,513 (42,455) (25,340)
--------------- ----------- ------------
(114,345) (340,576) (199,681)
--------------- ----------- ------------
Income (loss) before income taxes.................................. 18,087 (163,671) (56,376)
PROVISION FOR INCOME TAXES (Notes 2 and 12)................................. 27,031 1,000 1,000
--------------- ----------- ------------
Net loss........................................................... $(8,944) $(164,671) $(57,376)
=============== =========== ============
The accompanying notes to consolidated financial statements are
an integral part of these statements.
COURT COURIER SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED MARCH 31, 1994 AND 1995 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
Additional Total
Common Stock Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Deficit
BALANCE AT MARCH 31, 1993......................... 1,000,000 $1,000 $2,000 $(171,120) $(168,120)
Capital contributions........................... 0 0 163,491 0 163,491
Net loss........................................ 0 0 0 (8,944) (8,944)
-------------- ------- --------- ----------- ----------
BALANCE AT MARCH 31, 1994......................... 1,000,000 1,000 165,491 (180,064) (13,573)
Net loss........................................ 0 0 0 (164,671) (164,671)
-------------- ------- --------- ----------- ----------
BALANCE AT MARCH 31, 1995......................... 1,000,000 1,000 165,491 (344,735) (178,244)
Net loss........................................ 0 0 0 (57,376) (57,376)
Adjustments to conform fiscal year-end.......... 0 0 0 114,633 114,633
-------------- ------- --------- ----------- ----------
BALANCE AT SEPTEMBER 30, 1995..................... 1,000,000 $1,000 $165,491 $(287,478) $(120,987)
The accompanying notes to consolidated financial statements are
an integral part of these statements.
COURT COURIER SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Nine
For The Years Ended March Months Ended
31 September 30
1994 1995 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................................................... $(8,944) $(164,671) $(57,376)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities -
Net loss for the three months ended March 31 in
order to conform to the nine month presentation....................... 0 0 114,633
Loss on disposal of equipment........................................... 0 90,661 0
Depreciation and amortization........................................... 62,780 100,288 46,335
Changes in operating assets and liabilities-
Increase in accounts receivable, net.................................... (188,850) (123,611) (247,993)
(Increase) decrease in prepaid expenses and other current assets........ 13,142 (26,259) 22,035
(Increase) decrease in other assets..................................... 15,144 1,246 (20,406)
Increase in accounts payable and accrued liabilities.................... 117,107 88,565 56,513
Increase (decrease) in income taxes payable............................. 50,692 2,314 (1,968)
Decrease in other liability............................................. (16,000) (20,800) (8,000)
------------ -------------- ----------------
Net cash provided by (used in) operating activities................... 45,071 (52,267) (96,227)
------------ -------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES -- Purchases of equipment.................
------------ -------------- ----------------
(140,048) (196,985) (81,508)
------------ -------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on short-term and long-term debt.................................... 169,557 388,537 221,314
Payments on debt and capital lease obligations............................... (229,293) (142,608) (46,819)
Capital contributions........................................................ 163,491 0 0
------------ -------------- ----------------
Net cash provided by financing activities............................. 103,755 245,929 174,495
------------ -------------- ----------------
Net increase (decrease) in cash and cash equivalents.................. 8,778 (3,323) (3,240)
CASH AND CASH EQUIVALENTS, beginning of period................................. 17,613 26,391 23,068
------------ -------------- ----------------
CASH AND CASH EQUIVALENTS, end of period....................................... $26,391 $23,068 $19,828
============ ============== ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest....................................................... $120,467 $297,138 $125,346
Cash paid for taxes.......................................................... 5,234 0 1,000
============ ============== ================
NONCASH TRANSACTIONS:
Capital lease obligations incurred........................................... $54,365 $0 $58,131
============ ============== ================
The accompanying notes to consolidated financial statements are
an integral part of these statements.
COURT COURIER SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION:
Court Courier Systems, Inc. and subsidiary (the "Company") are
primarily engaged in the transportation industry serving financial institutions,
state government and private industry in New Jersey, New York, Maine,
Connecticut and Massachusetts.
The accompanying financial statements include Court Courier Systems,
Inc. and its wholly-owned subsidiary Court Courier - Revex of Connecticut.
All significant intercompany accounts and transactions have been eliminated.
The Company and its stockholders entered into a definitive agreement
with Consolidated Delivery & Logistics, Inc. ("CDL") pursuant to which the
Company merged with CDL (the "Merger") on November 27, 1995. All outstanding
shares of the Company were exchanged for cash and shares of CDL's Common Stock
concurrent with the consummation of the initial public offering of the common
stock of CDL.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates in the Preparation of the Financial Statements -
The preparation of the consolidated 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 consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Equipment -
Equipment is recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets.
Revenue Recognition -
Revenue is recognized when the shipment is completed and expenses are
recognized as incurred.
Income Taxes -
The Company records Federal and state income tax based on taxable
income at the applicable rate. Deferred income taxes are provided for
differences in the recognition of revenue and expenses for tax and financial
reporting purposes. Temporary differences result primarily from accelerated
depreciation and amortization for tax purposes and various accruals and reserves
which are deductible for tax purposes in future periods.
Basis of Presentation -
The Company has historically used a March 31 fiscal year-end; however,
to be consistent with CDL and in connection with the merger, consolidated
financial statements for the nine months ended September 30 1995 are presented
herein. The duplication of the results of operations for the three months ended
March 31, 1995 have been reflected as adjustments to accumulated deficit.
Reclassifications-
Certain reclassifications have been made to prior years' financial
statements to conform to the current period presentation.
(3) ACCOUNTS RECEIVABLE:
The Company entered into a factoring agreement with Platinum Funding
Corp. in October 1993, under which certain trade receivables were sold without
recourse. The factoring charge amounted to a maximum fee of 15% of the
receivables assigned and the Company was permitted to receive advances of up to
70% of the receivables assigned. The factoring agreement had a term of nine
months and was terminated in August 1994.
In August 1994, the Company entered into a factoring agreement with
Dimmitt & Owen Financial, Inc. under which certain trade receivables were sold
without recourse. The factoring charge amounted to a maximum fee of 5% of the
receivables assigned and the Company was permitted to receive advances of up to
80% of the receivables assigned. For accounts which remained unpaid after 90
days, the Company was required to repurchase these receivables at the discretion
of Dimmitt & Owen Financial, Inc. This agreement was terminated in October 1994.
As of March 31, 1994, $222,536 of accounts receivable were sold under
the agreement with Platinum Funding Corp. and, accordingly, excluded from
accounts receivable in the accompanying consolidated financial statements. At
March 31, 1994, the Company had a liability due to the factor of $72,378 which
represented monies collected by the Company on receivables sold and special
advances received from the factor. The Company incurred interest expense related
to the factoring agreements of $100,230 and $105,535 for the years ended March
31, 1993 and 1994, respectively.
(4) PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following -
March 31
1994 1995
----------- ---------
Prepaid insurance....................................................................... $49,753 $59,701
Loan exchange........................................................................... 0 11,729
Due from affiliate...................................................................... 6,693 6,693
Other................................................................................... 0 4,582
----------- ---------
$56,446 $82,705
=========== =========
(5) EQUIPMENT:
Equipment consists of the following -
Useful March 31
Lives 1994 1995
----- ---- ----
Transportation equipment.................................. 5 years $446,576 $440,107
Computer equipment........................................ 5-7 years 237,352 252,685
Office equipment.......................................... 7 years 56,006 61,650
Warehouse equipment....................................... 7 years 50,680 50,680
Other equipment........................................... 7 years 18,261 18,261
--------------- ----------
808,875 823,383
Less -- Accumulated depreciation.......................... (434,579) (443,051)
--------------- -----------
$374,296 $380,332
=============== ===========
Leased equipment under capital leases included in equipment above
consists of the following -
March 31
1994 1995
------------- --------
Transportation equipment....................................................... $111,112 $54,365
Office and other equipment..................................................... 0 0
------------- --------
111,112 54,365
Less -- Accumulated amortization............................................... (59,730) (20,208)
------------- --------
$51,382 $34,157
============= ========
(6) OTHER ASSETS:
Other assets consist of the following -
March 31
1994 1995
----------- -------
Security deposits................................................................ $38,414 $41,413
Deferred financing costs......................................................... 4,245 0
----------- -------
$42,659 $41,413
=========== =======
(7) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the
following -
March 31
1994 1995
Accrued payroll and payroll related........................................... $245,898 $255,872
Other accrued expenses........................................................ 180,235 69,018
------------- --------
$426,133 $324,890
============= ========
(8) SHORT-TERM BORROWINGS:
The Company entered into a line of credit agreement with Riviera
Finance in October 1994. At March 31, 1995 $298,430 was outstanding under the
agreement. The agreement allows for maximum borrowings of $500,000 and has a
term of six months with automatic six month renewals unless terminated by either
party with no less than 30 days prior notice. Borrowings outstanding under the
agreement bear interest at 33.6% per annum.
The line of credit agreement is secured by the assets of the Company
including all accounts receivable, contracts, franchise agreements, and
equipment and is personally guaranteed by the officers of the Company.
Borrowings under the line of credit averaged $181,795 and $366,980 for
the year ended March 31, 1995 and the nine months ended September 30, 1995,
respectively. Maximum borrowings were $351,716 and $733,636 for the year ended
March 31, 1995 and for the nine months ended September 30, 1995, respectively.
(9) LONG-TERM DEBT:
Long-term debt consists of the following -
March 31
1994 1995
-------------- -------
Installment loans (a)...................................................... $52,296 $99,921
Other...................................................................... 6,414 6,087
-------------- -------
58,710 106,008
Less -- Current maturities................................................. (45,421) (38,485)
-------------- -------
$13,289 $67,523
============== =======
(a) Collateralized installment loans maturing through January 2000,
payable monthly with interest rates ranging from 9.25% to 14.99% per annum.
The aggregate amounts of annual principal maturities of long-term debt
are as follows -
March 31
--------------
1996.................................................................. $38,485
1997.................................................................. 25,893
1998.................................................................. 21,460
1999.................................................................. 10,499
2000.................................................................. 9,671
--------------
$106,008
==============
(10) CAPITAL LEASE OBLIGATIONS:
The Company leases certain equipment under capital lease agreements
which expire at various dates, minimum annual payments under capital leases are
as follows -
March 31
--------------
1996..................................................................................... $16,632
1997..................................................................................... 16,632
1998..................................................................................... 17,184
--------------
Total minimum payments......................................................... 50,448
Less - Amounts representing interest..................................................... (4,932)
--------------
Net minimum payments........................................................... 45,516
Less -Current portion of obligations under capital leases................................ (13,648)
--------------
Long-term portion of obligations under capital leases.................................... $31,868
==============
(11) FRANCHISE AGREEMENT:
In March 1990, the Company sold a management franchise in New Jersey.
Under the terms of the franchise agreement, the managing franchisee is entitled,
for a 10 year period, to the greater of 15% of the assigned revenues
attributable to the managing franchisee's zone or a guaranteed minimum income of
$16,000 per year, paid in monthly installments. In connection with the franchise
agreement, the Company recorded a liability for the guaranteed minimum income
payments required under the agreement. At March 31, 1994 and 1995, such
liability totaled $96,000 and $75,200, respectively, and is included in other
liability in the accompanying consolidated balance sheets. The Company has made
guaranteed minimum income payments of $16,000 for each of the years ended March
31, 1994, and 1995 and $12,000 for the nine months ended September 30, 1995.
(12) INCOME TAXES:
The following income tax information is presented in accordance with
Statement of Financial Accounting Standards No. 109. The income tax provisions
of $20,881, $1,000 and $1,000 for the years ended March 31, 1994 and 1995 and
for the nine months ended September 30, 1995, respectively, include penalties of
$27,031, $1,000 and $1,000 for the years ended March 31, 1994 and 1995 and for
the nine months ended September 30, 1995, respectively.
The differences in Federal income taxes provided and the amounts
determined by applying the statutory tax rate (34%) to income before income
taxes result from the following -
For The Nine
For The Years Ended March 31 Months Ended
--------------------------- September 30
1994 1995 1995
---- ---- ----
Tax benefit at statutory rate..................................... $6,150 $(55,648) $(19,168)
Add -
Net operating losses not recognized............................. 0 55,648 19,168
Penalties and other............................................. 20,881 1,000 1,000
-------------- --------- ---------
$27,031 $1,000 $1,000
============== ========= =========
(13) COMMITMENTS AND CONTINGENCIES:
Litigation -
The Company is, from time-to-time, a party to litigation arising in the
normal course of business. Management believes that none of these actions will
have a material adverse effect on the financial position or results of
operations of the Company.
Commitments -
The Company leases, under operating leases, office space and office
equipment with lease terms of greater than one year. For the years ended March
31, 1994 and 1995 and for the nine months ended September 30, 1995, rent expense
amounted to $120,618, $186,021, and $131,738, respectively.
The approximate minimum annual rental commitments of the Company, under
existing lease agreements, are as follows -
March 31
--------------
1996............................................................... $167,597
1997............................................................... 141,854
1998............................................................... 51,402
--------------
$360,853
==============
(14) SIGNIFICANT CUSTOMERS:
Two customers accounted for approximately 55%, 56% and 57% of
revenues for the years ended March 31, 1994 and 1995 and for the nine months
ended September 30, 1995, respectively.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ORBIT/LIGHTSPEED COURIER SYSTEMS, INC. AND RELATED COMPANIES
COMBINED BALANCE SHEETS
ASSETS
December 31
1993 1994
---- ----
CURRENT ASSETS:
Cash and cash equivalents................................................................... $30,481 $71,293
Accounts receivable, less allowance for doubtful accounts of $50,200 and
$44,999 in 1993 and 1994, respectively (Note 8).......................................... 1,002,862 1,043,402
Due from stockholder........................................................................ 4,300 0
Prepaid expenses and other current assets (Note 3).......................................... 121,408 48,512
-------------- ---------
Total current assets................................................................. 1,159,051 1,163,207
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net (Notes 2 and 4)..................................... 230,400 173,793
OTHER ASSETS (Notes 5 and 6).................................................................. 73,817 66,490
-------------- ---------
Total assets......................................................................... $1,463,268 $1,403,490
============== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit (Note 8)........................................................... $0 $100,000
Notes payable (Note 8)...................................................................... 69,365 68,112
Due to stockholders (Note 13)............................................................... 77,600 76,600
Accounts payable............................................................................ 11,959 16,576
Accrued expenses and other current liabilities (Note 7)..................................... 351,812 220,235
Deferred income taxes payable (Note 9)...................................................... 407,000 407,000
-------------- ---------
Total current liabilities............................................................ 917,736 888,523
-------------- ---------
LONG-TERM DEBT (Note 8)....................................................................... 68,112 0
-------------- ---------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Note 11):
Preferred stock ............................................................................ 0 0
Common stock................................................................................ 31,559 32,559
Additional paid-in capital.................................................................. 11,000 16,000
Retained earnings........................................................................... 434,861 466,408
-------------- ---------
Total stockholders' equity........................................................... 477,420 514,967
-------------- ---------
Total liabilities and stockholders' equity........................................... $1,463,268 $1,403,490
============== ==========
The accompanying notes to combined financial statements are an
integral part of these balance sheets.
ORBIT/LIGHTSPEED COURIER SYSTEMS, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF OPERATIONS
For The Nine
For The Years Ended Months Ended
December 31 September 30
----------- ------------
1993 1994 1995
---- ---- ----
REVENUES (Note 2).......................................................... $7,776,549 $8,019,515 $6,441,949
COST OF REVENUES........................................................... 5,531,631 5,814,805 4,615,262
-------------- ------------- ---------------
Gross profit...................................................... 2,244,918 2,204,710 1,826,687
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
2,191,387 2,165,543 1,450,276
-------------- ------------- ---------------
Operating income.................................................. 53,531 39,167 376,411
-------------- ------------- ---------------
OTHER INCOME AND EXPENSE:
Other income ............................................................ 23,888 20,452 5,453
Interest expense......................................................... (10,682) (11,704) (10,743)
-------------- ------------- ---------------
13,206 8,748 (5,290)
-------------- ------------- ---------------
Income before income taxes........................................ 66,737 47,915 371,121
PRO FORMA PROVISION INCOME TAXES (Notes 2 and 9)........................... 18,889 16,368 148,448
-------------- ------------- ---------------
Net income........................................................ $47,848 $31,547 $222,673
============== ============= ===============
The accompanying notes to combined financial statements are an
integral part of these statements.
ORBIT/LIGHTSPEED COURIER SYSTEMS, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1993 AND 1994 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
Common Stock Additional Total
(Note 11) Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
BALANCE AT DECEMBER 31, 1992..................................... 460 $31,559 $0 $387,013 $418,572
Capital contribution equal to the current income taxes of
S corporations.............................................. 0 0 11,000 0 11,000
Net income..................................................... 0 0 0 47,848 47,848
--------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1993..................................... 460 31,559 11,000 434,861 477,420
Initial capitalization of NWC Trucking Corporation............. 1,000 1,000 0 0 1,000
Capital contribution equal to the current income taxes of
S corporations.............................................. 0 0 5,000 0 5,000
Net income..................................................... 0 0 0 31,547 31,547
--------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1994..................................... 1,460 32,559 16,000 466,408 514,967
Capital contribution equal to the current income taxes of
S corporations.............................................. 0 0 148,448 0 148,448
Distributions to Stockholders.................................. 0 0 0 (310,000) (310,000)
Net income..................................................... 0 0 0 222,673 222,673
--------- --------- --------- --------- ---------
BALANCE AT SEPTEMBER 30, 1995.................................... 1,460 $32,559 $164,448 $379,081 $576,088
========= ========= ========= ========= =========
The accompanying notes to combined financial statements are
an integral part of this statement.
ORBIT/LIGHTSPEED COURIER SYSTEMS, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
For The Nine
For The Years Ended Months Ended
December 31 September 30
----------- ------------
1993 1994 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................................ $47,848 $31,547 $222,673
Adjustment to reconcile net income to net cash provided by operating activities -
Depreciation and amortization.................................................. 61,400 59,359 37,254
Loss on disposal of equipment.................................................. 0 23,115 8,702
Deferred taxes................................................................. (5,000) 10,210 0
Capital contributions equal to current provision for income taxes.............. 11,000 5,000 148,448
Changes in operating assets and liabilities -
(Increase) decrease in -
Accounts receivable, net..................................................... (89,078) (40,540) (112,848)
Prepaid expenses and other current assets.................................... (37,943) 72,896 (8,564)
Other assets................................................................. 5,003 16,286 (22,259)
(Increase) decrease in -
Accounts payable, accrued expenses and other current liabilities............. 52,266 (126,961) 137,533
----------- --------- ---------
Net cash provided by operating activities.................................. 45,496 50,912 410,939
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment and leasehold improvements................................. (87,482) (25,867) (59,230)
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt.............................................. (4,025) (69,365) (95,383)
Principal (payments) proceeds on revolving line of credit......................... (20,000) 100,000 77,998
(Payments to) proceeds from stockholders, net..................................... (4,300) 3,300 0
Issuance of common stock.......................................................... 0 1,000 0
Proceeds from issuance of long-term debt.......................................... 0 0 120,000
Distribution to stockholders...................................................... 0 (19,168) (310,000)
----------- --------- ---------
Net cash provided by (used in) financing activities....................... (28,325) 15,767 (207,385)
----------- --------- ---------
Net increase (decrease) in cash and cash equivalents....................... (70,311) 40,812 144,324
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................................... 100,792 30,481 71,293
----------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.......................................... $30,481 $71,293 $215,617
=========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................................................ $10,682 $11,704 $8,941
Cash paid for income taxes........................................................ 19,490 14,125 12,851
=========== ========= =========
The accompanying notes to combined financial statements are an
integral part of these statements.
ORBIT/LIGHTSPEED COURIER SYSTEMS, INC. AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION:
The accompanying combined financial tatements include the accounts
of Orbit/Lightspeed Courier Systems, Inc. (a New York corporation), O/L
Warehousing, Inc. (a New York corporation), BMBA, Inc. (a New York corporation
and NWC Trucking Corporation (a Delaware corporation) (collectively, the
"Company").
The Company and its stockholders entered into a definitive agreement
with Consolidated Delivery & Logistics, Inc. ("CDL") pursuant to which the
Company merged with CDL (the "Merger") on November 27, 1995. All outstanding
shares of the Company were exchanged for cash and shares of CDL's common stock
concurrent with the consummation of the initial public offering of the common
stock of CDL.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation -
The companies listed in Note 1 are under the common control of eight
individuals. All significant intercompany transactions have been eliminated in
combination.
Use of Estimates in the Preparation of the Financial Statements -
The preparation of the combined 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 combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Equipment and Leasehold Improvements -
Equipment is recorded at cost. Leasehold improvements are amortized
over the lives of the respective leases or the lives of the improvements,
whichever is shorter. Depreciation and amortization is computed using a
straight-line method over the estimated useful lives of the assets.
Revenue Recognition -
Revenue is recognized when the shipment is completed and expenses are
recognized as incurred.
Income Taxes -
The Company (except for NWC Trucking Corporation, prior to January 1,
1995) has elected to be treated for Federal and state income tax purposes as an
S Corporation and, accordingly, any income tax liabilities are the
responsibility of the stockholders. New York City does not recognize S
Corporation status and therefore, New York City taxes have been provided for in
the accompanying financial statements. For purposes of these financial
statements, Federal and state income taxes have been provided for the Company as
if the Company had filed C Corporation tax returns. The current income tax
expense is reflected as an adjustment to additional paid-in capital. The
Company's S Corporation status terminated with the effective date of the Merger
discussed in Note 1.
Reclassifications-
Certain reclassifications have been made to prior years' financial
statements to conform to the current period presentation.
(3) PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following at -
December 31
1993 1994
------------- ----------
Prepaid insurance.................................................................... $102,508 $32,988
Prepaid rent......................................................................... 18,900 15,524
------------- ----------
$121,408 $48,512
============= ==========
(4) EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Equipment and leasehold improvements consist of the following at -
December 31
1993 1994
------------- ----------
Office equipment.................................................................... $395,312 $403,779
Warehouse and transportation equipment.............................................. 90,794 74,794
Leasehold improvements.............................................................. 62,845 62,845
------------- ----------
548,951 541,418
Less - Accumulated depreciation and amortization.................................... 318,551 367,625
------------- ----------
$230,400 $173,793
============= ==========
(5) OTHER ASSETS:
Other assets consist of the following at -
December 31
1993 1994
----------- -----------
Security deposits................................................................... $30,105 $30,105
Intangible assets (Note 6).......................................................... 43,712 26,175
Deferred tax asset (Note 9)......................................................... 0 10,210
----------- -----------
$73,817 $66,490
(6) INTANGIBLE ASSETS:
During 1989 and 1993, the Company purchased the business of two
messenger services. The purchase prices were allocated to certain intangible
assets that were acquired. Intangible assets consist of the following at -
Amortization December 31
Periods 1993 1994
------- ---- ----
Covenant not-to-compete....................................... 3-5 years $66,260 $66,260
Customer list................................................. 3-5 years 49,750 49,750
Goodwill...................................................... 40 years 18,750 18,750
Organizational costs.......................................... 5 years 0 1,631
------------- -------
134,760 136,391
Less - Accumulated amortization............................... 91,048 110,216
------------- -------
$43,712 $26,175
============= =======
(7) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the
following at -
December 31
1993 1994
------------- ---------
Accrued payroll and payroll related expenses.................................. $312,872 $197,183
Deposits held................................................................. 11,175 11,175
Other accrued liabilities..................................................... 27,765 11,877
------------- ----------
$351,812 $220,235
============= ==========
(8) REVOLVING LINE OF CREDIT AND NOTES PAYABLE:
At December 31, 1994, the Company had a $250,000 line of credit
facility with a bank which is due on demand. Borrowings under the revolving line
of credit were secured by the Company's accounts receivable and the personal
guarantee of the owners. At December 31, 1994, $100,000 was outstanding under
this line of credit.
Long-term debt consists of the following-
December 31,
1993 1994
-------------- -------
Note payable due to a bank payable in monthly installments of $5,417 plus interest
at prime (8.5% at December 31, 1994) plus 1.5%................................ $130,000 $65,000
Other........................................................................... 7,477 3,112
-------------- -------
137,477 68,112
Less - current maturities....................................................... (69,365) (68,112)
-------------- -------
$68,112 $0
============== =======
(9) INCOME TAXES:
The following income tax information is presented in accordance with
Statement of Financial Accounting Standards No. 109 as if the Company had been
subject to Federal and state income taxes throughout the periods presented. The
provision for income taxes consists of -
For The Nine
For The Years Ended Months Ended
December 31 September 30
1993 1994 1995
---- ---- ----
Federal............................................ $5,217 $0 $115,047
State and local.................................... 13,672 16,368 33,401
----------- -------- --------
$18,889 $16,368 $148,448
=========== ======= ========
The differences in federal income taxes provided and the amounts
determined by applying the statutory tax rate (34%) to income before income
taxes result from the following -
For The Nine
For The Years Ended December Months Ended
31 September 30
--------------------------- ------------
1993 1994 1995
---- ---- ----
Income tax at statutory rate........................................ $22,691 $16,291 $126,181
Add (deduct) -
State and local income taxes, net of Federal benefit.............. 9,024 10,802 22,045
Nondeductible expenses............................................ 14,057 23,959 222
Targeted jobs credit.............................................. (26,883) (34,684) 0
-------------- -------- --------
$18,889 $16,368 $148,448
============== ======== ========
The Company files their Federal, state and New York City tax returns on
the cash basis of accounting. Reflected in the accompanying balance sheets is a
current liability of $407,000, which represents the tax effect of differences in
the recognition of revenue and expenses between the cash basis and accrual basis
of accounting.
(10) COMMITMENTS AND CONTINGENCIES:
Litigation -
The Company is, from time to time, party to litigation arising in the
normal course of business. Management believes that none of these actions will
have a material adverse effect on the financial position or results of
operations of the Company.
Commitments -
The Company leases office and warehouse space under operating leases
with terms of greater than one year. For the years ended December 31, 1993 and
1994 and for the nine months ended September 30, 1995, rent expense amounted to
$271,002, $263,209, and $232,469, respectively.
At December 31, 1994 the approximate minimum annual rental commitments
of the Company, under existing lease agreements are as follows -
December 31,
1995........................................................................... $268,746
1996........................................................................... 276,360
1997........................................................................... 281,268
1998........................................................................... 291,600
1999........................................................................... 296,808
Thereafter..................................................................... 1,696,985
----------
$3,111,767
==========
(11) COMMON STOCK:
Common stock of each of the combined entities at December 31, 1994 is
as follows -
Par Shares Issued and Common
Value Authorized Outstanding Stock
------- ---------- ----------- --------
Orbit/Lightspeed Courier Systems, Inc.......................... $0 200 60 $31,159
O/L Warehousing, Inc........................................... 0 200 200 200
BMBA, Inc...................................................... 0 200 200 200
NWC Trucking Corporation....................................... 0 1,000 1,000 1,000
During 1994, the Company capitalized NWC Trucking through the issuance
of 1,000 shares of common stock.
Preferred stock of Orbit/Lightspeed Courier Systems, Inc. at
December 31, 1994 is as follows -
Par Shares Issued and Preferred
Value Authorized Outstanding Stock
------- ---------- ----------- --------
Orbit/Lightspeed Courier Systems, Inc....................... $250 400 0 $0
(12) RELATED PARTY TRANSACTIONS:
For the years ended December 31, 1993 and 1994 and for the nine months
ended September 30, 1995, the Company paid $236,000, $238,000 and $102,000,
respectively, in consulting fees to a corporation owned by a twenty-five percent
stockholder.
The Company also leases one of its three offices from a twenty-five
percent stockholder. The rent paid to the stockholder for the years ended
December 31, 1993 and 1994 and the nine months ended September 30, 1995 was
approximately $98,000, $76,000, and $35,000, respectively.
(13) DUE TO STOCKHOLDER:
The amounts due to stockholders are payable upon demand and are
noninterest bearing.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
DISTRIBUTION SOLUTIONS INTERNATIONAL, INC.
BALANCE SHEETS
ASSETS
December 31
1993 1994
---- ----
CURRENT ASSETS:
Cash and cash equivalents.................................................................. $1,365 $1,775
Accounts receivable, less allowance for doubtful accounts of $12,000 as of
December 31, 1994....................................................................... 1,725,259 353,197
Prepaid expenses and other current assets (Note 3)......................................... 40,723 32,087
Prepaid taxes (Notes 2 and 8).............................................................. 0 2,367
-------------- ------------
Total current assets................................................................ 1,767,347 389,426
EQUIPMENT, net (Note 4)...................................................................... 202,414 251,424
STOCKHOLDER RECEIVABLE (Note 12)............................................................. 0 29,278
OTHER ASSETS (Note 5)........................................................................ 4,148 3,419
-------------- ------------
Total assets........................................................................ $1,973,909 $673,547
============== ============
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Line of credit (Note 9).................................................................... $150,000 $178,000
Current portion of long-term debt and capital lease obligations (Note 7)................... 60,376 47,664
Accounts payable........................................................................... 928,986 565,867
Accrued expenses and other current liabilities (Note 6).................................... 78,420 84,555
Michigan single business tax liability..................................................... 0 32,600
Deferred revenue (Note 2).................................................................. 461,842 51,167
-------------- ------------
Total current liabilities........................................................... 1,679,624 959,853
-------------- ------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (Note 7)........................................ 141,495 102,237
-------------- ------------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock, $1 par value, 50,000 shares authorized, 1,000 shares
issued and outstanding.................................................................. 1,000 1,000
Additional paid-in capital................................................................. 89,808 89,808
Retained earnings (accumulated deficit).................................................... 61,982 (479,351)
-------------- ------------
Total stockholder's equity (deficit)................................................ 152,790 (388,543)
-------------- ------------
Total liabilities and stockholder's equity (deficit)................................ $1,973,909 $673,547
============== ============
The accompanying notes to financial statements are an
integral part of these balance sheets.
DISTRIBUTION SOLUTIONS INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
For The Nine
For The Years Ended December Months Ended
31 September 30
-- ------------
1993 1994 1995
---- ---- ----
REVENUES (Notes 2 and 13)....................................................... $6,796,334 $6,861,941 $6,216,520
COST OF REVENUES................................................................ 4,993,480 5,382,037 5,252,158
-------------- ------------ ------------
Gross profit........................................................... 1,802,854 1,479,904 964,362
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
(Note 12)..................................................................... -------------- ------------ ------------
1,458,646 2,010,971 930,577
-------------- ------------ ------------
Operating (loss) income................................................ 344,208 (531,067) 33,785
-------------- ------------ ------------
OTHER INCOME AND EXPENSE:
Other income (expense), net................................................... 349 10,281 (6,823)
Interest expense (Note 7)..................................................... (32,029) (20,547) (17,401)
-------------- ------------ ------------
(31,680) (10,266) (24,224)
-------------- ------------ ------------
Income (loss) before income taxes............................................. 312,528 (541,333) 9,561
Pro forma provision for income taxes (Notes 2 and 8).......................... 107,232 0 3,824
-------------- ------------ ------------
Net income (loss)...................................................... $205,296 $(541,333) $5,737
============== ============ ============
The accompanying notes to financial statements are an
integral part of these statements.
DISTRIBUTION SOLUTIONS INTERNATIONAL, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
Total
Additional Stockholder's
Common Stock Paid-In Accumulated Equity
Shares Amount Capital Deficit (Deficit)
---------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1992.................................... 1,000 $1,000 $0 $(143,314) $(142,314)
Capital contribution equal to the current income taxes
of S Corporation........................................... 0 0 89,808 0 89,808
Net income.................................................... 0 0 0 205,296 205,296
---------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1993.................................... 1,000 1,000 89,808 61,982 152,790
Net loss...................................................... 0 0 0 (541,333) (541,333)
---------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1994.................................... 1,000 1,000 89,808 (479,351) (388,543)
Net income.................................................... 0 0 0 5,737 5,737
---------- --------- --------- --------- ---------
BALANCE AT SEPTEMBER 30, 1995................................... 1,000 $1,000 $89,808 $(473,614) $(382,806)
========== ========= ========= ========= =========
The accompanying notes to financial statements are an
integral part of these statements.
DISTRIBUTION SOLUTIONS INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
For The Nine
For The Years Ended Months Ended
December 31 September 30
----------- ------------
1993 1994 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................. $205,296 $(541,333) $5,737
Adjustments to reconcile net income (loss) to net cash provided by operating activities-
Loss on disposal of equipment............................................ 0 51,877 0
Depreciation and amortization of equipment............................... 87,615 102,454 72,484
Capital contribution equal to current income taxes of S Corporation...... 89,808 0 0
Changes in operating assets and liabilities-
(Increase) decrease in accounts receivable, net........................ (872,903) 1,372,062 (773,611)
(Increase) decrease in prepaid expenses and other current assets....... (1,908) 6,269 (2,170)
Decrease in other assets............................................... 29,241 729 29,665
Increase (decrease) in accounts payable................................ 224,458 (363,119) 326,923
Increase in accrued expenses and other current liabilities............. 23,847 6,135 207,548
Increase (decrease) in Michigan single business tax liability.......... 0 32,600 (32,600)
Increase (decrease) in deferred revenue................................ 461,842 (410,675) 554,237
-------------- ------------ ------------
Net cash provided by operating activities.............................. 247,296 256,999 388,213
-------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment........................................................ (61,261) (203,341) (96,951)
Increase in stockholder receivable............................................ 0 (29,278) (86,535)
-------------- ------------ ------------
Net cash used in investing activities.................................. (61,261) (232,619) (183,486)
-------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) from line of credit, net............................ (140,000) 28,000 (178,000)
Proceeds from long-term debt................................................ 17,000 43,339 33,159
Principal payments on long-term debt........................................ (72,833) (95,309) (53,927)
-------------- ------------ ------------
Net cash used in financing activities.................................. (195,833) (23,970) (198,768)
-------------- ------------ ------------
Net increase (decrease) in cash and cash equivalents................... (9,798) 410 5,959
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................................ 11,163 1,365 1,775
-------------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...................................... $1,365 $1,775 $7,734
============== ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest...................................................... $32,029 $18,527 $18,463
============== ============ ============
The accompanying notes to financial statements are an
integral part of these statements.
DISTRIBUTION SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION:
Distributions Solutions International, Inc. (the "Company") is a third
party logistics management company. The Company's primary services include
logistics management, consulting/benchmarking, resource procurement and freight
billing processing.
The Company and its stockholder entered into a definitive agreement
with Consolidated Delivery & Logistics, Inc. ("CDL") pursuant to which the
Company merged with CDL (the "Merger") on November 27, 1995. All outstanding
shares of the Company were exchanged for cash and shares of CDL's common stock
concurrent with the consummation of the initial public offering of the Common
Stock of CDL.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates in the Preparation of the Financial Statements -
The preparation of the 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.
Equipment -
Equipment is recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. Amortization
of capital leases is included in depreciation expense.
Revenue Recognition -
Revenue is recognized when services are rendered to customers and
expenses are recognized as incurred. Certain customers pay in advance, giving
rise to deferred revenue.
Income Taxes -
The Company has elected to be treated for Federal income tax purposes
as an S Corporation and, accordingly, any income tax liabilities are the
responsibility of the stockholder. For purposes of these financial statements,
Federal income taxes benefits have been recognized for the Company as if the
Company had filed C Corporation tax returns. The tax benefits have been offset
by a valuation allowance. The income tax expense for 1993 is reflected as an
increase to additional paid-in capital. The Company's S Corporation status
terminated with the effective date of the Merger as discussed in Note 1.
Reclassifications-
Certain reclassifications have been made to prior years' financial
statements to conform to the current period presentation.
(3) PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following -
December 31
1993 1994
----------- ----------
Prepaid insurance................................................................ $8,634 $9,221
Prepaid rent..................................................................... 11,155 17,487
Employee receivables............................................................. 7,767 3,597
Other............................................................................ 13,167 1,782
----------- ----------
$40,723 $32,087
=========== ==========
(4) EQUIPMENT:
Equipment consists of the following -
Useful December 31
Lives 1993 1994
----- ---- ----
Furniture, fixtures and equipment............................. 5-7 years $135,094 $151,383
Computer equipment............................................ 3-5 years 259,097 390,237
Vehicles...................................................... 5 years 41,344 24,306
Leasehold improvements........................................ 7 years 7,615 9,696
------------- ----------
443,150 575,622
Less -Accumulated depreciation and amortization............... (240,736) (324,198)
------------- ----------
$202,414 $251,424
============= ==========
Leased equipment under capital leases included in equipment above
consists of the following -
Useful December 31
Lives 1993 1994
----- ---- ----
Leased equipment.............................................. 5 years $8,998 $30,379
Leased computer equipment..................................... 3-5 years 84,155 106,955
---------- -------
93,153 137,334
Less - Accumulated amortization............................... (67,734) (95,212)
---------- -------
$25,419 $42,122
========== =======
(5) OTHER ASSETS:
Other assets consist of the following -
December 31
1993 1994
---------- ------
Deferred financing costs........................................................... $2,278 $1,822
Other.............................................................................. 1,870 1,597
---------- ------
$4,148 $3,419
========== ======
(6) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the
following -
December 31
1993 1994
Payroll and payroll withholdings................................................. $40,799 $41,814
Rent accrual..................................................................... 36,127 36,127
Other............................................................................ 1,494 6,614
----------- --------
$78,420 $84,555
=========== ========
(7) LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following -
December 31
1993 1994
---- ----
Small Business Administration loan (a)......................................... $114,060 $94,722
Vehicle loans from banks and financing
companies (b)................................................................ 27,901 15,897
Capital lease obligations (c).................................................. 55,035 39,282
Note payable to bank........................................................... 4,875 0
------------- --------
201,871 149,901
Less - Current maturities...................................................... (60,376) (47,664)
------------- --------
$141,495 $102,237
============= ========
(a) Monthly principal and interest payments of $2,380; interest rate is
at prime plus 1%, secured by all assets of the Company and a personal guarantee
of the stockholder with a final payment due in December 1998.
(b) Loans for vehicles with monthly payments aggregating $933,
payments due through May 1999 with interest rates ranging from 7% to 9.45%.
(c) Various lease obligations for office and computer equipment
maturing through 1998, with interest rates ranging from 10% to 23% secured by
the office and computer equipment.
The aggregate amounts of annual principal maturities of long-term debt
(excluding capital lease obligations) are as follows -
December 31
1995........................................................................................ $25,222
1996........................................................................................ 27,596
1997........................................................................................ 30,197
1998........................................................................................ 27,604
--------------
Total.............................................................................. $110,619
==============
The Company leases certain office and computer equipment under capital
lease agreements which expire at various dates. Minimum annual payments under
capital leases are as follows -
December 31
1995........................................................................................ $25,998
1996........................................................................................ 9,500
1997........................................................................................ 8,421
1998........................................................................................ 702
--------------
Total minimum payments............................................................. 44,621
Less - amounts representing interest........................................................ (5,339)
--------------
Net minimum payments............................................................... 39,282
Less - current portion of obligations under capital leases.................................. (22,442)
--------------
Long-term portion of obligations under capital leases....................................... $16,840
==============
(8) INCOME TAXES:
The following income tax information is presented in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," as if the Company had been subject to Federal and state income taxes
throughout the periods presented.
The components of the provision for income taxes are as follows -
For The Nine
For The Years Ended Months Ended
December 31 September 30
------------------- -------------
1993 1994 1995
---- ---- ----
Federal............................................................ $107,232 $0 $3,824
======== ==== ======
The differences in Federal income taxes provided and the amounts
determined by applying the statutory tax rate (34%) to income before income
taxes result from the following -
For The Nine
For The Years Ended December Months Ended
31, September 30
---------------------------- -------------
1993 1994 1995
---- ---- ----
Tax at statutory rate..................................... $106,260 $(184,053) $3,251
Add (deduct) -
Nondeductible expenses.................................... 972 (14,169) 573
Allowance against benefit due to realization
concerns................................................ 0 198,222 0
------------- --------------- ------------------
Income tax expense........................................ $107,232 $0 $3,824
============= =============== ==================
(9) LINE OF CREDIT:
Borrowings outstanding under a line of credit from a bank, which are
secured by all the assets of the Company, assignment of a life insurance policy
on the stockholder and a personal guarantee of the stockholder, bear interest at
prime (8.5% and 6.0% at December 31, 1993 and 1994) plus 2% and were due on
April 20, 1995. The available line of credit for that period was $250,000. This
line was subsequently renewed on April 20, 1995 through June 30, 1995 and then
on July 1, 1995 through September 30, 1995. The total available credit under the
renewed line is $200,000.
(10) COMMITMENTS AND CONTINGENCIES:
Litigation -
The Company is, from time to time, a party to litigation arising in the
normal course of business. Management believes that none of these actions will
have a material adverse effect on the financial position or results of
operations of the Company.
Commitments -
The Company leases, under operating leases, office and transportation
equipment with lease terms of greater than one year. Rent expense related to
these leases amounted to $87,727, $154,716, and $144,087 for the years ended
December 31, 1993 and 1994 and for the nine months ended September 30, 1995,
respectively.
The approximate minimum annual rental commitments of the Company, under
existing lease agreements, over the next five years, are as follows-
December 31
1995................................................................................... $192,050
1996................................................................................... 192,050
1997................................................................................... 192,050
1998................................................................................... 159,918
1999................................................................................... 111,089
----------------
$847,157
================
(11) EMPLOYEE BENEFIT PLANS:
The Company maintains a 401(k) profit sharing plan covering
substantially all full-time employees of the Company who have one year of
service and are age eighteen or older. At its discretion, the Company may match
contributions on behalf of the eligible employees. For the years ended December
31, 1993 and 1994 and for the nine months ended September 30, 1995, the Company
did not make any contributions to the plan.
(12) RELATED PARTY TRANSACTIONS:
Related Party Expenses -
The Company paid salary and medical benefits for an employee of a
company which is owned by the stockholder of the Company. Payroll related
expenses for the employee amounted to $75,200, $81,800, and $86,800 for the
years ended December 31, 1993 and 1994 and for the nine months ended September
30, 1995, respectively.
Related Party Receivables -
At December 31, 1994, the Company had a noninterest bearing loan
receivable from its stockholder of $29,278.
(13) SIGNIFICANT CUSTOMERS:
Four customers accounted for approximately 94%, 98%, and 93% of
revenues for the years ended December 31, 1993 and 1994 and for the nine months
ended September 30, 1995, respectively.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
OLYMPIC COURIER SYSTEMS, INC.
AND RELATED COMPANY
COMBINED BALANCE SHEETS
ASSETS
December 31
1993 1994
---------- --------
CURRENT ASSETS:
Cash and cash equivalents.................................................................. $14,046 $0
Accounts receivable, less allowance for doubtful accounts of $170,000 and
$187,000 in 1993 and 1994, respectively................................................. 763,338 755,272
Prepaid expenses and other current assets (Note 3)......................................... 2,661 14,860
---------- --------
Total current assets................................................................ 780,045 770,132
EQUIPMENT, net (Notes 2 and 4)............................................................... 166,955 140,612
OTHER ASSETS (Note 5)........................................................................ 54,366 36,354
---------- --------
Total assets........................................................................ $1,001,366 $947,098
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit (Note 8).......................................................... $300,000 $250,000
Capital leases (Note 8).................................................................... 36,204 13,335
Accounts payable........................................................................... 72,480 86,875
Accrued expenses and other current liabilities (Note 7).................................... 143,606 113,129
Income taxes payable (Notes 2 and 9)....................................................... 250,000 248,000
---------- --------
Total current liabilities........................................................... 802,290 711,339
---------- --------
CAPITAL LEASE OBLIGATIONS (Note 8)........................................................... 14,266 0
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY:
Common stock............................................................................... 0 0
Additional paid-in capital................................................................. 18,000 40,000
Retained earnings.......................................................................... 166,810 195,759
---------- --------
Total stockholders' equity.......................................................... 184,810 235,759
---------- --------
Total liabilities and stockholders' equity.......................................... $1,001,366 $947,098
========== ========
The accompanying notes to combined financial statements are an
integral part of these balance sheets.
OLYMPIC COURIER SYSTEMS, INC. AND RELATED COMPANY
COMBINED STATEMENTS OF INCOME
For The Nine
For The Years Ended Months Ended
December 31 September 30
----------- ------------
1993 1994 1995
---- ---- ----
REVENUES (Note 2).......................................................... $6,180,628 $5,765,889 $4,218,845
COST OF REVENUES........................................................... 3,143,946 3,140,139 2,293,569
---------- ---------- ----------
Gross profit...................................................... 3,036,682 2,625,750 1,925,276
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............................... 2,915,911 2,609,594 1,905,013
---------- ---------- ----------
Operating income.................................................. 120,771 16,156 20,263
---------- ---------- ----------
OTHER INCOME AND (EXPENSE):................................................
Other income............................................................. 110,377 68,444 401
Interest expense (Note 8)................................................ (38,759) (31,843) (19,573)
---------- ---------- ----------
71,618 36,601 (19,172)
---------- ---------- ----------
Income before income taxes........................................ 192,389 52,757 1,091
PRO FORMA PROVISION FOR INCOME TAXES
(Notes 2 and 9).......................................................... 81,353 23,808 0
---------- ---------- ----------
Net income........................................................ $111,036 $28,949 $1,091
========== ========== ==========
The accompanying notes to combined financial statements are an
integral part of these statements.
OLYMPIC COURIER SYSTEMS, INC.
AND RELATED COMPANY
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
Additional Total
Common Stock Paid-In Retained Stockholders'
Shares Amount Capital Earnings Equity
---------- -------- -------- ---------- ----------
BALANCE AT DECEMBER 31, 1992.................................. 140 $0 $1,000 $135,774 $136,774
Distribution to stockholders................................ 0 0 0 (80,000) (80,000)
Capital contribution equal to current income
taxes of S Corporation................................... 0 0 17,000 0 17,000
Net income.................................................. 0 0 0 111,036 111,036
---------- -------- -------- ---------- ----------
BALANCE AT DECEMBER 31, 1993.................................. 140 0 18,000 166,810 184,810
Capital contribution equal to current income
taxes of S Corporation................................... 0 0 22,000 0 22,000
Net income.................................................. 0 0 0 28,949 28,949
---------- -------- -------- ---------- ----------
BALANCE AT DECEMBER 31, 1994.................................. 140 0 40,000 195,759 235,759
Net income.................................................. 0 0 0 1,091 1,091
---------- -------- -------- ---------- ----------
BALANCE AT SEPTEMBER 30, 1995................................ 140 $0 $40,000 $196,850 $236,850
========== ======== ======== ========== ==========
The accompanying notes to combined financial statements are an
integral part of these statements.
OLYMPIC COURIER SYSTEMS, INC.
AND RELATED COMPANY
COMBINED STATEMENTS OF CASH FLOWS
For The Nine
For The Years Ended Months Ended
December 31 September 30
----------- ------------
1993 1994 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................................... $111,036 $28,949 $1,091
Adjustments to reconcile net income to net cash provided by operating activities -
Depreciation and amortization................................................. 65,533 62,427 31,483
Capital contribution for taxes of S Corporation............................... 17,000 22,000 0
Changes in operating assets and liabilities-
(Increase) decrease in accounts receivable, net............................... (180,725) 8,066 (19,309)
(Increase) decrease in prepaid expenses and other current assets.............. 11,109 (12,199) (17,616)
Decrease in other assets...................................................... 15,391 13,942 4,020
Increase (decrease) in accounts payable....................................... 67,221 14,395 (1,714)
Increase (decrease) in accrued expenses and other current liabilities......... (72,220) (30,477) 31,137
Increase (decrease) in income taxes payable................................... 55,000 (2,000) 0
------------ ---------- ----------
Net cash provided by operating activities................................. 89,345 105,103 29,092
------------ ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES --
Purchases of equipment........................................................... (34,113) (32,014) (6,827)
------------ ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) under revolving line of credit............................... 50,000 (50,000) 0
Payments under capital lease obligations......................................... (43,044) (37,135) (13,335)
Distribution to stockholders..................................................... (80,000) 0 0
------------ ---------- ----------
Net cash used in financing activities..................................... (73,044) (87,135) (13,335)
------------ ---------- ----------
Net increase (decrease) in cash and cash equivalents...................... (17,812) (14,046) 8,930
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................................... 31,858 14,046 0
------------ ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD......................................... $14,046 $0 $8,930
============ ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest........................................................... $38,759 $31,843 $19,573
Cash paid for income taxes....................................................... 1,314 6,175 5,104
============ ========== ==========
NONCASH TRANSACTIONS:
Capital lease obligations incurred............................................... $44,151 $0 $0
============ ========== ==========
The accompanying notes to combined financial statements are an
integral part of these statements.
OLYMPIC COURIER SYSTEMS, INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION:
The accompanying combined financial statements include the accounts of
Olympic Courier Systems, Inc. and Qualco Courier Systems, Inc. (collectively,
the Company).
The Company and its stockholders entered into a definitive agreement
with Consolidated Delivery & Logistics, Inc. ("CDL") pursuant to which the
Company merged with CDL (the "Merger") on November 27, 1995. All outstanding
shares of the Company were exchanged for cash and shares of CDL's Common Stock
concurrent with the consummation of the initial public offering of the common
stock of CDL.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation -
The companies listed in Note 1 were related through stockholders with
common ownership in each company. All significant intercompany transactions have
been eliminated in combination.
Use of Estimates in the Preparation of the Financial Statements -
The preparation of the combined 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 combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Equipment -
Equipment is recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. Assets
subject to capital leases are amortized over the terms of the leases.
Revenue Recognition -
Revenue is recognized when the shipment is completed or in the case of
the logistics business, when services are rendered to customer and expenses are
recognized as incurred. Certain customers pay in advance, giving rise to
deferred revenue.
Income Taxes -
The Company has elected to be treated for federal income tax purposes
as an S Corporation and, accordingly, any income tax liabilities are the
responsibility of the stockholders. New York City does not recognize S
Corporation status and therefore, New York City taxes have been provided for in
the accompanying financial statements. For purposes of these financial
statements, federal and state income taxes have been provided for the Company as
if the Company had filed C Corporation tax returns. The current income tax
expense is reflected as an increase to additional paid-in capital. The Company's
S Corporation status terminated with the effective date of the Merger discussed
in Note 1.
Reclassifications-
Certain reclassifications have been made to prior years' financial
statements to conform to the current period presentation.
(3) PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following -
December 31
1993 1994
------ -------
Prepaid insurance................................................................... $0 $1,089
Other............................................................................... 2,661 13,771
------ -------
$2,661 $14,860
====== =======
(4) EQUIPMENT:
Equipment consists of the following -
December 31
Useful Lives 1993 1994
------------ ---- ----
Furniture, fixtures and equipment............................. 3-5 years $404,954 $437,508
Less - accumulated depreciation and amortization.............. (237,999) (296,896)
--------- --------
$166,955 $140,612
========= ========
(5) OTHER ASSETS:
Other assets consist of the following -
December 31
1993 1994
Security deposits................................................................... $40,745 $32,284
Intangible assets (Note 6).......................................................... 8,140 4,070
Other............................................................................... 5,481 0
--------- --------
$54,366 $36,354
========= ========
(6) INTANGIBLE ASSETS:
In 1991, Qualco Courier Systems, Inc. purchased a customer list. The
purchase price was capitalized as an intangible asset and is included in other
assets. The customer list is being amortized over a five-year period.
Intangible assets consist of the following -
December 31
1993 1994
Customer list....................................................................... $20,350 $20,350
Less - accumulated amortization..................................................... (12,210) (16,280)
------------ -------
$8,140 $4,070
============ =======
(7) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the
following -
December 31
1993 1994
---- ----
Payroll and related benefits.................................................... $51,280 $73,165
Other accrued liabilities....................................................... 92,326 39,964
============ =======
(8) REVOLVING LINE OF CREDIT AND CAPITAL LEASES:
The Company has a $350,000 time note agreement with a bank. At December
31, 1993 and 1994, the amounts outstanding under the time note agreement were
$300,000 and $250,000, respectively. The time note is rolled over every 90 days
and is paid in full once a year. Borrowings under the time note are secured by
the Company's assets and the personal guarantee of the owners. The term note
requires monthly interest payments at a rate equal to 1.5% above the banks prime
rate (6.0% and 8.5% at December 31, 1993 and 1994, respectively).
The Company leased certain equipment under noncancellable lease
agreements which expired in May 1995. At December 31, 1994, minimum annual
rental commitments under noncancellable leases were as follows -
1995............................................................................................. $13,818
Less - amounts representing interest............................................................. 483
------------
Net minimum lease payments.............................................................. $13,335
============
(9) INCOME TAXES:
The following income tax information is presented in accordance with
Statement of Financial Accounting Standards No. 109 as if the Company had been
subject to Federal and state income taxes throughout the periods presented.
The components of the provision for income taxes are as follows -
For The Nine
For The Years Ended Months Ended
December 31 September 30
----------- ------------
1993 1994 1995
---- ---- ----
Federal................................................................ $58,666 $13,633 $0
State.................................................................. 22,687 10,175 0
----------- ------- -----
$81,353 $23,808 $0
=========== ======= =====
The differences in federal income taxes provided and the amounts
determined by applying the statutory tax rate (34%) to income before income
taxes result from the following -
For The Nine
For The Years Ended Months Ended
December 31 September 30
----------- ------------
1993 1994 1995
---- ---- ----
Income tax at statutory rate........................................... $65,412 $17,937 $371
Add -..................................................................
State income taxes net of Federal benefit............................ 14,973 6,716 0
Other................................................................ 968 (845) (371)
----------- ------- -----
$81,353 $23,808 $0
=========== ======= =====
The Company files its Federal, state and New York City income tax
returns on the cash basis of accounting. Reflected in the accompanying balance
sheets is a current liability of approximately $250,000 and $248,000 at December
31, 1993 and 1994, respectively, which represents the tax effect of differences
in the recognition of revenues and expenses between the cash basis and the
accrual basis of accounting.
(10) COMMITMENTS AND CONTINGENCIES:
Litigation -
The Company is, from time to time, a party to litigation arising in the
normal course of business. Management believes that none of these actions will
have a material adverse effect on the financial position or results of
operations of the Company.
Commitments -
The Company leases its operating facilities under operating leases with
lease terms of greater than one year. Rent expense related to these leases
amounted to $195,182, $197,469 and $143,716 for the years ended December 31,
1993 and 1994 and for the nine months ended September 30, 1995, respectively.
The approximate minimum annual rental commitments of the Company, under
existing lease agreements, over the next five years, are as follows -
December 31,
1995........................................................................................ $163,944
1996........................................................................................ 160,576
1997........................................................................................ 158,977
1998........................................................................................ 122,556
1999........................................................................................ 125,665
Thereafter.................................................................................. 174,206
-----------------
$905,924
=================
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
AMERICAN COURIER EXPRESS, INC.
BALANCE SHEETS
ASSETS
January 31
1994 1995
---- ----
CURRENT ASSETS:
Cash and cash equivalents....................................................................... $92,832 $13,567
Accounts receivable, less allowance for doubtful accounts of $30,000 as of
January 31, 1994 and $31,000 as of January 31, 1995 ......................................... 366,156 502,929
Prepaid expenses and other current assets (Note 4).............................................. 57,268 123,204
Stockholder receivables (Note 10)............................................................... 3,500 0
------- -------
Total current assets..................................................................... 519,756 639,700
EQUIPMENT, net (Note 3)........................................................................... 112,996 123,786
LONG-TERM STOCKHOLDERS RECEIVABLES (Note 10)...................................................... 0 37,885
OTHER ASSETS...................................................................................... 8,957 8,582
------- -------
Total assets............................................................................. $641,709 $809,953
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease obligations (Note 7)........................ $32,737 $27,263
Accounts payable................................................................................ 41,463 114,537
Accrued expenses and other current liabilities (Note 5)......................................... 149,686 310,436
Federal and state income taxes payable.......................................................... 167,368 189,640
------- -------
Total current liabilities................................................................ 391,254 641,876
------- -------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (Note 7)........................................... 80,960 62,801
------- -------
DEFERRED INCOME TAXES........................................................................... 17,051 14,985
------- -------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY:
Common stock; no par value; 2,500 shares authorized; 958 shares outstanding..................... 6,240 6,240
Additional paid-in capital...................................................................... 16,170 16,170
Retained earnings............................................................................... 152,260 90,107
Less- Treasury stock............................................................................ (22,226) (22,226)
------- -------
Total stockholders' equity............................................................... 152,444 90,291
------- -------
Total liabilities and stockholders' equity............................................... $641,709 $809,953
======== ========
The accompanying notes to financial statements are an
integral part of these balance sheets.
AMERICAN COURIER EXPRESS, INC.
STATEMENTS OF OPERATIONS
For The Nine
For The Years Ended Months Ended
January 31 September 30
---------- ------------
1994 1995 1995
---- ---- ----
REVENUES (Note 2)............................................................... $2,532,797 $4,146,242 $3,149,405
COST OF REVENUES................................................................ 1,529,859 2,803,495 2,398,960
---------- ---------- ----------
Gross profit........................................................... 1,002,938 1,342,747 750,445
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.................................... 828,592 1,421,552 598,240
---------- ---------- ----------
Operating income (loss)................................................ 174,346 (78,805) 152,205
---------- ---------- ----------
OTHER INCOME (EXPENSE)
Other income (expense)........................................................ 273 696 (3,422)
Interest expense.............................................................. (18,307) (11,949) (8,885)
---------- ---------- ----------
(18,034) (11,253) (12,037)
---------- ---------- ----------
Income (loss) before income taxes...................................... 156,312 (90,058) 139,898
PRO FORMA PROVISION FOR (BENEFIT FROM) INCOME TAXES (Notes 2 and 8).............
66,694 (27,905) 56,389
---------- ---------- ----------
Net income (loss)...................................................... $89,618 $(62,153) $83,509
========== ========== ==========
The accompanying notes to financial statements are an
integral part of these statements.
AMERICAN COURIER EXPRESS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31, 1994 AND 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1995
Additional Total
Shares Amount Paid-In Retained Treasury Stockholders'
Common Stock Capital Earnings Stock Equity
---------- -------- -------- -------- -------- --------
BALANCE AT JANUARY 31, 1993......................... 958 $6,240 $16,170 $62,642 $(12,491) $72,561
Purchase of treasury stock........................ 0 0 0 0 (9,735) (9,735)
Net income........................................ 0 0 0 89,618 0 89,618
---------- -------- -------- -------- -------- -------
BALANCE AT JANUARY 31, 1994......................... 958 6,240 16,170 152,260 (22,226) 152,444
Net loss.......................................... 0 0 0 (62,153) 0 (62,153)
---------- -------- -------- -------- -------- -------
BALANCE AT JANUARY 31, 1995........................ 958 6,240 16,170 90,107 (22,226) 90,291
Net income........................................ 0 0 0 83,509 0 83,509
Adjustment to conform fiscal year-end............. 0 0 0 4,449 0 4,449
---------- -------- -------- -------- -------- -------
BALANCE AT SEPTEMBER 30, 1995....................... 958 $6,240 $16,170 $178,065 ($22,226) $178,249
========== ======== ======== ======== ======== ========
The accompanying notes to financial statements are an
integral part of this statement.
AMERICAN COURIER EXPRESS, INC.
STATEMENTS OF CASH FLOWS
For The Nine
For The Years Ended Months Ended
January 31 September 30
---------- ------------
1994 1995 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................. $89,618 $(62,153) $83,509
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities -
Net (income) loss for the one month ended
January 31 in order to conform to the
nine-month presentation................................................ 0 0 4,449
Depreciation and amortization............................................ 20,134 34,994 29,775
Changes in operating assets and liabilities-
Increase in accounts receivable............................................. (168,784) (136,773) (140,865)
Increase in prepaid expenses and other
current assets........................................................... (38,482) (62,436) (70,980)
(Increase) decrease in stockholders receivables............................ 4,571 (37,885) 0
(Increase) decrease in other assets........................................ (2,699) 375 (3,801)
Increase in accounts payable............................................... 18,550 73,074 148
Increase (decrease) in accrued expenses and other current
liabilities.............................................................. 103,314 160,751 (13,052)
Increase in Federal and state income taxes
payable.................................................................. 92,408 22,272 48,496
Increase (decrease) in deferred income taxes............................... 8,235 (2,067) 0
------------- -------------- ---------------
Net cash provided by (used in) operating
activities............................................................. 126,865 (9,848) (62,321)
------------- -------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES --
Purchases of equipment..................................................... (57,696) (45,784) (16,526)
------------- -------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings...................................................... 0 0 100,000
Principal payments under long-term debt and capital leases................. (29,079) (23,633) (24,760)
Purchase of treasury stock................................................. (9,735) 0 0
------------- -------------- ---------------
Net cash provided by (used in) financing activities.................... (38,814) (23,633) 75,240
------------- -------------- ---------------
Net increase (decrease) in cash and cash equivalents................... 30,355 (79,265) (3,607)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 62,477 92,832 13,567
------------- -------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...................................... $92,832 $13,567 $9,960
============= ============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest..................................................... $18,307 $11,949 $8,885
Cash paid for income taxes................................................. 14,880 0 0
============= ============== ===============
NONCASH TRANSACTION:
Capital lease obligations incurred............................................ $0 $0 $19,494
============= ============== ===============
The accompanying notes to financial statements are an
integral part of this statement.
AMERICAN COURIER EXPRESS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION:
American Courier Express, Inc.(the "Company") is a courier/messenger
service offering envelope and small parcel deliveries primarily within the New
York City Metropolitan area.
The Company and its stockholders entered into a definitive agreement
with Consolidated Delivery & Logistics, Inc. ("CDL") pursuant to which the
Company merged with CDL (the "Merger") on November 27, 1995. All outstanding
shares of the Company were exchanged for cash and shares of CDL's Common Stock
concurrent with the consummation of the initial public offering of the common
stock of CDL.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates in the Preparation of the Financial Statements -
The preparation of the combined 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 combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Equipment -
Equipment is recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. Assets
subject to capital leases are amortized over the terms of the leases.
Revenue Recognition -
Revenue is recognized when the shipment is completed and expenses are
recognized as incurred.
Income Taxes -
Deferred income taxes are provided for differences in the recognition
of revenue and expense for tax and financial reporting purposes. Temporary
differences result primarily from accelerated depreciation and amortization for
tax purposes and various accruals and reserves which are deductible for tax
purposes in future periods.
Basis of Presentation -
The Company has historically used a January 31 fiscal year-end;
however, to be consistent with CDL and in connection with the merger, financial
statements for the nine months ended September 30 are presented herein. The
duplication of the results of operations for the one month ended January 31,
1995 has been reflected as adjustments to retained earnings.
Reclassifications-
Certain reclassifications have been made to prior years' financial
statements to conform to current period presentation.
(3) EQUIPMENT:
Equipment consists of the following -
January 31
Useful Lives 1994 1995
------------ -------- --------
Transportation equipment.......................................... 5 years $101,438 $110,187
Other equipment................................................... 5-7 years 67,550 91,880
-------- --------
168,988 202,067
Less - Accumulated depreciation and amortization.................. (55,992) (78,281)
-------- --------
$112,996 $123,786
======== ========
Leased equipment under capital leases included in equipment above
consists of the following-
January 31
1994 1995
---- ----
Transportation equipment...................................................... $101,438 $110,187
Less- Accumulated amortization................................................ (35,643) (43,914)
--------- --------
$65,795 $66,273
========= ========
(4) PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following -
January 31
1994 1995
--------- --------
Prepaid insurance.............................................................. $0 $10,082
Deferred tax asset............................................................. 57,268 111,923
Other.......................................................................... 0 1,199
--------- --------
$57,268 $123,204
======== ========
(5) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the
following -
January 31
1994 1995
---- ----
Insurance..................................................................... $112,500 $247,500
Independent contractors....................................................... 0 30,745
Payroll and payroll related................................................... 37,186 30,749
Other......................................................................... 0 1,442
----------- --------
$149,686 $310,436
=========== ========
(6) SHORT-TERM BORROWINGS:
During February 1995, the Company entered into a $100,000 line of
credit agreement payable to a bank, which bears interest at prime plus 1%. The
line of credit is collateralized by the Company's accounts receivable and
equipment.
Borrowings under the line of credit averaged $78,261, with an average
interest rate of 9.86% for the nine months ended September 30, 1995. Maximum
borrowings were $100,000 for the nine months ended September 30, 1995.
(7) LONG-TERM DEBT:
Long-term debt consists of the following -
January 31
1994 1995
---- ----
Capital lease obligations...................................................... $66,874 $48,657
Related party loan - note payable due to the parents of a stockholder, payable in
equal monthly installments of $835 including interest at 10.375%, through 2001
(Note 10).................................................................... 46,823 41,407
----------- -------
113,697 90,064
Less - Current maturities...................................................... (32,737) (27,263)
----------- -------
$80,960 $62,801
=========== =======
The aggregate amounts of annual principal maturities of long-term debt
(excluding capital lease obligations) are as follows -
January 31
---------------
1996......................................................................................... $6,007
1997......................................................................................... 6,661
1998......................................................................................... 7,386
1999......................................................................................... 8,190
2000......................................................................................... 9,081
Thereafter................................................................................... 4,082
---------------
Total............................................................................... $41,407
===============
The Company leases certain transportation equipment under capital lease
agreements which expire at various dates. Minimum annual payments under capital
leases are as follows -
January 31
---------------
1996......................................................................................... $24,411
1997......................................................................................... 19,301
1998......................................................................................... 9,548
---------------
Total minimum payments.............................................................. 53,260
Less - Amounts representing interest......................................................... (4,603)
---------------
Net minimum payments............................................................... 48,657
Less - Current portion of obligations under capital leases................................... (21,256)
---------------
Long-term portion of obligations under capital leases........................................ $27,401
===============
(8) INCOME TAXES:
The stockholders of the Company elected C corporation status for
Federal and state income tax purposes. The following income tax information is
presented in accordance with Statement of Financial Accounting Standards No.
109. Income tax provision (benefit) and deferred income tax assets and
liabilities have been determined in accordance with such statement.
For The Nine
For The Years Ended Months Ended
January 31 September 30
---------- ------------
1994 1995 1995
---- ---- ----
Federal........................................................... $51,136 $(21,396) $43,798
State............................................................. 15,558 (6,509) 12,591
-------------- -------- -------
$66,694 ($27,905) $56,389
============== ======== =======
The differences in Federal income taxes provided and the amounts
determined by applying the statutory tax rate (34%) to income (loss) before
income taxes result from the following -
For The Nine
For The Years Ended Months Ended
January 31 September 30
---------- ------------
1994 1995 1995
---- ---- ----
Tax statutory rate................................................ $53,146 ($30,620) $47,565
Add (deduct) -
State income taxes (net)........................................ 10,269 (4,296) 8,310
Nondeductible expenses.......................................... 3,279 7,011 514
-------------- -------- -------
$66,694 ($27,905) $56,389
============== ======== =======
The Company files their Federal and state tax returns on the cash basis
of accounting. Reflected in the accompanying balance sheets are current
liabilities of $167,368 and $189,640 at January 31, 1994 and 1995, which
represent the tax effect of differences in the recognition of revenue and
expenses between the cash basis and accrual basis of accounting.
(9) COMMITMENTS AND CONTINGENCIES:
Litigation -
The Company is, from time to time, a party to litigation arising in the
normal course of business. Management believes that none of these actions will
have a material adverse effect on the financial position or results of
operations of the Company.
Commitments -
The Company leases, under operating leases, office and transportation
equipment with lease terms of greater than one year. Rent expense related to
these leases amounted to $42,030, $78,234, and $60,315 for the years ended
January 31, 1994 and 1995 and for the nine months ended September 30, 1995.
The approximate minimum annual rental commitments of the Company, under
existing lease agreements, are as follows -
January 31
---------------
1996..................................................................................... $74,304
1997..................................................................................... 71,180
1998..................................................................................... 63,372
1999..................................................................................... 36,967
---------------
$245,823
===============
(10) RELATED PARTY TRANSACTIONS:
Affiliate -
The Company is affiliated through common ownership with another courier
company, Medexpress Systems, Inc. ("Medexpress"). The officers of the Company
have a 50% interest in Medexpress. At January 31, 1995, the Company had a
receivable due from Medexpress totaling $525, which are included in accounts
receivable in the accompanying balance sheets. At January 31, 1994, there were
no amounts due from Medexpress to the Company.
Related Party Receivables -
At January 31, 1994 and 1995, the Company had noninterest bearing loans
receivable from stockholders of $3,500 and $37,885.
Related Party Loan -
At January 31, 1994 and 1995, the Company had a loan payable to the
parents of a stockholder of $46,823 and $41,407, respectively. The loan is
payable in equal monthly installments of $835, including interest at 10.375%,
through 2001 (see Note 7).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Not applicable.
III-2
PART III
Item 10. Directors and Executive Officers of the Company
The Company hereby incorporates by reference the applicable information
from its definitive proxy statement for its 1996 Annual Meeting of Stockholders,
except for certain information relating to the Company's executive officers
which is provided below.
Executive Officers
The following table sets forth certain information as of February 1, 1996
concerning each of the Company's executive officers:
Name Age Position
John Mattei 67 Chairman of the Board and Chief Executive
Officer
William T. Brannan 47 President, Chief Operating Officer and Director
Joseph G. Wojak 58 Executive Vice President, Chief Financial
Officer, Secretary and Director
William T. Beaury 43 Vice Chairman - Strategic Planning and Director
Norton F. Hight 62 Vice President - Corporate Development
Filbert A. DiNardo 52 Vice President - Human Resources
.........John Mattei has served as the Chairman of the Board and Chief Executive
Officer of the Company since June 1994. From 1988 to June 1994, Mr. Mattei
founded and served as President of J.K.M. Associates, Inc., a consulting firm
which provides financial advisory services with an emphasis on mergers and
acquisitions and financial restructuring.
.........William T. Brannan has served as the President and Chief Operating
Officer of the Company since November 1994. From January 1991 until October
1994, Mr. Brannan served as President, Americas Region - US Operations,
for TNT Express Worldwide, a major European-based overnight express delivery
company. Mr. Brannan has 23 years of experience in the transportation and
logistics industry.
.........Joseph G. Wojak has served as the Executive Vice President, Chief
Financial Officer and Secretary since June 1994. Prior thereto, from May 1994
to June 1994, Mr. Wojak served as a consultant to the Company. From September
1990 until May 1994, Mr. Wojak was a financial and management consultant. Prior
to September 1990, Mr. Wojak served as the Executive Vice President and Chief
Financial Officer of The Howard Savings Bank. The Howard Savings Bank was placed
under Resolution Trust Corporation receivership in October 1992.
.........William T. Beaury has served as the Vice Chairman - Strategic
Planning since December 1995. Prior thereto, Mr. Beaury was a co-founder and the
Chairman and a director of SureWay Air Traffic Corporation and SureWay Logistics
Inc., since 1984 and October 1993, respectively. In addition, since 1975, Mr.
Beaury has served as President of Assets Management Limited, an investment
management company which previously owned 74% of SureWay. Mr. Beaury has 20
years of experience in the same-day ground and air delivery industry. Mr. Beaury
also has been a member of the Air Conference of America since 1980, The
Advertising Production Club since 1988, and a member of the Presidents
Association - the CEO Division of the American Management Association.
.........Norton F. Hight has been Vice-President-Corporate Development of
the Company since December 1995. From March 1995 to December 1995, Mr. Hight
served as Chairman and CEO of Crown Courier Systems. Prior thereto, Mr. Hight
served as President of Crown Courier Systems from May 1974 to March 1995. From
June 1976 to March 1995, Mr. Hight served as President of Bestway Distribution
Services (formerly Bestway Cartage Corp.) Mr. Hight has twenty-two years
experience in the same-day delivery industry. Mr. Hight has been a member of the
Messenger Courier Association of the Americas since 1990 and currently serves on
the Board of Directors. Mr. Hight has also been a member of the Florida
Messenger Association since 1988 where he also serves on the Board of Directors.
.........Filbert A. DiNardo has been the Vice President - Human Resources of the
Company since July 1995. Prior thereto, from September 1990 to July 1995, Mr.
DiNardo served as Vice President, Human Resources, TNT Express Worldwide,
Americas Region - US Operations, a major European-based overnight express
delivery company, where his major responsibilities included development of
policies and procedures, executive recruitment, development and management of
health and benefits plans, and management development. Mr. DiNardo has resigned
his position with the Company, effective April 12, 1996.
Item 11. Executive Compensation
The Company hereby incorporates by reference the applicable information
from its definitive proxy statement for its 1996 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The Company hereby incorporates by reference the applicable information
from its definitive proxy statement for its 1996 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions
The Company hereby incorporates by reference the applicable information
from its definitive proxy statement for its 1996 Annual Meeting of Stockholders.
IV-9
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
See Item 8. Financial Statements and Supplementary Data.
(a)(2) Financial Statement Schedules
INDEX TO FINANCIAL STATEMENT SCHEDULES
Page
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES:
Report of Independent Public Accountants..............................................................S-1
Schedule II - Consolidated Valuation and Qualifying Accounts - Period from inception
through December 31, 1994 and for the year ended December 31, 1995................................S-2
COMBINED FOUNDING COMPANIES:
Report of Independent Public Accountants..............................................................S-3
Schedule II - Combined Valuation and Qualifying Accounts - For the years ended
December 31, 1993 and 1994, the six months ended June 30, 1995 and the nine
months ended September 30, 1995...................................................................S-4
All other schedules called for by Regulation S-X are not submitted
because they are not applicable or not required or because the required
information is not material or is included in the financial statements or notes
thereto.
(a)(3) Exhibits
The Exhibits listed in (c) below are filed herewith.
(b) Reports on Form 8-K
None.
(c) Exhibits
Exhibit Description
Number
2.1 Agreement and Plan of Reorganization, dated as of
September 8, 1995, by and among Consolidated Delivery
& Logistics, Inc., American Courier Acquisition Corp.,
American Courier Express, Inc. and the Stockholders
named therein (filed as Exhibit 2.1 to the Company's
Registration Statement on Form S-1 (File No. 33-97008)
and incorporated herein by reference)
2.2 Agreement and Plan of Reorganization, dated as of
September 8, 1995, by and among Consolidated Delivery &
Logistics, Inc., Bestway Distribution Acquisition
Corp., Bestway Distribution Services, Inc., Crown
Courier Systems, Inc. and the Stockholders named
therein (filed as Exhibit 2.2 to the Company's
Registration Statement on Form S-1 (File
No. 33-97008) and incorporated herein by reference).
2.3 Agreement and Plan of Reorganization, dated as of
September 8, 1995, by and among Consolidated Delivery &
Logistics, Inc., Click Messenger Acquisition Corp.,
Click Messenger Service, Inc., Click Messenger Service
of N.Y., Inc., Meteor Messenger Service, Inc. (t/a
Prime time), Cassidy, Ltd., DMK Services, Ltd. and the
Stockholders named therein (filed as Exhibit 2.3 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
2.4 Agreement and Plan of Reorganization, dated as of
September 8, 1995, by and among Consolidated Delivery &
Logistics, Inc., Court Courier Acquisition Corp., Court
Courier Systems, Inc., Court Courier - Revex of
Connecticut, Inc. and the Stockholders named therein
(filed as Exhibit 2.4 to the Company's Registration
Statement on Form S-1 (File
No. 33-97008) and incorporated herein by reference).
2.5 Agreement and Plan of Reorganization, dated as of
September 8, 1995, by and among Consolidated Delivery &
Logistics, Inc., Distribution Solutions Acquisition
Corp., Distribution Solutions International, Inc. and
the Stockholder named therein (filed as Exhibit 2.5 to
the Company's Registration Statement on Form S-1 (File
No. 33-97008) and incorporated herein by reference).
2.6 Agreement and Plan of Reorganization, dated as of
September 8, 1995, by and among Consolidated Delivery &
Logistics, Inc., Clayton/National Acquisition Corp.,
Clayton/National Courier Systems, Inc., National
Express Company, Inc. and the Stockholders named
therein (filed as Exhibit 2.6 to the Company's
Registration Statement on Form S-1 (File No. 33-97008)
and incorporated herein by reference).
2.7 Agreement and Plan of Reorganization, dated as of
September 8, 1995, by and among Consolidated Delivery &
Logistics, Inc., Olympic Courier Acquisition Corp.,
Olympic Courier Systems, Inc., Qualco Courier Systems,
Inc. and the Stockholders named therein (filed as
Exhibit 2.7 to the Company's Registration Statement
on Form S-1 (File No. 33-97008) and incorporated herein
by reference).
2.8 Agreement and Plan of Reorganization, dated as of
September 8, 1995, by and among Consolidated Delivery &
Logistics, Inc., Orbit/Lightspeed Acquisition Corp.,
Orbit/Lightspeed Courier Systems, Inc., NWC Trucking
Corp., BMBA, Inc., O/L Warehousing, Inc. and the
Stockholders named therein (filed as Exhibit 2.8 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
2.9 Agreement and Plan of Reorganization, dated as of
September 8, 1995, by and among Consolidated Delivery &
Logistics, Inc., Securities Courier Acquisition Corp.,
Securities Courier Corporation and the Stockholder
named therein (filed as Exhibit 2.9 to the Company's
Registration Statement on Form S-1 (File No. 33-97008)
and incorporated herein
by reference).
2.10 Agreement and Plan of Reorganization, dated as of
September 8, 1995, by and among Consolidated Delivery &
Logistics, Inc., Silver Star Acquisition Corp., Silver
Star Express, Inc., All World Brokers, Inc., Parcel
Delivery Company of Florida, Inc., Silver Star Express
North, Inc. and the Stockholders named therein (filed
as Exhibit 2.10 to the Company's Registration Statement
on Form S-1 (File No. 33-97008) and incorporated herein
by reference).
2.11 Agreement and Plan of Reorganization, dated as of
September 8, 1995, by and among Consolidated Delivery &
Logistics, Inc., SureWay Air Acquisition Corp., SureWay
Air Traffic Corporation and the Stockholders named
therein (filed as Exhibit 2.11 to the Company's
Registration Statement on Form S-1 (File No. 33-97008)
and incorporated herein
by reference).
2.12 Amendment, dated as of November 7, 1995, to Agreement
and Plan of Reorganization, dated as of September 8,
1995, by and among Consolidated Delivery & Logistics,
Inc., Click Messenger Acquisition Corp., Click
Messenger Service, Inc., Click Messenger Service of
N.Y., Inc., Meteor Messenger Service, Inc. (t/a Prime
time), Cassidy, Ltd., DMK Services, Ltd. and the
Stockholders named therein (filed as Exhibit 2.12 to
the Company's Registration Statement on Form S-1 (File
No. 33-97008) and incorporated herein by reference).
2.13 Amendment, dated as of November 7, 1995, to Agreement
and Plan of Reorganization, dated as of September 8,
1995, by and among Consolidated Delivery & Logistics,
Inc., Clayton/National Acquisition Corp.,
Clayton/National Courier Systems, Inc., National
Express Company, Inc. and the Stockholders named
therein (filed as Exhibit 2.13 to the Company's
Registration Statement on Form S-1 (File No. 33-97008)
and incorporated herein
by reference).
2.14 Amendment, dated as of November 7, 1995, to Agreement
and Plan of Reorganization, dated as of September 8,
1995, by and among Consolidated Delivery & Logistics,
Inc., Orbit/Lightspeed Acquisition Corp.,
Orbit/Lightspeed Courier Systems, Inc., NWC Trucking
Corp., BMBA, Inc., O/L Warehousing, Inc. and the
Stockholders named therein (filed as Exhibit 2.14 to
the Company's Registration Statement on Form S-1 (File
No. 33-97008) and incorporated herein by reference).
2.15 Amendment, dated as of October 10, 1995, to Agreement
and Plan of Reorganization, dated as of September 8,
1995, by and among Consolidated Delivery & Logistics,
Inc., Securities Courier Acquisition Corp., Securities
Courier Corporation and the Stockholder named therein
(filed as Exhibit 2.15 to the Company's Registration
Statement on Form S-1 (File No. 33-97008) and
incorporated herein by reference).
3.1 Second Restated Certificate of Incorporation of
Consolidated Delivery & Logistics, Inc. (filed as
Exhibit 3.1 to the Company's Registration Statement
on Form S-1 (File No. 33-97008) and incorporated herein
by reference).
3.2 Amended and Restated By-laws of Consolidated Delivery &
Logistics, Inc. (filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (File No. 33-97008)
and incorporated herein by reference).
4.1 Form of certificate evidencing ownership of Common
Stock of Consolidated Delivery & Logistics, Inc. (filed
as Exhibit 4.1 to the Company's Registration Statement
on Form S-1 (File No. 33-97008) and incorporated herein
by reference).
4.2 Instruments defining the rights of holders of the
Company's long-term debt (not filed pursuant to
Regulation S-K Item 601((b)(4)(iii); to be furnished
to the Commission upon request).
10.1 Consolidated Delivery & Logistics, Inc. Employee Stock
Compensation Program (filed as Exhibit 10.1 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.2 Consolidated Delivery & Logistics, Inc. 1995 Stock
Option Plan for Independent Directors (filed as Exhibit
10. 2 to the Company's Registration Statement on Form
S-1 (File No. 33-97008) and incorporated herein by
reference).
10.3 Management Team Agreement dated November 8, 1995, among
Consolidated Delivery & Logistics, Inc. and John
Mattei, Joseph Wojak and William Brannan (filed as
Exhibit 10.3 to the Company's Registration Statement on
Form S-1 (File No. 33-97008) and incorporated herein by
reference).
10.4 Employment Agreement, dated as of September 8, 1995,
with Filbert DiNardo (filed as Exhibit 10.4 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.5 Employment Agreement, dated as of September 8, 1995,
with John Mattei (filed as Exhibit 10.5 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.6 Employment Agreement, dated as of September 8, 1995,
with William T. Brannan (filed as Exhibit 10.6 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.7 Employment Agreement, dated as of September 8, 1995,
with Joseph G. Wojak (filed as Exhibit 10.7 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.8 Employment Agreement, dated as of September 15, 1995,
with John Bailey (filed as Exhibit 10.8 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.9 Employment Agreement, dated as of September 15, 1995,
with William Beaury (filed as Exhibit 10.9 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.10 Employment Agreement, dated as of September 15, 1995,
with Michael Berry (filed as Exhibit 10.10 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.11 Employment Agreement, dated as of September 15, 1995,
with Vincent Brana (filed as Exhibit 10.11 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.12 Employment Agreement, dated as of September 15, 1995,
with Michael Brooks (filed as Exhibit 10.12 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.13 Employment Agreement, dated as of September 15, 1995,
with Juan Camandona (filed as Exhibit 10.13 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.14 Employment Agreement, dated as of September 15, 1995,
with Joseph Caruvana (filed as Exhibit 10.14 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.15 Employment Agreement, dated as of September 15, 1995,
with Randall Catlin (filed as Exhibit 10.15 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.16 Employment Agreement, dated as of September 15, 1995,
with Martin Galinsky (filed as Exhibit 10.16 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.17 Employment Agreement, dated as of September 15, 1995,
with Curtis Hight (filed as Exhibit 10.17 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.18 Employment Agreement, dated as of September 15, 1995,
with Norton Hight (filed as Exhibit 10.18 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.19 Employment Agreement, dated as of September 15, 1995,
with Rick Katz (filed as Exhibit 10.19 to the Company's
Registration Statement on Form S-1 (File No. 33-97008)
and incorporated herein by reference).
10.20 Employment Agreement, dated as of September 15, 1995,
with David Kronick (filed as Exhibit 10.20 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.21 Employment Agreement, dated as of September 15, 1995,
with Andrew B. Kronick (filed as Exhibit 10.21 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.22 Employment Agreement, dated as of September 15, 1995,
with Howard Kronick (filed as Exhibit 10.22 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.23 Employment Agreement, dated as of September 15, 1995,
with Irwin Leibowitz (filed as Exhibit 10.23 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.24 Employment Agreement, dated as of September 15, 1995,
with Labe Leibowitz (filed as Exhibit 10.24 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.25 Employment Agreement, dated as of September 15, 1995,
with John LoPresti (filed as Exhibit 10.25 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.26 Employment Agreement, dated as of September 15, 1995,
with Thomas LoPresti (filed as Exhibit 10.26 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.27 Employment Agreement, dated as of September 15, 1995,
with David Mathia (filed as Exhibit 10.27 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.28 Employment Agreement, dated as of September 15, 1995,
with Jack McCorkell (filed as Exhibit 10.28 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.29
Employment Agreement, dated as of September 15, 1995,
with Philip Panasci (filed as Exhibit 10.29 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.30 Employment Agreement, dated as of September 15, 1995,
with Peter Silver (filed as Exhibit 10.30 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.31 Employment Agreement, dated as of September 15, 1995,
with Philip Snyder (filed as Exhibit 10.31 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.32 Employment Agreement, dated as of September 15, 1995,
with William Starace (filed as Exhibit 10.32 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.33 Employment Agreement, dated as of September 15, 1995,
with Kenneth Tunnell, Jr. (filed as Exhibit 10.33 to
the Company's Registration Statement on Form S-1 (File
No. 33-97008) and incorporated herein by reference).
10.34 Employment Agreement, dated as of September 15, 1995,
with Jeremy Weinstein (filed as Exhibit 10.34 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.35 Employment Agreement, dated as of September 15, 1995,
with Robert Wyatt (filed as Exhibit 10.35 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.36 Employment Agreement, dated as of September 15, 1995,
with Stephen J. Zrowka (filed as Exhibit 10.36 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
10.37 Termination Agreement, dated August 14, 1995, by and
between Consolidated Delivery & Logistics, Inc. and
David Lardier (filed as Exhibit 10.37 to the Company's
Registration Statement on Form S-1 (File No. 33-97008)
and incorporated herein by reference).
10.38 Share Acquisition Agreement and Release with Victor
Samara (filed as Exhibit 10.38 to the Company's
Registration Statement on Form S-1 (File No. 33-97008)
and incorporated herein by reference).
10.39 Share Acquisition Agreement and Release with the Estate
of William Samara (filed as Exhibit 10.39 to the
Company's Registration Statement on Form S-1 (File No.
33-97008) and incorporated herein by reference).
11.1 Statement Regarding Computation of Net Loss Per Share.
11.2 Statement Regarding Computation of Pro Forma Net Income
Per Share.
21.1 List of subsidiaries of Consolidated Delivery &
Logistics, Inc. (filed as Exhibit 21.1 to the Company's
Registration Statement on Form S-1 (File No. 33-97008)
and incorporated herein by reference).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on August , 1996.
CONSOLIDATED DELIVERY & LOGISTICS, INC.
By: ___________________________
John Mattei, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities indicated on August , 1996.
Signature Capacity
__________________________ Chairman of the Board, Chief Executive Officer
John Mattei (Principal Executive Officer) and Director
__________________________ President, Chief Operating Officer and Director
William T. Brannan
__________________________ Executive Vice President, Chief Financial Officer
Joseph G. Wojak (Principal Financial and Accounting Officer),
Secretary and Director
__________________________ Vice Chairman-Strategic Planning and Director
William T. Beaury
__________________________ Director
Vincent Brana
__________________________ Director
Michael Brooks
__________________________ Director
Juan Camandona
__________________________ Director
Curtis Hight
__________________________ Director
Howard E. Kronick
__________________________ Director
Labe Leibowitz
__________________________ Director
Thomas LoPresti
__________________________ Director
David Mathia
__________________________ Director
Philip Snyder
__________________________ Director
Robert Wyatt
__________________________ Director
Stephen J. Zrowka
__________________________ Director
William M. Kearns, Jr.
__________________________ Director
Kenneth W. Tunnell
__________________________ Director
Albert W. Van Ness, Jr.
S-4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Consolidated Delivery & Logistics, Inc.:
We have audited in accordance with generally accepted auditing standards, the
financial statements of Consolidated Delivery & Logistics, Inc. and subsidiaries
included in this Form 10-K and have issued our report thereon dated March 19,
1996. Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statement schedules is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 19, 1996
Schedule II
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance Charged Balance
at to Costs at End
Beginning and Write-offs Other of
Description of Period Expenses (b) (a) Period
- -----------------------------------
============= =========== ============= ============ =============
Forthe period from inception (June 30, 1994) through December 31, 1994
Allowance for doubtful
accounts $0 $0 $0 $0 $0
============= =========== ============= ============ =============
For the year ended
December 31, 1995 -
Allowance for doubtful
accounts $0 $204 ($48) $1,129 $1,285
============= =========== ============= ============ =============
(a) Represents the addition of the Founding Companies on September 30, 1995.
(b) Represents write-offs net of recoveries.
The accompanying notes to consolidated financial statements are an
integral part of this schedule.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Combined Founding Companies:
We have audited in accordance with generally accepted auditing standards, the
financial statements of Combined Founding Companies included in this Form 10-K
and have issued our report thereon dated March 19, 1996. Our audits were made
for the purpose of forming an opinion on the basic financial statements taken as
a whole. The schedule listed in the index to financial statement schedules is
the responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 19, 1996
Schedule II
COMBINED FOUNDING COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance Charged Balance
at to Costs at End
Beginning and Write-offs of
Description of Period Expenses (a) Period
- --------------------------------------
============== ============== ============== =============
For the year ended
December 31, 1993 -
Allowance for doubtful accounts $591 $638 ($407) $822
============== ============== ============== =============
For the year ended
December 31, 1994 -
Allowance for doubtful accounts $822 $545 ($275) $1,092
============== ============== ============== =============
For the nine months ended
September 30, 1995 -
Allowance for doubtful accounts $1,092 $335 ($298) $1,129
============== ============== ============== =============
(a) Represents write-offs net of recoveries.
The accompanying notes to combined financial statements are an
integral part of this schedule.
3
INDEX TO EXHIBITS
Exhibits Page
11.1 Statement Regarding Computation of Net Loss Per Share 2
11.2 Statement Regarding Computation of Pro Forma Net Income Per Share. 3
EXHIBIT 11.1
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
NET LOSS PER SHARE
FOR THE YEAR ENDED DECEMBER 31, 1995
(In Thousands Except Share Information)
SHARES CONSIDERED:
Weighted average portion of 2,100,000 common shares issues in connection with
the formation of CD&L adjusted to reflect 1,400,000 common shares redeemed and
canceled in connection with a termination agreement and 305,577 common shares
redeemed and canceled in connection with a management agreement
1,450,479
Weighted average portion of 99,446 common shares issued in connection with a
termination agreement 37,871
Weighted average portion of 2,935,700 common shares issued to the stockholders
of the Founding Companies 273,462
Weighted average portion of 3,200,000 common shares sold in the Initial Public
Offering 298,082
------------------
Total common shares considered 2,059,894
==================
NET LOSS ($195)
==================
NET LOSS PER SHARE (a) ($.10)
==================
(a) The conversion of the Company's debentures and stock options are
excluded from the computation as the effect would be antidilutive.
EXHIBIT 11.2
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
PRO FORMA NET INCOME PER SHARE
FOR THE YEAR ENDED DECEMBER 31, 1995
(In Thousands Except Share Information)
SHARES CONSIDERED:
Common shares issued prior to acquisition of the Founding Companies and the Initial
Public Offering 493,869
Common shares issued to the stockholders of the Founding Companies 2,935,700
Common shares sold in the Initial Public Offering 3,200,000
Debentures (a) 180,995
------------------
Total common shares considered 6,810,564
------------------
NET INCOME $1,987
==================
NET INCOME PER SHARE (b) $.29
==================
(a) Dilution attributable to the conversion of the Company's 8% Subordinated
Convertible Debentures.
(b) The conversion of the Company's stock options are excluded from the
computation as the effect would be antidilutive.