ITEM 1. BUSINESS
Background ----------
Target Logistics, Inc. ("Company") provides freight forwarding services and logistics services, through its wholly owned subsidiary, Target Logistic Services, Inc. ("Target"). Prior to July 13, 1998, the Company also provided services through its wholly-owned subsidiary, Caribbean Air Services, Inc. ("CAS"). The Company has a network of offices in 32 cities throughout the United States.
The Company was incorporated in Delaware in January 1996 as the successor to operations commenced in 1970. In May 1997, the Company acquired (by merger into the Company's Target subsidiary) Target Air Freight, Inc., a Los Angeles-based freight forwarder. As a result, Target became a wholly-owned subsidiary of the Company.
On July 13, 1998, the Company's CAS subsidiary sold substantially all of its operating assets to Geologistics Air Services, Inc. an indirect wholly owned subsidiary of Geologistics Corporation ("Geologistics") for $27 million in cash (the "CAS Sale"), pursuant to the terms of an Asset Purchase Agreement dated June 15, 1998.
Following the CAS Sale, the Company operates through its wholly-owned subsidiary, Target. On November 30, 1998, the Company changed its name to "Target Logistics, Inc."
Description of Business -----------------------
The Company's freight forwarding services involve arranging for the total transport of customers' freight from the shipper's location to the designated recipients, including the preparation of shipping documents and the providing of handling, packing and containerization services. The Company concentrates on cargo shipments weighing more than 50 pounds and generally requiring second-day delivery. The Company also assembles bulk cargo and arranges for insurance. The Company has a network of offices in 31 cities throughout the United States, including exclusive agency relationships in 17 cities. The Company has international freight forwarding operations consisting of strategic relationships in over 20 countries including share ownership in its exclusive agents in China, Hong Kong, Philippines and Singapore. The Company has developed an expertise in material supply logistics to manufacturing concerns, and expanded its facilities and capabilities to accommodate rapid growth in this specialty. Currently, the Company maintains material supply warehouses in Los Angeles and El Paso, and through its agents in Wuxi/China, Penang/Malaysia, and Singapore. Current trends in electronic manufacturing show that this area will continue to rapidly grow worldwide and the Company has established an excellent reputation as a supply chain specialist.
Operations ----------
Movement of Freight. The Company does not own any airplanes or significant trucking equipment and relies on independent contractors for the movement of its cargo. The Company utilizes its expertise to provide forwarding services that are tailored to meet customer requirements. It arranges for transportation of customers' shipments via commercial airlines, air cargo carriers, steamship lines, and, if delivery schedules permit, the Company makes use of lower cost inter-city truck transportation services. The Company selects the carrier for particular shipments on the basis of cost, delivery time and available cargo capacity. Through the Company's advanced data processing system, it can provide, at no additional cost to the customer, value-added services such as electronic data interchange, computer based shipping and tracking systems and customized computer generated reports. Additionally, the Company provides cargo assembly and warehousing services.
The rates charged by the Company to its customers are based on destination, shipment weight and required delivery time. The Company offers graduated discounts for shipments with later scheduled delivery times and rates generally decrease in inverse proportion to the increasing weight of shipments. Due to the high volume of freight controlled by the Company, it is able to obtain favorable contract rates from carriers and is often able to book freight space at times when available space is limited. When possible, the Company consolidates different customers' shipments to reduce its cost of transportation.
Information Systems. An important component of the Company's business strategy is to provide accurate and timely information to its management and customers. Accordingly, the Company has invested, and will continue to invest, substantial management and financial resources in developing these information systems.
The Company leases two HP 9000 mainframe computers and has a proprietary freight forwarding software system which the Company has named "TRACS". TRACS is an integrated freight forwarding and financial management data processing system. It provides the Company with the information needed to manage its sourcing and distribution activities through either printed or electronic medium. Specifically, the TRACS system permits the Company to track the flow of a particular shipment from the point of origin through the transportation process to the point of delivery. The Company intends to continuously upgrade TRACS to enhance its ability to maintain a competitive advantage.
International Operations. The Company's international operations consist of air and ocean freight movements imported to and exported from the Company's Target subsidiaries network of offices in the United States. During the fiscal year ended June 30, 2001, the Company's international freight forwarding accounted for 27.6% of the Company's operating revenue.
Customers and Marketing -----------------------
The Company's principal customers include large manufacturers and distributors of computers and other electronic and high-technology equipment, computer software and wearing apparel. As of June 30, 2001, the Company had approximately 4,614 accounts.
The Company markets its services through an organization of approximately 20 full-time salespersons and 31 independent sales agents supported by the sales efforts of senior management, and the operations staff in the Company's offices. The Company strongly promotes team selling, wherein the salesperson is able to utilize expertise from other departments in the Company to provide value-added services to gain a specific account. The Company staffs each office with operational employees to provide support for the sales team, develop frequent contact with the customer's traffic department, and maintain customer service. The Company believes that it is important to maintain frequent contact with its customers to assure satisfaction and to immediately react to resolve any problem as quickly as possible.
The Company's fashion services division targets customers from manufacturers to retail establishments and provides specific expertise in handling fashion-related shipments. The fashion services division specializes in the movement of wearing apparel for manufacturing customers to their department store customers located throughout the United States.
Many of the Company's customers utilize more than one transportation provider. In soliciting new accounts, the Company uses a strategy of becoming an approved carrier in order to demonstrate the quality and cost-effectiveness of its services. Using this approach, the Company has advanced its relationships with several of its major customers, from serving as a back-up freight services provider to primary freight forwarder.
Competition -----------
Although there are no weight restrictions on the Company's shipments, the Company focuses primarily on cargo shipments weighing more than 50 pounds and requiring second-day delivery. As a result, the Company does not directly compete for most of its business with overnight couriers and integrated shippers of principally small parcels, such as United Parcel Service of America, Inc., Federal Express Corporation, DHL Worldwide Express, Inc., Airborne Freight Corporation and the United States Postal Service. However, some integrated carriers, such as Emery Air Freight Corporation and Pittston BAX Group, Inc., primarily solicit the shipment of heavy cargo in competition with forwarders.
There is intense competition within the freight forwarding industry. While the industry is highly fragmented, the Company most often competes with a relatively small number of forwarders who have nationwide networks and the capability to provide a full range of services similar to those offered by the Company. These include EGL, Inc., Pilot Air Freight, Inc., and Geologistics Americas, Inc. There is also competition from passenger and cargo air carriers and trucking companies. On the international side of the business, the Company competes with forwarders that have a predominantly international focus, such as
Fritz Companies, Inc., Air Express International Corporation and Circle International Group, Inc. All of these companies, as well as many other competitors, have substantially greater facilities, resources and financial capabilities than those of the Company. The Company also faces competition from regional and local air freight forwarders, cargo sales agents and brokers, surface freight forwarders and carriers and associations of shippers organized for the purpose of consolidating their members' shipments to obtain lower freight rates from carriers.
Employees ---------
The Company and its subsidiaries had approximately 196 full-time employees as of June 30, 2001. None of the Company's employees are currently covered by a collective bargaining agreement. The Company has experienced no work stoppages and considers its relations with its employees to be good.
Regulation ----------
The Company's freight forwarding business as an indirect air cargo carrier is subject to regulation by the United States Department of Transportation under the Federal Aviation Act. However, air freight forwarders (including the Company) are exempted from most of such Act's requirements by the Economic Aviation Regulations promulgated thereunder. The Company's foreign air freight forwarding operations are subject to regulation by the regulatory authorities of the respective foreign jurisdictions. The air freight forwarding industry is subject to regulatory and legislative changes which can affect the economics of the industry by requiring changes in operating practices or influencing the demand for, and the costs of providing, services to customers.
ITEM 2.
ITEM 2. PROPERTIES ----------
As of June 30, 2001, the Company leased terminal facilities consisting of office and warehouse space in 14 cities located in the United States, and also utilized 17 offices operated by exclusive agents. The Company's facilities range in size from approximately 1,000 square feet to approximately 100,000 square feet and consist of offices and warehouses with loading bays. All of such properties are leased from third parties. The Company's headquarters are located in Baltimore, Maryland, and its principal warehouse facility is located in Los Angeles, California, and consists of approximately 100,000 square feet of floor space leased pursuant to the terms of a lease which expires in July 2002. Management believes that its current facilities are underutilized and are more than sufficient for its planned growth.
The Company has an additional 13 terminal facilities in the following locations:
Atlanta, Georgia Memphis, Tennessee Charlotte, North Carolina Miami, Florida Chicago, Illinois Newark, New Jersey Dallas, Texas New York, New York El Paso, Texas Raleigh, North Carolina Greensboro, North Carolina Seattle, Washington Houston, Texas
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS -----------------
The Company, from time to time, becomes involved in various routine legal proceedings in the ordinary course of its business. The Company believes that the outcome of all pending legal proceedings and unasserted claims in the aggregate will not have a material adverse effect on its consolidated results of operations, consolidated financial position or liquidity.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ---------------------------------------------------
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a listing of the executive officers of the Company as of June 30, 2001. There are no family relationships between any Directors and Officers of the Company.
NAME AGE POSITION
Stuart Hettleman............... 51 President and Chief Executive Officer
Philip J. Dubato............... 45 Vice President, Chief Financial Officer and Secretary
Christopher Coppersmith........ 51 President and Chief Executive Officer, Target Logistic Services, Inc.
STUART HETTLEMAN has been President, Chief Executive Officer and a director of the Company and a director and Executive Vice President of CAS, since February 7, 1996, and a director and Chairman of Target since May 8, 1997.
PHILIP J. DUBATO has been Vice President, Chief Financial Officer and Secretary of the Company since February 3, 1997 and a director of the Company since September 18, 1998. From 1984 through 1996, Mr. Dubato was employed by LEP Profit International, Inc., a domestic and international freight forwarder, where he held successive positions as Controller, Chief Financial Officer and Executive Vice President.
CHRISTOPHER COPPERSMITH has been President and Chief Executive Officer of Target Logistic Services, Inc. (acquired by the Company in May 1997) since November 1996, and a director of the Company since May 1997. From 1974 through October 1996, Mr. Coppersmith was Executive Vice President and Chief Operating Officer of Target Airfreight, Inc.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ---------------------------------------------------------------------
The Company's common stock, $.01 par value (the "Common Stock") and Redeemable Common Stock Purchase Warrants (the "Warrants") trade on the Over-The-Counter (OTC) market under the symbols TARG and TARGW, respectively. The warrants expired on June 28, 2001.
The following table shows the high and low sales prices of the Common Stock and Warrants for each of the quarters during the fiscal years indicated, as available through the OTC market. The quotations represent prices between dealers and do not reflect the retailer markups, markdowns or commissions, and may not represent actual transactions. There have been no dividends declared.
On September 20, 2001 there were 747 shareholders of record of the Company's Common Stock. The closing price of the Common Stock on that date was $0.20 per share.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA -----------------------
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -----------------------------------------------------------
This Annual Report on Form 10-K contains certain forward-looking statements reflecting the Company's current expectations with respect to its operations, performance, financial condition, and other developments. Such statements are necessarily estimates reflecting the Company's best judgment based upon current information and involve a number of risks and uncertainties. While it is impossible to identify all such factors, factors which could cause actual results to differ materially from expectations are: (i) the Company's historic losses and ability to achieve operating profitability, (ii) the Company's ability to increase operating revenue, improve gross profit margins and reduce selling, general and administrative costs, (iii) competitive practices in the industries in which the Company competes, (iv) the Company's dependence on current management, (v) the impact of current and future laws and governmental regulations affecting the transportation industry in general and the Company's operations in particular, (vi) general economic conditions, and (vii) other factors which may be identified from time to time in the Company's Securities and Exchange Commission filings and other public announcements. In addition, the effects on the air freight industry of the September 11, 2001 terrorist attacks in New York, Washington and Pennsylvania are unknown at this time. There can be no assurance that these and other factors will not affect the accuracy of such forward-looking statements. Forward-looking statements are preceded by an asterisk (*).
Overview --------
The Company generated operating revenues of $90.1 million, $84.1 million, and $51.7 million, and had a net and loss of $1.5 million, $1.2 million and a net profit of $14.0 million for the fiscal years ended June 30, 2001, 2000, and 1999, respectively. The fiscal year 1999 results include a $16.6 million gain (net of tax) arising from the CAS Sale which closed on July 13, 1998, and the fiscal year 1998 results include a $7.6 million net income tax benefit arising from the CAS sale.
The Company had (losses) or earnings before interest, taxes, depreciation and amortization (EBITDA) of approximately ($1.4 million), ($0.06), and $21.4 million, for the fiscal years ended June 30, 2001, 2000, and 1999 respectively. (As stated above, the fiscal 1999 and 1998 results include gains and benefits arising from the CAS Sale.) EBITDA, like operating income, does not include the effects of interest and taxes, and excludes the "non-cash" effects of depreciation and amortization on current assets. Companies have some discretion as to which elements of depreciation and amortization are excluded in the EBITDA calculation. The Company excludes all depreciation charges related to property, plant and equipment, and all amortization charges, including amortization of goodwill, leasehold improvements and other intangible assets. While management considers EBITDA useful in analyzing the Company's results, it is not intended to replace any presentation included in the Company's consolidated financial statements.
* Management believes that the Company's revenue growth for the fiscal year ended June 30, 2001 indicate that management's concentrated focus on Target's business together with the Company's available resources will enable the Company to achieve growth. In addition, for the year ended June 30, 2001, Target's gross profit margin (i.e., gross operating revenue less cost of transportation expressed as a percentage of gross operating revenue) increased slightly from the 2000 period. Management continues to believe that its focus on increasing revenues and gross profit margin will restore the Company to profitability. Management intends to continue to work on growing revenue by increasing both sales generated by the Company's employed sales personnel and sales generated by exclusive forwarders (previously referred to as independent agents). Management also intends to continue to work on improving Target's gross profit margins by reducing fixed selling, general and administrative costs.
Results of Operations ---------------------
Years ended June 30, 2001 and 2000
Operating Revenue. Operating revenue increased to $90.1 million for the year ended June 30, 2001 from $84.1 million for the year ended June 30, 2000, a 7.2% increase, due to increased domestic freight volume. Domestic revenue increased by 16.3% to $65,255,740 for the year ended June 30, 2001 from $56,093,399 for the year ended June 30, 2000, while international revenue decreased by 11.1% to $24,887,462 for the year ended June 30, 2001 from $27,994,796 for the year ended June 30, 2000, primarily the result of decreases in air export and import freight volume.
Cost of Transportation. Cost of transportation decreased slightly to 67.6% of operating revenue for the year ended June 30, 2001 from 67.7% of operating revenue for the year ended June 30, 2000.
Gross Profit. As a result of the factors described in the previous paragraph, gross profit for the year ended June 30, 2001 increased slightly to 32.4% of operating revenue from 32.3% of operating revenue for the year ended June 30, 2000.
Selling, General and Administrative Expenses. Selling, general, and administrative expenses increased to 35.0% of operating revenue for the year ended June 30, 2001, from 33.5% of operating revenue for the year ended June 30, 2000. Within the Company's Target subsidiary, selling, general and administration expenses (excluding exclusive forwarder commission expense) were 16.7% of operating revenue for the year ended June 30, 2001 and 16.3% for the year ended June 20, 2000, a 2.5% increase. This increase was primarily due to increased operating labor costs to handle the increased freight volume and increased selling labor cost resulting from increases in the number of sales personnel employed by Target. Exclusive forwarder commission expense was 16.4% and 15.2% of operating revenue for the year June 30, 2001 and 2000, respectively, a 7.9% increase, resulting from increases in forwarder agent freight volume.
Net Loss. The Company realized a net loss of ($1,771,583) for the year ended June 30, 2001, compared to a net loss of ($1,196,605) for the year ended June 30, 2000.
Years ended June 30, 2000 and 1999
Operating Revenue. Operating revenue increased to $84.1 million for the year ended June 30, 2000 from $51.7 million for the year ended June 30, 1999, a 62.6% increase. The prior year includes 12 days of CAS operating revenues due to the CAS Sale on July 13, 1998. Within the operations of the Company's Target subsidiary operating revenue increased by 67.7% to $84,088,195 for the year ended June 30, 2000 from $50,156,285 for the corresponding 1999 period, a $33,931,910 increase due to increased freight volume. Also within the company's
Target subsidiary, domestic and international revenue increased by 81% to $56,093,399 and by 46% to $27,994,796 for the year ended June 30, 2000 from $30,958,528 and $19,197,757 for the year ended June 30, 1999, respectively.
Cost of Transportation. Cost of transportation was 67.7% of operating revenue for the year ended June 30, 2000, and 67.3% of operating revenue for the year ended June 30, 1999. This increase is due to an increase in the Target subsidiary's cost of transportation as a percentage of sales. The Company's Target subsidiary's cost of transportation as a percentage of sales has increased to 67.7% for the current period from 66.7% for the prior year, primarily a result of (i) higher fuel costs, and (ii) a higher cost of transportation for Target's international air import freight movement.
Gross Profit. As a result of the factors described in the previous paragraph, gross profit for the year ended June 30, 2000 decreased to 32.3% of operating revenue from 32.7% of operating revenue for the year ended June 30, 1999. Within the Company's Target subsidiary, gross profit margin decreased to 32.3% from 33.3% for the year ended June 30, 2000 and 1999, respectively.
Selling, General and Administrative Expenses. Selling, general, and administrative expenses decreased to 33.5% of operating revenue for the year ended June 30, 2000, from 41.2% of operating revenue for the year ended June 30, 1999. This decrease was primarily due to (i) lower selling general and administrative expenses as a percentage of sales within the Company's Target subsidiary partially offset by an increase in exclusive forwarder commission expense due to the Company's addition of new exclusive forwarders; and (ii) the elimination of CAS expenses as a result of the CAS Sale.
Within the Company's Target subsidiary, selling, general and administrative expenses (excluding exclusive forwarder commission expense) were 16.3% of operating revenue for the year ended June 30, 2000 and 24.8% for the year ended June 30, 1999, a 34.2% decrease. This decrease was primarily due to operating revenue growth without a corresponding increase in fixed selling, general and administrative expenses. Exclusive forwarder commission expense was 15.2% of operating revenue for the year ended June 30, 2000 and 11.8% for the year ended June 30, 1999. This increase is due to the Company's addition of new exclusive forwarders.
Net (Loss)/Income. The Company realized a net loss of ($1,196,605) for the year ended June 30, 2000, compared to a net income of $14,016,436 for the year ended June 30, 1999. The 1999 results included a $16.6 million gain (net of tax) arising from the CAS Sale, which closed on July 13, 1998.
Liquidity and Capital Resources -------------------------------
General. During the year ended June 30, 2001, net cash used in operating activities was $766,541. Cash used in investing activities was $450,694. Cash provided by financing activities was $649,024, which primarily consisted of borrowings under the Company's accounts receivable financing facility.
Currently, approximately $1.5 million of the Company's outstanding accounts payable represent unsecured trade payables of closed subsidiaries.
Capital expenditures. Capital expenditures for the fiscal year ended June 30, 2001 were $450,694.
GMAC Facility. During the year ended June 30, 2001, the Company's Target subsidiary maintained a $10 million revolving credit facility ("GMAC Facility") with GMAC Commercial Credit LLC ("GMAC"), guaranteed by the Company. The interest rate of the GMAC Facility is prime plus 1%. Under the terms of the GMAC Facility, Target can borrow the lesser of $10 million or 85% of eligible accounts receivable. The borrowings under the GMAC Facility are secured by a first lien on all of the Company's and its subsidiaries' assets. As of June 30, 2001, there were outstanding borrowings of $5,679,912 under the GMAC Facility (which represented 82% of the amount available thereunder) out of a total amount available for borrowing under the GMAC Facility of approximately $6,967,000. The GMAC Facility expires on January 14, 2003.
* Working Capital Requirements. Cash needs of the Company are currently met by funds generated from operations, the Company's accounts receivable financing facility, and funds remaining from the CAS Sale. As of June 30, 2001, the Company had $1,286,983 available under its $10 million accounts receivable financing facility and approximately $5,486,893 in cash from operations and remaining proceeds from the CAS Sale. The Company believes that its current financial resources will be sufficient to finance its operations and obligations
(current and long-term liabilities) for the long and short terms. However, the Company's actual working capital needs for the long and short terms will depend upon numerous factors, including the Company's operating results, the cost of increasing the Company's sales and marketing activities, and, competition, none of which can be predicted with certainty.
Inflation ---------
The Company does not believe that the relatively moderate rates of inflation in the United States in recent years have had a significant effect on its operations.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ----------------------------------------------------------
The Company's principal financial instrument is long-term debt under the GMAC Facility which provides for interest at the prime rate plus 1%. The Company is affected by market risk exposure primarily through the effect of changes in interest rates on amounts payable by the Company under the GMAC Facility. A significant rise in the prime rate could materially adversely affect the Company's business, financial condition and results of operations. At June 30, 2001, an aggregate principal amount of $5,679,912 was outstanding under the GMAC Facility bearing interest at an annual rate of 7.75%. If principal amounts outstanding under the Company's credit facility remained at this year-end level for an entire year and the prime rate increased or decreased, respectively, by 0.5%, the Company would pay or save, respectively, an additional $28,400 in interest in that year. The Company does not utilize derivative financial instruments to hedge against changes in interest rates or for any other purpose.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -------------------------------------------
The financial statements and supplementary data required by this Item 8 are included in the Company's Consolidated Financial Statements and set forth in the pages indicated in Item 14(a) of this Annual Report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES ------------------------------------------------
None
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT --------------------------------------------------
The information with respect to the identity and business experience of the directors of the Company and their remuneration in the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A and issued in conjunction with the 2001 Annual Meeting of Shareholders, is incorporated herein by reference. The information with respect to the identity and business experience of executive officers of the Company is set forth in Part I of this Form 10-K.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION ----------------------
The information required by this item is incorporated by reference from the Company's definitive Proxy Statement to be issued in conjunction with the 2001 Annual Meeting of Shareholders.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT --------------------------------------------------------------
The information required by this item is incorporated by reference from the Company's definitive Proxy Statement to be issued in conjunction with the 2001 Annual Meeting of Shareholders.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ----------------------------------------------
The information required by this item is incorporated by reference from the Company's definitive Proxy Statement to be issued in conjunction with the 2001 Annual Meeting of Shareholders.
PART IV -------
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8 - K -----------------------------------------------------------------
(a) 1. Financial Statements --------------------
Page ----
Report of Independent Public Accountants Consolidated Balance Sheets as of June 30, 2001 and 2000 Consolidated Statements of Operations for the Years Ended June 30, 2001, 2000, and 1999 Consolidated Statements of Shareholders' Equity for the Years Ended June 30, 2001, 2000, and 1999 Consolidated Statements of Cash Flows for the Years Ended June 30, 2001, 2000, and 1999 Notes to Consolidated Financial Statements
(a) 2. Financial Statement Schedules -----------------------------
Schedule II - Schedule of Valuation and Qualifying Accounts S-1
All other schedules are omitted because they are not applicable, are not required, or because the required information is included in the consolidated financial statements or notes thereto.
(a) 3. Exhibits required to be filed by Item 601 of Regulation S-K -----------------------------------------------------------
Exhibit No. -----------
3.1 Certificate of Incorporation of Registrant, as amended (incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K dated November 30, 1998, File No. 0-29754)
3.2 By-Laws of Registrant, as amended (incorporated by reference to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended December 31, 1998, File No. 0-29754)
4.1 Warrant Agent Agreement (incorporated by reference to Exhibit 4.3 to the Registrant's Registration Statement on Form S-1, Registration No. 333-03613)
4.2 Form of Amendment No. 1 to Warrant Agent Agreement dated June 13, 1997 (incorporated by reference to Exhibit 4.7 to the Registrant's Registration Statement on Form S-1, Registration No. 333-30351)
4.3 Certificate of Designations with respect to the Registrant's Class A Preferred Stock (contained in Exhibit 3.1)
4.4 Certificate of Designations with respect to the Registrant's Class B Preferred Stock (contained in Exhibit 3.1)
4.5 Certificate of Designations with respect to the Registrant's Class C Preferred Stock (contained in Exhibit 3.1)
4.6 Certificate of Designations with respect to the Registrant's Class D Preferred Stock (contained in Exhibit 3.1)
4.7 Certificate of Designations with respect to the Registrant's Class E Preferred Stock (contained in Exhibit 3.1)
10.1 1996 Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended December 31, 1997, File No. 0-29754)
10.2 Restated and Amended Accounts Receivable Management and Security Agreement, dated as of July 13, 1998 by and between GMAC Commercial Credit LLC (successor by merger to BNY Financial Corp.), as Lender, and Target Logistic Services, Inc., as Borrower, and guaranteed by the Registrant ("GMAC Facility Agreement") (incorporated by reference to Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the Fiscal Year Ended June 30, 1999, File No. 0-29754)
10.3 Letter amendment to GMAC Facility Agreement, dated January 25, 2001 (incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended December 31, 2000, File No. 0-29754)
10.4 Loan and Security Agreement dated October 25, 1995 between Amertranz Worldwide, Inc. and TIA, Inc., as amended January 24, 1996 (incorporated by reference to Exhibit 10.5 to the Registrant's Registration Statement on Form S-1, Registration No. 333-03613)
10.5 Form of Amended and Restated Promissory Note of Amertranz Worldwide, Inc. payable to TIA, Inc. in principal amount of $800,000 (incorporated by reference to Exhibit 10.6 to the Registrant's Registration Statement on Form S-1, Registration No. 333-03613)
10.6 Revolving Credit Promissory Note dated February 7, 1996 of Caribbean Air Services, Inc. payable to TIA, Inc. and Caribbean Freight System, Inc. in the principal amount of $4,000,000 (incorporated by reference to Exhibit 10.9 to the Registrant's Registration Statement on Form S-1, Registration No. 333-03613)
10.7 Promissory Note dated February 7, 1996 of Amertranz Worldwide Holding Corp. payable to TIA, Inc. and Caribbean Freight System, Inc. in the principal amount of $10,000,000 (incorporated by reference to Exhibit 10.10 to the Registrant's Registration Statement on Form S-1, Registration No. 333-03613)
10.8 Employment Agreement dated June 24, 1996 between Amertranz Worldwide Holding Corp. and Stuart Hettleman (incorporated by reference to Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the Fiscal Year Ended June 30, 1996, File No. 0-29754)
10.9 Addendum to Employment Agreement effective June 24, 1999 between Target Logistics, Inc. and Stuart Hettleman (incorporated by reference to Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the Fiscal Year Ended June 30, 2000, File No. 0-29754)
10.10 Asset Purchase Agreement dated as of June 15, 1998, by and among Amertranz Worldwide Holding Corp., Caribbean Air Services, Inc., and Geologistics Corporation (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K, dated July 13, 1998, File No. 0-29754)
10.11(P) Lease Agreement for Los Angeles Facility (incorporated by reference to Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for the Year Ended June 30, 1997, File No. 0-29754)
21 Subsidiaries of Amertranz Worldwide Holding Corp. (incorporated by reference to Exhibit 21 to the Registrant's Annual Report on Form 10-K for the Year Ended June 30, 1997, File No. 0-29754)
23 Consent of Arthur Andersen LLP
(b) Reports on Form 8-K -------------------
None.
SIGNATURES ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
TARGET LOGISTICS, INC.
Date: September 25, 2001 By: /s/ Stuart Hettleman --------------------------------- Stuart Hettleman President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ----
/s/ Stuart Hettleman President, Chief Executive September 25, 2001 ---------------------------- Officer and Director Stuart Hettleman
/s/ Michael Barsa Director September 25, 2001 ---------------------------- Michael Barsa
/s/ Brian K. Coventry Director September 25, 2001 ---------------------------- Brian K. Coventry
/s/ Christopher Coppersmith Director September 25, 2001 ---------------------------- Christopher Coppersmith
/s/ Philip J. Dubato Vice President, Chief September 25, 2001 ---------------------------- Financial Officer, Philip J. Dubato Principal Accounting Officer and Director
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Target Logistics, Inc.:
We have audited the accompanying consolidated balance sheets of Target Logistics, Inc. (a Delaware corporation), and subsidiaries as of June 30, 2001 and 2000, and the related consolidated statements of operations, shareholders' equity and cash flows for the three years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Target Logistics, Inc. and subsidiaries as of June 30, 2001 and 2000, and the results of their operations and their cash flows for the years ended June 30, 2001, 2000 and 1999, in conformity with accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedule listed in the index of financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated 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 consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York August 10, 2001
TARGET LOGISTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
In January 1996, Target Logistics, Inc. ("Holding" or the "Company") was incorporated in the state of Delaware. Effective February 7, 1996, Holding concluded an Asset Exchange Agreement (the "Agreement") with TIA, Inc. ("TIA") and Caribbean Freight System, Inc. ("CFS"), among others. As part of this transaction, Holding received the air freight forwarding business of TIA and CFS. Holding then contributed the air freight forwarding business of TIA and CFS to Caribbean Air Services, Inc. ("CAS") in return for all of the issued and outstanding shares of CAS. TIA and CFS received 2,100,000 shares of common stock of the Company and a $10,000,000 promissory note in addition to stock in the Company.
The Company's freight forwarding services involve arranging for the total transport of customers' freight from the shipper's location to the designated recipients, including the preparation of shipping documents and the providing of handling, packing and containerization services. The Company concentrates on cargo shipments weighing more than 50 pounds and generally requiring second-day delivery. The Company also assembles bulk cargo and arranges for insurance. The Company has a network of offices in 31 cities throughout the United States, including exclusive agency relationships in 17 cities. The Company has international freight forwarding operations consisting of strategic relationships in over 20 countries including share ownership in its exclusive agents in China, Hong Kong, Philippines and Singapore. The Company has developed an expertise in material supply logistics to manufacturing concerns, and expanded its facilities and capabilities to accommodate rapid growth in this specialty. Currently, the Company maintains material supply warehouses in Los Angeles and El Paso, and through its agents in Wuxi/China, Penang/Malaysia, and Singapore. Current trends in electronic manufacturing show that this area will continue to rapidly grow worldwide and the Company has established an excellent reputation as a supply chain specialist.
2. DISPOSITION OF ASSETS
On July 13, 1998, the Company's CAS subsidiary sold substantially all of the operating assets of CAS to Geologistics Air Services, Inc., an indirect wholly-owned subsidiary of Geologistics Corporation ("Geologistics"), for approximately $26 million in cash, net of costs (the "CAS Sale"), in accordance with the terms of the Asset Purchase Agreement dated June 15, 1998 (the "Asset Purchase Agreement").
Under the terms of the Asset Purchase Agreement CAS retained its accounts receivable. CAS realized $2.7 million from these accounts receivable after payment of its liabilities during the fiscal year ended June 30, 1999.
Other than with respect to certain obligations pursuant to leases and other agreements included in the assigned assets, Geologistics did not assume any obligations of the Company or CAS.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies of the Company, as summarized below, are in conformity with generally accepted accounting principles. 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.
Principles of Consolidation
For the fiscal years ended June 30, 2001, 2000 and 1999, the consolidated financial statements include the accounts of Holding, Target Logistic Services, Inc. ("Target"), CAS and other inactive subsidiaries. All significant intercompany balances and transactions have been eliminated upon consolidation.
TARGET LOGISTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed under the straight-line method over estimated useful lives ranging from 3 to 8 years. Assets under capital leases are depreciated over the shorter of the estimated useful life of the asset or the lease term. The Company utilizes a half-year convention for assets in the year of acquisition and disposal. Leasehold improvements are amortized using the straight-line method over the shorter of the asset life of the asset or the remaining lease term.
Accounting for Long-Lived Assets
The Company accounts for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement establishes financial accounting and reporting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. Management has performed a review of all long-lived assets and has determined that no impairment of the respective carrying value has occurred as of June 30, 2001.
Goodwill
Goodwill represents the excess of cost over net assets acquired and is amortized on a straight-line basis over 25 years.
Income Taxes
The Company accounts for income taxes under SFAS No. 109, "Accounting for Income Taxes."' Under SFAS No. 109, deferred tax asserts and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets or liabilities of a change in tax rates is recognized in the period that the tax change occurs.
Stock Options
The Company accounts for its employee stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion NO. 25, "Accounting for Stock Issued to Employees," and related interpretations. Compensation expense relating to employee stock options is recorded only if, on the date of grant, the fair value of the underlying stock exceeds the exercise price. The Company adopted the disclosure-only requirements of SFAS No. 123, "Accounting for Stock-Based Compensation," which allows entities to continue to apply the provisions of APB Opinion No. 25 for transactions with employees and provide pro forma net income and pro forma earnings per share disclosures for employee stock options as if the fair value based method of accounting in SFAS No. 123 had been applied to these transactions.
The Company accounts for non-employee stock-based awards in which goods or services are the consideration received for the equity instruments issued based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more readily determinable.
Revenue Recognition
Revenue from freight forwarding is recognized upon delivery of goods, and direct expenses associated with the cost of transportation are accrued concurrently. Ongoing provision is made for doubtful receivables, discounts, returns and allowances.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Per Share Data
In accordance with the requirements of SFAS No. 128, "Earnings per Share", net earnings per common share amounts ("basic EPS") were computed by dividing net earnings after deducting preferred stock dividend requirements, by the weighted average number of common shares outstanding and contingently issuable shares (which satisfy certain conditions) and excluding any potential dilution. Net earnings per common share amounts - assuming dilution ("diluted EPS") were computed by reflecting potential dilution from the exercise of stock options, warrants and convertible preferred. SFAS No. 128 requires the presentation of both basic EPS and diluted EPS on the face of the income statement.
A reconciliation between the numerators and denominators of the basic and diluted EPS computations for net earnings for the year ended June 30, 2001, 2000 and 1999 is as follows:
Options to purchase 570,000, 450,000 and 440,000 shares of common stock for the years ended June 30, 2001, 2000 and 1999, respectively, were not included in the computation of diluted EPS because the exercise prices of those options were greater than the average market price of the common shares, thus they are anti-dilutive. The options were still outstanding at the end of the period.
Warrants to purchase 109,448, 5,183,731 and 5,183,731 shares of common stock for the years ended June 30, 2001, 2000 and 1999, respectively, were not included in the computation of diluted EPS because they were also anti-dilutive.
Derivative Instruments and Hedging Activities
In July 1999, the Financial Accounting Standards Board ("FASB") approved SFAS No. 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective date of FASB Statement No. 133." SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" establishes accounting and reporting standards requiring that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement also requires that changes in the derivative's fair value be recognized in earnings unless specific hedge accounting criteria are met. The adoption of SFAS No. 133 did not have a material effect on the Company's Consolidated Financial Statements.
Fair Value of Financial Instruments
Cash equivalents are reflected at cost which approximate their fair values. The fair value of notes and loans payable outstanding is estimated by discounting the future cash flows using the current rates offered by lenders for similar borrowings with similar credit ratings. The carrying amounts of the accounts receivable and debt approximate their fair value.
Foreign Currency Transactions
In the normal course of business the Company has accounts receivable and accounts payable that are transacted in foreign currencies. The Company accounts for transaction differences, in accordance with Statement of Financial Accounting Standard Number 52, "Foreign Currency Translation", and accounts for the gains or losses in operations. For all periods presented, these amounts were immaterial to the Company's operations.
Reclassifications
Certain amounts in the prior years' consolidated financial statements have been reclassified to conform with the 2001 presentation.
Comprehensive Income
During 1998, the Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for reporting and displaying comprehensive income and its components in a full set of general purpose financial statements. The adoption of this standard has had no impact on the Company's financial statements. Accordingly, the Company's comprehensive net income (loss) is equal to its reported net income (loss) for the years ended June 30, 2001, 2000, and 1999.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") released Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements," which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. Subsequently, the SEC released SAB 101B, which delayed the implementation date of SAB 101 for registrants with fiscal years that begin between December 16, 1999 and March 15, 2000. The Company was required to be in conformity with the provisions of SAB 101, as amended by SAB 101B, no later than October 1, 2000. The adoption of SAB 101, as amended by SAB 101B, did not have a material effect on the Company's consolidated financial position, results of operations or cash flows.
In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44 (FIN. 44), "Accounting for Certain Transactions Involving Stock Compensation, and Interpretation of APB Opinion No. 25." The FIN. 44 is intended to clarify certain problems that have arisen in practice since the issuance of APB No. 25, "Accounting for Stock Issued to Employees." The effective date of the interpretation was July 1, 2000. The provisions of the interpretation apply prospectively, but they will also cover certain events occurring after December 15, 1998 and after January 12, 2000. The adoption of FIN. 44 did not have a material adverse effect on the Company's current or historical consolidated financial statements, but may affect future accounting regarding stock option transactions.
In July 2001, the FASB issued SFAS No. 141 "Business Combinations:" and SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives (but with no maximum life). The amortization provisions of SFAS No. 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the Company is required to adopt SFAS No. 142 as of July 1, 2002. The Company is currently evaluating the effect that adoption of the provisions of SFAS No. 142 that are effective July 1, 2002 will have on its results of operations and financial position.
4. PROPERTY AND EQUIPMENT, NET
(a) Includes accumulated depreciation and amortization of capital lease assets of $386,377 and $203,936 for the year ended June 30, 2001 and 2000, respectively.
5. DEBT
As of June 30, 2001 and 2000, long-term and short-term debt consisted of the following:
During the years ended June 30, 2001 and 2000, the Company's Target subsidiary ("Borrower") maintained an Accounts Receivable Management and Security Agreement with GMAC Commercial Credit LLC ("GMAC") whereby the Borrower can receive advances of up to 85% of the net amounts of eligible accounts receivable outstanding to a maximum of $10,000,000. The credit line ("GMAC Facility") is subject to interest at a rate of 1% and 2.0% per annum over the prevailing prime rate as defined by GMAC (6.75% and 9.5%) as of June 30, 2001 and 2000,
respectively. At June 30, 2001 and 2000, the outstanding balance on the GMAC Facility was $5,679,912 and $4,636,821 which represented 82% and 74% of the approximate $6,967,000 and $6,241,000 available thereunder, respectively. At June 30, 2001, the remaining amount available under the GMAC Facility was approximately $1,287,000. GMAC has a security interest in all present and future accounts receivable, machinery and equipment and other assets of the Borrower and the GMAC Facility is guaranteed by the Company. The GMAC Facility expires on January 14, 2003. In connection with the CAS Sale, the outstanding obligations then due from the Target and CAS subsidiaries under the GMAC Facility were repaid on July 13, 1998 by CAS with the proceeds from the CAS Sale, and CAS acquired a closed subsidiary's portion of the debt.
6. SHAREHOLDERS' EQUITY
Preferred Stock
As of June 30, 2001, the authorized preferred stock of the Company is 2,500,000 shares. As of June 30, 2001, 320,696 shares of preferred stock are outstanding as follows:
(a) Class A Preferred Stock. On July 3, 1996, the Company issued 200,000 shares of Class A, non-voting, cumulative, convertible preferred stock with a par value of $10.00 in exchange for a paydown of $2,000,000 on the $10,000,000 promissory note.
The Class A Preferred Stock will pay cumulative cash dividends at an annual rate of $1.00 per share in cash or, at the option of the Company, in shares of Class A Preferred Stock, at the rate of $10.00 per share. The Company is prohibited from paying any cash dividends on common stock unless all required Class A Preferred Stock dividends have been paid. Each share of Class A Preferred Stock may be converted at any time, at the option of the holder, into common stock at a conversion price (subject to adjustment) of the lower of (i) $6.00 per share, or (ii) 80% of the average of the closing bid and asked price per share of Common Stock on the day prior to the conversion date. Class A Preferred Stock holders are entitled to a liquidation preference of $10.00 per share plus all accrued and unpaid dividends.
On December 31, 1996, June 30, 1997, December 31, 1997 and June 30, 1998, the Company issued 10,000, 10,500, 6,887 and 5,809 respectively, shares of Class A, non-voting, cumulative, convertible preferred stock with a par value of $10.00 representing the semi-annual dividend due the Class A preferred shareholders.
On September 23, 1997, 110,250 shares of Class A Preferred Stock were converted into 1,102,500 shares of the Company's Common Stock.
There were no shares of Class A Preferred Stock converted into the Company's Common Stock during fiscal years ending June 30, 2001 and 2000.
(b) Class C Preferred Stock. On June 13, 1997, the Company issued 257,500 shares of Class C, non-voting, cumulative, convertible preferred stock with a par value of $10.00 upon completion of a $2,575,000 private placement of equity securities to individual investors (the "Private Placement").
The Class C Preferred Stock will pay cumulative cash dividends at an annual rate of $1.00 per share payable the last day of each calendar quarter in cash or, at the option of the Company, in shares of common stock provided a registration statement with respect to the underling shares of common stock is in effect. The Company is prohibited from paying any dividends on common stock or Class A Preferred Stock unless all required Class C Preferred Stock dividends have been paid. Each share of Class C Preferred Stock may be converted at any time, at the option of the holder, into 10 shares of common stock. There were no shares of Class C Preferred Stock converted into the Company's Common Stock during fiscal year ending June 30, 2001 and 2000.
(c) Class D Preferred Stock. On November 28, 1997, the Company acquired from TIA, Inc. $1,000,000 of secured debt of a closed subsidiary in exchange for the issuance of 100,000 shares of the Company's non-voting, cumulative, convertible Class D Preferred Stock, par value $10.00 per share. On December 31, 1997 and June 30, 1998, the Company issued 1,479 and 5,032 respectively, shares of Class D, non-voting, cumulative, convertible preferred stock with a par value of $10.00 representing the semi-annual dividend due the Class D Preferred shareholders. On October 29 and November 1, 1999, 55,000 and 51,511 shares of Class D Preferred Stock, respectively, were converted into 2,582,085 shares of the Company's Common Stock. Therefore, as of November 1, 1999, there are no shares of Class D Preferred Stock outstanding.
(d) Class E Preferred Stock. The Company entered into an Extension and Composition Agreement dated as of November 7, 1997 (the "Composition Agreement") with certain general unsecured trade creditors of a closed subsidiary, whereby $1,581,799 of trade debt of the closed subsidiary was acquired by the Company in exchange for the issuance of 158,180 shares of the Company's non-voting Class E Preferred Stock, par value $10.00 per share. On September 24, 1998 the Company announced the redemption of the Class E Preferred Shares.
Warrants
As of June 30, 2001, the Company had a warrant outstanding to purchase 109,448 shares of common stock at $1.56 per share. This warrant was issued in connection with the CAS Sale. The warrants are exercisable.
On June 28, 2001, warrants to purchase 5,074,283 shares of Common Stock at $6.00 per share expired. These warrants were in connection with (i) the Company's February 1996 and May 1996 bridge financings, whereby the Company issued warrants to purchase 1,386,783 shares of common stock at an exercise price and on terms identical to the warrants issued in the IPO, (ii) with the IPO of July 3, 1996, whereby the Company issued 2,300,000 shares of common stock and 2,300,000 warrants. Each warrant entitled the holder thereof to purchase one share of common stock for $6.00 during the four-year period commencing June 28, 1997, and (iii) with the Private Placement of June 13, 1997, whereby the Company issued 257,500 shares of Class C Preferred Stock and 1,387,500 warrants. Each warrant entitled the holder thereof to purchase one share of common stock for $6.00 during the four-year period commencing June 28, 1997.
Stock Option Plan
In June 1996, the Board of Directors of the Company adopted the Amertranz Worldwide Holding Corp. 1996 Stock Option Plan ("1996 Plan"), which was subsequently approved by shareholders. The 1996 Plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 1,000,000 shares of the Company's common stock to be acquired by the holders of said awards. The awards can take the form of incentive stock options ("ISOs") or nonqualified stock options ("NSOs") and may be granted to key employees, officers, directors and consultants. Any plan participant who is granted an Incentive Stock Option and possesses more than 10% of the voting rights of the Company's outstanding common stock must be granted an option price at least 110% of the fair market value on the date of grant and the option must be exercised within five years from the date of grant. Under the 1996 Plan, stock options have been granted to
employees and directors for terms of up to 10 years at exercise prices ranging from $.10 to $6.00 and are exercisable in whole or in part at stated times from the date of grant up to four years from the date of grant. At June 30, 2001, 259,290 stock options granted to employees and directors were exercisable. The Company accounts for equity-based awards granted to employees and directors under APB Opinion No. 25 under which no compensation cost has been recognized for stock options granted at market value (Note 3). Had compensation cost for these stock options been determined consistent with SFAS No. 123, the Company's net income (loss) and net income (loss) per share would have been increased to the following pro forma amounts:
The effects of applying SFAS No. 123 in the pro forma disclosure are not indicative of future amounts as additional awards in future years are anticipated.
Prior to the adoption of the 1996 Plan, there were 224,399 options granted to purchase common stock at exercise prices ranging from $0.048 to $0.408. These options were granted pursuant to the terms of the Asset Exchange Agreement. At each of June 30, 2001, 2000 and 1999, 6,957 of these options were outstanding and 6,957 were exercisable.
The following table reflects activity under the plan for the three-year period ended June 30, 2001:
The per share weighted average fair value of stock options granted during 2001, 2000 and 1999 was $0.22, $0.72 and $3.96, respectively.
The fair value of each stock option grant is estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:
2001 2000 1999 ---- ---- ---- Risk-Free Interest Rates 4.35% 6.34% 4.67% Expected Lives 5 5 5 Expected Volatility 368.23% 72.28% 77.60% Expected Dividend Yields 0.00% 0.00% 0.00%
The following table summarizes information about stock options outstanding at June 30, 2001:
7. COMMITMENTS AND CONTINGENCIES
Leases
As of June 30, 2001, future minimum lease payments for capital leases and operating leases relating to equipment and rental premises are as follows:
Employment Agreements
The Company has employment agreements with certain employees expiring at various times through July 2002. Such agreements provide for minimum salary levels and for incentive bonuses which are payable if specified management goals are attained. The aggregate commitment for future salaries at June 30, 2001, excluding bonuses, was approximately $630,093.
Litigation
The Company, from time to time, becomes involved in various routine legal proceedings in the ordinary course of its business. The Company believes that the outcome of all pending legal proceedings and unasserted claims in the aggregate will not have a material adverse effect on its consolidated results of operations, consolidated financial position or liquidity.
8. SEGMENT INFORMATION
The Company's revenue includes both domestic and international freight movements. Domestic freight movements originate and terminate within the United States, and never leave the United States. International freight movements are either exports from the United States or imports to the United States. With regard to international freight movements, the account receivable can be due from either a domestic debtor or from one of the Company's Target subsidiary's international agents (an international debtor).
A reconciliation of the Company's domestic and international segment revenues, gross profit, and accounts receivable for the years ended June 30, 2001, 2000 and 1999 is as follows:
9. QUARTERLY FINANCIAL DATA SCHEDULE (unaudited)
10. INCOME TAXES
The Company utilized approximately $14,300,000 of net operating losses to offset its regular taxable income for the year ended June 30, 1999. The Company has tax net operating loss carryforwards of approximately $12.2 million, which are available to offset future regular taxable income. The losses expire from 2011 through 2021. Some of the losses are limited to annual maximum amounts, due to a prior ownership change, as defined in regulations under Section 382 of the Internal Revenue Code.
The components of current and deferred income tax expense (benefit) are as follows:
A reconciliation of income taxes between the statutory and effective tax rates on income before income taxes is as follows:
The components of deferred income taxes are as follows:
SCHEDULE II
S-1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statements on Form S-3, File No. 333-30351 and File No. 333-03613, and Registration Statement on Form S-8, File No. 333-71197.
ARTHUR ANDERSEN LLP
New York, New York September 28, 2001