UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-29754
TARGET LOGISTICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-3309110
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
112 East 25th Street
Baltimore, Maryland 21218
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 338-0127
Inapplicable
(Former name, former address and former fiscal year if changed
from last report.)
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
At November 12, 1999, the number of shares outstanding of the registrant's
common stock was 11,879,002.
<PAGE>
TABLE OF CONTENTS
Part I - Financial Information Page
----
Item 1. Financial Statements:
-------
Consolidated Balance Sheets,
September 30, 1999 (unaudited) and June 30, 1999 (audited) 3
Consolidated Statements of Operations
for the Three Months Ended
September 30, 1999 and 1998 (unaudited) 4
Consolidated Statements of Shareholders'
Equity for the Year Ended June 30, 1999
(audited) and the Three Months Ended
September 30, 1999 (unaudited) 5
Consolidated Statements of Cash Flows
for the Three Months Ended September 30,
1999 and 1998 (unaudited) 6
Notes to Unaudited Consolidated Financial
Statements 8
Item 2. Management's Discussion and Analysis of
------- Financial Condition and Results of Operations 10
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 13
-------
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
<TABLE>
<CAPTION>
TARGET LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1999 June 30, 1999
------------------ -------------
ASSETS (unaudited)
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,567,754 $ 7,881,595
Accounts receivable, net of allowance for doubtful
accounts of $1,421,852 and $1,318,109, respectively 13,882,903 10,853,316
Deferred income taxes 2,213,575 2,080,105
Prepaid expenses and other current assets 226,899 152,940
------------ ------------
Total current assets 22,891,131 20,967,956
PROPERTY AND EQUIPMENT, net 430,309 473,398
OTHER ASSETS 278,382 278,382
DEFERRED INCOME TAXES 184,895 184,895
GOODWILL, net of accumulated amortization of
$2,076,471 and $1,927,504, respectively 12,878,553 13,027,520
------------ ------------
Total assets $ 36,663,270 $ 34,932,151
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,131,311 $ 4,413,792
Accrued expenses 2,095,613 2,360,211
Accrued transportation expenses 7,415,779 6,745,613
Taxes payable 77,245 77,245
Reserve for restructuring -- 21,567
Note payable to bank 3,416,254 1,349,978
Current portion of long-term debt -- 10,500
Dividends payable 55,436 168,680
Lease obligation-current portion 99,361 103,385
------------ ------------
Total current liabilities 17,290,999 15,250,971
LEASE OBLIGATION--LONG-TERM 3,449 24,116
------------ ------------
Total liabilities $ 17,294,448 $ 15,275,087
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred Stock, $10 par value; 2,500,000 shares authorized,
427,207 shares issued and outstanding, 4,272,070 4,272,070
Common stock, $.01 par value; 15,000,000 shares authorized,
10,031,868 shares issued and 9,296,917 and 9,192,013 shares
outstanding, respectively 100,318 100,318
Paid-in capital 22,865,959 22,877,209
Accumulated deficit (7,224,720) (6,937,598)
Less: Treasury stock, 734,951 and 839,855 shares held at
cost, respectively (644,805) (654,935)
------------ ------------
Total shareholders' equity 19,368,822 19,657,064
------------ ------------
Total liabilities and shareholders' equity $ 36,663,270 $ 34,932,151
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
3
<PAGE>
<TABLE>
<CAPTION>
TARGET LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended September 30,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Operating revenues:
Operating revenues - Target subsidiary $19,076,518 $9,650,938
Operating revenues - CAS subsidiary --- 1,585,776
----------- ---------
Operating revenues 19,076,518 11,236,714
Cost of transportation:
Cost of transportation - Target subsidiary 12,839,308 6,185,857
Cost of transportation - CAS subsidiary --- 1,319,730
----------- ----------
Cost of transportation 12,839,308 7,505,587
Gross profit:
Gross profit - Target subsidiary 6,237,210 3,465,081
Gross profit - CAS subsidiary --- 266,046
----------- ----------
Gross profit 6,237,210 3,731,127
Selling, general and administrative expenses ("SG&A"):
Exclusive Forwarder Commissions - Target subsidiary 2,916,867 817,525
SG&A - Target subsidiary 3,346,275 2,704,809
SG&A - CAS subsidiary --- 428,347
SG&A - Corporate 127,097 840,476
Depreciation and amortization 243,471 195,475
----------- ----------
Selling, general and administrative expenses 6,633,710 4,986,632
Other income (expense):
Interest income (expense) 25,751 (45,518)
Other income (expense) --- (120,926)
Gain on sale of subsidiary --- 24,832,353
----------- ----------
(Loss) income before income taxes (370,749) 23,743,292
Provision (benefit) for income taxes (133,470) 8,955,572
---------- ----------
Net (loss) income $ (237,279) $14,787,720
========== ===========
Net loss per share:
Basic ($0.03) $1.74
====== =====
Diluted(1) --- $0.96
========= =====
Weighted average shares outstanding:
Basic 9,299,917 8,458,877
=========== ==========
Diluted(1) --- 15,356,794
=========== ==========
<FN>
(1) Diluted loss per share for the three months ended September 30, 1999 is anti-dilutive.
</FN>
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
4
<PAGE>
TARGET LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1999 AND THE
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-in Treasury Stock Accumulated
Shares Amount Shares Amount Capital Shares Amount Deficit Total
------ ------ ------ ------ ------- ------ ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1998 621,387 $6,213,870 8,419,094 $84,190 $22,546,331 (106,304) ($11,250)($20,509,373) $8,323,768
Common stock issued in connection
with the conversion of Class C
Preferred Stock (36,000) (360,000) 360,000 3,600 356,400 - - - 0
Stock Options exercised - - 174,852 1,749 62,256 - - - 64,005
Cash dividends associated with the
Class A, C and D Preferred Stock - - - - - - - (444,661) (444,661)
Redemption of Class E
Preferred Stock (158,180)(1,581,800) - - - - - - (1,581,800)
Purchase of Treasury Stock - - - - - (733,551) (643,685) - (643,685)
Additional Common Stock issued
in connection with the acquisition
of Target - - 1,077,922 10,779 (87,778) - - - (76,999)
Net income - - - - - - - 14,016,436 14,016,436
-------- ---------- ---------- ------- --------- ------- --------- ----------- ----------
Balance, June 30, 1999 427,207 $4,272,070 10,031,868$100,318 $22,877,209 (839,855)($654,935) ($6,937,598)$19,657,064
Cash dividends associated with the
Class A, C and D Preferred Stock - - - - - - - (49,843) (49,843)
Purchase of Treasury Stock, at cost - - - - - (1,400) (1,120) - (1,120)
Treasury Stock retired, at cost - - - - (11,250) 106,304 11,250 - -
Net loss - - - - - - - (237,279) (237,279)
------- ---------- --------- ------- ----------- ------- -------- ----------- ----------
Balance, September 30, 1999 427,207 $4,272,070 10,031,868$100,318 $22,865,959 (734,951)($644,805) ($7,224,720)$19,368,822
======= ========== ================== =========== ========= ======== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
TARGET LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ (237,279) $14,787,720
Bad debt expense 103,743 11,359
Depreciation and amortization 243,471 195,476
Gain on CAS sale --- (24,832,353)
Deferred income tax benefit (133,470) 7,705,092
Adjustments to reconcile net income to net cash used in operating activities-
(Increase) decrease in accounts receivable (3,133,330) 5,860,516
(Increase) decrease in prepaid expenses and other current assets (73,959) 62,626
(Increase) in other assets --- (103,084)
(Increase) decrease in accounts payable and accrued expenses 76,090 (3,998,577)
------------ -----------
Net cash used in operating activities (3,154,734) (311,225)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (25,984) (375,227)
Purchase of treasury stock (1,120) ---
Proceeds from CAS sale, net of closing costs --- 25,762,397
------------ -----------
Net cash (used in) provided by investing activities (27,104) 25,387,170
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (163,088) (117,524)
Net borrowing (repayment) from note payable to bank 2,066,276 (6,011,575)
(Repayment) of long-term debt due to affiliates --- (7,332,426)
Repayment of long-term debt (10,500) (12,500)
Repayment of revolving loan due to affiliate --- (905,913)
Payment of lease obligations (24,691) (21,918)
------------ -----------
Net cash provided by (used in) financing activities: 1,867,997 (14,401,556)
------------ -----------
Net (decrease) increase in cash and cash equivalents ($1,313,841) $10,674,389
CASH AND CASH EQUIVALENTS, beginning of the period 7,881,595 879,797
------------ -----------
CASH AND CASH EQUIVALENTS, end of the period $ 6,567,754 $11,554,186
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for:
Interest $ 53,176 $ 41,741
Income taxes $ 915 $ 107,387
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
6
<PAGE>
TARGET LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
<TABLE>
<CAPTION>
Three Months Ended September 30,
1999 1998
---- ----
<S> <C> <C> <C>
Redemption of 158,180 Class E Preferred Shares $ --- $(1,581,800)
Conversion of 6,000 Class C Preferred Shares $ --- $ (60,000)
Issuance of Common Stock for Conversion of 6,000
Class C Preferred Shares $ --- $ 60
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
7
<PAGE>
TARGET LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Notes to Unaudited Consolidated Financial Statements
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions for Form 10-Q and Regulation S-X related to
interim period financial statements and, therefore, do not include all
information and footnotes required by generally accepted accounting principles.
However, in the opinion of management, all adjustments (consisting of normal
recurring adjustments and accruals) considered necessary for a fair presentation
of the consolidated financial position of the Company and its subsidiaries at
September 30, 1999 and their consolidated results of operations and cash flows
for the three months ended September 30, 1999 have been included. The results of
operations for the interim periods are not necessarily indicative of the results
that may be expected for the entire year. Reference should be made to the annual
financial statements, including footnotes thereto, included in the Target
Logistics, Inc. (the "Company") Form 10-K for the year ended June 30, 1999.
Note 2 - Reclassifications
Exclusive forwarder commission expense (previously referred to as agent
commission expense) was reported within cost of transportation in the prior
years' consolidated financial statements. Exclusive forwarder commission expense
is now reported within selling, general and administrative expense. The prior
year has been reclassified to conform with the current year presentation.
Note 3 - 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.
SFAS No. 128 requires the presentation of both basic EPS and diluted EPS on the
face of the income statement.
9
<PAGE>
TARGET LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation between the numerators and denominators of the basic and
diluted EPS computations for net earnings for the three months ended September
30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
---------------------------------- ----------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amounts (Numerator) (Denominator) Amounts
----------- ------------- ------- ----------- ------------- -------
<S> <C> <C>
Net earnings ($237,279) $14,787,720
Preferred stock dividends (49,843) (59,736)
-------- -----------
BASIC EPS
Net earnings attributable to
common stock ($287,122) 9,299,917 ($0.03) $14,727,984 8,458,877 $1.74
====== =====
EFFECT OF DILUTIVE SECURITIES(1)
Convertible Preferred Stock 6,041,083 6,716,108
Stock options 6,484 181,809
Stock warrants 0 0
--------- ---------
DILUTED EPS(1)
Net earnings attributable to common
stock and assumed preferred
conversions and option exercises ($237,279) 9,299,917 ($0.03) $14,787,720 15,356,794 $0.96
========= ========= ====== =========== ========== =====
</TABLE>
Options to purchase 440,000 and 225,800 shares of common stock for the three
months ended September 30, 1999 and 1998, respectively, were not included in the
computation of diluted EPS because the exercise price 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.
(1) No diluted EPS is presented for the three months ended September 30, 1999,
as the effect of dilutive securities would be anti-dilutive on loss per common
share.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q contains certain forward-looking
statements reflecting the Company's current expectations with respect to its
operations, performance, financial condition, and other developments. Such
statements are necessarily estimates reflecting the Company's best judgement
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 profitability following the July 1998
sale by the Company of the assets of its Caribbean Air Services, Inc. ("CAS")
subsidiary (the "CAS Sale"), (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. 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 was incorporated in January 1996 to continue the freight
forwarding business of TIA, Inc. ("TIA") and Caribbean Freight System, Inc. and
acquire Amertranz Worldwide, Inc. ("Amertranz"). The Company generated operating
revenues of $51.7 million, $97.8 million, and $75.4 million, and had a net
profit of $14.0 million and $7.4 million, and a net loss of $10.5 million for
the fiscal years ended June 30, 1999, 1998 and 1997, respectively. The fiscal
year 1999 profit includes a $16.6 million gain (net of tax) arising from the CAS
sale which closed on July 13, 1998, the 1998 profit includes a $7.6 million net
income tax benefit arising from the CAS Sale and the fiscal year 1997 loss
included a charge of $3.4 million attributed to restructuring costs in
connection with the closing of the Company's Amertranz subsidiary. The Company
had consolidated earnings (losses) before interest, taxes, depreciation and
amortization (EBITDA) of approximately $22.0 million, $2.6 million, and ($8.3
million), for the fiscal years ended June 30, 1999, 1998 and 1997, respectively.
* Following the closing of the Amertranz subsidiary in June 1997, the
Company determined that it would be in the best interests of the Company and its
shareholders to deleverage the Company's balance sheet and create the cash
resources needed to grow the Company's freight forwarding and logistics
businesses. While the Company's CAS subsidiary has been historically profitable,
management determined that this strategy can best be accomplished by the sale of
the operations of its CAS subsidiary. On July 13, 1998, the Company's CAS
subsidiary sold substantially all of its operating assets to a subsidiary of
Geologistics Corporation for $27 million in cash pursuant to the terms of an
Asset Purchase Agreement dated June 15, 1998. As a result of the CAS Sale, the
Company deleveraged its balance sheet by repaying approximately $15 million in
outstanding liabilities and obtained required working capital to take advantage
of growth opportunities available to the Company's Target Logistic Services,
Inc. subsidiary ("Target"). These opportunities include improved vendor pricing
and attracting quality personnel and agents on a world-wide basis, which the
Company believes will drive its future profitability. In addition, the Company
may consider strategic acquisitions. There can be no assurance that this
strategy to increase profitability will be successful.
* Management believes that the results of the Company's operations for
the three months ended September 30, 1999 indicate that management's
concentrated focus on Target's business together with the Company's available
resources following the CAS Sale will enable the Company to achieve the intended
growth. For the three months ended September 30, 1999, Target's revenue
increased by 97.7% to $19,076,518. While gross profit margin (i.e., gross
operating revenues less cost of transportation expressed as a percentage of
gross operating revenue) decreased to 32.7% from 35.9% from the three months
ended September 30, 1998, this was primarily a result of lower gross profit
margins for Target's international air and ocean freight movement. Management
intends to continue to work on improving Target's gross profit margins while
focusing on increasing operating revenue by adding quality sales personnel and
10
<PAGE>
exclusive forwarders (previously referred to as independent agents) and reducing
fixed selling, general and administrative costs to improve the Company's net
income.
RESULTS OF OPERATIONS
The following discussion relates to the combined results of operation
of the Company for the three month period ended September 30, 1999, compared to
results of operation for the three month period ended September 30, 1998.
Three Months ended September 30, 1999 and 1998
Operating Revenue. Operating revenue increased to $19.1 million for the
three months ended September 30, 1999 from $11.2 million for the three months
ended September 30, 1998, a 69.8% 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
97.7% to $19,076,518 for the three months ended September 30, 1999 from
$9,650,938 for the corresponding 1998 period, a $9,425,580 increase, due to
increased freight volume.
Cost of Transportation. Cost of transportation was 67.3% of operating
revenue for the three months ended September 30, 1999, and 64.1% of operating
revenue for the three months ended September 30, 1998. 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 67.3% for the current period from 64.1% for the prior
year, primarily a result of lower gross profit margins for Target's
international air and ocean freight movement.
Gross Profit. As a result of the factors described in the previous
paragraph, gross profit for the three months ended September 30, 1999 decreased
to 32.7% of operating revenue from 33.2% of operating revenue for the three
months ended September 30, 1998. Within the Company's Target subsidiary, gross
profit margin decreased to 32.7% from 35.9% for the three months ended September
30, 1999 and 1998, respectively.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to 34.8% of operating revenue for the three
months ended September 30, 1999, from 44.4% of operating revenue for the three
months ended September 30, 1998. 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; (ii) the elimination of CAS expenses as a result of the CAS Sale;
and (iii) non-recurring expenses of $619,015 in the 1998 period (reflected
within "Selling, general and administrative expenses - Corporate") as a result
of the CAS Sale.
Within the Company's Target subsidiary, selling, general and
administrative expenses (excluding exclusive forwarder commission expense) were
17.5% of operating revenue for the three months ended September 30, 1999 and
28.0% for the period ended September 30, 1998, a 37.5% decrease. Exclusive
forwarder commission expense was 15.3% of operating revenue for the three months
ended September 30, 1999 and 8.5% for the period ended September 30, 1998. This
increase is due to the Company's addition of new exclusive forwarders.
Net Income. The Company realized a net loss of ($237,279) for the three
months ended September 30, 1999, compared to a net income of $14,787,720 for the
three months ended September 30, 1998. The 1998 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 three months ended September 30, 1999, net cash
used in operating activities was $3,155,000. Cash used in investing activities
was $27,000. Cash provided by financing activities was $1,868,000, which
primarily consisted of borrowings under the Company's accounts receivable
financing facility.
11
<PAGE>
Currently, approximately $1.7 million of the Company's outstanding
accounts payable represent unsecured trade payables of the Company's closed
Amertranz subsidiary.
Capital expenditures. Capital expenditures for the three months ended
September 30, 1999 were $25,984.
* 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 September 30,
1999, the Company had $3,803,000 available under its $10 million accounts
receivable financing facility and approximately $6,568,000 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
for the long and short term. However, the Company's actual working capital needs
for the long and short terms will depend upon numerous factors, including the
Company's operating results, the cost of increasing the Company's sales and
marketing activities, and competition, none of which can be predicted with
certainty.
YEAR 2000
The Company is on schedule with a project that addresses the Year 2000
(Y2K) issue of computer systems and other equipment with embedded chips or
processors not being able to properly recognize and process date-sensitive
information after December 31, 1999. Many systems use only two digits rather
than four to define the year, and these systems will not be able to distinguish
between the year 1900 and the year 2000. This may lead to disruptions in the
operations of business and governmental entities resulting from miscalculations
or system failures. The Company's Y2K project is designed to ensure the
compliance of all of the Company's applications, operating system and hardware
platforms, and to address the compliance of key business partners. Key business
partners are those customers and vendors that have a material impact on the
Company's operations. All internal phases of the project and phases dealing with
many key business partners have been completed, and the phases dealing with the
remaining key business partners should be completed by 1999 year end, thus
minimizing the impact of the Y2K problem on the Company's operations. The total
cost of the required modifications to become Y2K compliant is not material to
the Company's financial position. Y2K disruptions in the operations of key
vendors could impact the Company's ability to obtain transportation services
necessary for the Company's operations. If this situation occurs, the Company's
results of operations, liquidity and financial condition could be materially and
adversely affected. The Company is unable to determine the readiness of some of
its key business partners at this time and is therefore unable to determine
whether the consequences of Y2K failures of these key business partners will
have a material impact on the Company's results of operations, liquidity or
financial condition.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
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
Year Ended June 30, 1999, File No. 0-29754)
10.3 Shadow Warrant entered into in connection with the GMAC Facility
Agreement (incorporated by reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter Ended March
31, 1997, File No. 0-29754)
10.4 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)
10.5(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)
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 12, 1999 TARGET LOGISTICS, INC.
Registrant
/s/ Stuart Hettleman
---------------------------------------
President, Chief Executive Officer
/s/ Philip J. Dubato
---------------------------------------
Vice President, Chief Financial Officer
C79876.198
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements as of and for the period ended June 30, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001009480
<NAME> TARGET LOGISTICS INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 6,568
<SECURITIES> 0
<RECEIVABLES> 15,305
<ALLOWANCES> 1,422
<INVENTORY> 0
<CURRENT-ASSETS> 22,891
<PP&E> 1,459
<DEPRECIATION> 1,028
<TOTAL-ASSETS> 36,663
<CURRENT-LIABILITIES> 17,291
<BONDS> 0
0
4,272
<COMMON> 100
<OTHER-SE> 14,996
<TOTAL-LIABILITY-AND-EQUITY> 36,663
<SALES> 19,077
<TOTAL-REVENUES> 19,077
<CGS> 12,839
<TOTAL-COSTS> 19,473
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (26)
<INCOME-PRETAX> (371)
<INCOME-TAX> (133)
<INCOME-CONTINUING> (237)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (237)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.02)
</TABLE>
