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1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended June 30, 2000 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from to ------------ ----------------.
Commission file number: 0-29754
TARGET LOGISTICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-3309110
--------------------------------- -----------------------
(State or other jurisdiction (I.R.S. Employer
of 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
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of Each Exchange on Which Registered
None None
-------------- ------------------
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
--------------
Common Stock, $.01 par value
Redeemable Common Stock Purchase Warrants
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 20, 2000 was $1,599,986.
The number of shares of common stock outstanding as of September 20, 2000 was
11,879,002
DOCUMENTS INCORPORATED BY REFERENCE
To the extent specified, Part III of this Form 10-K incorporates information by
reference to the Registrant's definitive proxy statement for its 2000 Annual
Meeting of Shareholders (to be filed).
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2
TARGET LOGISTICS, INC.
2000 ANNUAL REPORT ON FORM 10-K
Table of Contents
Page
PART I
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
Executive Officers of the Registrant 6
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 8
Item 7A. Quantitative and Qualitative Disclosures About Market Risks 11
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures 11
PART III
Item 10. Directors and Executive Officers of the Registrant 12
Item 11. Executive Compensation 12
Item 12. Security Ownership of Certain Beneficial Owners
and Management 12
Item 13. Certain Relationships and Related Transactions 12
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 13
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3
PART I
------
ITEM 1. BUSINESS
--------
Background
----------
Target Logistics, Inc., formerly, Amertranz Worldwide Holding Corp.,
("Company") provides freight forwarding services and logistics services, through
its wholly owned subsidiary, Target Logistic Services, Inc. (formerly, Target
Airfreight, 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 29 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 29 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 grow rapidly 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
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4
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, 2000, the Company's international freight
forwarding accounted for 33.3% 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, 2000, the Company had
approximately 3,300 accounts.
The Company markets its services through an organization of
approximately 12 full-time salespersons and 28 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
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5
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 195 full-time
employees as of June 30, 2000. 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. PROPERTIES
----------
As of June 30, 2000, the Company leased terminal facilities consisting
of office and warehouse space in 12 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 11 terminal facilities in the following locations:
Atlanta, Georgia Houston, Texas
Charlotte, North Carolina Miami, Florida
Chicago, Illinois Newark, New Jersey
Dallas, Texas New York, New York
El Paso, Texas Seattle, Washington
Greensboro, North Carolina
ITEM 3. LEGAL PROCEEDINGS
-----------------
There are no material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
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6
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
The following is a listing of the executive officers of the Company as
of June 30, 2000. There are no family relationships between any Directors and
Officers of the Company.
NAME AGE POSITION
---- --- --------
Stuart Hettleman.................. 50 President and Chief Executive
Officer
Philip J. Dubato.................. 44 Vice President, Chief Financial
Officer and Secretary
Christopher Coppersmith........... 50 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. Mr. Hettleman
is also an executive officer of several of the Company's predecessors.
Specifically, he has been Vice President since 1990, and is currently the
Executive Vice President, of TIA, Inc.; and has been Vice President since 1991,
and is currently Executive Vice President, of Caribbean Freight System, Inc.
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.
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7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
Prior to December 4, 1998, the Company's common stock, $.01 par value
(the "Common Stock") and Redeemable Common Stock Purchase Warrants (the
"Warrants") were traded on the Over-The-Counter (OTC) market under the symbols
AMTZ and AMTZW, respectively. Since December 4, 1998, as a result of the name
change, the Common Stock and the Warrants have been traded on the OTC market
under the symbols TARG and TARGW, respectively.
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 reported by NASDAQ and 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.
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year Ended June 30, 1999
First Quarter High - 1 7/8 High - 1/8
Low - 11/16 Low - 3/100
Second Quarter High - 1 7/8 High - 2/25
Low - 1/2 Low - 1/100
Third Quarter High - 1 5/8 High - 1/10
Low - 9/16 Low - 1/100
Fourth Quarter High - 1 1/8 High - 1/16
Low - 35/50 Low - 1/50
Fiscal Year Ended June 30, 2000
First Quarter High - 7/8 High - 1/25
Low - 3/50 Low - 0
Second Quarter High - 7/10 High - 1/50
Low - 45/100 Low - 0
Third Quarter High - 7/8 High - 1/25
Low - 1/2 Low - 0
Fourth Quarter High - 13/16 High - 1/50
Low - 13/32 Low - 0
</TABLE>
On September 20, 2000 there were 756 shareholders of record of the
Company's Common Stock and 649 holders of record of the Company's Warrants. The
closing price of the Common Stock on that date was $0.37 per share. The closing
price of the Warrants on that date was $0.005 per Warrant.
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8
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
TARGET LOGISTICS, INC.
(in thousands, except per share data)
<CAPTION>
Six Months
Ended June 30 Year Ended June 30,
---------------- ------------------------------------------------------
1996 1997 1998 1999 2000
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Operating Revenue $ 27,446 $ 75,352 $ 97,784 $ 51,720 $ 84,088
Cost of transportation 20,961 56,884 73,599 34,790 56,949
------ ------ ------ ------ ------
Gross profit 6,485 18,468 24,185 16,930 27,139
Selling, general & administrative
expenses 8,772 24,300 23,012 21,304 28,183
Restructuring charge - (3,407) - - -
Operating income (loss) $ (2,288) $ (9,239) $ 1,173 $ (4,374) $ (1,044)
Gain on sale of subsidiary - - - 24,832 -
Net income (loss) $ (6,397) $(10,508) $ 7,404 $ 14,016 $ (1,197)
Net income (loss) per common share $ (1.84) $ (1.74) $ 0.90 $ 1.63 $ (0.14)
Balance Sheet Data:
Total assets $ 22,740 $ 29,821 $ 38,547 $ 34,932 $ 36,669
Working capital (deficit) (13,937) (12,541) (2,340) 5,717 4,735
Current liabilities 22,470 27,158 26,085 15,251 18,474
Long-term indebtedness 8,018 4,094 4,138 24 92
Shareholders' equity (deficit) $ (7,749) $ (1,430) $ 8,324 $ 19,657 $ 18,102
</TABLE>
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. 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 $84.1 million, $51.7
million, and $97.8 million, and had a net loss of $1,197,000 and a net profit of
$14.0 million and $7.4 million for the fiscal years ended June 30, 2000, 1999,
and 1998, 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) earnings before interest, taxes, depreciation
and amortization (EBITDA) of approximately ($55,000), $22.0 million, and $2.6
million, for the fiscal years ended June 30, 2000, 1999, and 1998, respectively.
(As stated above, the fiscal 1999 and 1998 results include gains and benefits
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9
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.
* In the fall of 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 business. 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 subsidiary. 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 fiscal year ended June 30, 2000 indicate that management's concentrated
focus on Target's business together with the Company's available resources will
enable the Company to achieve the intended growth. For the year ended June 30,
2000, Target's revenue increased by 67.7% to $84,088,195. While Target's gross
profit margin (i.e., gross operating revenue less cost of transportation
expressed as a percentage of gross operating revenue) decreased to 32.3% from
33.3% from the corresponding period of 1999, this decrease is primarily a result
of higher fuel costs and lower gross profit margins for Target's international
air import 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 exclusive forwarders (previously referred to
as independent agents) and reducing fixed selling, general and administrative
costs to restore the Company's net income.
Results of Operations
---------------------
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,
<PAGE>
10
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 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.
Years Ended June 30, 1999 and 1998
Operating Revenue. Operating revenue decreased to $51.7 million for the
year ended June 30, 1999 from $97.9 million for the year ended June 30, 1998, a
47.1% decrease. This decrease resulted from the inclusion of CAS's operating
revenue for the full 1998 period but only for 12 days of the 1999 period due to
the CAS Sale on July 13, 1998. Within the operations of the Company's Target
subsidiary operating revenue increased by 15.7% to $50,156,285 for the year
ended June 30, 1999 from $43,351,754 for the year ended June 30, 1998, a
$6,804,531 increase, due to increased freight volume.
Cost of Transportation. Cost of transportation was 67.3% of operating
revenue for the year ended June 30, 1999, and 75.3% of operating revenue for the
year ended June 30, 1998. This decrease is due to (i) a reduction in the Target
subsidiary's cost of transportation as a percentage of sales (66.7% for the 1999
period, from 70.7% for the 1998 period), and (ii) the historically higher cost
of transportation for the Company's CAS subsidiary (the assets of which were
sold on July 13, 1998) than the Company's Target subsidiary.
Gross Profit. As a result of the factors described in the previous
paragraph, gross profit for the year ended June 30, 1999 increased to 32.7% of
operating revenue from 24.7% of operating revenue for the year ended June 30,
1998.
Within the Company's Target subsidiary, gross profit margin increased
to 33.3% from 29.3% for the years ended June 30, 1999 and 1998, respectively.
This increase in gross profit margin accounts for approximately $2,006,000 of
Target's gross profit for the year ended June 30, 1999. Target's actual gross
profit increased by 31.9%, or $4,043,474, to $16,725,039 for the year ended June
30, 1999 from $12,681,565 for the year June 30, 1998.
Selling, General and Administrative Expenses. Selling general and
administrative expenses were 41.2% of operating revenue (39.7% excluding
non-recurring expenses explained in (iii) and (iv), below) for the year ended
June 30, 1999, and 23.5% of operating revenue for the year ended June 30, 1998.
This increase was primarily due to (i) an increase in exclusive forwarder
commission expense due to the Company's addition of new exclusive forwarders;
(ii) the historically lower selling, general and administrative expenses as a
percentage of sales for the CAS subsidiary than the Target subsidiary; (iii)
non-recurring expenses of $244,943 incurred in the 1999 period to wind down the
Company's CAS subsidiary (primarily, the collection of accounts receivable and
payment of accounts payable); and (iv) the non-recurring accrual in the 1999
period (reflected within "Selling, general and administrative expenses -
Corporate") of executive bonus compensation of $537,820 primarily as a result of
the CAS Sale.
Within the Company's Target subsidiary, selling, general and
administrative expenses (excluding agent commission expense) were 24.8% of
operating revenue for the year ended June 30, 1999 and 26.4% for the year ended
June 30, 1998, a 6.1% decrease. Exclusive forwarder commission expense was 11.8%
of operating revenue for the year ended June 30, 1999 and 7.1% for the year
ended June 30, 1998. This increase is due to the Company's addition of new
exclusive forwarders.
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11
Net Income. The Company realized net income of $14,016,436 for the year
ended June 30, 1999, compared to a net income of $7,403,643 for the year ended
June 30, 1998. This increase was due to the CAS Sale.
Liquidity and Capital Resources
-------------------------------
General. During the year ended June 30, 2000, net cash used in
operating activities was $4,309,612. Cash used in investing activities was
$435,787. Cash provided by financing activities was $2,918,908, 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, 2000 were $435,787.
GMAC Facility. During the year ended June 30, 2000, 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 2%. 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,
2000, there were outstanding borrowings of $4,636,821 under the GMAC Facility
which represented 74% of the amount available thereunder, and the amount
available for borrowing under the GMAC Facility was approximately $6,241,000.
* 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, 2000,
the Company had $1,603,993 available under its $10 million accounts receivable
financing facility and approximately $6,055,000 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 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. 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 2%. 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, 2000, an aggregate principal amount of $4,636,821 was outstanding under the
GMAC Facility bearing interest at an annual rate of 11.5%. 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 $23,184 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. 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. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
-----------------------------------------------------------
AND FINANCIAL DISCLOSURES
-------------------------
None
<PAGE>
12
PART III
--------
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 2000 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. 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 2000
Annual Meeting of Shareholders.
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 2000
Annual Meeting of Shareholders.
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 2000
Annual Meeting of Shareholders.
<PAGE>
13
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
-----------------------------------------------------------------
(a) 1. Financial Statements
Page
----
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of June 30, 2000 and 1999 F-2
Consolidated Statements of Operations for the Years Ended
June 30, 2000, 1999, and 1998 F-3
Consolidated Statements of Shareholders' Deficit for the Years Ended
June 30, 2000, 1999, and 1998 F-4
Consolidated Statements of Cash Flows for the Years Ended
June 30, 2000, 1999, and 1998 F-6
Notes to Consolidated Financial Statements F-8
(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")
10.3 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)
10.4 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)
<PAGE>
14
10.5 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)
10.6 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)
10.7 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)
10.8 Addendum to Employment Agreement effective June 24, 1999 between Target
Logistics, Inc. and Stuart Hettleman
10.9 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)
10.10(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
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
None.
<PAGE>
15
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 28, 2000 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 28, 2000
--------------------------- Officer and Director
Stuart Hettleman
/s/ Michael Barsa Director September 28, 2000
---------------------------
Michael Barsa
/s/ Brian K. Coventry Director September 28, 2000
---------------------------
Brian K. Coventry
Director September __, 2000
---------------------------
Christopher Coppersmith
/s/ Philip J. Dubato Vice President, Chief September 28, 2000
--------------------------- Financial Officer,
Philip J. Dubato Principal Accounting Officer
and Director
<PAGE>
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Target Logistics, Inc. (formerly Amertranz Worldwide Holding Corp.):
We have audited the accompanying consolidated balance sheets of Target
Logistics, Inc. (formerly Amertranz Worldwide Holding Corp.), (a Delaware
corporation), and subsidiaries as of June 30, 2000 and 1999, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years ended June 30, 2000, 1999, and 1998. 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, 2000, 1999 and 1998, and the results of
their operations and their cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States applied on a
consistent basis.
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
September 6, 2000
<PAGE>
F-2
<TABLE>
TARGET LOGISTICS, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS June 30, 2000 June 30, 1999
------------- -------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 6,055,104 $7,881,595
Accounts receivable, net of allowance for doubtful accounts of
$1,630,768 and $1,318,109, respectively 15,149,824 10,853,316
Deferred income taxes (Note 9) 1,972,411 2,080,105
Prepaid expenses and other current assets 32,361 152,940
---------- ----------
Total current assets 23,209,700 20,967,956
PROPERTY AND EQUIPMENT, NET (Note 4) 575,186 473,398
OTHER ASSETS 268,615 278,382
DEFERRED INCOME TAXES (Note 9) 183,694 184,895
GOODWILL, net of accumulated amortization of $2,523,371
and $1,927,504, respectively (Note 3) 12,431,652 13,027,520
----------- ----------
Total assets $36,668,847 34,932,151
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,908,883 $4,413,792
Accrued expenses 2,030,224 2,360,211
Accrued transportation expenses 7,614,884 6,745,613
Reserve for restructuring - 21,567
Note payable to bank (Note 5) 4,636,821 1,349,978
Current portion of long-term debt (Note 5) - 10,500
Dividends payable 116,064 168,680
Taxes payable 78,830 77,245
Lease obligation - current portion (Note 7) 103,385 88,600
----------- ----------
Total current liabilities 18,474,306 15,250,971
LEASE OBLIGATION -- LONG TERM (Note 7) 92,374 24,116
----------- -----------
Total liabilities $18,566,680 $15,275,087
----------- -----------
COMMITMENT AND CONTINGENCIES (Note 7)
SHAREHOLDERS EQUITY (Note 6):
Preferred Stock, $10 par value; 2,500,00 shares authorized,
320,696 and 427,207 shares issued and outstanding, respectively 3,206,960 4,272,070
Common Stock, $.01 par value; 30,000,000 shares authorized,
12,613,953 and 10,031,868 shares issued and outstanding,
respectively 126,139 100,318
Paid-in capital 23,905,248 22,877,209
Accumulated deficit (8,491,375) (6,937,598)
Less: Treasury stock, 734,951 and 839,855 shares held at cost, respectively (644,805) (654,935)
----------- -----------
Total shareholders' equity 18,102,167 19,657,064
----------- -----------
Total liabilities and shareholders' equity $36,668,847 $34,932,151
=========== ===========
The accompanying notes are an integral part of these
consolidated balance sheets.
</TABLE>
<PAGE>
F-3
<TABLE>
TARGET LOGISTICS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Year Ended Year Ended Year Ended
June 30, 2000 June 30, 1999 June 30, 1998
------------- ------------- -------------
OPERATING REVENUES:
<S> <C> <C> <C>
Operating revenues - Target subsidiary $84,088,195 $50,156,285 $43,351,754
Operating revenues - Caribbean subsidiary - 1,563,298 54,432,657
----------- ----------- -----------
Operating revenues 84,088,195 51,719,583 97,784,411
COST OF TRANSPORTATION:
Cost of transportation - Target subsidiary 56,948,811 33,431,246 30,670,189
Cost of transportation - Caribbean subsidiary - 1,358,031 42,928,749
---------- ---------- ----------
Cost of transportation 56,948,811 34,789,277 73,598,938
GROSS PROFIT:
Gross profit - Target subsidiary 27,139,384 16,725,039 12,681,565
Gross profit - Caribbean subsidiary - 205,267 11,503,908
---------- ---------- ----------
Gross profit 27,139,384 16,930,306 24,185,473
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
("SG&A"):
SG&A - Target subsidiary 13,692,166 12,454,287 11,444,841
SG&A - Target subsidiary
(Exclusive forwarder commissions) 12,803,075 5,929,533 3,078,945
SG&A - Caribbean subsidiary - 595,338 6,270,882
SG&A - Corporate 698,635 1,491,598 1,085,513
Depreciation and amortization 989,205 833,268 1,131,994
---------- ---------- ----------
Selling, general and administrative expenses 28,183,081 21,304,024 23,012,175
Operating (loss) income (1,043,697) (4,373,718) 1,173,298
OTHER INCOME (EXPENSE):
Interest (expense) income (44,013) 291,510 (1,645,902)
Other income - 119,291 214,112
Gain on sale of subsidiary - 24,832,353 -
---------- ---------- ----------
(Loss) income before income taxes (1,087,710) 20,869,436 (258,492)
Provision (benefit) for income taxes (Note 9) 108,895 6,853,000 (7,662,135)
----------- ----------- ----------
Net (loss) income $(1,196,605) $14,016,436 $7,403,643
=========== =========== ==========
Net (loss) income per share:
Basic $(0.14) $1.63 $0.90
====== ===== =====
Diluted $(0.14) $0.99 $0.55
====== ===== =====
Weighted average shares outstanding:
Basic 11,015,126 8,351,386 7,949,705
========== ========== ==========
Diluted - 14,121,246 13,468,964
========== ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
<PAGE>
F-4
<TABLE>
TARGET LOGISTICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
<CAPTION>
Preferred Stock Common Stock Additional Treasury Stock
--------------- ------------ Paid-In -------------- Accumulated
Shares Amount Shares Amount Capital Shares Amount Deficit Total
------ ------ ------ ------ ------- ------ ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance June 30, 1997 498,000 $4,980,000 6,826,504 $68,265 $20,972,256 (106,304) $(11,250) $(27,439,695) $(1,430,424)
Additional costs associated
with the Private Placement - - - - - - - (34,908) (34,908)
Common stock issued in connection
with the conversion of Class A
Preferred Stock (110,250)(1,102,500) 1,102,500 11,025 1,091,475 - - - -
Stock options exercised - - 52,590 525 (525) - - - -
Preferred stock issued for
repayment of secured long-term
debt of Amertranz Worldwide,
Inc. 100,000 1,000,000 - - - - - - 1,000,000
Preferred stock issued for purchase
of $1,581,800 of trade debt of
Amertranz Worldwide, Inc. 158,180 1,581,800 - - - - - - 1,581,800
Common stock issued in connection
with the conversion of Class B
Preferred Stock (20,000) (200,000) 200,000 2,000 198,000 - - - -
Common stock issued in connection
with the conversion of Class C
Preferred Stock (23,750) (237,500) 237,500 2,375 235,125 - - - -
Preferred stock dividends
associated with the Class A
Preferred Stock12,696 126,960 - - - - - (126,960) -
Preferred stock dividends
associated with the Class D
Preferred Stock 6,511 65,110 - - - - - (65,110) -
Cash dividends associated with
the Class C Preferred Stock - - - - - - - (246,343) (246,343)
Warrants issued in connection with
the sale of the assets of CAS - - - - 50,000 - - - 50,000
Net income - - - - - - - 7,403,643 7,403,643
-------- ---------- --------- ------- ----------- ------- -------- ------------ ----------
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
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
<PAGE>
F-5
<TABLE>
TARGET LOGISTICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2000, 1999, AND 1998 -- (Continued)
<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>
Common stock issued in connection
with the conversion of Class C
Preferred Stock (36,000) (360,000) 360,000 3,600 356,400 - - - -
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,
at cost - - - - - (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 - - - - - - - (357,172) (357,172)
Common Stock issued in connection
with the conversion of Class D
Preferred Stock (106,511)(1,065,110) 2,582,085 25,821 1,039,289 - - - -
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 - - - - - - - (1,196,605) (1,196,605)
-------- ---------- ---------- -------- ----------- -------- --------- ----------- -----------
Balance, June 30, 2000 320,696 $3,206,960 12,613,953 $126,139 $23,905,248 (734,951) $(644,805) $(8,491,375)$18,102,167
======== ========== ========== ======== =========== ========= ========= =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
<PAGE>
F-6
<TABLE>
TARGET LOGISTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended Year Ended Year Ended
June 30, 2000 June 30, 1999 June 30, 1998
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) ($1,196,605) $14,016,436 $ 7,403,643
Bad debt expense 312,659 803,567 (268,065)
Depreciation and amortization 989,206 833,268 1,196,480
Gain on sale of CAS - (24,832,353) -
Deferred income taxes 108,895 5,624,987 (7,889,987)
Adjustments to reconcile net loss to net cash used in operating activities-
(Increase) decrease in accounts receivable (4,609,167) 2,898,268 (1,796,390)
Decrease in prepaid expenses and other current assets 120,579 245,395 138,981
Decrease (increase) in other assets 9,767 (113,962) (15,136)
(Decrease) increase in accounts payable and accrued expenses (44,946) (1,716,369) 204,052
---------- ---------- ----------
Net cash used in operating activities (4,309,612) (2,240,763) (1,026,422)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (435,787) (605,092) (556,557)
Proceeds from sale of CAS, net of closing costs - 25,762,397 -
Acquisition of Target - (77,000) -
---------- ---------- ---------
Net cash (used in) provided by investing activities (435,787) 25,080,305 (556,557)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Private Placement - net of costs - - (34,908)
Dividends paid (409,788) (340,660) (128,819)
Stock options exercised - 64,005 -
Purchase of treasury stock (1,120) (643,685) -
Redemption of Class E Preferred Stock - (1,141,750) -
Net borrowings (repayments) from note payable to bank 3,286,843 (5,395,875) 278,295
(Repayment) proceeds from long-term debt due to affiliates - (7,332,126) 698,853
Repayment of long-term debt (10,500) (50,000) (50,000)
(Repayment) proceeds from revolving loan due to affiliate - (905,913) 116,185
Proceeds (payment) of lease obligations 53,473 (91,740) 200,927
--------- ------------ ----------
Net cash provided by (used in) financing activities 2,918,908 (15,837,744) 1,080,533
--------- ------------ ----------
Net (decrease) increase in cash and cash equivalents (1,826,491) 7,001,798 (502,446)
CASH AND CASH EQUIVALENTS, beginning of year 7,881,595 879,797 1,382,243
---------- ----------- ----------
CASH AND CASH EQUIVALENTS, end of year $6,055,104 $ 7,881,595 $ 879,797
========== =========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 361,349 $ 105,157 $ 821,336
Income taxes $ 19,934 $ 1,243,022 $ 82,492
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
<PAGE>
F-7
<TABLE>
TARGET LOGISTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (Continued)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
<CAPTION>
Year Ended Year Ended Year Ended
June 30, 2000 June 30, 1999 June 30, 1998
------------- ------------- -------------
<S> <C> <C>
TIA, Inc. conversion of 106,511 Class D Preferred Shares $(1,065,110) - -
Issuance of Common Stock for TIA, Inc. conversion of 106,511
Class D Preferred Shares 25,821 - -
Retirement of Treasury Stock $ 11,250 - -
Conversion of 36,000 and 23,750, respectively, Class C Preferred Shares - $(360,000) $ (237,500)
Issuance of Common Stock for Conversion of 36,000 and 23,750,
respectively, Class C Preferred Shares - $ 3,600 $ 2,375
Issuance of Common Stock for Stock Options exercised - $ 1,749 $ 525
Issuance of Common Stock in connection with the acquisition of Target - $ 10,779 -
TIA, Inc. conversion of 110,250 Class A Preferred Shares - - $(1,102,500)
Issuance of Common Stock for TIA, Inc. conversion of
110,250 Class A Preferred Shares - - $ 11,025
Issuance of 100,000 Class D Preferred Stock for repayment
of secured long-term debt of Amertranz Worldwide, Inc. - - $ 1,000,000
Issuance of 158,180 Class E Preferred Stock for the purchase
of $1,581,800 of trade debt of Amertranz Worldwide, Inc. - - $ 1,581,800
Conversion of 20,000 Class B Preferred Shares - - $ (200,000)
Issuance of Common Stock for conversion of 20,000
of Class B Preferred Shares - - $ 2,000
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
<PAGE>
F-8
TARGET LOGISTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND
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 transactions between the Company, TIA, CFS and CAS described above have been
accounted for as a recapitalization of TIA and CFS, whereby the historical data
for their freight forwarding operations are being presented as that of Holdings
for all periods presented. The issuance of the $10,000,000 Promissory Note has
been reflected as a charge to retained earnings and the distribution of assets
and liabilities to TIA and CFS has been reflected as a net adjustment to equity,
at book value (which approximates fair value).
On July 3, 1996, the Company completed an initial public offering ("IPO") of
2,300,000 shares of common stock and redeemable common stock purchase warrants
at an initial offering price of $6.10 per share. Prior to the IPO, there was no
public market for the Company's capital stock. The net proceeds to the Company
of $12,213,682 were used to pay down existing debt of $6,503,000 and the balance
was used for working capital purposes. Additionally, 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 payment of $2,000,000 of its promissory note
with TIA and CFS.
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, 2000, 1999 and 1998, 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.
<PAGE>
F-9
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.
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, 2000.
Goodwill
Goodwill represents excess of cost over net assets acquired and is amortized on
a straight-line basis over 25 years. The Company reviews goodwill for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the goodwill exceeds the fair value of the asset. If circumstances indicate that
the carrying amount of goodwill may not be recoverable, the Company will
recognize an impairment loss, calculated by comparing the net book value of the
Company to the value indicated by the market price of the equity securities of
the Company. If the net book value exceeds the market capitalization, the excess
carrying amount of goodwill is written off. Management has determined that no
impairment of goodwill has occurred. The amortization period will be evaluated
by management on a continuing basis, and will be adjusted if the life of the
goodwill is impaired.
Stock Options
The Company grants stock options to certain officers and related parties.
Compensation expense is recognized based upon the aggregate difference between
the fair market value of the Company's stock at date of grant and the option
price. Compensation expense is recognized equally over the vesting period.
In October, 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation". This statement establishes a fair
value based method of accounting for an employee stock option or similar equity
instrument but allows companies to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees". Companies
electing to continue using the accounting under APB Onion No. 25 must, however,
make pro forma disclosures of net income and earnings per share as if the fair
value based method of accounting defined in SFAS No. 123 had been applied (Note
6). These disclosure requirements are effective for fiscal years beginning after
December 16, 1995. The Company has elected to continue accounting for its
stock-based compensation awards to employees and directors under the accounting
prescribed by APB Opinion No. 25 and to provide the disclosures required by SFAS
No. 123.
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.
<PAGE>
F-10
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
(SAB) No. 101, "Revenue Recognition in Financial Statements." Under SAB No. 101,
revenue is recognized when persuasive evidence of an arrangement exists, when
delivery has occurred, when the price to the buyer is both fixed and
determinable and when collectibility is reasonably assured.
The Company recognizes revenue gross, in accordance with Emerging Issues Task
Force (EITF) Issue 99-19, "Reporting Revenue Gross versus Net." Under EITF Issue
99-19, revenue may be recognized gross if the company (1) takes title to the
product prior to delivery of the product to the customer, (2) is responsible for
delivering the product and collecting the sales price, (3) bears credit risk
related to the customer's payment obligation, (4) bears the risk that the
product will be returned, (5) determines the sales price of and, therefore, the
gross margin received from the sale of the product, and (6) maintains the goods
in inventory.
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.
SFAS No. 128 requires the presentation of both basic EPS and diluted EPS on the
face of the income statement. Earnings per share amounts for the same prior-year
periods have been restated to conform with the provisions of SFAS No. 128.
A reconciliation between the numerators and denominators of the basic and
diluted EPS computations for net earnings for the year ended June 30, 2000 and
1999 is as follows:
<TABLE>
<CAPTION>
Year Ended June 30, 2000 Year Ended June 30, 1999
------------------------ ------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amounts (Numerator) (Denominator) Amounts
----------- ------------- ------- ----------- ------------- -------
<S> <C> <C>
Net earnings $(1,196,605) $14,016,436
Preferred stock dividends $ (357,172) $ (444,661)
BASIC EPS
Net earnings attributable to $(1,553,777) 11,015,126 $(0.14) $13,571,775 8,351,386 $1.63
common stock =========== ========== ====== =========== ========== =====
EFFECT OF DILUTIVE SECURITIES
Convertible Preferred Stock 5,698,663
Stock Options 71,197
---------
DILUTED EPS
Add back Preferred Stock dividends $ 357,172
Net earnings attributable to
common stock and assumed preferred
conversions and option exercises $(1,196,605) 11,015,126 $(0.14) $14,016,436 14,121,246 $0.99
============ ========== ======= =========== ========== =====
ANTI-DILUTIVE SECURITIES
Convertible Preferred Stock 5,127,730
Stock Options 6,389
---------
Total Anti-Dilutive Securities 5,134,119
=========
</TABLE>
Options to purchase 450,000 and 440,000 shares of common stock for the years
ended June 30, 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 5,183,731 shares of common stock for the years ended June
30, 2000 and 1999 were not included in the computation of diluted EPS because
they were also anti-dilutive.
<PAGE>
F-11
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 2000 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
loss is equal to its net loss for the period ended June 30, 1998, 1999, and
2000.
Recent Accounting Pronouncements
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 (as
amended by SFAS No. 137) is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. The Company does not enter into derivative
instruments or engage in hedging activities as defined in SFAS No. 133.
Accordingly, management has determined that the adoption of this standard will
have no impact on the Company's financial statements.
During March 2000, the FASB issued interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation," which clarifies the
application of APB Opinion No. 25, regarding (a) the definition of an employee
for purposes of applying APB Opinion No. 25, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. Interpretation No. 44 is effective on July 1,
2000. Certain events as defined by Interpretation No. 44, may require earlier
consideration if they occurred after December 15, 1998 or January 12, 2000,
depending on the event, although no financial statement effect would be
recognized until July 1, 2000. The effects of applying Interpretation No. 44 are
recognized prospectively. Management has reviewed its stock compensation events
and determined that none qualify as those covered by Interpretation No. 44 that
would require early consideration.
During January 2000, the EITF reached a consensus on EITF Issue 99-17,
"Accounting for Advertising Barter Transactions." EITF Issue 99-17 states that
advertising barter transactions entered into after January 20, 2000 should be
accounted for at fair value on a one-for-one basis with revenue from similar
advertising sold in a cash transaction that occurred in the preceding six months
with comparable terms, such as length of program, cost and type of
advertisement. A cash transaction may be used only once as the basis for
providing fair value evidence for a barter transaction. As a result, revenue
from barter is effectively limited to no more than 50% of total revenue per
year. EITF Issue 99-17 is applicable only to transactions entered into after
<PAGE>
F-12
January 20, 2000. The Company has adopted EITF Issue 99-17. The Company has
concluded that the adoption of this issue has not had a material impact on its
financial statements, as it has not participated in advertising barter
transactions.
On May 18, 2000, the EITF reached a consensus on EITF Issue 00-14, "Accounting
for certain Sales Incentives," EITF Issue 00-14 states that when recognized, the
reduction in or refund of the selling price of the product or service resulting
from any cash sales incentive offered by a vendor to a customer should be
classified as a reduction of revenue. In addition, for a sales incentive that
will not result in a loss on the sale of a product and service, it was agreed
that a vendor should recognize the "cost" of the sales incentive at the later of
the date at which the related revenue is recorded by the vendor or the date at
which the sales incentive is offered. EITF Issue 00-14 also states that a vendor
should recognize a liability (or "deferred revenue") for those sales incentives
that are based on the estimated amount of refunds or rebates that will be
claimed by customers. A vendor should not recognize a liability for the sales
incentive prior to the date at which the related revenue is recognized. The
Company has adopted EITF Issue 00-14 effective May 18, 2000 and has concluded
that adoption of this issue has not had a material impact on its financial
statements.
<TABLE>
4. PROPERTY AND EQUIPMENT, NET
<CAPTION>
June 30, 2000 June 30, 1999
------------- -------------
Property and Equipment consists of the following:
<S> <C> <C>
Furniture and fixtures $ 760,655 $ 614,530
Computer Equipment 648,807 471,683
Computer Software 84,638 -
Leasehold Improvements 347,465 319,565
Vehicles 116,036 116,036
---------- ----------
1,957,601 1,521,814
Less: Accumulated depreciation and amortization 1,382,415 1,048,416
---------- ----------
$ 575,186 $ 473,398
========== ==========
</TABLE>
5. DEBT
<TABLE>
As of June 30, 2000 and 1999, long-term and short-term debt consisted of the
following:
<CAPTION>
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Asset-based financing (a) $4,636,821 $1,349,978
Promissory note to Consolidated Shareholders (b) - 10,500
---------- ----------
Total debt 4,636,821 1,360,478
Less: Current portion (4,636,821) (1,360,478)
---------- ----------
Long-term debt $ - $ -
========== ==========
</TABLE>
(a) During the years ended June 30, 2000 and 1999, 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 2.0% per annum over the
prevailing prime rate as defined by GMAC (9.5% and 7.75% as of June 30, 2000 and
1999, respectively). At June 30, 2000 and 1999, the outstanding balance on the
GMAC Facility was $4,636,821 and $1,349,978 which represented 74% and 27% of the
approximate $6,241,000 and $5,058,000 available thereunder, respectively. At
June 30, 2000, the remaining amount available under the GMAC Facility was
approximately $1,604,000. 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. 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.
<PAGE>
F-13
(b) In connection with the acquisition of Consolidated, the Company issued a
promissory note to the Consolidated stockholders in the aggregate principal
amount of $150,000. During fiscal year 1998, this note was reduced by $27,000 as
a result of a net worth reconciliation, pursuant to the terms of the acquisition
agreement. At June 30, 2000, there were no amounts outstanding under this note.
This note which bore interest at the rate of 8% per annum, matured on July 1,
1999.
6. SHAREHOLDERS' EQUITY
Preferred Stock
As of June 30, 2000, the authorized preferred stock of the Company is 2,500,000
shares. As of June 30, 2000, 320,696 shares of preferred stock are outstanding
as follows:
<TABLE>
<CAPTION>
Number of Shares Outstanding
-------------------------------------------------------------------
Class A (a) Class C (b) Class D (c) Total
----------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1999 122,946 197,750 106,511 427,207
Issuances - - - -
Conversions - - (106,511) (106,511)
------- ------- -------- --------
Balance at June 30, 2000 122,946 197,750 - 320,696
======= ======= ======== =======
</TABLE>
(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.
(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. Prior to June
13, 1998, resales of shares of Class C Preferred Stock acquired in the Private
Placement and all shares of Common Stock underlying such securities were
prohibited without the approval of GKN Securities Corp. ("GKN"), the placement
agent for the Private Placement.
<PAGE>
F-14
There were no shares of Class C Preferred Stock converted into the
Company's Common Stock during fiscal year ending June 30, 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.
Warrants
As of June 30, 2000, the Company had 5,074,283 warrants outstanding to purchase
5,074,283 shares of common stock at $6.00 per share and a warrant outstanding to
purchase 109,448 shares of common stock at $1.56 per share.
In connection with the Company's February 1996 and May 1996 bridge financings,
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.
In connection with the IPO of July 3, 1996, the Company issued 2,300,000 shares
of common stock and 2,300,000 warrants. Each warrant entitles the holder thereof
to purchase one share of common stock for $6.00 during the four-year period
commencing June 28, 1997.
In connection with the Private Placement of June 13, 1997, the Company issued
257,500 shares of Class C Preferred Stock and 1,387,500 warrants. Each warrant
entitles the holder thereof to purchase one share of common stock for $6.00
during the four-year period commencing June 28, 1997.
The Company may redeem the warrants at a price of $.01 per warrant at any time
after they become exercisable upon not less than 30 days' prior written notice
if the last sale price of the common stock has been at least $10.00 for each of
the 20 consecutive trading days ending on the third day prior to the date on
which the notice of redemption is given.
In connection with the CAS Sale, the Company engaged an investment banking firm
to market the sale and issued to the investment banking firm a warrant to
purchase 109,448 shares of common stock for $1.56 per share, at any time until
January 21, 2002.
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, 2000,
193,624 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
<PAGE>
F-15
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:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
June 30, 2000 June 30, 1999 June 30, 1998
------------- ------------- -------------
Net income
<S> <C> <C> <C>
(loss): As Reported $(1,196,605) $14,016,436 $7,403,643
Pro Forma $(1,270,152) $13,463,612 $6,978,972
Basic EPS: As Reported $(0.14) $1.63 $0.90
Pro Forma $(0.15) $1.61 $0.86
Diluted EPS: As Reported $(0.14) $0.99 $0.55
Pro Forma $(0.15) $0.98 $0.54
</TABLE>
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, 2000 and 1999, 6,957 and 6,957 of these options were
outstanding and 6,957 and 6,957 were exercisable, respectively.
The following table reflects activity under the plan for the three-year period
ended June 30, 2000:
<TABLE>
<CAPTION>
Year Ended June 30, 2000 Year Ended June 30, 1999 Year Ended June 30, 1998
------------------------ ------------------------ ------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 446,957 2.00 407,609 3.16 431,207 3.08
Granted 10,000 1.25 415,000 1.22 - -
Exercised - - (174,852) 0.37 (14,198) 0.16
Forfeited - - (200,800) 4.16 (7,050) 4.25
Cancelled - - - - (2,850) 4.25
Outstanding at end of year 456,957 $1.99 446,957 $2.00 407,609 $3.16
Outstanding at end of year 193,624 $2.99 81,957 $5.49 332,209 $2.71
</TABLE>
The weighted average fair value and exercise price for options granted at an
exercise price equal to fair market is $3.51 and $5.49, respectively. The
weighted average fair value and exercise price for options granted at an
exercise price below fair market is $0.94 and $1.22, respectively. The weighted
average fair value and exercise price for options granted at an exercise price
greater than fair market is $0.31 and $1.25, 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:
2000 1999
---- ----
Risk-Free Interest Rates 6.34% 4.67%
Expected Lives 5 5
Expected Volatility 72.28% 77.60%
Expected Dividend Yields 0.00% 0.00%
<PAGE>
F-16
The following table summarizes information about stock options outstanding at
June 30, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Number Weighted Average Weighted Number Weighted
Outstanding Remaining Average Excercisable Average
at 6/30/00 Contractual Life Exercise Price at 6/30/00 Exercise Price
----------- ---------------- -------------- ------------ --------------
<S><C> <C> <C> <C> <C> <C> <C>
$0.04 - $1.25 381,957 9.35 $1.20 118,624 $1.09
$4.00 - $6.00 75,000 1.93 $6.00 75,000 $6.00
------- -------
$0.04 - $6.00 456,957 8.11 $1.99 193,624 $2.99
======= =======
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Leases
As of June 30, 2000, future minimum lease payments for capital leases and
operating leases relating to equipment and rental premises are as follows:
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL LEASES OPERATING LEASES
----------- -------------- ----------------
<S> <C> <C> <C>
2001 $ 96,290 $ 828,246
2002 64,489 283,739
2003 32,245 108,925
2004 - 81,250
2005 - 81,250
-------- ----------
Total minimum lease payments $193,024 $1,383,410
Less - Amount representing interest (12,050) ==========
--------
$180,974
========
</TABLE>
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, 2000,
excluding bonuses, was approximately $500,500.
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, 2000 and 1999
is as follows:
<PAGE>
F-17
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Domestic revenue $56,093,399 $32,521,826
International revenue 27,994,796 19,197,757
----------- -----------
Total revenue $84,088,195 $51,719,583
----------- -----------
Domestic gross profit $20,152,072 $12,011,496
International gross profit 6,987,312 4,918,810
----------- -----------
Total gross profit $27,139,384 $16,930,306
----------- -----------
Domestic accounts receivable $12,731,926 $ 9,549,383
International accounts receivable 4,048,666 2,622,042
Less: allowance for doubtful accounts (1,630,768) (1,318,109)
------------ ------------
Accounts receivable, net of
allowance for doubtful accounts $15,149,824 $10,853,316
----------- -----------
</TABLE>
9. INCOME TAXES
The Company utilized approximately $25,000 and $14,300,000 of net operating
losses to offset its regular taxable income for the year ended June 30, 2000 and
1999, respectively. The Company has a tax net operating loss carryforward of
approximately $9.6 million, available to offset future regular taxable income,
which expires from 2011 through 2013 and which is limited to annual maximum
amounts, due to ownership changes, as defined in regulations under Section 382
of the Internal Revenue Code. In 1998, the Company reduced the recorded
valuation allowance by approximately $6,309,000. The determination that the net
tax asset was realizable was based on the CAS Sale subsequent to year-end, which
resulted in a taxable gain of approximately $16,443,000. The Company's reversal
of the valuation allowance against its net deferred tax assets and realization
of net operating loss carryforwards resulted in a realization of net income tax
benefits of approximately $7,662,000 in the fiscal year ended June 30, 1998.
The components of current and deferred income tax expense (benefit) are as
follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
June 30, 2000 June 30, 1999 June 30, 1998
------------- ------------- -------------
(In thousands)
Current:
<S> <C> <C> <C>
State $ 3 $ 791 $ 228
Federal - 269 -
Deferred:
State - - -
Fededral 106 5,793 (7,890)
---- ------ ------
Net income tax expense (benefit) $109 $6,853 $(7,662)
==== ====== ======
</TABLE>
<PAGE>
F-18
A reconciliation of income taxes between the statutory and effective tax rates
on income before income taxes is as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
June 30, 2000 June 30, 1999 June 30, 1998
------------- ------------- -------------
(In thousands)
<S> <C> <C> <C>
Income tax (benefit) expense at U.S. statutory rate $ (370) $7,100 $ (88)
Tax deductible goodwill - (2,730) (2,158)
Non-deductible goodwill 203 211 -
State and local income taxes 3 522 228
(net of federal benefit)
AMT Credit (17) - -
Valuation Allowance - 1730 (5,688)
Non-deductible expenses 290 20 44
------ ------ -------
$ 109 $6,853 $(7,662)
====== ====== =======
The components of deferred income taxes are as follows:
Year Ended Year Ended
June 30, 2000 June 30, 1998
------------- -------------
(In thousands)
NOLs $3,250 $3,536
Tax credits 286 269
Accrued amounts and other 902 759
----- -----
4,456 4,564
Depreciation and amortization 184 185
----- ------
4,640 4,749
Valuation allowance (2,484) (2,484)
------ ------
$2,156 $2,265
====== ======
</TABLE>
<TABLE>
<PAGE>
S-1
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<CAPTION>
Balance at Charged to Charged to
Beginning Costs and Other Balance at
of Year Expenses Accounts Deductions End of Year
---------- ---------- ---------- ---------- -----------
For the fiscal year ended June 30, 1998
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ 787 $ 207 $ - $ (479) $ 515
========= ======== ======== ======== =========
Reserve for restructuring $ 2,682 $ - $ - $ (2,418) $ 264
========= ======== ======== ======== =========
For the fiscal year ended June 30, 1999
Allowance for doubtful accounts $ 515 $ 957 $ - $ (154) $ 1,318
========= ======== ======== ======== =========
Reserve for restructuring $ 264 $ - $ - $ (242) $ 22
========= ======== ======== ======== =========
For the fiscal year ended June 30, 2000
Allowance for doubtful accounts $ 1,318 $ 536 $ - $ (223) $ 1,631
======== ======== ======== ======== =========
Reserve for restructuring $ 22 $ - $ - $ (22) $ -
======== ======== ======== ======== =========
</TABLE>
