<PAGE>
1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-29754
TARGET LOGISTICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-3309110
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
112 East 25th Street
Baltimore, Maryland 21218
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 338-0127
Inapplicable
(Former name, former address and former fiscal year if changed
from last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
At November 13, 2000, the number of shares outstanding of the registrant's
common stock was 11,879,002.
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2
TABLE OF CONTENTS
Part I - Financial Information Page
Item 1. Financial Statements:
-------
Consolidated Balance Sheets,
September 30, 2000 (unaudited) and June 30, 2000 (audited) 3
Consolidated Statements of Operations
for the Three Months Ended
September 30, 2000 and 1999 (unaudited) 4
Consolidated Statements of Shareholders' Equity
for the Year Ended June 30, 2000 (audited)and the
Three Months Ended September 30, 2000 (unaudited) 5
Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 2000 and 1999 (unaudited) 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
------- Financial Condition and Results of Operations 9
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 11
-------
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3
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
<TABLE>
TARGET LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, 2000 June 30, 2000
------------------ -------------
ASSETS (unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 5,345,300 $ 6,055,104
Accounts receivable, net of allowance for doubtful
accounts of $1,701,742 and $1,630,768, respectively 15,569,946 15,149,824
Deferred income taxes 1,972,411 1,972,411
Prepaid expenses and other current assets 111,819 32,361
------------ ------------
Total current assets 22,999,476 23,209,700
PROPERTY AND EQUIPMENT, net 559,272 575,186
OTHER ASSETS 274,085 268,615
DEFERRED INCOME TAXES 183,694 183,694
GOODWILL, net of accumulated amortization of
$2,672,338 and $2,523,371, respectively 12,282,685 12,431,652
------------ ------------
Total assets $ 36,299,212 $ 36,668,847
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,111,916 $ 3,908,883
Accrued expenses 2,101,982 2,030,224
Accrued transportation expenses 7,468,930 7,614,884
Taxes payable 78,830 78,830
Note payable to bank 4,583,587 4,636,821
Dividends payable 55,300 116,064
Lease obligation-current portion 85,942 88,600
------------ ------------
Total current liabilities 18,486,487 18,474,306
LEASE OBLIGATION--LONG-TERM 77,532 92,374
------------- ------------
Total liabilities $ 18,564,019 $ 18,566,680
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $10 par value; 2,500,000 shares authorized,
320,696 shares issued and outstanding 3,206,960 3,206,960
Common stock, $.01 par value; 30,000,000 shares authorized,
12,613,953 shares issued and outstanding 126,139 126,139
Paid-in capital 23,905,248 23,905,248
Accumulated deficit (8,858,349) (8,491,375)
Less: Treasury stock, 734,951 shares held at cost (644,805) (644,805)
------------ ------------
Total shareholders' equity 17,735,193 18,102,167
------------ ------------
Total liabilities and shareholders' equity $ 36,299,212 $ 36,668,847
============ ============
The accompanying notes are an integral part of these
consolidated balance sheets.
</TABLE>
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4
<TABLE>
TARGET LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
Three months ended September 30,
2000 1999
---- ----
<S> <C> <C>
Operating revenues $21,380,041 $19,076,518
Cost of transportation 14,164,019 12,620,241
----------- -----------
Gross profit 7,216,022 6,456,277
Selling, general and administrative expenses ("SG&A"):
Exclusive Forwarder Commissions - Target subsidiary 3,515,087 3,135,934
SG&A - Target subsidiary 3,552,662 3,346,275
SG&A - Corporate 158,447 127,097
Depreciation and amortization 250,001 243,471
----------- -----------
Selling, general and administrative expenses 7,476,197 6,852,777
Operating loss (260,175) (396,500)
Other income (expense):
Interest (expense) income (57,091) 25,751
----------- -----------
Loss before income taxes (317,266) (370,749)
Benefit for income taxes --- (133,470)
----------- -----------
Net Loss $ (317,266) $ (237,279)
=========== ===========
Net loss per share:
Basic ($0.03) ($0.03)
======= =======
Diluted(1) ($0.03) ($0.03)
======= =======
Weighted average shares outstanding:
Basic 11,879,002 9,299,917
========== =========
Diluted(1) --- ---
========== =========
(1) Diluted loss per share for the three months ended September 30, 2000 and
1999 are anti-dilutive.
The accompanying notes are an integral part of these
consolidated statements.
</TABLE>
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5
<TABLE>
TARGET LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 2000 AND THE
THREE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
<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, 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 (106,511) (1,065,110) 2,582,085 25,821 1,039,289 - - - -
Preferred Stock
Purchase of Treasury Stock - - - - - (1,400) (1,120) - (1,120)
at cost
Treasury Stock retired, - - - - (11,250) 106,304 11,250 - -
at cost
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
Cash dividends associated
with the Class A, C and
D Preferred Stock - - - - - - - (49,708) (49,708)
Net loss - - - - - - - (317,266) (317,266)
------- --------- ---------- -------- ---------- -------- ---------- ----------- -----------
Balance, September 30, 320,696 $3,206,960 12,613,953 $126,139 23,905,248 (734,951) ($644,805) ($8,858,349) $17,735,193
2000 ======= ========== ========== ========= ========== ======== ========= =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
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6
<TABLE>
TARGET LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Three Months Ended September 30,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income ($317,266) ($237,279)
Bad debt expense 70,974 103,743
Depreciation and amortization 250,001 243,471
Deferred income taxes --- (133,470)
Adjustments to reconcile net income to net cash used in operating activities-
(Increase) decrease in accounts receivable (491,096) (3,133,330)
(Increase) decrease in prepaid expenses and other current assets (79,458) (73,959)
(Increase) in other assets (5,470) ---
Increase in accounts payable and accrued expenses 128,837 76,090
--------- ----------
Net cash used in operating activities (443,478) (3,154,734)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (85,120) (25,984)
--------- ----------
Net cash used in investing activities (85,120) (25,984)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (110,472) (163,088)
Purchase of treasury stock --- (1,120)
Net (repayment) borrowing from note payable to bank (53,234) 2,066,276
Repayment of long-term debt --- (10,500)
Payment of lease obligations (17,500) (24,691)
-------- ---------
Net cash (used in) provided by financing activities: (181,206) 1,866,877
-------- ---------
Net (decrease) in cash and cash equivalents ($709,804) ($1,313,841)
CASH AND CASH EQUIVALENTS, beginning of the period 6,055,104 7,881,595
--------- -----------
CASH AND CASH EQUIVALENTS, end of the period $5,345,300 6,567,754
========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for:
Interest $ 138,014 $ $53,176
Income taxes $ --- $ 915
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
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7
TARGET LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Notes to Unaudited Consolidated Financial Statements
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions for Form 10-Q and Regulation S-X related to
interim period financial statements and, therefore, do not include all
information and footnotes required by generally accepted accounting principles.
However, in the opinion of management, all adjustments (consisting of normal
recurring adjustments and accruals) considered necessary for a fair presentation
of the consolidated financial position of the Company and its subsidiaries at
September 30, 2000 and their consolidated results of operations and cash flows
for the three and nine months ended September 30, 2000 have been included. The
results of operations for the interim periods are not necessarily indicative of
the results that may be expected for the entire year. Reference should be made
to the annual financial statements, including footnotes thereto, included in the
Target Logistics, Inc. (the "Company") Form 10-K for the year ended June 30,
2000.
Note 2 - Reclassifications
Certain amounts in the prior year's consolidated financial statements have been
reclassified to conform with the current year presentation.
Note 3 - Per Share Data
In accordance with the requirements of SFAS No. 128 "Earnings per Share", net
earnings per common share amounts ("basic EPS") were computed by dividing net
earnings after deducting preferred stock dividend requirements, by the weighted
average number of common shares outstanding and contingently issuable shares
(which satisfy certain conditions) and excluding any potential dilution. Net
earnings per common share amounts - assuming dilution ("diluted EPS") were
computed by reflecting potential dilution from the exercise of stock options.
SFAS No. 128 requires the presentation of both basic EPS and diluted EPS on the
face of the income statement.
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TARGET LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation between the numerators and denominators of the basic and
diluted EPS computations for net earnings for the three month ended September
30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
Income
Income Shares Per Share ------ Shares Per Share
(Numerator) (Denominator) Amounts (Numerator) (Denominator) Amounts
---------- ----------- --------- --------- ----------- -------
<S> <C> <C>
Net earnings ($317,266) ($237,279)
Preferred stock dividends (49,708) (49,843)
--------- --------
BASIC EPS
Net earnings attributable to
common stock ($366,974) 11,879,002 ($0.03) ($287,122) 9,299,917 ($0.03)
========== ====== ========= ======
EFFECT OF DILUTIVE SECURITIES(1)
Convertible Preferred Stock 7,749,948 6,041,083
Stock options 5,713 6,426
Stock warrants 0 0
--------- ---------
DILUTED EPS(1)
Add back Preferred stock dividends 49,708 49,843
Net earnings attributable to common
stock and assumed preferred
conversions and option exercises ($317,266) 11,879,002 ($0.03) ($237,279) 9,299,917 ($0.03)
========= ========== ====== ========= ========= ======
</TABLE>
Options to purchase 450,000 and 440,000 shares of common stock for the three
months ended September 30, 2000 and 1999, respectively, were not included in the
computation of diluted EPS because the exercise price of those options were
greater than the average market price of the common shares, thus they are
anti-dilutive. The options were still outstanding at the end of the period.
(1) Diluted EPS equals basic EPS for the three months ended September 30, 2000
and 1999, as the effect of dilutive securities would be anti-dilutive on loss
per common share.
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9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------
This Quarterly Report on Form 10-Q contains certain forward-looking
statements reflecting the Company's current expectations with respect to its
operations, performance, financial condition, and other developments. Such
statements are necessarily estimates reflecting the Company's best judgement
based upon current information and involve a number of risks and uncertainties.
While it is impossible to identify all such factors, factors which could cause
actual results to differ materially from expectations are: (i) the Company's
historic losses and ability to achieve profitability, (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 $1.2 million and a net profit
of $14.0 million and $7.4 million for the fiscal years ended June 30, 2000,
1999, 1998, respectively. The fiscal year 1999 results include a $16.6 million
gain (net of tax) arising from the sale by the Company of its Caribbean Air
Services ("CAS") subsidiary (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 consolidated earnings (losses) 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.
* 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 businesses. While the Company's CAS subsidiary has been
historically profitable, management determined that this strategy can best be
accomplished by the sale of the operations of its CAS subsidiary. On July 13,
1998, the Company's CAS subsidiary sold substantially all of its operating
assets to a subsidiary of Geologistics Corporation for $27 million in cash
pursuant to the terms of an Asset Purchase Agreement dated June 15, 1998. As a
result of the CAS Sale, the Company deleveraged its balance sheet by repaying
approximately $15 million in outstanding liabilities and obtained required
working capital to take advantage of growth opportunities available to the
Company's Target Logistic Services, Inc. subsidiary ("Target"). These
opportunities include improved vendor pricing and attracting quality personnel
and agents on a world-wide basis, which the Company believes will drive its
future profitability. In addition, the Company may consider strategic
acquisitions. There can be no assurance that this strategy to increase
profitability will be successful.
* Management believes that the results of the Company's operations for
the three months ended September 30, 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 three
months ended September 30, 2000, Target's revenue increased by 12.1% to
$21,380,041, over the prior year's corresponding period. Target's gross profit
margin (i.e., gross operating revenues less cost of transportation expressed as
a percentage of gross operating revenue) remained the same as the prior year at
33.8%. 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 improve
the Company's net income.
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10
RESULTS OF OPERATIONS
The following discussion relates to the results of operation of the
Company for the three month period ended September 30, 2000, compared to results
of operation for the three month period ended September 30, 1999.
Three Months ended September 30, 2000 and 1999
----------------------------------------------
Operating Revenue. Operating revenue increased to $21.4 million for the
three months ended September 30, 2000 from $19.1 million for the three months
ended September 30, 1999, a 12.1% increase, due to increased freight volume.
Cost of Transportation. Cost of transportation for each of the three
month periods ended September 30, 2000 and September 30, 1999 was 66.2% of
operating revenue.
Gross Profit. Gross profit for each of the three month periods ended
September 30, 2000 and September 30, 1999 was 33.8% of operating revenue.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to 35.0% of operating revenue for the three
months ended September 30, 2000, from 35.9% of operating revenue for the three
months ended September 30, 1999. This decrease was primarily due to lower
selling, general and administrative expenses as a percentage of sales within the
Company's Target subsidiary.
Within the Company's Target subsidiary, selling, general and
administrative expenses (excluding exclusive forwarder commission expense) were
16.6% of operating revenue for the three months ended September 30, 2000 and
17.5% for the period ended September 30, 1999, a 5.1% 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 16.4% of operating revenue for the three months ended
September 30, 2000 and 1999.
Net Income. The Company realized a net loss of ($317,266) for the three
months ended September 30, 2000, compared to a net loss of ($237,279) for the
three months ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
General. During the three months ended September 30, 2000, net cash
used in operating activities was $710,000. Cash used in investing activities was
$85,000. Cash used in financing activities was $181,000, which primarily
consisted of the payment of dividends and repayments 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 three months ended
September 30, 2000 were $85,120.
* Working Capital Requirements. Cash needs of the Company are currently
met by funds generated from operations, the Company's accounts receivable
financing facility, and cash on hand. As of September 30, 2000, the Company had
$2,078,000 available under its $10 million accounts receivable financing
facility and approximately $5,345,300 from operations and cash on hand. The
Company believes that its current financial resources will be sufficient to
finance its operations and obligations for the long and short term. However, the
Company's actual working capital needs for the long and short terms will depend
upon numerous factors, including the Company's operating results, the cost of
increasing the Company's sales and marketing activities, and competition, none
of which can be predicted with certainty.
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11
PART II - OTHER INFORMATION
---------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits:
Exhibit No.
-----------
3.1 Certificate of Incorporation of Registrant, as amended (incorporated
by reference to Exhibit 3.1 to the Registrant's Current Report on Form
8-K dated November 30, 1998, File No. 0-29754)
3.2 By-Laws of Registrant, as amended (incorporated by reference to
Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the
Quarter Ended December 31, 1998, File No. 0-29754)
4.1 Warrant Agent Agreement (incorporated by reference to Exhibit 4.3 to
the Registrant's Registration Statement on Form S-1, Registration No.
333-03613)
4.2 Form of Amendment No. 1 to Warrant Agent Agreement dated June 13, 1997
(incorporated by reference to Exhibit 4.7 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-30351)
4.3 Certificate of Designations with respect to the Registrant's Class A
Preferred Stock (contained in Exhibit 3.1)
4.4 Certificate of Designations with respect to the Registrant's Class B
Preferred Stock (contained in Exhibit 3.1)
4.5 Certificate of Designations with respect to the Registrant's Class C
Preferred Stock (contained in Exhibit 3.1)
4.6 Certificate of Designations with respect to the Registrant's Class D
Preferred Stock (contained in Exhibit 3.1)
4.7 Certificate of Designations with respect to the Registrant's Class E
Preferred Stock (contained in Exhibit 3.1)
10.1 1996 Stock Option Plan (incorporated by reference to Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended
December 31, 1997, File No. 0-29754)
10.2 Restated and Amended Accounts Receivable Management and Security
Agreement, dated as of July 13, 1998 by and between GMAC Commercial
Credit LLC (successor by merger to BNY Financial Corp.), as Lender,
and Target Logistic Services, Inc., as Borrower, and guaranteed by the
Registrant ("GMAC Facility Agreement") (incorporated by reference to
Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the
Year Ended June 30, 1999, File No. 0-29754)
10.3 Shadow Warrant entered into in connection with the GMAC Facility
Agreement (incorporated by reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter Ended March
31, 1997, File No.0-29754)
10.4 Employment Agreement dated June 24, 1996 between the Registrant and
Stuart Hettleman, as amended (incorporated by reference to Exhibits
10.7 and 10.8 of the Registrant's Annual Report on Form 10-K for the
Fiscal Year Ended June 30, 2000, File No. 0-29754)
10.5(P) Lease Agreement for Los Angeles Facility (incorporated by reference to
Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for the
Year Ended June 30, 1997, File No. 0-29754)
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
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12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 13, 2000 TARGET LOGISTICS, INC.
Registrant
/s/ Stuart Hettleman
----------------------------------------
President, Chief Executive Officer
/s/ Philip J. Dubato
----------------------------------------
Vice President, Chief Financial Officer
