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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 March 31, 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.
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(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 May 14, 2000, the number of shares outstanding of the registrant's common
stock was 11,879,002.
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<PAGE>
TABLE OF CONTENTS
Part I - Financial Information Page
----
Item 1. Financial Statements:
-------
Consolidated Balance Sheets,
March 31, 2000 (unaudited) and
June 30, 1999 (audited) 3
Consolidated Statements of Operations
for the Three Months Ended
March 31, 2000 and 1999 (unaudited) 4
Consolidated Statements of Operations
for the Nine Months Ended
March 31, 2000 and 1999 (unaudited) 5
Consolidated Statements of Shareholders'
Equity for the Year Ended June 30, 1999
(audited) and the Nine Months Ended March
31, 2000 (unaudited) 6
Consolidated Statements of Cash Flows
for the Nine Months Ended March 31,
2000 and 1999 (unaudited) 7
Notes to Unaudited Consolidated Financial
Statements 9
Item 2. Management's Discussion and Analysis of
------- Financial Condition and Results of
Operations 12
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 15
-------
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
<TABLE>
TARGET LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, 2000 June 30, 1999
-------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,849,810 $ 7,881,595
Accounts receivable, net of allowance for doubtful
accounts of $1,587,248 and $1,660,894, respectively 14,377,707 10,853,316
Deferred income taxes 2,322,408 2,080,105
Prepaid expenses and other current assets 159,446 152,940
------------ ------------
Total current assets 22,709,371 20,967,956
PROPERTY AND EQUIPMENT, net 546,577 473,398
OTHER ASSETS 280,382 278,382
DEFERRED INCOME TAXES 184,895 184,895
GOODWILL, net of accumulated amortization of
$2,374,405 and $1,927,504, respectively 12,580,619 13,027,520
------------ ------------
Total assets $ 36,301,844 $ 34,932,151
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,013,402 $ 4,413,792
Accrued expenses 1,473,225 2,360,211
Accrued transportation expenses 7,439,924 6,745,613
Taxes payable 64,854 77,245
Reserve for restructuring -- 21,567
Note payable to bank 3,058,509 1,349,978
Current portion of long-term debt -- 10,500
Dividends payable 54,894 168,680
Lease obligation-current portion 111,547 103,385
------------ ------------
Total current liabilities 17,216,355 15,250,971
LEASE OBLIGATION--LONG-TERM 107,004 24,116
------------- ------------
Total liabilities $ 17,323,359 $ 15,275,087
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $10 par value; 2,500,000 shares authorized,
320,696 shares issued and outstanding, 3,206,960 4,272,070
Common stock, $.01 par value; 30,000,000 shares authorized,
12,613,953 shares issued and 11,879,002 and 9,192,013 shares
outstanding, respectively 126,139 100,318
Paid-in capital 23,905,248 22,877,209
Accumulated deficit (7,615,057) (6,937,598)
Less: Treasury stock, 734,951 and 839,855 shares held at
cost, respectively (644,805) (654,935)
------------ ------------
Total shareholders' equity 18,978,485 19,657,064
------------ ------------
Total liabilities and shareholders' equity $ 36,301,844 $ 34,932,151
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
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<PAGE>
<TABLE>
TARGET LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
Three months ended March 31,
----------------------------
2000 1999
---- ----
<S> <C> <C>
Operating revenues:
Operating revenues - Target subsidiary $20,553,649 $13,853,687
Operating revenues - CAS subsidiary --- (3,347)
----------- ------------
Operating revenues 20,553,649 13,850,340
Cost of transportation:
Cost of transportation - Target subsidiary 13,840,277 9,294,695
Cost of transportation - CAS subsidiary --- ---
----------- -----------
Cost of transportation 13,840,277 9,294,695
Gross profit:
Gross profit - Target subsidiary 6,713,372 4,558,992
Gross profit - CAS subsidiary --- (3,347)
----------- ------------
Gross profit 6,713,372 4,555,645
Selling, general and administrative expenses ("SG&A"):
Exclusive Forwarder Commissions - Target subsidiary 3,143,888 1,891,584
SG&A - Target subsidiary 3,663,157 3,140,403
SG&A - CAS subsidiary --- 61,227
SG&A - Corporate 148,847 215,553
Depreciation and amortization 241,809 206,257
----------- ------------
Selling, general and administrative expenses 7,197,701 5,515,024
Operating loss (484,329) (959,379)
Other income (expense):
Interest (expense) income (33,122) 75,883
Other income (expense) --- ---
Loss before income taxes (517,451) (883,496)
Benefit for income taxes (186,283) (318,058)
----------- ------------
Net Loss $ (331,168) $ (565,438)
=========== ============
Net loss per share:
Basic $0.03 ($0.07)
===== ======
Diluted(1) $ --- ---
===== ======
Weighted average shares outstanding:
Basic 11,879,002 8,298,624
=========== ============
Diluted(1) --- ---
=========== ============
</TABLE>
(1) Diluted loss per share for the three months ended March 31, 2000 and March
31, 1999 are anti-dilutive.
The accompanying notes are an integral part of these
consolidated statements.
-4-
<PAGE>
<TABLE>
TARGET LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
Nine months ended March 31,
---------------------------
2000 1999
---- ----
<S> <C> <C>
Operating revenues:
Operating revenues - Target subsidiary $64,488,698 $34,038,634
Operating revenues - CAS subsidiary --- 1,565,938
----------- -----------
Operating revenues 64,488,698 35,604,572
Cost of transportation:
Cost of transportation - Target subsidiary 44,425,904 22,563,954
Cost of transportation - CAS subsidiary --- 1,356,107
----------- -----------
Cost of transportation 44,425,904 23,920,061
Gross profit:
Gross profit - Target subsidiary 20,062,794 11,474,680
Gross profit - CAS subsidiary --- 209,831
----------- -----------
Gross profit 20,062,794 11,684,511
Selling, general and administrative expenses ("SG&A"):
Exclusive Forwarder Commissions - Target subsidiary 9,318,929 3,582,866
SG&A - Target subsidiary 10,177,699 8,974,466
SG&A - CAS subsidiary --- 575,340
SG&A - Corporate 492,358 1,247,195
Depreciation and amortization 722,679 612,219
----------- -----------
Selling, general and administrative expenses 20,711,665 14,992,086
Operating loss (648,871) (3,307,575)
Other income (expense):
Interest (expense) income (24,192) 227,763
Other income (expense) --- 119,291
Gain on sale of subsidiary --- 24,832,353
----------- -----------
(Loss) income before income taxes (673,063) 21,871,832
(Benefit) provision for income taxes (242,303) 8,281,847
----------- -----------
Net (loss) income $ (430,760) $13,589,985
=========== ===========
Net (loss) income per share:
Basic $(0.06) $1.60
======= =====
Diluted(1) --- $0.99
======= =====
Weighted average shares outstanding:
Basic 10,729,262 8,335,381
=========== ===========
Diluted(1) --- 13,793,230
=========== ===========
</TABLE>
(1) Diluted loss per share for the nine months ended March 31, 2000 is
anti-dilutive.
The accompanying notes are an integral part of these
consolidated statements.
-5-
<PAGE>
<TABLE>
TARGET LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1999 AND THE
NINE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
<CAPTION>
Preferred Stock Common Stock Additional Treasury Stock
--------------- ------------ Paid-in --------------
Shares Amount Shares Amount Capital Shares Amount Deficit Total
------ ------ ------ ------ ------- ------ ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1998 621,387 $6,213,870 8,419,094 $ 84,190 $22,546,331 (106,304) ($11,250) ($20,509,373) $ 8,323,768
Common stock issued in
connection with the
conversion of Class C
Preferred stock (36,000) (360,000) 360,000 3,600 356,400 - - - -
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 - - - - - (733,551) (643,685) - (643,685)
Additional Common Stock
issued in connection with
the acquisition of Target - - 1,077,992 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 - - - - - - - (246,699) (246,699)
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 - - - - - - - (430,760) (430,760)
------- ---------- ---------- -------- ----------- -------- --------- ------------ -----------
Balance, March 31, 2000 320,696 $3,206,960 12,613,953 $126,139 $23,905,248 (734,951) ($644,805) ($7,615,057) $18,978,485
======= ========== ========== ======== =========== ======== ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-6-
<PAGE>
<TABLE>
TARGET LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Nine Months Ended March 31,
---------------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (430,760) $ 13,589,985
Bad debt expense 342,785 185,285
Depreciation and amortization 714,201 612,218
Gain on CAS sale --- (24,832,353)
Deferred income tax benefit (242,303) 7,031,367
Adjustments to reconcile net income to net cash used in operating activities-
(Increase) decrease in accounts receivable (3,867,176) 4,490,290
(Increase) decrease in prepaid expenses and other current assets (6,506) 146,886
(Increase) in other assets (2,000) (115,007)
Increase (decrease) in accounts payable and accrued expenses 322,117 (4,070,557)
------------ -------------
Net cash used in operating activities (3,169,642) (2,961,886)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (289,618) (540,205)
Purchase of treasury stock (1,120) (595,494)
Proceeds from CAS sale, net of closing costs --- 25,762,397
------------ -------------
Net cash (used in) provided by investing activities (290,738) 24,626,698
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock options exercised --- 64,005
Dividends paid (360,486) (339,361)
Net borrowing (repayment) from note payable to bank 1,708,531 (6,678,822)
(Repayment) of long-term debt due to affiliates --- (7,332,426)
Repayment of long-term debt (10,500) (37,500)
Repayment of revolving loan due to affiliate --- (905,913)
Payment of lease obligations 91,050 (67,767)
------------ -------------
Net cash provided by (used in) financing activities: 1,428,595 (15,297,484)
------------ -------------
Net (decrease) increase in cash and cash equivalents ($2,031,785) $6,367,328
CASH AND CASH EQUIVALENTS, beginning of the period 7,881,595 879,797
------------ -------------
CASH AND CASH EQUIVALENTS, end of the period $ 5,849,810 7,247,125
============ =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for:
Interest $ 253,241 $ 73,758
Income taxes $ 18,036 $ 1,208,429
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-7-
<PAGE>
<TABLE>
TARGET LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
<CAPTION>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Six Months Ended December 31,
-----------------------------
1999 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 ---
Redemption of 158,180 Class E Preferred Shares $ --- $(1,581,800)
Conversion of 36,000 Class C Preferred Shares $ --- $ (360,000)
Issuance of Common Stock for Conversion of 36,000
Class C Preferred Shares $ --- $ 3,600
Issuance of Common Stock for Stock Options Exercised $ --- $ 1,749
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-8-
<PAGE>
TARGET LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Notes to Unaudited Consolidated Financial Statements
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions for Form 10-Q and Regulation S-X related to
interim period financial statements and, therefore, do not include all
information and footnotes required by generally accepted accounting principles.
However, in the opinion of management, all adjustments (consisting of normal
recurring adjustments and accruals) considered necessary for a fair presentation
of the consolidated financial position of the Company and its subsidiaries at
March 31, 2000 and their consolidated results of operations and cash flows for
the three and nine months ended March 31, 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,
1999.
Note 2 - Reclassifications
Exclusive forwarder commission expense (previously referred to as agent
commission expense) was reported within cost of transportation in the prior
years' consolidated financial statements. Exclusive forwarder commission expense
is now reported within selling, general and administrative expense. The prior
year has been reclassified to conform with the current year presentation.
Note 3 - Per Share Data
In accordance with the requirements of SFAS No. 128 "Earnings per Share", net
earnings per common share amounts ("basic EPS") were computed by dividing net
earnings after deducting preferred stock dividend requirements, by the weighted
average number of common shares outstanding and contingently issuable shares
(which satisfy certain conditions) and excluding any potential dilution. Net
earnings per common share amounts - assuming dilution ("diluted EPS") were
computed by reflecting potential dilution from the exercise of stock options.
SFAS No. 128 requires the presentation of both basic EPS and diluted EPS on the
face of the income statement.
-9-
<PAGE>
TARGET LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation between the numerators and denominators of the basic and
diluted EPS computations for net earnings for the three and nine months ended
March 31, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, 2000 March 31, 2000
-------------- --------------
Income
Income Shares Per Share ------ Shares Per Share
(Numerator) (Denominator) Amounts (Numerator) (Denominator) Amounts
----------- ------------- ------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Net earnings ($331,168) ($430,760)
Preferred stock dividends (49,302) (246,700)
-------- ---------
BASIC EPS
Net earnings attributable to
common stock ($380,470) 11,879,002 ($0.03) ($677,460) 10,729,262 ($0.06)
====== ======
EFFECT OF DILUTIVE SECURITIES(1)
Convertible Preferred Stock 4,376,454 5,376,333
Stock options 6,426 6,426
Stock warrants 0 0
--------- ---------
DILUTED EPS(1)
Net earnings attributable to common
stock and assumed preferred
conversions and option exercies ($380,470) 11,879,002 ($0.03) ($677,460) 10,729,262 ($0.06)
======== ========== ====== ========= ========== ======
<CAPTION>
Three Months Ended Nine Months Ended
March 31, 1999 March 31, 1999
-------------- --------------
Income
Income Shares Per Share ------ Shares Per Share
(Numerator) (Denominator) Amounts (Numerator) (Denominator) Amounts
----------- ------------- ------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Net earnings ($565,438) $13,589,985
Preferred stock dividends (48,760) (281,573)
BASIC EPS
Net earnings attributable to
common stock ($614,198) 8,298,624 ($0.07) $13,308,412 8,335,381 $1.60
------ =====
EFFECT OF DILUTIVE SECURITIES(1)
Convertible Preferred Stock 4,562,255 5,304,886
Stock options 93,989 152,963
Stock warrants 0 0
--------- ---------
DILUTED EPS(1)
Net earnings attributable to common
stock and assumed preferred
conversions and option exercises ($614,198) 8,298,624 ($0.07) $13,589,985 13,793,230 $0.99
========== ========= ====== =========== ========== =====
</TABLE>
-10-
<PAGE>
Options to purchase 450,000 and 470,000 shares of common stock for the three and
nine months ended March 31, 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) No diluted EPS is presented for the three and nine months ended March 31,
2000 and the three months ended March 31, 1999, as the effect of dilutive
securities would be anti-dilutive on loss per common share.
-11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------
This Quarterly Report on Form 10-Q contains certain forward-looking
statements reflecting the Company's current expectations with respect to its
operations, performance, financial condition, and other developments. Such
statements are necessarily estimates reflecting the Company's best judgement
based upon current information and involve a number of risks and uncertainties.
While it is impossible to identify all such factors, factors which could cause
actual results to differ materially from expectations are: (i) the Company's
historic losses and ability to achieve profitability following the July 1998
sale by the Company of the assets of its Caribbean Air Services, Inc. ("CAS")
subsidiary (the "CAS Sale"), (ii) the Company's ability to increase operating
revenue, improve gross profit margins and reduce selling, general and
administrative costs, (iii) competitive practices in the industries in which the
Company competes, (iv) the Company's dependence on current management, (v) the
impact of current and future laws and governmental regulations affecting the
transportation industry in general and the Company's operations in particular,
(vi) general economic conditions, and (vii) other factors which may be
identified from time to time in the Company's Securities and Exchange Commission
filings and other public announcements. There can be no assurance that these and
other factors will not affect the accuracy of such forward-looking statements.
Forward-looking statements are preceded by an asterisk (*).
OVERVIEW
The Company was incorporated in January 1996 to continue the freight
forwarding business of TIA, Inc. ("TIA") and Caribbean Freight System, Inc. and
acquire Amertranz Worldwide, Inc. ("Amertranz"). The Company generated operating
revenues of $51.7 million, $97.8 million, and $75.4 million, and had a net
profit of $14.0 million and $7.4 million, and a net loss of $10.5 million for
the fiscal years ended June 30, 1999, 1998 and 1997, respectively. The fiscal
year 1999 profit includes a $16.6 million gain (net of tax) arising from the CAS
Sale which closed on July 13, 1998, the fiscal year 1998 profit includes a $7.6
million net income tax benefit arising from the CAS Sale, and the fiscal year
1997 loss included a charge of $3.4 million attributed to restructuring costs in
connection with the closing of the Company's Amertranz subsidiary. The Company
had consolidated earnings (losses) before interest, taxes, depreciation and
amortization (EBITDA) of approximately $22.0 million, $2.6 million, and ($8.3
million), for the fiscal years ended June 30, 1999, 1998 and 1997, respectively.
* Following the closing of the Amertranz subsidiary in June 1997, the
Company determined that it would be in the best interests of the Company and its
shareholders to deleverage the Company's balance sheet and create the cash
resources needed to grow the Company's freight forwarding and logistics
businesses. While the Company's CAS subsidiary has been historically profitable,
management determined that this strategy can best be accomplished by the sale of
the operations of its CAS subsidiary. On July 13, 1998, the Company's CAS
subsidiary sold substantially all of its operating assets to a subsidiary of
Geologistics Corporation for $27 million in cash pursuant to the terms of an
Asset Purchase Agreement dated June 15, 1998. As a result of the CAS Sale, the
Company deleveraged its balance sheet by repaying approximately $15 million in
outstanding liabilities and obtained required working capital to take advantage
of growth opportunities available to the Company's Target Logistic Services,
Inc. subsidiary ("Target"). These opportunities include improved vendor pricing
and attracting quality personnel and agents on a world-wide basis, which the
Company believes will drive its future profitability. In addition, the Company
may consider strategic acquisitions. There can be no assurance that this
strategy to increase profitability will be successful.
* Management believes that the results of the Company's operations for
the nine months ended March 31, 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 and nine months
ended March 31, 2000, Target's revenue increased by 48.4% and 89.5% to
$20,553,649 and $64,488,698, respectively, over the prior year's corresponding
periods. While gross profit margin (i.e., gross operating revenues less cost of
transportation expressed as a percentage of gross operating revenue) decreased
to 32.7% and 31.1% from 32.9% and 33.7% from the three and nine months ended
March 31, 2000, respectively, the decrease is primarily a result of 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
-12
<PAGE>
exclusive forwarders (previously referred to as independent agents) and reducing
fixed selling, general and administrative costs to improve the Company's net
income.
RESULTS OF OPERATIONS
The following discussion relates to the results of operation of the
Company for the three and nine month periods ended March 31, 2000, compared to
results of operation for the three and nine month periods ended March 31, 2000.
Three Months ended March 31, 2000 and 1999
- - ------------------------------------------
Operating Revenue. Operating revenue increased to $20.6 million for the
three months ended March 31, 2000 from $13.9 million for the three months ended
March 31, 1999, a 48.4% increase, due to increased freight volume.
Cost of Transportation. Cost of transportation was 67.3% of operating
revenue for the three months ended March 31, 2000, and 67.1% of operating
revenue for the three months ended March 31, 1999. This increase is due to an
increase in the Target subsidiary's cost of transportation as a percentage of
sales, primarily a result of 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 three months ended March 31, 2000 decreased to
32.7% of operating revenue from 32.9% of operating revenue for the three months
ended March 31, 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to 35.0% of operating revenue for the three
months ended March 31, 2000, from 39.8% of operating revenue for the three
months ended March 31, 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
17.8% of operating revenue for the three months ended March 31, 2000 and 22.7%
for the period ended March 31, 1999, a 21.6% 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 15.3% of operating revenue for the three months ended
March 31, 2000 and 13.7% for the period ended March 31, 1999. This increase is
due to the Company's addition of new exclusive forwarders.
Net Income. The Company realized a net loss of ($331,168) for the three
months ended March 31, 2000, compared to a net loss of ($565,438) for the three
months ended March 31, 1999.
Nine months ended March 31, 2000 and 1999
- - -----------------------------------------
Operating Revenue. Operating revenue increased to $64.5 million for the
nine months ended March 31, 2000 from $35.6 million for the nine months ended
March 31, 1999, a 81.1% 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 89.5% to
$64,488,698 for the nine months ended March 31, 2000 from $34,038,634 for the
corresponding 1999 period, a $30,450,064 increase due to increased freight
volume.
Cost of Transportation. Cost of transportation was 68.9% of operating
revenue for the nine months ended March 31, 2000, and 67.2% of operating revenue
for the nine months ended March 31, 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 68.9% for the current period from 66.3% for the prior year,
primarily a result of higher cost of transportation for Target's international
air import freight movement.
-13-
<PAGE>
Gross Profit. As a result of the factors described in the previous
paragraph, gross profit for the nine months ended March 31, 2000 decreased to
31.1% of operating revenue from 32.8% of operating revenue for the nine months
ended March 31, 1999. Within the Company's Target subsidiary, gross profit
margin decreased to 31.1% from 33.7% for the nine months ended March 31, 2000
and 1999, respectively.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to 32.1% of operating revenue for the nine
months ended March 31, 2000, from 42.1% of operating revenue for the nine months
ended March 31, 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
15.8% of operating revenue for the nine months ended March 31, 2000 and 26.4%
for the period ended March 31, 1999, a 40.2% 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 14.5% of operating revenue for the nine months ended
March 31, 2000 and 10.5% for the period ended March 31, 1999. This increase is
due to the Company's addition of new exclusive forwarders.
Net Income. The Company realized a net loss of ($430,760) for the nine
months ended March 31, 2000, compared to a net income of $13,589,985 for the
nine months ended March 31, 1999. The 1999 results included a $16.6 million gain
(net of tax) arising from the CAS Sale, which closed on July 13, 1998.
LIQUIDITY AND CAPITAL RESOURCES
General. During the nine months ended March 31, 2000, net cash used in
operating activities was $3,170,000. Cash used in investing activities was
$291,000. Cash provided by financing activities was $1,429,000, which primarily
consisted of borrowings under the Company's accounts receivable financing
facility.
Currently, approximately $1.7 million of the Company's outstanding
accounts payable represent unsecured trade payables of the Company's closed
Amertranz subsidiary.
Capital expenditures. Capital expenditures for the nine months ended
March 31, 2000 were $289,618.
* 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 March 31, 2000, the Company had
$1,629,000 available under its $10 million accounts receivable financing
facility and approximately $5,849,810 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.
-14-
<PAGE>
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 Amertranz Worldwide
Holding Corp. and Stuart Hettleman (incorporated by reference to
Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the
Fiscal Year Ended June 30, 1996, File No. 0-29754)
10.5(P) Lease Agreement for Los Angeles Facility (incorporated by reference to
Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for the
Year Ended June 30, 1997, File No. 0-29754)
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 12, 2000 TARGET LOGISTICS, INC.
Registrant
/s/ Stuart Hettleman
---------------------------------------
President, Chief Executive Officer
/s/ Philip J. Dubato
---------------------------------------
Vice President, Chief Financial Officer
-16-
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<LEGEND>
This schedule contains summary financial information extracted from the
financial statements as of and for the period ended June 30, 2000 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
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<NAME> TARGET LOGISTICS, INC.
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