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, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-29754
TARGET LOGISTICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-3309110
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
112 East 25th Street
Baltimore, Maryland 21218
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 338-0127
Inapplicable
(Former name, former address and former fiscal year
if changed from last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
--- ---
At November 12, 2002, the number of shares outstanding of the registrant's
common stock was 12,179,002.
TABLE OF CONTENTS
Part I - Financial Information Page
----
Item 1. Financial Statements:
-------
Consolidated Balance Sheets,
September 30, 2002 (unaudited) and June 30, 2002 (audited) 3
Consolidated Statements of Operations
for the Three Months Ended
September 30, 2002 and 2001 (unaudited) 4
Consolidated Statements of Shareholders'
Equity for the Year Ended June 30, 2002 (audited)
and the Three Months Ended September 30, 2002 (unaudited) 5
Consolidated Statements of Cash Flows
for the Three Months Ended September 30,
2002 and 2001 (unaudited) 6
Notes to Unaudited Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
------- Financial Condition and Results of
Operations 9
Item 3. Quantitative and Qualitative Disclosure about 13
------- Market Risk
Item 4. Controls and Procedures 13
-------
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 12
-------
Signatures 15
Certifications 16
- 2 -
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
TARGET LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2002 June 30, 2002
------------------ -------------
ASSETS (unaudited) (audited)
CURRENT ASSETS:
Cash and cash equivalents $3,060,455 $4,333,015
Accounts receivable, net of allowance for doubtful
accounts of $936,001 and $995,245, respectively
16,601,258 17,012,677
Deferred income taxes 694,333 694,333
Prepaid expenses and other current assets 450,897 310,543
----------- -----------
Total current assets 20,806,943 22,350,568
PROPERTY AND EQUIPMENT, net 584,614 615,606
OTHER ASSETS 920,712 942,110
DEFERRED INCOME TAXES 2,239,667 2,239,667
GOODWILL, net of accumulated amortization of $3,715,106 11,239,917 11,239,917
----------- -----------
Total assets $35,791,853 $37,387,868
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $5,417,550 $5,834,820
Accrued expenses 1,764,390 1,783,136
Accrued transportation expenses 8,604,678 8,430,078
Taxes payable 64,576 64,576
Note payable to bank 5,269,760 5,993,475
Dividends payable 49,844 110,270
Lease obligation-current portion 32,682 76,982
----------- -----------
Total current liabilities 21,203,480 22,293,337
LEASE OBLIGATION--LONG-TERM 30,397 34,002
----------- -----------
Total liabilities $21,233,877 $22,327,339
----------- -----------
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,
12,913,953 and 12,913,953 shares issued and outstanding, respectively 129,139 129,139
Paid-in capital 24,202,248 24,202,248
Accumulated deficit (12,335,566) (11,833,013)
Less: Treasury stock, 734,951 shares held at cost (644,805) (644,805)
----------- -----------
Total shareholders' equity 14,557,976 15,060,529
----------- -----------
Total liabilities and shareholders' equity $35,791,853 $37,387,868
=========== ===========
The accompanying notes are an integral part of these
consolidated balance sheets.
- 3 -
TARGET LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended September 30,
--------------------------------
2002 2001PF (a) 2001
---- ---------- ----
Operating revenues $26,082,685 $21,522,498 $21,522,498
Cost of transportation 17,829,022 14,395,369 14,395,369
----------- ---------- -----------
Gross profit 8,253,663 7,127,129 7,127,129
Selling, general and administrative expenses ("SG&A"):
Exclusive Forwarder Commissions - Target 3,685,237 3,322,559 3,322,559
subsidiary
SG&A - Target subsidiary 4,661,641 3,794,246 3,794,246
SG&A - Corporate 177,356 176,107 176,107
Depreciation and amortization 98,573 86,870(b) 235,837
----------- ---------- ----------
Selling, general and administrative expenses 8,622,807 7,379,782 7,528,749
Operating loss (369,144) (252,653) (401,620)
Other expense:
Interest expense (83,565) (68,482) (68,482)
---------- ---------- ----------
Net loss $ (452,709) $ (321,135) $(470,102)
========== ========== ==========
Basic and diluted loss per share attributable to
common shareholders ( $0.04) ($0.03) ($0.04)
========== ========== ==========
Weighted average shares outstanding 12,179,002 11,879,002 11,879,002
========== ========== ==========
(a) Pro Forma. Under FASB No. 142 (see Note 3), adopted by the Company on July
1, 2002, goodwill and certain intangibles are not amortized into results of
operations. In order to enhance comparability of the fiscal quarters ended
September 30, 2002 and 2001, pro forma statements for the three months ending
September 30, 2001 are presented supplementally as if FASB 142 had been applied
for that period.
(b) Reflects the exclusion of goodwill amortization expense in the amount of
$146,967 for the three months ended September 30, 2001.
The accompanying notes are an integral part of these
consolidated statements.
- 4 -
TARGET LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 2002 AND THE
THREE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)
Preferred Stock Common Stock Additional Treasury Stock
---------------- ------------ Paid-in -------------- Accumulated
Shares Amount Shares Amount Capital Shares Amount Deficit Total
------ ------ ------ ------ ------- ------ ------ ------- -----
Balance, June 30, 2001 320,696 $3,206,960 12,613,953 $126,139 $23,905,248 (734,951) ($644,805) ($10,583,382) $16,010,160
Cash dividends associated
with the Class A and C
Preferred Stock - - - - - - - (315,104) (315,104)
Common Stock issued
pursuant to Subscription
Agreements - - 300,000 3,000 297,000 - - - 300,000
Net loss - - - - - - - (934,527) (934,527)
------- ---------- ---------- -------- ----------- -------- --------- ------------ -----------
Balance, June 30, 2002 320,696 $3,206,960 12,913,953 $129,139 $24,202,248 (734,951) ($644,805) ($11,833,013) $15,060,529
Cash dividends associated
with the Class C
Preferred Stock - - - - - - - (934,527) (934,527)
Net loss - - - - - - - (452,709) (452,709)
------- ---------- ---------- -------- ----------- -------- --------- ------------ -----------
Balance, September 30, 2002 320,696 $3,206,960 12,913,953 $129,139 $24,202,248 (734,951) ($644,805) ($12,335,566) $14,557,976
======= ========== ========== ========= =========== ======== ========= ============ ===========
The accompanying notes are an integral part of these
consolidated financial statements.
- 5 -
TARGET LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended September 30,
2002 2001PF(a) 2001
---- --------- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($452,709) ($321,135) ($470,102)
Bad debt expense 103,349 78,340 78,340
Depreciation and amortization 98,573 86,870(b) 235,837
Adjustments to reconcile net loss to net cash used in operating
activities -
Decrease (increase) in accounts receivable 308,070 (186,084) (186,084)
Increase in prepaid expenses and other current assets (140,354) (9,358) (9,358)
Decrease in other assets 21,398 35,915 35,915
(Decrease) increase in accounts payable and accrued expenses (286,303) 41,174 41,174
----------- ------------- -------------
Net cash used for operating activities (347,976) (274,278) (274,278)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (42,693) (27,880) (27,880)
----------- ------------ ------------
Net cash used for investing activities (42,693) (27,880) (27,880)
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (110,271) (110,270) (110,270)
Borrowing from note payable to bank 29,975,734 20,301,316 20,301,316
Repayment of note payable to bank (30,699,449) (20,640,436) (20,640,436)
Payment of lease obligations (47,905) (18,830)
----------- ------------ ------------
(18,830)
Net cash used for financing activities: (881,891) (468,220) (468,220)
----------- ------------ ------------
Net decrease in cash and cash equivalents ($1,272,560) ($770,378) ($770,378)
CASH AND CASH EQUIVALENTS, beginning of the period 4,333,015 5,486,893 5,286,893
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of the period $3,060,455 $4,716,515 $4,716,515
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for:
Interest $103,572 $107,255 $107,255
Income Taxes $ 2,360 $ - $ -
(a) Pro Forma. Under FASB No. 142 (see Note 3), adopted by the Company on July
1, 2002, goodwill and (a) In order to enhance comparability, proforma statements
for the three months ending September 30, 2001 certain intangibles are not
amortized into results of operations. In order to enhance comparability of
supplementally as if FASB 142 had been applied at the beginning of the prior
period. the fiscal quarters ended September 30, 2002 and 2001, pro forma
statements for the three months ending September 30, 2001 are presented
supplementally as if FASB 142 had been applied for that period.
(b) Reflects the exclusion of goodwill amortization expense in the amount of
$146,967 for the three months ended September 30, 2001.
The accompanying notes are an integral part of these
consolidated financial statements.
- 6 -
TARGET LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
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, 2002 and their consolidated results of operations and cash flows
for the three months ended September 30, 2002 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, 2002.
Note 2 - Use of Estimates
In the process of preparing its consolidated financial statements, the Company
estimates the appropriate carrying value of certain assets and liabilities which
are not readily apparent from other sources. Management bases its estimates on
historical experience and on various assumptions which are believed to be
reasonable under the circumstances. The primary estimates underlying the
Company's consolidated financial statements include allowance for doubtful
accounts, accruals for transportation and other direct costs, accruals for cargo
insurance, and the classification of NOL and tax credit carry forwards between
current and long-term assets.
Note 3 - Goodwill
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
142, "Goodwill and Other Intangible Assets", which requires the use of a
non-amortization approach to account for purchased goodwill and certain
intangibles. This statement is effective for fiscal years beginning after
December 15, 2001. The Company adopted this statement on July 1, 2002. Under the
non-amortization approach, goodwill and certain intangibles will not be
amortized into results of operations, but instead will be reviewed for
impairment, written down and charged to results of operations only in periods in
which the recorded value of goodwill and certain intangibles is more than its
fair value. The Company is having an independent valuation analysis completed
and does not anticipate any material transitional impairment; however, future
impairment reviews may result in periodic write-downs ranging from zero to
$11,239,917.
Note 4 - Per Share Data
Basic loss per share is calculated by dividing net loss attributable to common
shareholders less preferred stock dividends, by the weighted average number of
shares of common stock outstanding during the period. Diluted loss per share is
calculated by dividing net loss attributable to common shareholders by the
weighted average number of common shares outstanding, adjusted for potentially
dilutive securities. Diluted loss per share has not been presented since the
inclusion of outstanding convertible preferred stock and stock options would be
antidilutive.
The following table summarizes the equivalent number of common shares assuming
the related securities that were outstanding as of September 30, 2002 and 2001
had been converted, but not included in the calculation of diluted loss per
share as such shares are antidilutive:
September 30,
2002 2001
---- ----
Convertible preferred stock................... 12,455,852 9,661,625
Stock options................................. 576,957 576,957
---------- ---------
Antidilutive securities 13,032,809 10,238,852
========== ==========
- 7 -
Options to purchase 576,957 shares of common stock for each of the three months
ended September 30, 2002 and 2001, 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, and thus are
anti-dilutive. The options were still outstanding at the end of the period.
Note 5 - Reclassifications
Certain amounts in the prior years' consolidated financial statements have been
reclassified to conform with the 2002 presentation.
Note 6 - Subsequent Event
On October 13, 2002, the Company's Target Logistic Services, Inc. subsidiary
("Target") acquired certain assets and certain liabilities of Cassady Air
Transportation, Inc., a Columbus, Ohio based forwarder for a combination of an
initial cash payment and an earn out structure over five years.
- 8 -
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 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 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 $93.5 million, $90.1 million,
and $84.1 million, and had a net loss of $0.9 million, $1.8 million, and $1.2
million for the fiscal years ended June 30, 2002, 2001 and 2000, respectively.
The Company had earnings or (losses) before interest, taxes, depreciation and
amortization (EBITDA) of approximately $340,000, ($1,424,000) and ($54,000), for
the fiscal years ended June 30, 2002, 2001 and 2000, respectively. 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.
* For the three months ended September 30, 2002, the revenue of the
Company's subsidiary increased by 21.2% when compared to 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) for the three months ended September 30, 2002 decreased by
4.5%. The decrease is mainly due to increased international air import freight
volume which historically reflects a lower gross profit margin as a percentage
of sales. Management continues to believe that the Company must focus on
increasing revenues and must increase gross profit margin to restore the Company
to profitability. Management intends to continue to work on growing revenue by
increasing sales generated by the Company's employed sales personnel, sales
generated by exclusive forwarders, and by strategic acquisitions. Management
also intends to continue to work on improving Target's gross profit margins by
reducing transportation costs.
RESULTS OF OPERATIONS
The Company's results for the three months ending September 30, 2002 have
been impacted by SFAS No. 142, "Goodwill and Other Intangible Assets" (see Note
3). Under this statement, from and after July 1, 2002, the Company may no longer
amortize goodwill, including the goodwill included in the carrying value of
investments accounted for using the equity method of accounting, and certain
other intangible assets deemed to have an indefinite useful life. Therefore, the
results for the three months ended September 30, 2002 are not comparable to the
results for the three months ended September 30, 2001. In order to make the
operating results for the three months ended September 30, 2001 more comparable
to the presentation of the operating results for the three months ended
September 30, 2002 and make an analysis of 2002 and 2001 more meaningful, the
following discussion is based on financial information for the three months
ending September 30, 2001 prepared on a pro forma basis as if SFAS No. 142 had
been applied for that period.
- 9 -
Three Months ended September 30, 2002 and 2001 (Pro Forma)
- ----------------------------------------------------------
Operating Revenue. Operating revenue increased to $26.1 million for the
three months ended September 30, 2002 from $21.5 million for the three months
ended September 30, 2001, a 21.2% increase. Domestic revenue increased by 20.9%
to $19,317,784 for the three months ended September 30, 2002 from $15,972,260
for the three months ended September 30, 2001, due to increased domestic freight
volume. In addition, international revenue increased by 21.9% to $6,764,901 for
the three months ended September 30, 2002 from $5,550,238 for the three months
ended September 30, 2001, mainly due to increased international air import
freight volume.
Cost of Transportation. Cost of transportation increased to 68.4% of
operating revenue for the three month period ended September 30, 2002, from
66.9% of operating revenue for the three month period ended September 30, 2001.
This increase was mainly due to increased international air import freight
volume which historically reflects a higher cost of transportation as a
percentage of sales.
Gross Profit. As a result of the factors described above, gross profit for
the three month period ended September 30, 2002 decreased to 31.6% from 33.1% of
operating revenue for the three month period ended September 30, 2001, a 4.5%
decrease. The decrease is mainly due to increased air international import
freight volume which historically reflects a lower gross profit margin as a
percentage of sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to 33.1% of operating revenue for the three
months ended September 30, 2002 from 34.3% of operating revenue for the pro
forma three months ended September 30, 2001. Within the Company's Target
subsidiary, selling, general and administration expenses (excluding exclusive
forwarder commission expense) were 17.9% of operating revenue for the three
months ended September 30, 2002 and 17.6% for the three months ended September
30, 2001, a 1.7% increase. This increase was primarily due to increased selling
expense resulting from increases in the number of sales personnel employed by
Target. Exclusive forwarder commission expense was 14.1% and 15.4% of operating
revenue for the three months ended September 30, 2002 and 2001, respectively, a
8.4% decrease resulting from decreases in forwarder agent freight volume.
Net Loss. For the three months ended September 30, 2002, the Company
realized a net loss of ($452,709), compared to a net loss of ($321,135) for the
pro forma three months ended September 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
General. During the three months ended September 30, 2002, net cash used in
operating activities was $347,976. Cash used in investing activities was
$42,693, which consisted of capital expenditures. Cash used in financing
activities was $881,891, which primarily consisted of repayments under the
Company's accounts receivable financing facility and dividend payments.
Currently, approximately $1.4 million of the Company's outstanding accounts
payable represent unsecured trade payables of closed subsidiaries which, at this
time, the Company continues to carry on its books.
Capital expenditures. Capital expenditures for the three months ended
September 30, 2002 were $42,693.
* GMAC Facility. The Company's Target subsidiary maintains a $10 million
revolving credit facility ("GMAC Facility") with GMAC Commercial Credit LLC
("GMAC"), guaranteed by the Company. The interest rate of the GMAC Facility is
prime plus 1%, however, at any time prior to September 20, 2002, the interest
rate could not be less than 6.0%, and after September 20, 2002 cannot be less
than 5.0%. Under the terms of the GMAC Facility, Target can borrow the lesser of
$10 million or 85% of the 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 September 30, 2002, there were outstanding
borrowings of $5,269,760 under the GMAC Facility (which represented 81% of the
amount available thereunder) out of a total amount available for borrowing under
the GMAC Facility of approximately $6,531,706. The GMAC Facility expires on
January 14, 2005. The Company entered into the GMAC Facility on January 16,
1997, and subsequently extended the facility for an additional three-year term
and on September 20, 2002 for an additional two-year term.
- 10 -
* Working Capital Requirements. Cash needs of the Company are currently met
by the Company's accounts receivable financing facility and cash on hand. As of
September 30, 2002, the Company had $1,261,946 available under its $10 million
accounts receivable financing facility and $3,060,455 in cash from operations
and cash on hand. The Company believes that its current financial resources will
be sufficient to finance its operations and obligations (current and long-term
liabilities) for the long and short terms. However, the Company's actual working
capital needs for the long and short terms will depend upon numerous factors,
including the Company's operating results, the cost of increasing the Company's
sales and marketing activities, competition, and the availability of a revolving
credit facility, none of which can be predicted with certainty.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. On an on-going
basis, management evaluates its estimates and judgments, including those related
to revenue recognition, intangible assets, financing operations, and
contingencies and litigation. Management bases its estimates and judgments on
historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. The most significant
accounting estimates inherent in the preparation of the Company's financial
statements include estimates as to the appropriate carrying value of certain
assets and liabilities which are not readily apparent from other sources,
primarily allowance for doubtful accounts, accruals for transportation and other
direct costs, accruals for cargo insurance, and the classification of net
operating loss and tax credit carryforwards between current and long-term
assets. These accounting policies are described at relevant sections in this
discussion and analysis and in the notes to the consolidated financial
statements included in our Annual Report on Form 10-K for the fiscal year ended
June 30, 2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
---------------------------------------------------------
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
-----------------------
Based on the evaluation of the Company's disclosure controls and procedures
by Stuart Hettleman, the Company's Chief Executive Officer, and Philip J.
Dubato, the Company's Chief Financial Officer, as of a date within 90 days of
the filing date of this quarterly report, such officers have concluded that the
Company's disclosure controls and procedures are effective in ensuring that
information required to be disclosed by the Company in the reports that it files
or submits under the Securities and Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported, within the time period specified
by the Securities and Exchange Commission's rules and forms.
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
- 11 -
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits:
Exhibit No.
- -----------
3.1 Certificate of Incorporation of Registrant, as amended (incorporated by
reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K
dated November 30, 1998, File No. 0-29754)
3.2 By-Laws of Registrant, as amended (incorporated by reference to Exhibit 3.2
to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended
September 30, 1998, File No. 0-29754)
4.1 Certificate of Designations with respect to the Registrant's Class A
Preferred Stock (contained in Exhibit 3.1)
4.2 Certificate of Designations with respect to the Registrant's Class B
Preferred Stock (contained in Exhibit 3.1)
4.3 Certificate of Designations with respect to the Registrant's Class C
Preferred Stock (contained in Exhibit 3.1)
4.4 Certificate of Designations with respect to the Registrant's Class D
Preferred Stock (contained in Exhibit 3.1)
4.5 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 September
30, 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 Letter amendment to GMAC Facility Agreement, dated January 25, 2001
(incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly
Report on Form 10-Q for the Quarter Ended September 30, 2001, File No.
0-29754)
10.4 Amendment to GMAC Facility Agreement, dated September 20, 2002
(incorporated by reference to Exhibit 10.4 to the Registrant's Annual
Report on Form 10-K for the Year Ended June 30, 2002, File No. 0-29754)
10.5 Employment Agreement dated June 24, 1996 between the Registrant and Stuart
Hettleman, as amended (incorporated by reference to Exhibits 10.5, 10.6 and
10.7 of the Registrant's Annual Report on Form 10-K for the Fiscal Year
Ended June 30, 2002, File No. 0-29754)
10.6(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)
10.7 Amendment to Lease Agreement for Los Angeles Facility (incorporated by
reference to Exhibit 10.9 to the Registrant's Annual Report on Form 10-K
for the Year Ended June 30, 2002, File No. 0-29754)
99 Certification Required Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
(b) Reports on Form 8-K:
None.
- 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 12, 2002 TARGET LOGISTICS, INC.
Registrant
/s/ Stuart Hettleman
---------------------------------------
President, Chief Executive Officer
/s/ Philip J. Dubato
---------------------------------------
Vice President, Chief Financial Officer
- 13 -
CERTIFICATION
I, Stuart Hettleman, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Target Logistics,
Inc.;
2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Quarterly
Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this Quarterly Report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this Quarterly Report (the "Evaluation Date"); and
c) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002 /s/ Stuart Hettleman
------------------------------------
Stuart Hettleman
Chief Executive Officer
- 14 -
CERTIFICATION
I, Philip J. Dubato, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Target Logistics,
Inc.;
2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Quarterly
Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this Quarterly Report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
d) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
e) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this Quarterly Report (the "Evaluation Date"); and
f) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
c) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
d) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002 /s/ Philip J. Dubato
------------------------------------
Philip J. Dubato
Chief Financial Officer
- 15 -
Exhibit 99
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Target Logistics, Inc. (the
"Company") on Form 10-Q for the period ending June 30, 2002 as filed with the
Securities and Exchange Commission and to which this Certification is an exhibit
(the "Report"), the undersigned hereby certify, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Company for the periods reflected therein.
Date: November 12, 2002 /s/ Stuart Hettleman
------------------------------------
Stuart Hettleman
Chief Executive Officer
/s/ Philip J. Dubato
------------------------------------
Philip J. Dubato
Chief Financial Officer