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 December 31, 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 February 7, 2003, 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,
December 31, 2002 (unaudited) and
June 30, 2002 (audited) 3
Consolidated Statements of Operations
for the Three Months Ended
December 31, 2002 and 2001 (unaudited) 4
Consolidated Statements of Operations
for the Six Months Ended
December 31, 2002 and 2001 (unaudited) 5
Consolidated Statements of Shareholders'
Equity for the Year Ended June 30, 2002 (audited)
and the Six Months Ended December 31, 2002 (unaudited) 6
Consolidated Statements of Cash Flows
for the Six Months Ended December 31,
2002 and 2001 (unaudited) 7
Notes to Unaudited Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of 10
------- Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure about Market Risk 13
-------
Item 4. Controls and Procedures 13
-------
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 14
-------
Item 6. Exhibits and Reports on Form 8-K 14
-------
Signatures 15
Certifications 16
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
TARGET LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2002 June 30, 2002
----------------- -------------
ASSETS (unaudited) (audited)
CURRENT ASSETS:
Cash and cash equivalents $4,515,767 $4,333,015
Accounts receivable, net of allowance for doubtful
accounts of $1,049,582 and $995,245, respectively 18,510,317 17,012,677
Deferred income taxes 786,522 694,333
Prepaid expenses and other current assets 399,123 310,543
----------- -----------
Total current assets 24,211,729 22,350,568
PROPERTY AND EQUIPMENT, net 626,845 615,606
OTHER ASSETS 1,130,401 942,110
DEFERRED INCOME TAXES 1,718,044 2,239,667
GOODWILL, net of accumulated amortization of $3,715,106 11,239,917 11,239,917
----------- -----------
Total assets $38,926,936 $37,387,868
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $5,016,232 $5,834,820
Accrued expenses 2,116,675 1,783,136
Accrued transportation expenses 8,887,381 8,430,078
Taxes payable 81,909 64,576
Note payable to bank 6,984,867 5,993,475
Dividends payable 111,822 110,270
Lease obligation-current portion 28,330 76,982
----------- -----------
Total current liabilities 23,227,216 22,293,337
LEASE OBLIGATION -- LONG-TERM 74,443 34,002
----------- -----------
Total liabilities $23,301,659 $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 (11,268,265) (11,833,013)
Less: Treasury stock, 734,951 shares held at cost (644,805) (644,805)
----------- -----------
Total shareholders' equity 15,625,277 15,060,529
----------- -----------
Total liabilities and shareholders' equity $38,926,936 $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 December 31
------------------------------
2002 2001PF (a) 2001
---- ---------- ----
Operating revenues $32,319,371 $24,020,827 $24,020,827
Cost of transportation 21,534,361 16,314,144 16,314,144
----------- ----------- -----------
Gross profit 10,785,010 7,706,683 7,706,683
Selling, general and administrative expenses ("SG&A"):
Exclusive Forwarder Commissions - Target 4,979,403 3,517,351 3,517,351
subsidiary
SG&A - Target subsidiary 5,252,007 3,772,256 3,772,256
SG&A - Corporate 184,963 194,451 194,451
Depreciation and amortization 113,694 92,361(b) 241,328
----------- ----------- -----------
Selling, general and administrative expenses 10,530,067 7,576,419 7,725,386
Operating income (loss) 254,943 130,264 (18,703)
Other income (expense):
Interest expense (94,084) (58,760) (58,760)
Other Income (Note 7) 1,447,699 - -
----------- ----------- -----------
Income (loss) before income taxes 1,608,558 71,504 (77,463)
Provisions for income taxes 429,434 - -
----------- ----------- -----------
Net income (loss) $ 1,179,124 $71,504 $(77,463)
=========== =========== ===========
Income (loss) per share attributable to common
shareholders:
Basic: $0.09 - ($0.02)
=========== =========== ===========
Diluted: $0.05 - -
=========== =========== ===========
Weighted average shares outstanding:
Basic: 12,179,002 11,879,002 11,879,002
=========== =========== ==========
Diluted: 21,845,657 21,545,560 -
=========== =========== ==========
(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
December 31, 2002 and 2001, pro forma statements for the three months ending
December 31, 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
$148,967 for the three months ended December 31, 2001.
The accompanying notes are an integral part of these
consolidated statements.
4
TARGET LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Six months ended December 31
----------------------------
2002 2001PF (a) 2001
---- ---------- ----
Operating revenues $58,402,056 $45,543,325 $45,543,325
Cost of transportation 39,363,383 30,709,513 30,709,513
------------ - ---------- -----------
Gross profit 19,038,673 14,833,812 14,833,812
Selling, general and administrative expenses ("SG&A"):
Exclusive Forwarder Commissions - Target subsidiary 8,664,640 6,839,910 6,839,910
SG&A - Target subsidiary 9,913,648 7,566,502 7,566,502
SG&A - Corporate 362,319 370,558 370,558
Depreciation and amortization 212,267 179,231(b) 477,165
----------- ----------- -----------
Selling, general and administrative expenses 19,152,874 14,956,201 15,254,135
Operating income (loss) (114,201) (122,389) (420,323)
Other income (loss):
Interest expense (177,649) (127,242) (127,242)
Other Income (Note 7) 1,447,699 - -
----------- ----------- -----------
Income (loss) before income taxes 1,155,849 (249,631) (547,565)
Provisions for income taxes 429,434 - -
----------- ----------- -----------
Net income (loss) $726,415 $(249,631) $(547,565)
======== ========= =========
Income (loss) per share attributable to
common shareholders: $0.05 ($0.03) ($0.06)
Basic: ========= ========= =========
Diluted: $0.03 - -
========= ========= =========
Weighted average shares outstanding:
Basic: 12,179,002 11,879,002 11,879,002
========== =========== ==========
Diluted: 23,242,771 - -
========== =========== ==========
(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 six months ended December
31, 2002 and 2001, pro forma statements for the six months ending December 31,
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
$297,934 for the six months ended December 31, 2001.
The accompanying notes are an integral part of these
consolidated statements.
5
TARGET LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 2002 AND THE
SIX MONTHS ENDED DECEMBER 31, 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 A and C - - - - - - - (161,667) (161,667)
Preferred Stock
Net income - - - - - - - 726,415 726,415
------- ---------- ---------- -------- ----------- -------- --------- ------------ -----------
Balance, December 31, 2002 320,696 $3,206,960 12,913,953 $129,139 $24,202,248 (734,951) ($644,805) ($11,268,265) $15,625,277
======= ========== ========== ======== =========== ========= ========= ============ ===========
The accompanying notes are an integral part of these
consolidated financial statements.
6
TARGET LOGISTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended December 31,
-----------------------------
2002 2001PF (a) 2001
---- ---------- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $726,415 ($249,631)(b) ($547,565)
Bad debt expense 372,399 160,752 160,752
Depreciation and amortization 212,267 179,231 (b) 477,165
Decrease in deferred tax asset 429,434 - -
Adjustments to reconcile net income (loss) to net cash used in operating
activities -
Increase in accounts receivable (1,870,039) (731,556) (731,556)
Increase in prepaid expenses and other current assets (88,580) (31,073) (31,073)
Decrease (increase) in other assets 52,651 (186,869) (186,869)
(Decrease) increase in accounts payable and accrued expenses (66,554) 2,184,223 2,184,223
---------- --------- --------
Net cash (used for) provided by operating activities (232,007) 1,325,077 1,325,077
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, equipment and asset purchase
acquisition (Note 5) (408,307) (160,635) (160,635)
---------- --------- ---------
Net cash used for investing activities (408,307) (160,635) (160,635)
---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (160,115) (154,522) (154,522)
Borrowing from note payable to bank 59,924,319 41,350,262 41,350,262
Repayment of note payable to bank (58,932,927) (42,932,034) (42,932,034)
(Payment of) proceeds from lease obligations (8,211) 47,241 47,241
---------- --------- ---------
Net cash provided by (used for) financing activities: 823,066 (1,689,053) (1,689,053)
---------- --------- ---------
Net increase (decrease) in cash and cash equivalents $182,752 ($524,611) $524,611)
CASH AND CASH EQUIVALENTS, beginning of the period 4,333,015 5,486,893 5,486,893
---------- --------- ---------
CASH AND CASH EQUIVALENTS, end of the period $4,515,767 $4,962,282 $4,962,282
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for:
Interest $213,177 $189,807 $189,807
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 six months ended December 31, 2002 and 2001, pro forma statements
for the six months ending December 31, 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
$297,934 for the six months ended December 31, 2001.
The accompanying notes are an integral part of these
consolidated financial statements.
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
December 31, 2002 and their consolidated results of operations and cash flows
for the three and six months ended December 31, 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 obtained an independent valuation analysis completed
during the second quarter ending December 2002. Based on the valuation, the
Company determined that the goodwill was not impaired. The Company will perform
an annual impairment review, with the next review to be performed during fiscal
year 2004. 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 December 31, 2001 had been
converted, but not included in the calculation of diluted loss per share as such
shares are antidilutive. The following table does not include the related
securities that were outstanding as of December 31, 2002, as the equivalent
number of common shares are dilutive and included in the calculation of diluted
earnings per share on the Statement of Operations for the three and six months
ended December 31, 2002:
8
TARGET LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
December 31,
------------
2001
----
Convertible preferred stock......................... 11,730,428
Stock options....................................... 576,957
----------
Antidilutive securities 12,307,385
==========
Options to purchase 590,000 and 576,957 shares of common stock for the six
months ended December 31, 2002 and pro forma 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 - Asset Purchase Acquisition
On October 13, 2002, the Company's Target Logistic Services, Inc. subsidiary
("Target") acquired the 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.
Note 6 - Reclassifications
Certain amounts in the prior years' consolidated financial statements have been
reclassified to conform with the 2002 presentation.
Note 7 - Other Income
During the Company's fiscal years ended June 30, 1997 through 2001, the Company
included reserves for accrued expenses, accounts payable and contingencies
relating to subsidiaries of the Company that were either closed or sold. The
Company has determined that those reserves are no longer necessary. As a result,
other income of $1,447,699 has been recognized for the three and six months
ended December 31, 2002.
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 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 and six months ended December 31, 2002, the revenue of the
Company's subsidiary increased by 34.5% and 28.2%, respectively, 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 December 31, 2002
increased to 33.4% from 32.1%, and for the six months ended December 31, 2002
remained the same as the prior year at 32.6%. The increase is primarily due to
increases in domestic gross profit margins. 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 and six months ending December 31, 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 and six months ended December 31, 2002 are not comparable
to the results for the three and six months ended December 31, 2001. In order to
make the operating results for the three and six months ended December 31, 2001
more comparable to the presentation of the operating results for the three and
six months ended December 31, 2002 and make an analysis of 2002 and 2001 more
meaningful, the following discussion is based on financial information for the
three and six months ending December 31, 2001 prepared on a pro forma basis as
if SFAS No. 142 had been applied for that period.
Three Months ended December 31, 2002 and 2001 (Pro Forma)
- ---------------------------------------------------------
Operating Revenue. Operating revenue increased to $32.3 million for the
three months ended December 31, 2002 from $24.0 million for the three months
ended December 31, 2001, a 34.5% increase. Domestic revenue increased by 36.2%
10
to $23,877,402 for the three months ended December 31, 2002 from $17,527,293 for
the three months ended December 31, 2001, due to increased domestic freight
volume. In addition, international revenue increased by 30.0% to $8,441,969 for
the three months ended December 31, 2002 from $6,493,534 for the three months
ended December 31, 2001, mainly due to increased international air import
freight volume.
Cost of Transportation. Cost of transportation decreased to 66.6% of
operating revenue for the three month period ended December 31, 2002, from 67.9%
of operating revenue for the three month period ended December 31, 2001. This
decrease was primarily due to a lower cost of transportation, as a percentage of
sales, on domestic freight movements.
Gross Profit. As a result of the factors described above, gross profit for
the three month period ended December 31, 2002 increased to 33.4% from 32.1% of
operating revenue for the three month period ended December 31, 2001, a 4.1%
increase. The increase is primarily due to increases in domestic gross profit
margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to 32.6% of operating revenue for the three
months ended December 31, 2002 from 31.6% of operating revenue for the pro forma
three months ended December 31, 2001. Within the Company's Target subsidiary,
selling, general and administration expenses (excluding exclusive forwarder
commission expense) were 16.3% of operating revenue for the three months ended
December 31, 2002 and 15.7% for the three months ended December 31, 2001, a 3.9%
increase. This increase was primarily due to increases in (i) insurance expense
which is being experienced across all industry segments, (ii) temporary labor
purchased from third parties due to increased volume within the Target
subsidiary's Consumer Direct Logistics operation, (iii) bad debt expense
primarily a result of an increase in the over sixty day amounts outstanding,
(iv) claims expense primarily due to increases in claims associated with
residential deliveries within the Consumer Direct Logistics operation, and (v)
selling expense resulting from increases in the number of sales personnel
employed by Target. Exclusive forwarder commission expense was 15.4% and 14.6%
of operating revenue for the three months ended December 31, 2002 and 2001,
respectively, a 5.5% increase resulting from increases in forwarder agent
freight volume.
Other Income. Other income of $1,447,699 for the three months ended
December 31, 2002 is the result of a non-recurring reversal of accruals for
expenses, accruals for contingencies, and accounts payable of previously closed
and sold subsidiaries.
Net Profit. For the three months ended December 31, 2002, the Company
realized a net profit of $1,179,124, compared to a net profit of $71,504 for the
pro forma three months ended December 31, 2001.
Six Months ended December 31, 2002 and 2001 (Pro Forma)
- -------------------------------------------------------
Operating Revenue. Operating revenue increased to $58.4 million for the six
months ended December 31, 2002 from $45.5 million for the six months ended
December 31, 2001, a 28.2% increase. Domestic revenue increased by 28.9% to
$43,195,186 for the six months ended December 31, 2002 from $33,499,553 for the
six months ended December 31, 2001, due to increased domestic freight volume. In
addition, international revenue increased by 26.3% to $15,206,870 for the six
months ended December 31, 2002 from $12,043,772 for the six months ended
December 31, 2001, mainly due to increased international air import freight
volume.
Cost of Transportation. Cost of transportation was 67.4% of operating
revenue for each of the six month periods ended December 31, 2002 and 2001.
Gross Profit. As a result of the factors described above, gross profit for
each of the six month periods ended December 31, 2002 and 2001 was 32.6% of
operating revenue.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to 32.8% of operating revenue for the six
months ended December 31, 2002 from 32.9% of operating revenue for the pro forma
six months ended December 31, 2001. Within the Company's Target subsidiary,
selling, general and administration expenses (excluding exclusive forwarder
commission expense) were 17.0% of operating revenue for the six months ended
December 31, 2002 and 16.6% for the six months ended December 31, 2001, a 2.4%
increase. This increase was due to increases in (i) insurance expense which is
being experienced across all industry segments, (ii) temporary labor purchased
from third parties primarily due to increased volume within the Target
subsidiary's Consumer Direct Logistics operation, (iii) bad debt expense
primarily a result of an increase in the over sixty day amounts outstanding,
(iv) claims expense primarily due to increases in claims associated with
residential deliveries within the Consumer Direct Logistics operation, and (v)
selling expense resulting from increases in the number of sales personnel
employed by Target. Exclusive forwarder commission expense was 14.8% and 15.0%
11
of operating revenue for the six months ended December 31, 2002 and 2001,
respectively, a 1.4% decrease resulting from decreases in forwarder agent
freight volume.
Other Income. Other income of $1,447,699 for the six months ended December
31, 2002 is the result of a non-recurring reversal of accruals for expenses,
accruals for contingencies, and accounts payable of previously closed and sold
subsidiaries.
Net Profit. For the six months ended December 31, 2002, the Company
realized a net profit of $726,415, compared to a net loss of ($249,631) for the
pro forma six months ended December 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES
General. During the six months ended December 31, 2002, net cash used in
operating activities was $232,007. Cash used in investing activities was
$408,307, representing capital expenditures and asset purchase acquisitions.
Cash provided by financing activities was $823,066, which primarily consisted of
borrowings under the Company's accounts receivable financing facility.
Capital expenditures. Capital expenditures for the six months ended
December 31, 2002 were $408,307, representing capital expenditures and asset
purchase acquisitions.
* 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 December 31, 2002, there were outstanding borrowings
of $6,984,867 under the GMAC Facility (which represented 71% of the amount
available thereunder) out of a total amount available for borrowing under the
GMAC Facility of approximately $9,665,917. 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.
* 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
December 31, 2002, the Company had $2,681,050 available under its $10 million
accounts receivable financing facility and $4,515,767 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.
12
During the Company's fiscal years ended June 30, 1997 through 2001, the
Company included reserves for accrued expenses, accounts payable and
contingencies relating to subsidiaries of the Company that were either closed or
sold. Following discussions with the Company's Audit Committee, independent
auditors and Company counsel, the Company determined that those reserves were no
longer necessary. As a result, during the quarter ending December 31, 2002 the
Company recognized $1,447,699 of other income. Had the Company not made the
adjustment during the quarter ended December 31, 2002, the Company would have
reported net income before taxes of $160,859 for the three month period, and a
net loss before taxes of $291,850 for the six month period.
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.
13
PART II - OTHER INFORMATION
---------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
On December 5, 2002, the Company held its Annual Meeting of Shareholders.
The only matters submitted to the shareholders for a vote were (i) the election
of directors and (ii) the amendment to the Company's 1996 Stock Option Plan
("Stock Option Plan") to increase the number of shares available for the grant
of options under the Plan from 1,000,000 to 1,500,000.
The nominees submitted for election as directors were Michael Barsa,
Christopher A. Coppersmith, Brian K. Coventry, Philip J. Dubato and Stuart
Hettleman. At lease 11,800,216 shares were voted in favor of each director, and
no more than 331,551 shares were voted to withhold approval of any director. As
a result, Messrs, Barsa, Coppersmith, Coventry, Dubato and Hettleman were
elected to serve as directors until the next annual meeting of shareholders of
the Company and until their successors are duly elected and qualified.
At least 11,728,616 shares were voted in favor of the amendment to increase
the number of shares available for the grant of options under the Stock Option
Plan, and no more than 401,951 shares were voted to withhold approval of the
amendment. As a result, the amendment to the Stock Option Plan was approved.
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
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)
99.1 Certification Required Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
99.2 Press Release issued February 7, 2003
(b) Reports on Form 8-K:
None.
14
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: February 7, 2003 TARGET LOGISTICS, INC.
Registrant
/s/ Stuart Hettleman
------------------------------------
President, Chief Executive Officer
/s/ Philip J. Dubato
------------------------------------
Vice President, Chief Financial Officer
15
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: February 7, 2003 /s/ Stuart Hettleman
--------------------------------------
Stuart Hettleman
Chief Executive Officer
16
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: February 7, 2003 /s/ Philip J. Dubato
----------------------------------
Philip J. Dubato
Chief Financial Officer
17
Exhibit 10.1
------------
TARGET LOGISTICS, INC.
1996 STOCK OPTION PLAN
1. PURPOSE.
The purpose of the 1996 Stock Option Plan of Target Logistics, Inc.
(the "Plan") is to promote the financial interests of Target Logistics, Inc.
(the "Company"), including its growth and performance, by encouraging directors,
officers and employees of the Company and its subsidiaries to acquire an
ownership position in the Company, enhancing the ability of the Company and its
subsidiaries to attract and retain employees of outstanding ability, and
providing employees with a way to acquire or increase their proprietary interest
in the Company's success.
2. SHARES SUBJECT TO THE PLAN.
Subject to adjustment as provided in Section 13 hereof, up to
1,500,000 of shares of common stock, par value $.01 per share, of the Company
(the "Shares") shall be available for the grant of options under the Plan. The
Shares issued under the Plan may be authorized and unissued Shares or treasury
Shares, as the Company may from time to time determine. The Company shall
reserve and keep available such number of Shares as will satisfy the
requirements of all outstanding options granted under the Plan. Shares subject
to an option that expires unexercised, that is forfeited, terminated or
canceled, in whole or in part, or is paid in cash in lieu of Shares, shall
thereafter again be available for grant under the Plan, provided that if such
option was granted to an officer or director subject to the provisions of
Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act") who
received benefits of ownership of such Shares for purposes of Section 16(b) of
the Exchange Act, such Shares shall not thereafter be available for grant under
the Plan to officers or directors except in accordance with the provisions of
Section 16(b) of the Exchange Act.
3. ADMINISTRATION.
The Plan shall be administered by the Stock Option Committee (the
"Committee") of the Board of Directors of the Company. A majority of the
Committee shall constitute a quorum, and the acts of a majority shall be the
acts of the Committee.
Subject to the provisions of the Plan, the Committee shall (i) from
time to time select directors, officers and employees of the Company and its
subsidiaries who will participate in the Plan (the "Participants"), determine
the type of options to be granted to Participants, determine the Shares subject
to option, and (ii) have the authority to interpret the Plan, to establish,
amend and rescind any rules and regulations relating to the Plan, determine the
terms and provisions of any agreements entered into hereunder, and make all
other determinations necessary or advisable for the administration of the Plan.
The Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or in any option in the manner and to the extent it
shall deem desirable to carry it into effect. The determinations of the
Committee in the administration of the Plan, as described herein, shall be final
and conclusive.
4. ELIGIBILITY.
All directors, officers and employees of the Company and its
subsidiaries, as determined by the Committee, are eligible to be Participants in
the Plan, provided, however, that the President and Executive Vice President of
the Company are eligible to participate in the Plan only to the extent set forth
in Section 6 hereof.
5. OPTIONS; EXERCISE PRICE.
Options under the Plan may consist of either incentive stock options
within the meaning of Section 422 of the Internal Revenue Code or non-qualified
stock options.
The Committee shall establish the option price at the time each stock
option is granted; provided, however, that with respect to incentive stock
options, the option exercise price shall not be less than 100% of the fair
market value of the Shares on the date of grant, and, if the optionee, at the
i
time the option is granted, owns Shares possessing more than 10% of the total
voting power of stock of the Company, the option exercise price shall be 110% of
the fair market value of the Shares on the date of grant.
6. SENIOR EXECUTIVE GRANTS.
The President and Executive Vice President of the Company are eligible
to participate in the Plan only to the extent of the automatic grants as
hereinafter provided. Each such officer has been granted an option ("Senior
Executive Option") on June 3, 1996 (the "Effective Grant Date") to purchase
75,000 Shares. The exercise price of the Senior Executive Options is $6.00 per
Share. The Senior Executive Option will vest over a period of two years,
enabling each such officer to purchase: (i) 20,834 Shares at any time after the
90th day following the effectiveness of the Company's Registration Statement
filed with the United States Securities and Exchange Commission, registration
number 333-03613 (the "IPO Registration Statement") and an additional 16,666
Shares at any time after January 1, 1997 (collectively, the "First Tranche"),
each such portion of the First Tranche being exercisable through the tenth
anniversary of the effectiveness of the IPO Registration Statement; (ii) 18,750
Shares (the "Second Tranche") at any time after January 1, 1998 through the
tenth anniversary of the effectiveness of the IPO Registration Statement, if the
Company's earnings before interest, taxes, depreciation and amortization
("EBITDA") for its fiscal year ending June 30, 1997 exceeds $500,000, provided,
however, that if the Company's EBITDA for its fiscal year ended June 30, 1997
does not exceed $500,000 but its EBITDA for its fiscal year ended June 30, 1998
exceeds $750,000, the Second Tranche shall be exercisable commencing on the date
the Company's EBITDA for its fiscal year ended June 30, 1998 has been
determined; and (iii) 18,750 Shares at any time after January 1, 1999 through
the tenth anniversary of the effectiveness of the IPO Registration Statement, if
the Company's EBITDA for its fiscal year ending June 30, 1998 exceeds $750,000.
In the event the employment of either such officer is terminated in a manner
which would entitle such officer to Severance Compensation as defined in and
under the terms of such officer's employment agreement with the Company or due
to the death or permanent disability of such officer (as defined in such
employment agreement), the Senior Executive Option granted to such officer shall
become immediately exercisable in full. In the event the employment of either
such officer is voluntarily terminated by such officer, the Senior Executive
Option granted to such officer shall remain exercisable to the extent it has
vested. In the event the employment of either such officer is terminated in any
other manner, the Senior Executive Option granted to such officer shall
immediately terminate to the extent it has not then been exercised. Shares
acquired upon the exercise of all or part of a Senior Executive Option may not
be sold or otherwise disposed of by the optionee for a period of six months from
and after the date the Senior Executive Option with respect to such Shares was
exercised, except in the event of death of the optionee, in which event all
vested Senior Executive Options will be exercisable and may be sold at any time
after the date of death. The provisions of this Section 6 may not be amended or
modified more than once every six months except as may be required to comply
with the provisions of the Internal Revenue Code of 1986, as amended, or the
Employee Retirement Income Security Act of 1974, as amended.
7. EXERCISE OF OPTIONS.
Except as herein provided, options shall be exercisable for such
period as specified by the Committee. In no event may options be exercisable
until at least six months following the date of grant. In no event may options
be exercisable more than 10 years after their date of grant or, in the case of
an incentive stock option granted to an optionee who, at the time the option is
granted, owns stock possessing more than 10% of the total voting power of stock
of the Company, more than five years after the date of grant. The option price
of each Share as to which a stock option is exercised shall be paid in full at
the time of such exercise. Such payment shall be made in cash, by tender of
Shares owned by the Participant valued at fair market value as of the date of
exercise and in such other consideration as the Committee deems appropriate, or
by a combination of cash, Shares and such other consideration. To exercise the
option, the optionee or his successor shall give written notice to the Company's
Chief Financial Officer at the Company's principal office, setting forth the
number of Shares being purchased and the date of exercise of the option, which
date shall be at least five days after the giving of such notice unless
otherwise agreed to by the Committee and the optionee. Such notice shall be
accompanied by full payment of the option exercise price for Shares being
purchased and a written statement that the Shares are purchased for investment
and not with a view toward distribution. However, this statement shall not be
required in the event the Shares subject to the option are registered with the
Securities and Exchange Commission. If the option is exercised by the successor
of the optionee, following his death, proof shall be submitted, satisfactory to
the Committee, of the right of the successor to exercise the option. Shares
issued pursuant to this Plan which have not been registered with the Securities
and Exchange Commission shall be appropriately legended. No Shares shall be
issued pursuant to the Plan until full payment for such Shares has been made.
The optionee shall have no rights as a shareholder with respect to optioned
Shares until the date of exercise of the option with respect to such Shares. No
ii
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to such date of exercise, except as otherwise provided
herein. The Company shall not be required to transfer or deliver any
certificates for Shares purchased upon any exercise of any option until after
compliance with all then applicable requirements of law. Any fraction of a Share
required to satisfy such obligation shall be disregarded and the amount due
shall instead be paid in cash to the Participant.
8. OPTION AGREEMENTS.
The granting of an option (except Senior Executive Options as
described in Section 6 hereof) shall take place only when a written Option
Agreement substantially in the form of Exhibit A hereto is executed by the
Company and the optionee and delivered to the optionee. All options under this
Plan (except Senior Executive Options) shall be evidenced by such written Option
Agreement between the Company and the optionee. Such Option Agreement shall
contain such further terms and conditions, not inconsistent with the foregoing,
related to the grant or the time or times of exercise of options as the
Committee shall prescribe.
9. WITHHOLDING.
The Company shall have the right to deduct from any payment to be made
pursuant to the Plan, or to require prior to the issuance or delivery of any
Shares or the payment of cash under the Plan, any taxes required by law to be
withheld therefrom. The Committee, in its sole discretion, may permit a
Participant to elect to satisfy such withholding obligation by having the
Company retain the number of Shares the fair market value of which equals the
amount required to be withheld.
10. NONTRANSFERABILITY.
No option shall be assignable or transferable, and no right or
interest of any Participant shall be subject to any lien, obligation or
liability of the Participant, except by will or the laws of descent and
distribution.
11. NO RIGHT TO EMPLOYMENT.
No person shall have any claim or right to be granted an option, and
the grant of an option shall not be construed as giving a Participant the right
to be retained in the employ or as a director of the Company or its
subsidiaries. Further, the Company and its subsidiaries expressly reserve the
right at any time to dismiss a Participant free from any liability, or any claim
under the Plan, except as provided herein or in any agreement entered into
hereunder.
12. TERMINATION OF RIGHTS; DEATH.
All unexercised or unexpired options granted or awarded under this
Plan will terminate, be forfeited and will lapse immediately if such
Participant's employment or relationship with the Company and its subsidiaries
is terminated for any reason, unless the Committee permits the exercise of such
options for a period not to exceed 90 days after the date of such termination.
If a Participant's employment or relationship with the Company is terminated by
reason of his death, such Participant's personal representatives, estate or
heirs (as the case may be) may exercise, subject to any restrictions imposed by
the Committee at the time of the grant, any option which was exercisable by the
Participant as of the date of his death for a period of 180 days after the date
of the Participant's death.
13. REGISTRATION.
If the Company shall be advised by its counsel that any Shares
deliverable upon any exercise of an option are required to be registered under
the Securities Act of 1933, or that the consent of any other authority is
required for the issuance of such Shares, the Company may effect registration or
obtain such consent, and delivery of Shares by the Company may be deferred until
registration is effected or such consent is obtained.
iii
14. ADJUSTMENT OF AND CHANGES IN SHARES.
In the event of any change in the outstanding Shares by reason of any
Share dividend or split, recapitalization, merger, consolidation, spinoff,
combination or exchange of Shares or other corporate change, or any
distributions to shareholders other than regular cash dividends, the Committee
may make such substitution or adjustment, if any, as it deems to be equitable,
as to the exercise price, number or kind of Shares or other securities issued or
reserved for issuance pursuant to the Plan and to outstanding options.
15. AMENDMENT.
The Board of Directors may amend or terminate the Plan or any portion
thereof at any time, provided that no amendment shall be made without
shareholder approval if such approval is necessary in order for the Plan to
continue to comply with Rule 16b-3 under the Exchange Act.
16. COMPLIANCE WITH EXCHANGE ACT.
With respect to persons subject to Section 16 of the Exchange Act,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent
any provision of the Plan or action by the Committee fails to comply, it shall
be deemed null and void, to the extent permitted by law and deemed advisable by
the Committee.
17. EFFECTIVE DATE.
The Plan has been adopted by the Board of Directors of the Company
and, upon approval of the Shareholders of the Company, shall be effective as of
June 3, 1996. Unless extended or earlier terminated by the Board of Directors,
the Plan shall continue in effect until, and shall terminate on, the tenth
anniversary of the effective date of the Plan. Unless so extended, no additional
options may be granted on or after the tenth anniversary of the effective date
of the Plan.
iv
EXHIBIT A
---------
TARGET LOGISTICS, INC.
1996 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT is made this ________________, 200__, by
and between TARGET LOGISTICS, INC., a Delaware corporation (the "Company"), and
_____________________________ (the "Optionee).
WHEREAS, the Board of Directors of the Company considers it desirable
and in the Company's interest that the Optionee be given an opportunity to
purchase its shares of common stock, par value $.01 per share (the "Shares"),
pursuant to the terms and conditions of the Company's 1996 Stock Option Plan
(the "Plan") to provide an incentive for the Optionee and to promote the
interests of the Company.
NOW, THEREFORE, it is agreed as follows:
1. Incorporation of the Terms of the Plan. This Stock Option Agreement
is subject to all of the terms and conditions of the Plan, and the terms of the
Plan are hereby incorporated herein by reference and made a part hereof.
2. Grant of Option. The Company hereby grants to Optionee an option to
purchase from the Company ________ Shares ("Option Shares") at the exercise
price per Share set forth below. Subject to earlier expiration or termination of
the option granted hereunder, this option shall expire on the 10th anniversary
of the date hereof.
3. Period of Exercise of Option. The Optionee shall be entitled to
exercise the option granted hereunder to purchase Option Shares as follows:
Exercise Date No. of Shares Exercise Price Per Share
------------- ------------- ------------------------
in each case, together with the number of Option Shares which Optionee was
theretofore entitled to purchase.
4. Additional Exercise Periods. In the event of the death of the
Optionee, or if the Optionee's employment or relationship with the Company or
its subsidiaries is terminated for any reason, the option granted hereunder may
be exercised as set forth in the Plan.
5. Method of Exercise. In order to exercise the options granted
hereunder, Optionee must give written notice to the Chief Financial Officer of
the Company at the Company's principal place of business, substantially in the
form of Exhibit A hereto, accompanied by full payment of the exercise price for
the Option Shares being purchased, in accordance with the terms and provisions
of the Plan.
6. Manner of Payment. An Optionee may pay the option price for Shares
purchased upon exercise of the option as set forth in the Plan.
v
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed under seal, intending this to be a sealed instrument, as of the date
first above written.
ATTEST: TARGET LOGISTICS, INC.
___________________________________ By:___________________________(SEAL)
WITNESS: OPTIONEE:
___________________________________ By:___________________________(SEAL)
v
Exhibit 99.1
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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 December 31, 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: February 7, 2003 /s/ Stuart Hettleman
--------------------------------------
Stuart Hettleman
Chief Executive Officer
/s/ Philip J. Dubato
--------------------------------------
Philip J. Dubato
Chief Financial Officer
Exhibit 99.2
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FOR: TARGET LOGISTICS, INC.
CONTACT: Stuart Hettleman
(410) 338-0127
KCSA Joseph A. Mansi / Elizabeth Mwangi
CONTACT: (212) 896-1205 / (212) 896-1242
jmansi@kcsa.com / emwangi@kcsa.com
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FOR IMMEDIATE RELEASE
TARGET LOGISTICS, INC. ANNOUNCES
FISCAL SECOND QUARTER AND SIX MONTHS RESULTS
Q2 Revenues Increase 34.5 Percent
BALTIMORE, Md., February 7, 2003 - Target Logistics, Inc. (OTC BB: TARG)
announced today results for the second fiscal quarter and six months ended
December 31, 2002.
Operating revenues for the second quarter were $32,319,371, a 34.5 percent
increase over operating revenues of $24,020,827 reported in the second quarter
of fiscal 2002. The Company reported net income for the fiscal second quarter of
$1,179,124, or $0.09 per basic and $0.05 per diluted share, compared with a net
loss of $(77,463), or $(0.02) per basic and diluted share reported for the
second quarter of fiscal 2002.
For the fiscal six-month period ended December 31, 2002, operating revenues
increased 28.2 percent to $58,402,056, compared with operating revenues of
$45,543,325, reported for the same period in fiscal 2002. Net income for the six
months ended December 31, 2002 was $726,415, or $0.05 per basic and $0.03 per
diluted share, compared with a net loss of $(547,565), or $(0.06) per basic and
diluted share for the period ended December 31, 2001.
Net income for the second quarter and six months ended December 31, 2002
includes $1,447,699 in non-recurring reversals of accruals for expenses,
accruals for contingencies and accruals for accounts payable of previously
closed and sold subsidiaries.
On a pro forma basis, net income for the second quarter of 2001 was
$71,504. For the six months ended December 31, 2001 pro forma net loss was
$(249,631), or $(0.03) per share. Since 2002 results are presented in accordance
with a new accounting pronouncement (FASB 142) under which goodwill and certain
intangibles are not amortized into results of operations, the pro forma results
are presented supplementally to enhance comparison as if FASB 142 had been
applied at the beginning of the prior fiscal year.
Stuart Hettleman, President and Chief Executive Officer, said, "We are
pleased with the continued growth of our operating revenues. Revenues grew 34.5
percent in the second quarter and 28.2 percent for the six months. We believe
this is evidence of the success of our acquisition program and the results of
the investment we have made in our sales team. Further, during the second
quarter gross profit margins rose by 4.1 percent to 33.4 percent."
Mr. Hettleman added, "With increased focus on the quality of financial
reporting, we are also pleased that based on a recent independent valuation
conducted for our first goodwill impairment review, it was determined that the
Company's goodwill has not been impaired."
About Target Logistics, Inc.:
Target Logistics, Inc. provides freight forwarding and logistics services
through its wholly-owned subsidiary, Target Logistic Services, Inc.
(Tables Follow)
Target Logistics, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended December 31,
2001
2002 Pro Forma (a) 2001
---- ------------- ----
Operating revenues $32,319,371 $24,020,827 $24,020,827
Cost of transportation 21,534,361 16,314,144 16,314,144
----------- ----------- -----------
Gross profit 10,785,010 7,706,683 7,706,683
Selling, general and administrative expenses ("SG&A"):
SG&A - Target subsidiary (exclusive
forwarder commissions) 4,979,403 3,517,351 3,517,351
SG&A - Target subsidiary 5,252,007 3,772,256 3,772,256
SG&A Corporate 184,963 194,451 194,451
Depreciation and amortization 113,694 92,361 (b) 241,328
----------- ----------- -----------
Selling, general and administrative expenses 10,530,067 7,576,419 7,725,386
Operating income (loss) 254,943 130,264 (18,703)
Other income (expense):
Interest expense (94,084) (58,760) (58,760)
Other income $ 1,447,699 ------ ------
----------- ---------- ----------
Income (loss) before taxes 1,608,558 71,504 (77,463)
Provision for income taxes 429,434 ------ ------
----------- ---------- ----------
Net income (loss) $ 1,179,124 $ 71,504 $ (77,463)
=========== ========== ===========
Income (loss) per share attributable
to common shareholders
Basic $ 0.09 ------ $ (0.02)
=========== ========== ==========
Diluted $ 0.05 ------ ------
=========== ========== ==========
Weighted average shares outstanding:
Basic 12,179,002 11,879,002 11,879,002
========== ========== ==========
Diluted 21,845,657 21,545,560 ------
========== ========== ==========
(a) Pro Forma. Under FASB No. 142, 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 three month periods ending December 31,
2002 and 2001, pro forma statements for the three months ending December 31,
2001 are presented supplementally as if FASB 142 has been applied for that
period.
(b) Reflects the exclusion of goodwill amortization expense in the amount of
$148,967 for the three months ending December 31, 2001.
Target Logistics, Inc.
Consolidated Statements of Operations
(Unaudited)
Six Months Ended December 31,
2001
2002 Pro Forma (a) 2001
---- ------------- ----
Operating revenues $58,402,056 $45,543,325 $45,543,325
Cost of transportation 39,363,383 30,709,513 30,709,513
----------- ----------- -----------
Gross profit 19,038,673 14,833,812 14,833,812
Selling, general and administrative expenses ("SG&A"):
SG&A - Target subsidiary (Exclusive
forwarder commissions) 8,664,640 6,839,910 6,839,910
SG&A - Target subsidiary 9,913,648 7,566,502 7,566,502
SG&A Corporate 362,319 370,558 370,558
Depreciation and amortization 212,267 179,231(b) 477,165
----------- ---------- ----------
Selling, general and administrative expenses 19,152,874 14,956,201 15,254,135
Operating income (loss) (114,201) (122,389) (420,323)
Other income (expense):
Interest expense (177,649) (127,242) (127,242)
Other income $ 1,447,699 ------ ------
----------- ---------- ----------
Income (loss) before taxes 1,155,849 (249,631) (547,565)
Provision for income taxes 429,434 ------ ------
----------- ---------- ----------
Net income (loss) $ 726,415 $ (249,631) $ (547,565)
=========== ========== ==========
Income (loss) per share attributable
to common shareholders
Basic $ 0.05 $ (0.03) $ (0.06)
=========== =========== ==========
Diluted $ 0.03 ------ ------
=========== =========== ==========
Weighted average shares outstanding:
Basic 12,179,002 11,879,002 11,879,002
========== ========== ==========
Diluted 23,242,771 ------ ------
========== ========== ==========
(a) Pro Forma. Under FASB No. 142, 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 six month periods ending December 31,
2002 and 2001, pro forma statements for the six months ending December 31, 2001
are presented supplementally as if FASB 142 has been applied for that period.
(b) Reflects the exclusion of goodwill amortization expense in the amount of
$297,934 for the six months ending December 31, 2001.
Statements contained in this press release that are not historical facts are
forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. Although Target Logistics believes that the
expectations reflected in such forward-looking statements are reasonable, the
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those projections.
This release and prior releases are available on the KCSA Public Relations
Worldwide website at www.kcsa.com.
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