SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2 TO CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): June 20, 2003
Stonepath Group, Inc.
(Exact Name of Registrant as Specified in Charter)
Delaware 001-16105 65-0867684
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
1600 Market Street, Suite 1515
Philadelphia, Pennsylvania 19103
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (215) 979-8370
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report
General Explanation
-------------------
This Amendment No. 2 on Form 8-K/A is being filed to further amend the
Company's Current Report on Form 8-K filed on July 7, 2003 relating to the
Company's acquisition of the assets and operations of Regroup Express, LLC. The
purpose of this amendment is to restate the Pro Forma Financial Information
included in Item 7(b).
RESTATED PRO FORMA FINANCIAL INFORMATION PROVIDED UNDER ITEM 7(b)
RESTATED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
BASIS OF PRESENTATION
On June 20, 2003, through its indirect wholly owned subsidiary,
Stonepath Logistics Government Services, Inc. ("SLGS"), Stonepath Group, Inc.
(the "Company") acquired the business of Regroup Express LLC, a Virginia limited
liability company ("Regroup").
The business acquired from Regroup provides time-definite domestic
and international transportation services including air and ground freight
forwarding, ocean freight forwarding, major project logistics as well as local
pick up and delivery services. The customers of the acquired business include
U.S. government agencies and contractors, select companies in the retail
industry and other commercial businesses.
2
The assets acquired from Regroup consist primarily of its goodwill
and other intangible assets, such as its intellectual property, employee base,
operating methods and systems, customer relationships and ongoing operations.
Certain leases were assumed and personal property was acquired, consisting
primarily of office equipment. Accounts receivable were not acquired and
accounts payable and other obligations were not assumed. The consideration paid
by the Company at the closing of the transaction was $4.7 million, which amount
was paid through a combination of $3.7 million in cash and $1.0 million of the
Company's common stock. Members of Regroup will be entitled to an earn-out
arrangement over a period of five years providing for a total base purchase
price of up to $17.2 million, contingent upon the future financial performance
of SLGS following the acquisition. Members of Regroup may also be entitled to an
additional earn-out payment to the extent its pre-tax earnings exceed $17.5
million during the earn-out period. The funds required for the cash payment at
the closing were obtained by the Company from its credit facility with LaSalle
Business Credit, Inc. The consideration was determined based on arms-length
negotiations between the parties.
The contingent payments will be accounted for as additional cost of
Regroup when the earnings contingency is resolved and the consideration is
issued or becomes issuable. Accordingly, the purchase price allocation presented
herein is preliminary and includes only the $4.7 million paid at closing plus
approximately $300 thousand of direct acquisition costs.
The following unaudited pro forma condensed consolidated balance
sheet at March 31, 2003 presents the Company's acquisition of Regroup as if it
had occurred on March 31, 2003. The unaudited pro forma condensed consolidated
statements of operations for the year ended December 31, 2002 and the three
months ended March 31, 2003 presents the Company's acquisition of Regroup as if
it had occurred on January 1, 2002. The detailed assumptions used to prepare the
unaudited pro forma condensed consolidated financial information are contained
in the accompanying explanatory notes.
The unaudited pro forma condensed consolidated financial information
is presented for illustrative purposes only and is not necessarily indicative of
the financial position or results of operations which would have actually been
reported had the transaction been consummated at the dates mentioned above or
which may be reported in the future. This unaudited pro forma condensed
consolidated financial information is based upon the respective historical
financial statements of the Company and Regroup and should be read in
conjunction with those statements and the related notes.
Historically, Regroup did not maintain a direct contractual
relationship with the end customer but rather operated effectively as the
exclusive sales agent in the mid-Atlantic region for Transgroup Express, Inc.
("Transgroup"). In turn, Transgroup maintained the primary contractual
relationship with the end customers and the network of asset-based carriers as
well as provided billing, collection and other back-office services to Regroup.
In exchange for these services, Transgroup charged Regroup accounting and
factoring fees for its services and remitted funds to Regroup net of these
administrative fees. Regroup was not a party to the house airway bill with the
customer or a party to the master bill of lading with the carriers. In applying
EITF Issue No. 99-19 to the business relationship as between Regroup and
Transgroup, Regroup reported its revenues on a net basis. As part of the
Stonepath platform, however, the acquired business of Regroup will no longer be
operating under the auspices of an agency relationship and like other Stonepath
operations, will assume a direct contractual relationship with its customers and
record revenues on a "gross" basis. To give effect for the change in operating
characteristics of the Regroup business as part of the Stonepath organization,
the pro forma presentation makes adjustments to reflect revenues on a "gross"
basis, to eliminate the accounting and factoring fees charged by Transgroup and
to include additional back-office costs (anticipated to be four additional
personnel) in connection with internalizing the back-office services previously
provided by Transgroup.
3
The historical information for the Company in the following unaudited
pro forma condensed consolidated financial information presented has been
restated from the financial information previously included in the Company's
Current Report on Form 8-K by: (i) allocating more value to the acquired
customer relationship intangible assets acquired in some of the Company's
earlier acquisitions; and (ii) revising the amortization method and life used
for such assets; each in a manner consistent with Note 2 to the consolidated
financial statements contained in the Company's Annual Report on Form 10-K/A,
filed with the SEC on August 28, 2003. In addition, the pro forma
adjustments have been restated to: (i) allocate more value to the customer
relationship intangible asset related to the Regroup transaction; and (ii)
revise the amortization method used for such asset.
This pro forma presentation incorporates the Company's preliminary
allocation of purchase price of the acquired Regroup business which includes
$250,000 to covenants-not-to-compete (to be amortized on a straight line basis
over five years), $1,250,000 to the customer relationship intangible asset
(anticipated to be amortized under the declining balance method using a rate of
25%) and $3,480,000 to goodwill. These preliminary allocations will be refined
and finalized over the next several months as the Company completes the
appropriate valuation analysis.
STONEPATH GROUP, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year ended December 31, 2002
(amounts in thousands, except share and per share information)
Historical Statements
---------------------- Restated Restated
Restated Pro Forma Pro Forma
Stonepath Regroup Adjustments Results
----------- ------ ----------- -----------
Total revenues $ 139,649 $4,163 $14,297 (a) $ 158,109
Cost of transportation 101,339 13,110 (a) 114,449
----------- ------ ------- -----------
Net revenue 38,310 4,163 1,187 43,660
Selling, general and administrative costs 35,956 2,310 1,187 (a) 39,417
(399) (b)
363 (c)
----------- ------ ------- -----------
Income from operations 2,354 1,853 36 4,243
Other income (expense) 128 - (148) (d) (20)
----------- ------ ------- -----------
Income before income taxes 2,482 1,853 (112) 4,223
Income taxes 102 - 57 (e) 159
----------- ------ ------- -----------
Net income 2,380 1,853 (169) 4,064
Preferred stock dividends 15,020 - - 15,020
----------- ------ ------- -----------
Net income attributable to $ 17,400 $1,853 $ (169) $ 19,084
common stockholders =========== ====== ======= ===========
Basic earnings per common share $ 0.79 $ 0.85
Diluted earnings per common share $ 0.08 $ 0.14
Basic weighted average common
shares outstanding 22,154,861 22,522,508
Diluted weighted average common
shares outstanding 29,232,568 29,600,215
(a) To reflect revenues, cost of purchased transportation services and
the accounting and factoring fees charged under an agency agreement
with another logistics services organization on a gross basis.
(b) To eliminate accounting and factoring fees associated with agent
operations, net of incremental compensation to former owners and
additional personnel.
(c) To reflect amortization of acquired identifiable intangibles under
the declining balance method using a 25% rate.
(d) To reflect incremental interest expense at 4.0% associated with
borrowings for the $3.7 million in cash paid at closing.
(e) To reflect state income tax expense.
4
STONEPATH GROUP, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Three months ended March 31, 2003
(amounts in thousands, except share and per share information)
Historical Statements
------------------------------ Restated Restated
Restated Pro Forma Pro Forma
Stonepath Regroup Adjustments Results
----------- -------- ----------- -----------
Total revenues $ 45,365 $ 397 $4,118 (a) $ 49,880
Cost of transportation 33,182 - 3,720 (a) 36,902
----------- ------- ------ -----------
Net revenues 12,183 397 398 12,978
Selling, general and administrative costs 11,455 285 398 (a) 12,008
(201) (b)
71 (c)
Litigation settlement 750 - - 750
----------- ------- ------ -----------
Income from operations (22) 112 130 220
Other income (expense) 30 - (37) (d) (7)
----------- ------- ------ -----------
Income before income taxes 8 112 93 213
Income taxes 15 - 13 (e) 28
----------- ------- ------ -----------
Net income attributable to $ (7) $ 112 $ 80 $ 185
common stockholders =========== ======= ====== ===========
Basic earnings per common share $ (0.00) $ 0.01
Diluted earnings per common share $ (0.00) $ 0.01
Basic weighted average common 24,764,810 25,132,457
shares outstanding
Diluted weighted average common 24,764,810 32,681,489
shares outstanding
(a) To reflect revenues, cost of purchased transportation services and
the accounting and factoring fees charged under an agency agreement
with another logistics services organization on a gross basis.
(b) To eliminate accounting and factoring fees associated with agent
operations, net of incremental compensation to former owners and
additional personnel.
(c) To reflect amortization of acquired identifiable intangibles under
the declining balance method using a 25% rate.
(d) To reflect incremental interest expense at 4.0% associated with
borrowings for the $3.7 million in cash paid at closing.
(e) To reflect state income tax expense.
5
STONEPATH GROUP, INC.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
March 31, 2003
(amounts in thousands)
Historical Statements
----------------------- Restated
Restated Pro Forma Pro Forma
Stonepath Regroup Adjustments Results
--------- ------ ----------- ---------
Current assets:
Cash and cash equivalents $ 2,669 $ 52 $(3,700) (a) $ 2,669
(52) (b)
3,700 (d)
Accounts receivable, net 19,411 1,578 (1,578) (b) 19,411
Other current assets 1,288 96 (96) (b) 1,288
--------- ------ ------- ---------
Total current assets 23,368 1,726 (1,726) 23,368
Goodwill and acquired intangibles, net 25,060 - 4,980 (c) 30,040
Furniture and equipment, 4,748 100 (80) (b) 4,768
Other assets 1,228 7 (7) (b) 1,228
--------- ------ ------- ---------
$ 54,404 $1,833 $ 3,167 $ 59,404
========= ====== ======= =========
Current liabilities:
Accounts payable $ 8,663 $ 60 $ (60) (b) $ 8,663
Earn-out payable 1,061 - - 1,061
Accrued expenses 3,656 18 (18) (b) 3,956
300 (e)
Other current liabilities - 31 (31) (b) 3,700
3,700 (d)
--------- ------ ------- ---------
Total current liabilities 13,380 109 3,891 17,380
Long-term debt - 36 (36) (b) -
--------- ------ ------- ---------
Total liabilities 13,380 145 3,855 17,380
Stockholders' equity
Common stock 28 - 1 (a) 29
Additional paid in capital 201,808 - 999 (a) 202,807
Members' equity - 1,688 (1,688) (b) -
Accumulated deficit (160,719) - - (160,719)
Deferred compensation (93) - - (93)
--------- ------ ------- ---------
Total stockholders' equity 41,024 1,688 (688) 42,024
--------- ------ ------- ---------
$ 54,404 $1,833 $ 3,167 $ 59,404
========= ====== ======= =========
(a) To reflect payment of $3.7 million in cash and $1.0 million in
Company stock paid at closing.
(b) To reflect the elimination of assets, liabilities and equity
balances not acquired in the asset purchase.
(c) To reflect goodwill and other acquired intangibles. Purchase price
allocated as follows:
Amount
---------------------
Furniture and equipment $ 20
Covenant-not-to-compete (preliminary) 250
Customer relationship intangible (preliminary) 1,250
Goodwill (preliminary) 3,480
---------------------
Net assets acquired $ 5,000
=====================
(d) To reflect $3.7 million of incremental borrowings in connection
with the transaction.
(e) To reflect approximately $300 thousand of capitalized direct
acquisition costs.
6
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 hereunto duly authorized.
STONEPATH GROUP, INC.
Date: August 25, 2003 By: Dennis L. Pelino
-------------------------------------------
Name: Dennis L. Pelino
Title: Chairman and Chief Executive Officer