SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K/A
AMENDMENT NO. 1 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): February 9, 2004
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Stonepath Group, Inc.
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(Exact Name of Registrant as Specified in Charter)
Delaware 001-16105 65-0867684
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(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
1600 Market Street, Suite 1515
Philadelphia, Pennsylvania 19103
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(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
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The purpose of this Report is to amend the Registrant's Current Report on Form
8-K dated February 9, 2004 (the "Initial Report") that was filed with the
Securities and Exchange Commission on February 24, 2004, which reported on the
acquisition by the Company of a 55% interest in Shaanxi Sunshine Cargo Services
International Co., Ltd. This Report amends the Initial Report so as to provide
the information required under Item 7(b) of Form 8-K.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
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(b) Pro Forma Financial Information.
(i) Unaudited Pro Forma Condensed Consolidated Financial
Statements of Stonepath Group, Inc.
Pro Forma Balance Sheet, December 31, 2003
Pro Forma Statement of Operations, Year Ended December 31, 2003
(c) Exhibits (referenced to Item 601 of Regulation S-K).
2.9 Amended and Restated Contract for the Sale of Assets by and
between Stonepath Holdings (Hong Kong) Limited and Andy Tsai,
dated November 10, 2003. ***
2.10 Amendment Letter Agreement dated February 9, 2004, to the
Amended and Restated Contract for the Sale of Assets by and
between Stonepath Holdings (Hong Kong) Limited and Andy Tsai. ***
23.1 Independent Auditors' Consent ***
99.1 Press Release dated February 10, 2004 ***
*** Exhibits previously filed with the Current Report on Form 8-K
dated February 9, 2004 and filed on February 24, 2004.
PRO FORMA FINANCIAL INFORMATION PROVIDED UNDER ITEM 7(b)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
BASIS OF PRESENTATION
On February 9, 2004, Stonepath Group, Inc. (the "Company"), through its
wholly owned subsidiary, Stonepath Holdings (Hong Kong) Limited, acquired a 55%
interest in Shaanxi Sunshine Cargo Services International Co., Ltd. ("Shaanxi").
Shaanxi is a Class A licensed freight forwarder headquartered in Shanghai, PRC,
that provides its clients with a wide range of customized transportation and
logistics services and supply chain solutions, including global freight
forwarding, warehousing and distribution, shipping services and special freight
handling.
Shaanxi is the successor, by way of asset acquisition, to the freight
forwarding business formerly operated by Andy Tsai since 1993 as the Shanghai
branch of Shaanxi Sunshine Express International Co., Ltd. (the "Business"). The
substance of the transaction resulted in the contribution by Andy Tsai of the
Business to Shaanxi, in exchange for a 45% interest in Shaanxi (of which 5%
ultimately was retained by a third party), concurrent with an acquisition of a
55% interest in Shaanxi by the Company for the purchase consideration identified
below.
The assets acquired consist primarily of the goodwill and other
intangibles such as intellectual property, employee base, operating methods,
systems and customer relationships associated with the operations of the
Business. Personal property consisting primarily of office equipment, cash and
eligible accounts receivable were also acquired. In addition, accounts payable
and certain leases were assumed as part of the acquisition.
In consideration for its interest in the acquired Business, the Company
paid $5.5 million at closing through a combination of $3.5 million cash and $2.0
million in value of the Company's stock, consisting of 630,915 shares of the
Company's common stock valued at $3.17 per share. The shares are subject to a
one year restriction upon resale, and are subject to pro rata forfeiture based
upon a formula that measures the actual pre-tax net income of the Business
through December 31, 2004, versus the targeted level of income of $4 million (on
an annualized basis). The Company has agreed to issue additional shares of its
common stock to Mr. Tsai if at the end of the one year restrictive period, the
Company's common shares are trading at a price of less than $3.17 per share. The
Company also agreed to an earn-out arrangement over a period of five (5) years
of up to $5.5 million ($1.1 million per year) contingent upon Shaanxi realizing
pre-tax net income of at least $4 million per year during the earn-out period.
As additional purchase price, on a post-closing basis, the Company has also
agreed to pay for excess closing date working capital estimated at between $1
and $2 million.
The contingent payments will be accounted for as additional cost of
Shaanxi 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 $5.5 million paid at closing plus
approximately $220 thousand of capitalized closing costs.
To facilitate a smooth transition, the transaction took effect March 1,
2004. Additionally, because the Company reports its offshore operations on a one
month lag, the earnings impact of the acquisition will first be reflected in the
Company's consolidated second quarter.
The following unaudited pro forma condensed consolidated balance sheet
at December 31, 2003 presents the Company's acquisition of Shaanxi as if it had
occurred on November 30, 2003. The unaudited pro forma condensed consolidated
statement of operations for the year ended December 31, 2003 presents the
Company's acquisition of Shaanxi as if it had occurred on December 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 Shaanxi and should be read in
conjunction with those statements and the related notes.
STONEPATH GROUP, INC.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
December 31, 2003
(amounts in thousands)
Historical
----------------------------- Pro Forma
Stonepath Shaanxi (1) Adjustments Pro Forma
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Current assets:
Cash and cash equivalents $ 3,074 $ 2,050 $ (3,500) (a) $ 3,074
3,500 (d)
(2,050) (b)
Accounts receivable, net 38,470 17,279 (17,279) (b) 38,470
Other current assets 2,231 64 (64) (b) 2,231
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Total current assets 43,775 19,393 (19,393) 43,775
Goodwill and acquired intangibles, net 42,540 - 5,707 (c) 48,247
Furniture and equipment, net 7,063 1,643 (1,554) (b)(c) 7,152
Other assets 3,060 5 (168) (b)(e) 2,897
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$ 96,438 $ 21,041 $ (15,408) $ 102,071
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Current liabilities:
Accounts payable $ 16,119 $ 14,365 $ (14,365) (b) $ 16,212
93 (e)
Line of credit - bank - - 3,500 (d) 3,500
Earn-out payable 6,624 - - 6,624
Accrued payroll and expenses 4,030 - - 4,030
Other current liabilities 671 - - 671
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Total current liabilities 27,444 14,365 (10,772) 31,037
Capital lease obligation - long term 1,135 - - 1,135
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Total liabilities 28,579 14,365 (10,772) 32,172
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Minority interest 1,346 - 40 (f) 1,386
Stockholders' equity
Preferred stock - - - -
Common stock 38 1 1 (a)(b) 40
Additional paid in capital 220,068 111 1,887 (a)(b) 222,066
Accumulated earnings (deficit) (153,572) 6,564 (6,564) (b) (153,572)
Deferred compensation (21) - - (21)
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Total stockholders' equity 66,513 6,676 (4,676) 68,513
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$ 96,438 $ 21,041 $ (15,408) $ 102,071
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(1) Shaanxi data is presented as of November 30, 2003 to conform with the Company's accounting policy for
consolidation of foreign subsidiaries
Pro Forma Adjustments
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(a) To reflect payment of $3.5 million in cash and $2.0 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:
Furniture and equipment $ 89
Covenant-not-to-compete (preliminary) 341
Customer relationship intangible (preliminary) 2,072
Goodwill (preliminary) 3,294
Minority interest (40)
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Net assets acquired $ 5,756
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(d) To reflect $3.5 million of incremental borrowings in connection with the transaction.
(e) To reflect approximately $220 thousand of capitalized direct acquisition costs.
(f) To reflect 45% minority interest in $89 thousand of acquired net assets (historical cost basis).
STONEPATH GROUP, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year ended December 31, 2003
(amounts in thousands, except share and per share information)
Historical
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Stonepath Shaanxi (1) Adjustments Pro Forma
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Total revenue $ 220,304 $ 67,701 $ - $ 288,005
Cost of transportation 153,718 62,291 - 216,009
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Net revenue 66,586 5,410 - 71,996
Selling, general and administrative costs 60,300 2,711 586 (a) 63,598
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Income from operations 6,286 2,699 (586) 8,399
Other income (expense) (8) 67 (140) (b) (81)
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Income before income taxes and minority interest 6,278 2,766 (726) 8,317
Income tax expense (benefit) (1,311) 1,033 (226) (c) (504)
Minority interest 187 - 780 (d) 967
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Income from continuing operations $ 7,402 $ 1,733 $ (1,280) $ 7,854
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Basic earnings per common share $ 0.25 $ 0.26
Diluted earnings per common share $ 0.19 $ 0.20
Basic weighted average common 29,625,585 30,256,500
shares outstanding
Diluted weighted average common 39,063,311 39,694,226
shares outstanding
(1) Shaanxi data is presented for the twelve month period from December 1, 2002 to November 30, 2003 to conform
with the Company's accounting policy for consolidation of foreign subsidiaries.
Pro Forma Adjustments
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(a) To reflect amortization of the acquired customer relationship intangible under the declining balance method using a
25% rate and the acquired covenant not to compete intangible under the straight line method over five years.
(b) To reflect incremental interest expense at 4.0% associated with borrowings for the $3.5 million in cash paid at closing.
(c) To reflect income tax benefit.
(d) To reflect the 45% minority interest in Shaanxi.
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: April 23, 2004 By: Dennis L. Pelino
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Name: Dennis L. Pelino
Title: Chairman and Chief Executive Officer