UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2004
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________________ to ____________________.
Commission File number 001-16105
STONEPATH GROUP, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 65-0867684
------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1600 Market Street, Suite 1515
Philadelphia, PA 19103
------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (215) 979-8370
--------------
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 [_]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [_]
There were 41,199,102 issued and outstanding shares of the registrant's common
stock, par value $.001 per share, at May 5, 2004.
STONEPATH GROUP, INC.
INDEX
Page
----
Part I. FINANCIAL INFORMATION.................................................................................1
Item 1. Financial Statements (Unaudited) .....................................................................1
Condensed Consolidated Balance Sheets
at March 31, 2004 and December 31, 2003...............................................................1
Consolidated Statements of Operations
Three months ended March 31, 2004 and March 31, 2003..................................................2
Consolidated Statements of Cash Flows
Three months ended March 31, 2004 and 2003............................................................3
Notes to Unaudited Consolidated Financial Statements..................................................4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...............11
Item 3. Quantitative and Qualitative Disclosures About Market Risk...........................................26
Item 4. Controls and Procedures..............................................................................26
Part II. OTHER INFORMATION....................................................................................26
Item 1. Legal Proceedings....................................................................................26
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.....................27
Item 3. Defaults Upon Senior Securities......................................................................27
Item 4. Submission of Matters to a Vote of Security Holders..................................................27
Item 5. Other Information....................................................................................27
Item 6. Exhibits and Reports on Form 8-K.....................................................................27
SIGNATURES...................................................................................................29
i
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
STONEPATH GROUP, INC.
Condensed Consolidated Balance Sheets
(UNAUDITED)
March 31, 2004 December 31, 2003
-------------- -----------------
Assets
Current assets:
Cash and cash equivalents $ 4,054,784 $ 3,074,151
Accounts receivable, net 47,402,077 38,470,386
Other current assets 4,432,223 2,231,297
------------- --------------
Total current assets 55,889,084 43,775,834
Goodwill and acquired intangibles, net 44,864,962 42,540,104
Furniture and equipment, net 8,293,749 7,062,956
Other assets 1,168,959 1,364,917
Deferred taxes 1,574,000 1,695,000
------------- --------------
$ 111,790,754 $ 96,438,811
============= ==============
Liabilities and Stockholders' Equity
Current liabilities:
Line of credit-bank $ 8,623,305 $ --
Accounts payable 23,506,131 16,119,014
Accrued expenses 7,326,644 4,030,192
Earn-out payable 1,157,738 6,623,724
Capital lease obligation 796,049 671,197
------------- --------------
Total current liabilities 41,409,867 27,444,127
Capital lease obligation, net of current portion 1,225,335 1,134, 815
------------- --------------
Total liabilities 42,635,202 28,578,942
------------- --------------
Minority interest 2,087,100 1,345,790
------------- --------------
Commitments and contingencies (Note 5)
Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares authorized;
Series D Convertible, issued and outstanding: 192,807 and 310,480
shares at 2004 and 2003, respectively 193 310
Common stock, $.001 par value, 100,000,000 shares authorized; issued
and outstanding: 39,943,477 and 37,449,944 shares at 2004 and 2003,
respectively 39,943 37,450
Additional paid-in capital 221,347,937 220,067,956
Accumulated deficit (154,357,361) (153,572,460)
Accumulated other comprehensive income 37,740 1,997
Deferred compensation -- (21,174)
------------- --------------
Total stockholders' equity 67,068,452 66,514,079
------------- --------------
Total liabilities and stockholders' equity $ 111,790,754 $ 96,438,811
============= ==============
See accompanying notes to unaudited consolidated financial statements.
1
STONEPATH GROUP, INC.
Consolidated Statements of Operations
(UNAUDITED)
Three months ended March 31,
----------------------------
2004 2003
---- ----
Total revenue $ 60,533,707 $ 38,572,441
Cost of transportation 42,809,574 26,388,801
------------- -------------
Net revenue 17,724,133 12,183,640
Personnel costs 9,897,742 6,563,080
Other selling, general and administrative costs 8,057,401 4,302,373
Depreciation and amortization 850,836 589,778
Litigation settlement -- 750,000
------------- -------------
Loss from operations (1,081,846) (21,591)
Other income
Interest income (expense), net (35,739) 14,767
Other income (expense), net (15,508) 14,740
------------- -------------
Income (loss) before income tax expense (benefit) and minority interest (1,133,093) 7,916
Income tax expense (benefit) (417,800) 15,221
------------- -------------
Loss before minority interest (715,293) (7,305)
Minority interest 69,608 --
------------- -------------
Net loss attributable to common stockholders $ (784,901) $ (7,305)
============= =============
Basic and diluted loss per common share $ (0.02) $ --
============= =============
Basic and diluted weighted average common shares outstanding 38,385,489 24,764,810
============= =============
See accompanying notes to unaudited consolidated financial statements.
2
STONEPATH GROUP, INC.
Consolidated Statements of Cash Flows
(UNAUDITED)
Three months ended March 31,
----------------------------
2004 2003
---- ----
Cash flow from operating activities:
Net loss $ (784,901) $ (7,305)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Deferred income taxes 121,000 --
Depreciation and amortization 850,836 589,778
Minority interest in income of subsidiaries 69,608 --
Stock-based compensation 21,174 23,808
Loss on disposal of furniture and equipment 10,450 --
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable 4,687,992 2,388,606
Other assets (599,214) 32,107
Accounts payable and accrued expenses (4,160,617) (3,697,654)
------------- -------------
Net cash provided by (used in) operating activities 216,328 (670,660)
------------- -------------
Cash flows from investing activities:
Purchases of furniture and equipment (1,081,720) (1,734,218)
Acquisition of business, net of cash acquired (2,334,012) (70,000)
Payment of earn-out (5,465,986) (2,819,150)
Loans made (75,000) --
------------- -------------
Net cash used in investing activities (8,956,718) (4,623,368)
------------- -------------
Cash flows from financing activities:
Proceeds from line of credit 8,623,305 --
Issuance of common stock, net of costs -- 5,674,473
Issuance of common stock upon exercise of options and warrants 1,237,357 22,500
Principal payments on capital lease (175,382) --
------------- -------------
Net cash provided by financing activities 9,685,280 5,696,973
------------- -------------
Effect of foreign currency translation 35,743 --
------------- -------------
Net increase in cash and cash equivalents 980,633 402,945
Cash and cash equivalents at beginning of period 3,074,151 2,266,108
------------- -------------
Cash and cash equivalents at end of period $ 4,054,784 $ 2,669,053
============= =============
Cash paid for interest $ 45,256 $ --
============= =============
Cash paid for income taxes $ 51,261 $ 33,224
============= =============
Supplemental disclosure of non-cash investing and financing activities:
Increase in furniture and equipment and capital lease obligation $ 390,754 $ --
Increase in common stock from conversion of Series D preferred stock $ 117 $ --
See accompanying notes to unaudited consolidated financial statements.
3
Stonepath Group, Inc.
Notes to Unaudited Consolidated Financial Statements
March 31, 2004
(1) Nature of Operations and Basis of Presentation
Stonepath Group, Inc. and subsidiaries (the "Company") is a non-asset based
third-party logistics services company providing supply chain solutions on a
global basis. A full range of time-definite transportation and distribution
solutions is offered through the Company's Domestic Services platform, where the
Company manages and arranges the movement of raw materials, supplies, components
and finished goods for its customers. A full range of international logistics
services including international air and ocean transportation as well as customs
house brokerage services is offered through the Company's International Services
platform. In addition to these core service offerings, the Company also provides
a broad range of value added supply chain management services, including
warehousing, order fulfillment and inventory management. The Company services a
customer base of manufacturers, distributors and national retail chains.
The accompanying unaudited consolidated financial statements were prepared in
accordance with generally accepted accounting principles for interim financial
information. Certain information and footnote disclosures normally included in
financial statements have been condensed or omitted pursuant to the rules and
regulations of the U.S. Securities and Exchange Commission (the "SEC") relating
to interim financial statements. These statements reflect all adjustments,
consisting only of normal recurring accruals, necessary to present fairly the
Company's financial position, operations and cash flows for the periods
indicated. While the Company believes that the disclosures presented are
adequate to make the information not misleading, these unaudited consolidated
financial statements should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 2003. Interim operating
results are not necessarily indicative of the results for a full year because
our operating results are subject to seasonal trends when measured on a
quarterly basis. Our first and second quarters are likely to be weaker as
compared with our other fiscal quarters, which we believe is consistent with the
operating results of other supply chain service providers.
(2) Stock-Based Compensation
In December 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," which amended the disclosure
requirements of SFAS No. 123, "Accounting and Disclosure of Stock-Based
Compensation" to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The Company
accounts for its employee stock option grants by applying the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations.
The table below illustrates the effect on net loss attributable to common
stockholders and loss per common share as if the fair value of options granted
had been recognized as compensation expense in accordance with the provisions of
SFAS No. 123.
4
Stonepath Group, Inc.
Notes to Unaudited Consolidated Financial Statements
March 31, 2004
Three months ended March 31,
----------------------------
2004 2003
------------ ----------
Net loss attributable to common stockholders:
As reported $ (784,901) $ (7,305)
Add: stock-based employee compensation expense
included in reported net loss, net of tax 13,367 22,618
Deduct: total stock-based compensation expense
determined under fair value method for all awards,
net of tax (1,359,970) (894,318)
------------ ----------
Pro forma net loss attributable to common
stockholders $ (2,131,504) $ (879,005)
============ ==========
Basic and diluted loss per common share:
As reported $ (0.02) $ --
Pro forma (0.06) (0.04)
(3) Recent Acquisitions
On February 9, 2004, the Company acquired, through its indirect wholly owned
subsidiary, Stonepath Holdings (Hong Kong) Limited, a 55% interest in Shaanxi
Sunshine Cargo Services International Co., Ltd. ("Shaanxi"). Shaanxi is a Class
A licensed freight forwarder headquartered in Shanghai, PRC and provides 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. As consideration for the
purchase which was effective as of March 1, 2004, the Company paid $5,500,000
consisting of $3,500,000 in cash and $2,000,000 of the Company's common stock.
The seller may receive additional consideration of up to an additional
$5,500,000 under an earn-out arrangement payable at the rate of $1,100,000 per
year over a period of five years based on the future financial performance of
Shaanxi. The Company used funds from its credit facility with LaSalle Business
Credit, Inc. for the cash payment at the closing. The common shares issued in
the transaction are subject to a one year restriction on sale and are subject to
a pro rata forfeiture based upon a formula that compares the actual pre-tax
income of Shaanxi through December 31, 2004 with the targeted level of income of
$4,000,000 (on an annualized basis). Also, if the trading price of the Company's
common stock is less than $3.17 per share at the end of the one year
restriction, the Company will issue additional shares to the seller. Because the
common shares issued in connection with this transaction are subject to
forfeiture, they are accounted for as additional contingent consideration. When
the number of common shares to be retained by the seller is ultimately
determined, such shares will be valued at their then fair value and will result
in additional goodwill being recorded.
The acquisition, which significantly enhances the Company's presence in the
region, was accounted for as a purchase and accordingly, the results of
operations and cash flows of Shaanxi will be included in the Company's
consolidated financial statements prospectively from the date of acquisition.
Because the Company consolidates its foreign subsidiaries on a one month lag,
such information will not be reflected in the consolidated financial statements
until the second quarter of 2004. The total purchase price, including
acquisition expenses of $266,000, but excluding the contingent consideration,
was $3,766,000. The following table summarizes the preliminary allocation of the
purchase price based on estimated fair value of the assets acquired and
liabilities assumed at March 1, 2004 (in thousands):
5
Stonepath Group, Inc.
Notes to Unaudited Consolidated Financial Statements
March 31, 2004
Current assets $ 16,691
Furniture and equipment 89
Goodwill and other intangible assets 2,701
------------
Total assets acquired 19,481
Current liabilities assumed (14,844)
Minority interest (871)
------------
Net assets acquired $ 3,766
============
The following unaudited pro forma information is presented as if the acquisition
of Shaanxi had occurred on December 1, 2002, using the one month lag
consolidation policy:
March 31, 2004 March 31, 2003
-------------- --------------
Revenue $ 80,531 $ 51,806
Net loss (221) (257)
Loss per share:
Basic and diluted $ (0.01) $ (0.01)
(4) Revolving Credit Facility
To ensure adequate financial flexibility, we have a $20,000,000 revolving credit
facility (the "Facility") collateralized by the accounts receivable and the
other assets of the Company and its subsidiaries. The Facility requires the
Company and its subsidiaries to meet certain financial objectives and maintain
certain financial covenants. Advances under the Facility may be used to finance
future acquisitions, capital expenditures or for other corporate purposes. We
expect that the cash flow from operations of our subsidiaries will be sufficient
to support the corporate overhead of the Company and some portion, if not all,
of the contingent earn-out payments and other cash requirements associated with
our acquisitions. Therefore, we anticipate that our primary use of the Facility
will be to finance the cost of new acquisitions and to pay any portion of
existing earn-out arrangements that cash flow from operations is otherwise
unable to fund. At March 31, 2004 we had advances of $1,200,000 and another
$7,400,000 in outstanding checks which have been classified as incremental
borrowings. Based upon available collateral and net of $1,200,000 in advances
under the Facility, outstanding letter of credit commitments and funds reserved
for off-shore investments, there was approximately $12,200,000 available for
borrowing under our Facility.
6
Stonepath Group, Inc.
Notes to Unaudited Consolidated Financial Statements
March 31, 2004
(5) Commitments and Contingencies
On May 6, 2003, we elected to settle litigation instituted on August 20, 2000 by
Austost Anstalt Schaan, Balmore Funds, S.A. and Amro International, S.A.
Although we believed that the plaintiffs' claims were without merit, we chose to
settle the matter in order to avoid future litigation costs and to mitigate the
diversion of management's attention from operations. The total settlement costs
of $750,000, paid $400,000 in cash and $350,000 in shares of the Company's
common stock, are included in the accompanying March 31, 2003 unaudited
consolidated statement of operations.
On October 12, 2000, Emergent Capital Investment Management, LLC ("Emergent")
filed suit against the Company and two of its officers contending that it was
misled by statements made by the defendants in connection with the offering of
the Company's Series C Preferred Stock which closed in March 2000. Specifically,
Emergent alleges that it is entitled to rescind the transaction because it was
allegedly represented that the size of the offering would be $20,000,000 and the
Company actually raised $50,000,000. Emergent seeks a return of its $2,000,000
purchase price of Series C shares. In June of 2001, the Company moved for
summary judgment in this case.
After the summary judgment motion was filed, Emergent filed a second action
against the Company and two of its officers alleging different allegations of
fraud in connection with the Series C offering. In the new complaint, Emergent
alleged that oral statements and written promotional materials distributed by
the Company at a meeting in connection with the Series C offering were
materially inaccurate with respect to the Company's investment in Net Value,
Inc., a wholly owned subsidiary of the Company. Emergent also contended that the
defendants failed to disclose certain allegedly material transactions in which
an officer was involved prior to his affiliation with the Company. The Company
filed a motion to dismiss this new action for failure to state a claim upon
which relief can be granted.
On October 2, 2001, the Court entered an order granting summary judgment to the
defendants in the first case filed by Emergent and dismissing Emergent's second
complaint for failure to state a claim upon which relief can be granted. The
Court allowed Emergent 20 days to file a second amended complaint as to the
second action only. On October 21, 2001, Emergent did file a second amended
complaint in the second action. The second amended complaint did not raise any
new factual allegations regarding Emergent's participation in the offering.
The Company filed a motion to dismiss Emergent's second amended complaint. On
April 15, 2002, the United States District Court for the Southern District of
New York entered an order granting the motion to dismiss Emergent's second
amended complaint against the Company and its former officers. The Court refused
to grant Emergent an additional opportunity to re-plead its claims against the
defendants and a final order dismissing the matter was entered. Emergent
thereafter filed a notice of appeal to the United States Court of Appeals for
the Second Circuit. On September 4, 2003, the Second Circuit Court of Appeals
entered an order affirming in part, vacating in part and remanding in part the
matter to the District Court. The Court of Appeals affirmed the dismissal of
some of the counts in the Second Amended Complaint and determined that Emergent
had stated a claim on the other counts. The Company has filed an answer denying
liability to Emergent and discovery on causation issues is proceeding. The
Company believes that it has meritorious defenses to the plaintiff's claims and
continues to vigorously defend this action.
7
Stonepath Group, Inc.
Notes to Unaudited Consolidated Financial Statements
March 31, 2004
The Company may become involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse effect on
the Company's consolidated financial position, results of operations or
liquidity.
(6) Stockholders' Equity
Common Stock
On March 6, 2003, the Company completed a private placement of 4,470,000 shares
of its common stock. The transaction consisted of the sale of 4,270,000 shares
at $1.35 per share and 200,000 shares at $1.54 per share. In connection with
this transaction, the Company realized gross proceeds of $6,072,500, paid a
brokerage fee consisting of cash commissions of $364,350, issued placement agent
warrants to purchase 297,000 shares of common stock at an exercise price of
$1.49 per share, and incurred other cash expenses of $33,677. In addition, the
Company had previously paid the placement agent $25,000 in cash and had issued
them warrants to purchase 150,000 shares of common stock at an exercise price of
$1.23 per share.
In connection with the Shaanxi acquisition, the Company issued 630,915 shares of
its common stock. Because these shares are subject to a pro rata forfeiture
based on the financial performance of Shaanxi through December 31, 2004, such
shares have not been reflected as outstanding securities in the accompanying
consolidated financial statements.
Series D Convertible Preferred Stock
There are 192,807 shares of Series D Preferred Stock outstanding as of March 31,
2004.
Each share of the Series D Convertible Preferred Stock is convertible into ten
shares of common stock of the Company. Subsequent to December 31, 2003, the
holders of the Series D Convertible Preferred Stock are entitled to participate
in all liquidation distributions made to the holders of the Company's common
stock on an as-if converted basis. The Series D Convertible Preferred Stock
carries no dividend, and, except under limited circumstances, has no voting
rights except as required by law. The Series D Convertible Preferred Stock
automatically converts into shares of the Company's common stock as of December
31, 2004.
During the three months ended March 31, 2004, 117,000 shares of the Company's
Series D Preferred Stock were converted into 1,170,000 shares of the Company's
common stock.
Stock Options
During the three months ended March 31, 2004, options on 2,045,200 shares were
granted. The range of exercises prices on granted options was $2.38 to $3.75 per
share and the weighted average exercise price was $3.02 per share.
8
Stonepath Group, Inc.
Notes to Unaudited Consolidated Financial Statements
March 31, 2004
Options on 45,417 shares expired during the three months ended March 31, 2004.
The range of exercise prices was $1.30 to $2.30 per share and the weighted
average exercise price was $1.66 per share.
During the three months ended March 31, 2004, options on 873,000 shares were
exercised. The range of exercise prices was $0.60 to $1.38 per share and the
weighted average exercise price was $0.97 per share.
During the three months ended March 31, 2004, non-employees exercised warrants
for the purchase of 443,833 of the Company's common stock. The exercise price of
all exercised warrants was $1.00 per share.
(7) Earnings (Loss) per Share
Basic earnings (loss) per common share and diluted earnings (loss) per common
share are presented in accordance with SFAS No. 128, "Earnings per Share." Basic
earnings (loss) per common share has been computed using the weighted-average
number of shares of common stock outstanding during the period. Diluted earnings
(loss) per common share incorporates the incremental shares issuable upon the
assumed exercise of stock options and warrants and upon the assumed conversion
of the Company's preferred stock, if dilutive. For the three months ended March
31, 2004 and 2003, all stock options, stock warrants, and convertible securities
were excluded because their effect was antidilutive. The total numbers of such
shares excluded from diluted loss per common share are 10,821,405 and 8,666,447
at March 31, 2004 and 2003, respectively. Also, the 630,915 shares of common
stock issued in connection with the Shaanxi acquisition are subject to pro rata
forfeiture based upon the financial performance of Shaanxi through December 31,
2004. Accordingly, such shares have been excluded from the calculation of basic
and diluted earnings (loss) per common share for the three months ended March
31, 2004.
(8) Income Taxes
For the three months ended March 31, 2004, the Company calculated income tax
expense (benefit) using estimated effective rates of 34.0% for U.S. federal
income taxes, 4.9% for state income taxes and 30.0% for foreign income taxes.
For the quarter ended March 31, 2003, the Company calculated income tax expense
only for state and foreign components. The Company did not reflect any expense
for federal income taxes in the quarter ended March 31, 2003 due to the full
valuation allowance that had been established for its deferred tax assets.
The components of income tax expense (benefit) consist of the following:
Three Months Ended March 31,
----------------------------
2004 2003
---------- ----------
U.S. federal $ (448,700) $ --
State (36,200) 7,400
Foreign 67,100 7,821
---------- ----------
$ (417,800) $ 15,221
========== ==========
(9) Segment Information
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," established standards for reporting information about operating
segments in financial statements. Operating segments are defined as components
of an enterprise engaging in business activities about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker or group in deciding how to allocate resources and in assessing
performance. The Company identifies operating segments based on the principal
service provided by the business unit. Each segment has a separate management
structure. The accounting policies of the reportable segments are the same as
described in our Annual Report on Form 10-K for the year ended December 31,
2003. Segment information, in which corporate expenses (other than the
litigation settlement in 2003) have been fully allocated to the operating
segments, is as follows (in thousands):
9
Stonepath Group, Inc.
Notes to Unaudited Consolidated Financial Statements
March 31, 2004
Three months ended March 31, 2004
-------------------------------------------------------------
Domestic International
Services Services Corporate Total
---------- ---------------- ------------ ---------
Revenue from external customers $ 35,005 $ 25,529 $ -- $ 60,534
Intersegment revenue 8 12 -- 20
Revenue from significant customer 11,761 -- -- 11,761
Segment operating income (loss) (1,340) 258 -- (1,082)
Segment assets 51,924 57,059 4,808 113,791
Segment goodwill 23,896 12,366 -- 36,262
Depreciation and amortization 658 193 -- 851
Capital additions 414 127 931 1,472
Three months ended March 31, 2003
-------------------------------------------------------------
Domestic International
Services Services Corporate Total
---------- ---------------- ------------ ---------
Revenue from external customers $ 23,774 $ 14,798 $ -- $ 38,572
Intersegment revenue 34 28 -- 62
Revenue from significant customer 9,835 -- -- 9,835
Segment operating income (loss) 262 466 (750) (22)
Segment assets 38,539 14,056 1,809 54,404
Segment goodwill 15,309 5,002 -- 20,311
Depreciation and amortization 521 69 -- 590
Capital additions 344 37 1,353 1,734
The revenue in the table below is allocated to geographic areas based upon the
location of the customer (in thousands):
Three months ended March 31,
----------------------------
2004 2003
------- -------
Total revenue:
United States $53,246 $38,123
Asia 6,071 449
North America (excluding the
United States) 124 --
Europe 668 --
Other 425 --
------- -------
Total $60,534 $38,572
======= =======
The following table presents long-lived assets by geographic area:
March 31,
----------------------------
2004 2003
------- -------
United States $7,892,979 $4,730,653
Asia 400,770 17,385
---------- ----------
Total long-lived assets $8,293,749 $4,748,038
========== ==========
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Cautionary Statement For Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, regarding future
results, levels of activity, events, trends or plans. We have based these
forward-looking statements on our current expectations and projections about
such future results, levels of activity, events, trends or plans. These
forward-looking statements are not guarantees and are subject to known and
unknown risks, uncertainties and assumptions about us that may cause our actual
results, levels of activity, events, trends or plans to be materially different
from any future results, levels of activity, events, trends or plans expressed
or implied by such forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as "may", "will", "should",
"could", "would", "expect", "plan", "anticipate", "believe", "estimate",
"continue", or the negative of such terms or other similar expressions. While it
is impossible to identify all of the factors that may cause our actual results,
levels of activity, events, trends or plans to differ materially from those set
forth in such forward-looking statements, such factors include the inherent
risks associated with: (i) our ability to sustain an annual growth rate in
revenues consistent with recent results, (ii) our ability to achieve targeted
operating margins, (iii) our ability to identify, acquire, integrate and manage
additional businesses in a manner which does not dilute our earnings per share,
(iv) our ability to obtain the capital necessary to make additional
acquisitions, (v) the uncertainty of future trading prices of our common stock
and the impact such trading prices may have upon our ability to utilize our
common stock to facilitate our fund raising efforts and associated acquisition
strategy, (vi) the uncertain effect on the future trading price of our common
stock associated with the possible additional issuance of securities upon the
conversion or exercise of outstanding convertible securities and to satisfy
existing contractual commitments, (vii) our dependence on certain large
customers, (viii) our dependence upon certain key personnel, (ix) an unexpected
adverse result in any legal proceeding, (x) the scarcity and competition for the
operating companies we need to acquire to implement our business strategy, (xi)
competition in the freight forwarding, logistics and supply chain management
industry, (xii) the impact of current and future laws affecting the Company's
operations, (xiii) adverse changes in general economic conditions as well as
economic conditions affecting the specific industries and customers we serve,
(xiv) regional disruptions in transportation, (xv) the risk that the actual
results of recently acquired businesses are not consistent with their historical
results and forward-looking guidance provided to us at the time of acquisition,
and (xvi) other factors which are or may be identified from time to time in our
Securities and Exchange Commission filings and other public announcements,
including our most recent Annual Report on Form 10-K for the year ended December
31, 2003. Readers are cautioned not to place undue reliance on forward-looking
statements, which speak only as of the date made. We undertake no obligation to
publicly release the result of any revision of these forward-looking statements
to reflect events or circumstances after the date they are made or to reflect
the occurrence of unanticipated events.
11
OVERVIEW
We are a non-asset based third-party logistics services company
providing supply chain solutions on a global basis. We offer a full range of
time-definite transportation and distribution solutions through our Domestic
Services platform, where we manage and arrange the movement of raw materials,
supplies, components and finished goods for our customers. We offer a full range
of international logistics services, including international air and ocean
transportation as well as customs house brokerage services, through our
International Services platform. In addition to these core service offerings, we
also provide a broad range of value added supply chain management services,
including warehousing, order fulfillment and inventory management solutions. We
service a customer base of manufacturers, distributors and national retail
chains through a network of offices in 21 major metropolitan areas in North
America, Puerto Rico, ten locations in Asia and five locations in South America,
using an extensive network of independent carriers and service partners
strategically located around the world.
As a non-asset based provider of third-party logistics services, we
seek to limit our investment in equipment, facilities and working capital
through contracts and preferred provider arrangements with various
transportation providers who generally provide us with favorable rates, minimum
service levels, capacity assurances and priority handling status. The volume of
our flow of freight enables us to negotiate attractive pricing with our
transportation providers.
Our strategic objective is to build a leading global logistics services
organization that integrates established operating businesses and innovative
technologies. We plan to achieve this objective by broadening our network
through a combination of synergistic acquisitions and the organic expansion of
our existing base of operations. We are currently pursuing an aggressive
acquisition strategy to enhance our position in our current markets and to
acquire operations in new markets. The focus of this strategy is on acquiring
businesses that have demonstrated historic levels of profitability, have a
proven record of delivering high quality services, have a customer base of large
and mid-sized companies and which otherwise may benefit from our long term
growth strategy and status as a public company.
Our strategy has been designed to take advantage of shifting market
dynamics. The third party logistics industry continues to grow as an increasing
number of businesses outsource their logistics functions to more cost
effectively manage and extract value from their supply chains. Also, we believe
the industry is positioned for further consolidation as it remains highly
fragmented, and as customers are demanding the types of sophisticated and
broad-reaching service offerings that can more effectively be handled by larger,
more diverse organizations. As a non-asset based provider of third party
logistics services, we can focus on optimizing the transportation solution for
our customers, rather than on our own asset utilization. Our non-asset based
approach allows us to maintain a high level of operating flexibility and
leverage a cost structure that is highly variable in nature.
Our acquisition strategy relies upon two primary factors: first, our
ability to identify and acquire target businesses that fit within our general
acquisition criteria and, second, the continued availability of capital and
financing resources sufficient to complete these acquisitions. Our growth
strategy relies upon a number of factors, including our ability to efficiently
integrate the businesses of the companies we acquire, generate the anticipated
economies of scale from the integration, and maintain the historic sales growth
of the acquired businesses so as to generate continued organic growth. There are
a variety of risks associated with our ability to achieve our strategic
objectives, including our ability to acquire and profitably manage additional
businesses, our current reliance on a small number of key customers, the risks
inherent in international operations, and the intense competition in our
industry for customers and for the acquisition of additional businesses. The
business risks associated with these factors are identified or referred to above
under our "Cautionary Statement for Forward-Looking Statements."
12
Our principal source of income is derived from freight forwarding
services. As a freight forwarder, we arrange for the shipment of our customers'
freight from point of origin to point of destination. Generally, we quote our
customers a turn key cost for the movement of their freight. Our price quote
will often depend upon the customer's time-definite needs (first day through
fifth day delivery), special handling needs (heavy equipment, delicate items,
environmentally sensitive goods, electronic components, etc.) and the means of
transport (truck, air, ocean or rail). In turn, we assume the responsibility for
arranging and paying for the underlying means of transportation.
We also provide a range of other services including customs brokerage,
warehousing and other services, which include customized distribution,
fulfillment, and other value added supply chain services.
Total revenue represents the total dollar value of services we sell to
our customers. Our cost of transportation includes direct costs of
transportation, including motor carrier, air, ocean and rail services. We act
principally as the service provider to add value in the execution and
procurement of these services to our customers. Our net transportation revenue
(gross transportation revenue less the direct cost of transportation) is the
primary indicator of our ability to source, add value and resell services
provided by third parties, and is considered by management to be a key
performance measure. We believe that net revenue is also an important measure of
economic performance. Net revenue includes transportation revenue and our
fee-based activities, after giving effect to the cost of transportation. In
addition, management believes measuring its operating costs as a function of net
revenue provides a useful metric, as our ability to control costs as a function
of net revenue directly impacts operating earnings. With respect to our services
other than freight transportation, net revenue is identical to gross revenue.
A significant portion of our revenue is derived from our international
operations, and the growth of those operations is an important part of our
business strategy. Our current international operations are focused on the
shipment of goods into and out of the United States and are dependent on the
volume of international trade with the United States. Our strategic plan
contemplates the growth of those operations, as well as the expansion into the
transportation of goods wholly outside of the United States. The following
factors could adversely affect our current international operations, as well as
the growth of those operations:
- the political and economic systems in certain international markets
are less stable than in the United States;
- wars, civil unrest, acts of terrorism and other conflicts exist in
certain international markets;
- export restrictions, tariffs, licenses and other trade barriers can
adversely affect the international trade serviced by our
international operations;
- managing distant operations with different local market conditions
and practices is more difficult than managing domestic operations;
- differing technology standards in other countries present
difficulties and expense in integrating our services across
international markets;
- complex foreign laws and treaties can adversely affect our ability
to compete; and
- our ability to repatriate funds may be limited by foreign exchange
controls.
13
Our operating results will be affected as acquisitions occur. Since all
acquisitions are made using the purchase method of accounting for business
combinations, our financial statements will only include the results of
operations and cash flows of acquired companies for periods subsequent to the
date of acquisition. To help facilitate the consolidation, analysis and public
reporting process, our offshore operations are included within our consolidated
results on a one-month lag, or more specifically, our calendar year results will
include results from offshore operations for the period December 1 through
November 30. As a result of the one-month lag, the earnings impact of the
Shaanxi transaction will be first reflected in our consolidated results starting
in April 2004.
Our GAAP based net income will also be affected by non-cash charges
relating to the amortization of customer related intangible assets and other
intangible assets arising from our completed acquisitions. Under applicable
accounting standards, purchasers are required to allocate the total
consideration in a business combination to the identified assets acquired and
liabilities assumed based on their fair values at the time of acquisition. The
excess of the consideration paid over the fair value of the identifiable net
assets acquired is to be allocated to goodwill, which is tested at least
annually for impairment. Applicable accounting standards require the Company to
separately account for and value certain identifiable intangible assets based on
the unique facts and circumstances of each acquisition. As a result of the
Company's acquisition strategy, our net income will include material non-cash
charges relating to the amortization of customer related intangible assets and
other intangible assets acquired in our acquisitions. Although these charges may
increase as the Company completes more acquisitions, we believe we are actually
growing the value of our intangible assets (e.g., customer relationships). Thus,
we believe that earnings before interest, taxes, depreciation and amortization,
or EBITDA, is a useful financial measure for investors because it eliminates the
effect of these non-cash costs and provides an important metric for our
business. Accordingly, we employ EBITDA as a measure of our historical financial
performance and as a benchmark for future guidance.
Our operating results are also subject to seasonal trends when measured
on a quarterly basis. Our first and second quarters are likely to be weaker as
compared with our other fiscal quarters, which we believe is consistent with the
operating results of other supply chain service providers. This trend is
dependent on numerous factors, including the markets in which we operate,
holiday seasons, consumer demand and economic conditions. Since our revenue is
largely derived from customers whose shipments are dependent upon consumer
demand and just-in-time production schedules, the timing of our revenue is often
beyond our control. Factors such as shifting demand for retail goods and/or
manufacturing production delays could unexpectedly affect the timing of our
revenue. As we increase the scale of our operations, seasonal trends in one area
may be offset to an extent by opposite trends in another area. We cannot
accurately predict the timing of these factors, nor can we accurately estimate
the impact of any particular factor, and thus we can give no assurance that
historical seasonal patterns will continue in future periods.
CRITICAL ACCOUNTING POLICIES
Our accounting policies, which are in compliance with accounting
principles generally accepted in the United States, require us to apply
methodologies, estimates and judgments that have a significant impact on the
results we report in our financial statements. In our Annual Report on Form 10-K
for the year ended December 31, 2003 we have discussed those policies that we
believe are critical and require the use of complex judgment in their
application. Since the date of that Form 10-K, there have been no material
changes to our critical accounting policies or the methodologies or assumptions
applied under them.
14
RESULTS OF OPERATIONS
Quarter ended March 31, 2004 compared to quarter ended March 31, 2003
The following table summarizes our total revenue, net transportation
and other revenue (in thousands):
Quarter ended March 31,
------------------------
Change
-------------------
2004 2003 Amount Percent
--------- --------- --------- ---------
Total revenue $ 60,534 $ 38,572 $ 21,962 56.9%
========= ========= =========
Transportation revenue $ 55,355 $ 35,780 $ 19,575 54.7
Cost of transportation 42,810 26,388 16,422 62.2
--------- --------- ---------
Net transportation revenue 12,545 9,392 3,153 33.6
Net transportation margins 22.7% 26.2%
Customs brokerage 2,679 1,864 815 43.7
Warehousing and other
value added services 2,500 928 1,572 169.4
--------- --------- ---------
Total net revenue $ 17,724 $ 12,184 $ 5,540 45.5%
========= ========= =========
Net revenue margin 29.3% 31.6%
========= =========
Total revenue was $60.5 million in the first quarter of 2004, an
increase of 56.9% over total revenue of $38.6 million in the first quarter of
2003. $13.6 million or 62.1% of the increase in total revenue was attributable
to organic growth with $8.3 million or 37.9% of the increase in total revenue
attributable to acquisitions. The Domestic Services platform delivered $35.0
million in total revenue for the first quarter of 2004, an improvement of $11.2
million and 47.1% over the same prior year period with $8.7 million of the
increase coming from same store growth and the remaining $2.5 million in revenue
growth coming from acquisitions. The International Services platform delivered
$25.5 million in total revenue for the first quarter of 2004, a year over year
improvement of $10.7 million or 72.3%, with $4.9 million of the increase coming
from same store growth and the remaining $5.8 million improvement attributed to
acquisitions.
Net transportation revenue was $12.5 million in the first quarter of
2004, an increase of 33.6% over net transportation revenue of $9.4 million in
the first quarter of 2003. $1.5 million, or 48.4% of the increase in net
transportation revenue, was attributable to same store growth with $1.6 million,
or 51.6% of the increase, attributable to acquisitions. The Domestic Services
platform delivered $9.3 million in net transportation revenue for the first
quarter of 2004, an improvement of $1.9 million or 25.7% over the same prior
year period, with $1.3 million of the increase coming from same store growth and
the remaining $0.6 million in growth coming from acquisitions. The International
Services platform delivered $3.2 million in net transportation revenue for the
first quarter of 2004, a year over year improvement of $1.2 million or 60.0%,
with $0.2 million of the increase coming from same store growth and the
remaining $1.0 million improvement attributed to acquisitions.
15
Net transportation margins decreased to 22.7% for the first quarter of
2004 from 26.2% for the first quarter of 2003. For the first quarter of 2004,
net transportation margins for the Domestic Services platform declined to 28.4%
from 32.2% tied primarily to one piece of low-margin business that the Company
expects to discontinue by the end of the second quarter of 2004. For the
International Services platform, net transportation margins declined to 14.2%
from 15.5% driven primarily by general rate increases taken by the underlying
asset-based carriers that we have not been able to pass along to our customers.
Net revenue was $17.7 million in the first quarter of 2004, an increase
of 45.5% over net revenue of $12.2 million in the first quarter of 2003. $3.5
million, or 63.6% of the increase in net revenue, was attributable to same store
growth, with $2.0 million, or 36.4% of the increase, attributable to
acquisitions. The Domestic Services platform delivered $11.5 million in net
revenue for the first quarter of 2004, an improvement of $3.3 million or 40.2%
over the same prior year period with $2.5 million of the increase coming from
same store growth with the remaining $0.8 million in growth coming from
acquisitions. The International Services platform delivered $6.2 million in net
revenue for the first quarter of 2004, a year over year improvement of $2.2
million or 55.0%, with $1.0 million of the increase coming from same store
growth and the remaining $1.2 million improvement attributed to acquisitions.
Net revenue margins decreased to 29.3% for the first quarter of 2004
compared to 31.6% for the same prior year period. Net revenue margins at
Domestic Services declined to 32.9% from 34.3% driven primary from the low
margin business that will be winding down by the end of the second quarter of
2004. For the International Services platform, net transportation margins
declined to 24.4% from 27.2% driven primarily by general rate increases taken by
the underlying asset-based carriers that we have not been able to pass along to
our customers.
16
The following table compares certain consolidated statement of operations
data as a percentage of our net revenue (in thousands):
Quarter ended March 31,
---------------------------------------------
2004 2003 Change
-------------------- -------------------- -------------------
Amount Percent Amount Percent Amount Percent
-------
Net revenue $17,724 100.0 $12,184 100.0 $5,540 45.5%
------- ------ ------- ------ ------
Personnel costs 9,898 55.8 6,563 53.9 3,335 50.8
Other selling, general and administrative 8,057 45.5 4,303 35.3 3,754 87.2
Depreciation and amortization 851 4.8 590 4.8 261 44.2
Litigation settlement -- -- 750 6.2 (750) (100.0)
------- ------ ------- ------ ------
Total operating costs 18,806 106.1 12,206 100.2 6,600 54.1
------- ------ ------- ------ ------
Loss from operations (1,082) (6.1) (22) (0.2) (1,060) NM
Other income (expense), net (51) (0.3) 30 0.2 (81) NM
------- ------ ------- ------ ------
Income (loss) before income tax
expense (benefit) and
minority interest (1,133) (6.4) 8 -- (1,141) NM
Income tax expense (benefit) (418) (2.4) 15 0.1 (433) NM
------- ------ ------- ------ ------
Loss before minority interest (715) (4.0) (7) (0.1) (708) NM
Minority interest 70 0.4 -- -- 70 NM
------- ------ ------- ------ ------
Net loss attributable to common
stockholders $ (785) (4.4) $ (7) (0.1) $ (778) NM
======= ====== ======= ====== =======
Personnel costs were $9.9 million for the first quarter of 2004, an
increase of 50.8% over $6.6 million for the first quarter of 2003. $0.8 million
or 24.2% of the increase in personnel costs is attributable to incremental costs
assumed as part of our acquisition program with $2.5 million or 75.8% of the
increase attributable to increased costs in the base business. Personnel costs
as a percentage of net revenue increased to 55.8% in the first quarter of 2004
from 53.9% in the first quarter of 2003. This increase was driven by hiring of
operations, sales and management personnel, particularly in our International
Services platform. For the comparable prior year period, headcount increased by
570 to a total of 1,098 with 414 added in operations, 45 added in sales and
marketing and 111 added in financial and administrative services.
Other selling, general and administrative costs were $8.1 million for
the first quarter of 2004, an increase of 87.2% over $4.3 million for the first
quarter of 2003. $0.6 million or 15.8% of the increase is attributable to
incremental costs assumed as part of our acquisition program with $3.2 million
or 84.2% of the increase attributable to increased costs of the base business.
As a percentage of net revenue, other selling, general and administrative costs
increased to 45.5% in the first quarter of 2004 from 35.3% in the first quarter
of 2003. This increase is primarily due to spending related to facilities,
equipment and technology particularly in our Domestic Services platform.
Depreciation and amortization was $0.9 million in the first quarter of
2004, an increase of 44.2% over $0.6 million in the first quarter of 2003. This
increase is primarily due to the amortization of intangible assets acquired.
Depreciation and amortization as a percentage of net revenue remained constant
at 4.8%.
17
In the first quarter of 2003, litigation settlement charges resulted
from the settlement of litigation that arose prior to our transition to a
logistics business. Such settlement was ultimately paid using $400,000 in cash
and $350,000 in shares of the Company's common stock.
Loss from operations was $1.1 million in the first quarter of 2004, as
compared to breakeven results for the first quarter of 2003. Loss from
operations as a percentage of net revenue was (6.1%) for the first quarter of
2004.
As a result of historical losses related to investments in early-stage
technology businesses, the Company has accumulated federal net operating losses
(NOLs). In the fourth quarter of 2003, we reversed $3.0 million of the valuation
allowance based on the Company's history of profitable operations for the past
year and projected profitability in the near future. In addition we also
recorded a deferred tax liability generated principally by the tax amortization
of goodwill, which is deductible for tax purposes over a life of 15 years but is
not amortized for book purposes. As a result, we recognized a non-cash net tax
benefit of $1.7 million in 2003. The Company has approximately $17.8 million of
NOLs as of December 31, 2003 to offset future federal taxable income. Due to the
NOLs, the Company was only subject to certain state and foreign taxes which
resulted in a tax provision of approximately $15,000 in 2003.
Net loss attributable to common stockholders was $0.8 million in the
first quarter of 2004, compared to breakeven results in the first quarter of
2003. Basic and diluted loss per common share was $0.02 for the first quarter of
2004 compared to $0.00 per basic and diluted common share for the first quarter
of 2003.
FINANCIAL OUTLOOK
Based on our first quarter results and outlook for the balance of the
year, we are forecasting earnings before interest, taxes, depreciation and
amortization, or EBITDA, of $11.0 million on expected total revenue of
$325.0 million and expect net income of $5.5 million. This guidance is based on
the current platform and visibility to new customers in our sales pipeline but
does not include any incremental acquisitions that we might complete over the
course of 2004. In general, we expect to deploy $10.0 to $20.0 million per year
in support of our acquisition strategy which would be funded through a
combination of existing cash, draws upon our credit facility, the proceeds of
new financings and the value of newly issued securities. Based on our
acquisition model, this could generate incremental annualized EBITDA in the
range of $4.0 to $8.0 million. Based on the recent erosion in our stock price,
however, our acquisition activity over the course of 2004 is likely to be at the
low end of this range.
We believe that EBITDA is a useful financial measure for investors
because it eliminates the effect of non-cash costs associated with the
amortization of customer intangibles arising from the Company's acquisition
strategy. A reconciliation of EBITDA to the most directly comparable GAAP
measure in accordance with SEC Regulation S-K follows:
(amounts in millions)
2003A 2004E
----- -----
Net income $7.1 $ 5.5
Interest expense/(income) 0.2 0.5
Income tax expense/(benefit)* (1.3) -
Depreciation and amortization 2.6 5.0
---- -----
EBITDA (Earnings before interest,
taxes, depreciation and amortization) $8.6 $11.0
==== =====
* Prior to the fourth quarter of 2003, the Company maintained a valuation
allowance to offset 100% of the net deferred tax assets associated with the
tax losses generated prior to the Company's move into the logistics business.
In the fourth quarter of 2003, a portion of the valuation allowance was
reversed, resulting in the recognition of a deferred tax asset and related
nonrecurring non-cash tax benefit of $1.7 million, resulting in an overall
income tax benefit of $1.3 million. For purposes of developing its 2004 net
earnings guidance, the Company has assumed that an additional portion of the
valuation allowance will be reversed in 2004 that will result in additional
tax benefits to offset any tax expense for the year.
18
Our revenue and net income estimates have been developed based on a
number of principal assumptions including, among others: (i) our ability to
sustain revenue growth rates consistent with recent results, (ii) our ability to
achieve targeted operating margins, (iii) that no material economic or customer
disruptions will occur, (iv) that we will not be required to repay some portion
or all of the $1.3 million received by us as a payment of pre-petition
indebtedness during the bankruptcy of a material customer, (v) that we will not
be caused to incur additional charges as a result of the bankruptcy of FAO,
Inc., a significant customer of the recently acquired business of Regroup, (vi)
that we continue to maintain existing relationships with key employees, (vii)
that there is no unexpected adverse result in any legal proceeding, and (viii)
that other factors which are or may be identified from time to time in our SEC
filings and other public announcements, including our most recent Annual Report
on Form 10-K for the year ended December 31, 2003, will not have an adverse
effect on our operations. Furthermore, our estimates as to the expected
financial results that may be realized from our recent acquisitions have been
developed based on the historical results and forward looking guidance provided
to us at the time of such each transaction. We may need to adjust our 2004
guidance if the results of operations of the acquired businesses in 2004 are
inconsistent with the historical and forward-looking guidance provided to us by
the sellers of those businesses. These adjustments could materially affect our
2004 estimates.
Assuming we can continue to execute on our business plan and
acquisition model without any material disruptions, and identify and close
transactions similar to transactions accomplished to date, it is our goal to
generate $500.0 million in annualized revenue by the end of 2006.
Notwithstanding our expectations regarding our ability to deliver these
results, we can never be certain that future revenue or earnings will be
achieved at any particular level. Estimates of future financial performance are
forward-looking statements and are subject to uncertainty created by the risk
elements otherwise identified in our Annual Report on Form 10-K for the year
ended December 31, 2003 under "Risks Particular to our Business." Furthermore,
even though we believe our current operations will achieve a certain level of
earnings on an annual basis, our results are subject to seasonal trends.
SOURCES OF GROWTH
Management believes that a comparison of "same store" growth is
critical in the evaluation of the quality and extent of the Company's internally
generated growth. This "same store" analysis isolates the financial
contributions from operations that have been included in the Company's operating
results for the full comparable prior year period. The table below presents
"same store" comparisons for the three-month period ended March 31, 2004 (which
is the measure of any increase from the same period of 2003).
19
For the three months ended
March 31, 2004
Domestic 38.0%
International 33.6%
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $4.1 million and $3.1 million as of
March 31, 2004 and December 31, 2003, respectively. Working capital totaled
$14.5 million and $16.3 million at March 31, 2004 and December 31, 2003,
respectively.
Cash provided by operating activities was $0.2 million for the first
quarter of 2004 compared to $0.7 million used in the first quarter of 2003. This
quarter on quarter improvement was driven principally by the seasonal increase
in our collection of receivables.
Net cash used in investing activities during the first quarter of 2004
was $9.0 million compared to $4.6 million in the first quarter of 2003.
Investing activities were driven principally by approximately $5.5 million in
earn-out payments made in relation to 2003 performance targets, $2.3 million
paid for acquisitions (net of cash acquired) and $0.7 million spent in
connection with the roll-out of Tech-Logis(TM), the Company's new web-based
technology platform.
Net cash provided by financing activities during the first quarter of
2004 was $9.7 million compared to $5.7 million in the first quarter of 2003.
Financing activities consisted of $8.6 million in proceeds from the Company's
line of credit and $1.2 million from the issuance of common stock upon the
exercises of options and warrants, offset by principal payments of $0.2 million
for a capital lease. We may receive proceeds in the future from the exercise of
options and warrants that were outstanding as of the end of the first quarter.
As of March 31, 2004, approximately 13,170,000 options and warrants were
outstanding.
Proceeds
Number of shares if exercised
Options outstanding under our Stock Option Plan 10,684,217 $ 17,181,613
Non-Plan Options 1,046,700 2,494,250
Warrants 1,439,563 1,499,573
---------- ------------
Total 13,170,480 $ 21,175,436
========== ============
To ensure that we have adequate near-term liquidity, we maintain a
revolving credit facility of $20.0 million (the "Facility") with LaSalle
Business Credit, Inc. that is collateralized by accounts receivable and other
assets of the Company and its subsidiaries. The Facility requires the Company
and its subsidiaries to comply with certain financial covenants. Advances under
the Facility are available to fund future acquisitions, capital expenditures or
for other corporate purposes.
As of May 1, 2004 we had advances of $9.8 million and we had eligible
accounts receivable sufficient to support $16.5 million in borrowings. The terms
of our Facility are subject to certain financial covenants which may limit the
amount otherwise available under the Facility. Principal among these are
financial covenants that limit availability based upon measures of our cash
flow, as well as a multiple of funded debt to consolidated EBITDA of our
domestic operations. Under the funded debt to consolidated EBITDA covenant, our
funded debt is limited to a multiple of 2.75 of our domestic EBITDA measured on
a rolling four quarter basis. Based on our rolling four quarter forecast, the
domestic component of our current 2004 EBITDA guidance would provide capacity of
approximately $17.0 million under our Facility. If our rolling four quarter
domestic EBITDA decreases, the availability under our Facility could be
negatively impacted.
20
Under the terms of the Facility, we are permitted to make additional
acquisitions without the lender's consent only if certain conditions are
satisfied. The conditions imposed by the Facility include the following: (i) the
absence of an event of default under the Facility, (ii) the company to be
acquired must be in the transportation and logistics industry, (iii) the
purchase price to be paid must be consistent with our historical business and
acquisition model, (iv) the undrawn availability under the Facility must average
$5.0 million for the 60 days preceding the acquisition and must be at least $5.0
million after giving effect for the acquisition, (v) the lender must be
reasonably satisfied with projected financial statements we provide covering a
12 month period following the acquisition, (vi) the acquisition documents must
be provided to the lender and must be consistent with the description of the
transaction provided to the lender, (vii) the aggregate cash disbursed to
support the purchase and operation of our foreign operations must not exceed
$11.3 million, and (viii) the number of permitted acquisitions is limited to
four per year (excluding any acquisitions for which the purchase price is
payable solely in stock). In the event that we were not able to satisfy the
conditions of the Facility in connection with a proposed acquisition, we would
have to forego the acquisition unless we either obtained the lender's consent or
retired the Facility. This may limit or slow our ability to achieve the critical
mass we may need to achieve our strategic objectives.
We believe that our current working capital and anticipated cash flow
from operations are adequate to fund existing operations and to implement our
acquisition strategy in the near term. However, our ability to finance further
acquisitions is limited by the availability of additional capital. We may
finance acquisitions, however, using our common stock as all or some portion of
the consideration. In the event that our common stock does not attain or
maintain a sufficient market value or potential acquisition candidates are
otherwise unwilling to accept our securities as part of the purchase price for
the sale of their businesses, we may be required to utilize more of our cash
resources, if available, in order to continue our acquisition program. If we do
not have sufficient cash resources through either operations or from debt
facilities, our growth could be limited unless we are able to obtain such
additional capital.
We have used a significant amount of our available capital to finance
acquisitions. Our acquisitions are normally structured with certain amounts paid
at closing, and the balance paid over a number of years in the form of earn-out
installments which are payable based upon the future earnings of the acquired
businesses. We will be required to make significant payments in the future if
the earn-out installments under our various acquisitions become due. While we
believe that a portion of the required payments will be generated by the
acquired businesses, we may have to secure additional sources of capital to fund
the remainder of the earn-out payments as they become due. This presents us with
certain business risks relative to the availability of capacity under our
Facility, the availability and pricing of future fund raising, as well as the
potential dilution to our stockholders if the fund raising involves the sale of
equity.
21
Below are descriptions of material acquisitions made since 2001
including a breakdown of consideration paid at closing and future potential
earn-out payments. We define "material acquisitions" as those with aggregate
potential consideration of $5.0 million or more.
On October 5, 2001, we acquired Air Plus, a group of Minneapolis-based
privately held companies that provide a full range of logistics and
transportation services. The transaction was valued at up to $34.5 million,
consisting of cash of $17.5 million paid at closing and a four-year earn-out
arrangement of up to $17.0 million. In the earn-out, we agreed to pay the former
Air Plus shareholders installments of $3.0 million in 2003, $5.0 million in
2004, $5.0 million in 2005 and $4.0 million in 2006, with each installment
payable in full if Air Plus achieves pre-tax income of $6.0 million in each of
the years preceding the year of payment. In the event there is a shortfall in
pre-tax income, the earn-out payment will be reduced on a dollar-for-dollar
basis to the extent of the shortfall. Shortfalls may be carried over or carried
back to the extent that pre-tax income in any other payout year exceeds the $6.0
million level. Based upon 2003 performance, the former Air Plus shareholders
received $5.0 million on March 31, 2004. On a cumulative basis, Air Plus has
generated $12.8 million in adjusted earnings, providing its former shareholders
with a total of $8.0 million in earn-out payments and excess earnings of $0.8
million to carryforward and apply to future earnings targets. In total, the
former Air Plus shareholders have elected to receive $7.6 million in cash with
the balance paid in Company common stock.
On April 4, 2002, we acquired Stonepath Logistics International
Services, Inc. ("SLIS") (f/k/a Global Transportation Services, Inc.), a
Seattle-based privately held company that provides a full range of international
air and ocean logistics services. The transaction was valued at up to $12.0
million, consisting of cash of $5.0 million paid at the closing and up to an
additional $7.0 million payable over a five year earn-out period based upon the
future financial performance of SLIS. We agreed to pay the former Global
shareholders a total of $5.0 million in base earn-out payments payable in
installments of $0.8 million in 2003, $1.0 million in 2004 through 2007 and $0.2
million in 2008, with each installment payable in full if SLIS achieves pre-tax
income of $2.0 million in each of the years preceding the year of payment (or
the pro rata portion thereof in 2002 and 2007). In the event there is a
shortfall in pre-tax income, the earn-out payment will be reduced on a pro-rata
basis. Shortfalls may be carried over or carried back to the extent that pre-tax
income in any other payout year exceeds the $2.0 million level. We also provided
the former Global shareholders with an additional incentive to generate earnings
in excess of the base $2.0 million annual earnings target ("SLIS' tier-two
earn-out"). Under SLIS' tier-two earn-out, the former Global shareholders are
also entitled to receive 40% of the cumulative pre-tax earnings in excess of
$10.0 million generated during the five-year earn-out period subject to a
maximum additional earn-out opportunity of $2.0 million. SLIS would need to
generate cumulative earnings of $15.0 million over the five-year earn-out period
to receive the full $7.0 million in contingent earn-out payments. Based upon
2003 performance, the former Global shareholders received $1.0 million on April
1, 2004. On a cumulative basis, SLIS has generated $9.3 million in adjusted
earnings, providing its former shareholders with a total of $1.8 million in cash
earn-out payments and excess earnings of $5.8 million to carryforward and apply
to future earnings targets.
On May 30, 2002, we acquired United American, a Detroit-based privately
held provider of expedited transportation services. The United American
transaction provided us with a new time-definite service offering focused on the
automotive industry. The transaction was valued at up to $16.1 million,
consisting of cash of $5.1 million paid at closing and a four-year earn-out
arrangement based upon the future financial performance of United American. We
agreed to pay the former United American shareholder a total of $5.0 million in
base earn-out payments payable in installments of $1.25 million in 2003 through
2006, with each installment payable in full if United American achieves pre-tax
income of $2.2 million in each of the years preceding the year of payment. In
the event there is a shortfall in pre-tax income, the earn-out payment will be
reduced on a dollar-for-dollar basis to the extent of the shortfall. Shortfalls
may be carried over or carried back to the extent that pre-tax income in any
other payout year exceeds the $2.2 million level. The Company has also provided
the former United American shareholder with an additional incentive to generate
earnings in excess of the base $2.2 million annual earnings target ("United
American's tier-two earn-out"). Under United American's tier-two earn-out, the
former United American shareholder is entitled to receive 50% of the cumulative
pre-tax earnings generated by a certain pre-acquisition customer in excess of
$8.8 million during the four-year earn-out period subject to a maximum
additional earn-out opportunity of $6.0 million. United American would need to
generate cumulative earnings of $20.8 million over the four-year earn-out period
to receive the full $11.0 million in contingent earn-out payments. Based upon
2003 performance, the former United American shareholder received $0.2 million
on April 1, 2004. On a cumulative basis, United American has generated $2.4
million in adjusted earnings, providing its former shareholder with a total of
$0.5 million in cash earn-out payments and a cumulative earnings shortfall of
$2.0 million. In future years, earnings in excess of the $2.2 million target
would first be applied against the $2.0 million shortfall.
22
On June 20, 2003, through our indirect wholly owned subsidiary,
Stonepath Logistics Government Services, we acquired the business of Regroup, a
Virginia limited liability company. The Regroup transaction enhanced our
presence in the Washington, D.C. market and provided a platform to focus on the
logistics needs of U.S. government agencies and contractors. The transaction was
valued at up to $27.2 million, consisting of cash of $3.7 million and $1.0
million of Company stock paid at closing, and a five-year earn-out arrangement.
The Company agreed to pay the members of Regroup a total of $10.0 million in
base earn-out payments payable in equal installments of $2.5 million in 2005
through 2008, if Regroup achieves pre-tax income of $3.5 million in each of the
years preceding the year of payment. In the event there is a shortfall in
pre-tax income, the earn-out payment will be reduced on a dollar-for-dollar
basis. Shortfalls may be carried over or carried back to the extent that pre-tax
income in any other payout year exceeds the $3.5 million level. The Company has
also agreed to pay the former members of Regroup an additional $2.5 million if
Regroup earns $3.5 million in pre-tax income during the 12-month period
commencing July 1, 2003. In addition, the Company has also provided the former
members of Regroup with an additional incentive to generate earnings in excess
of the base $3.5 million annual earnings target ("Regroup's tier-two earn-out").
Under Regroup's tier-two earn-out, the former members of Regroup are also
entitled to receive 50% of the cumulative pre-tax earnings in excess of $17.5
million generated during the five-year earn-out period subject to a maximum
additional earn-out opportunity of $10.0 million. Regroup would need to generate
cumulative earnings of $37.5 million over the five-year earn-out period in order
for the former members to receive the full $22.5 million in contingent earn-out
payments.
On August 8, 2003, through two indirect international subsidiaries, we
acquired a seventy (70%) percent interest in the assets and operations of the
Singapore and Cambodia based operations of the G-Link Group, which provide a
full range of international logistics services, including international air and
ocean transportation, to a worldwide customer base of manufacturers and
distributors. This transaction substantially increased our presence in Southeast
Asia and expanded our network of owned offices through which to deliver global
supply chain solutions. The transaction was valued at up to $6.2 million,
consisting of cash of $2.8 million, $0.9 million of the Company's common stock
paid at the closing and an additional $2.5 million payable over a four-year
earn-out period based upon the future financial performance of the acquired
operations. We agreed to pay $2.5 million in base earn-out payments payable in
installments of $0.3 million in 2004, $0.6 million in 2005 through 2006 and $1.0
million in 2007, with each installment payable in full if the acquired
operations achieve pre-tax income of $1.8 million in each of the years preceding
the year of payment (or the pro rata portion thereof in 2003 and 2007). In the
event there is a shortfall in pre-tax income, the earn-out payment will be
reduced on a dollar-for-dollar basis. Shortfalls may be carried over or carried
back to the extent that pre-tax income in any other payout year exceeds the $1.8
million level. As additional purchase price, the Company also agreed to pay
G-Link for excess net assets amounting to $1.5 million through the issuance of
Company common stock, on a post-closing basis. Based upon 2003 performance,
G-Link received an earn-out payment of $0.2 million on April 1, 2004.
23
On February 9, 2004, through a wholly-owned subsidiary, we acquired a
55% interest in Shanghai-based Shaanxi Sunshine Cargo Services International
Co., Ltd.(Shaanxi) Shaanxi provides a wide range of customized transportation
and logistics services and supply chain solutions. The transaction is valued at
up to $11.0 million, consisting of cash of $3.5 million and $2.0 million of the
Company's common stock paid at the closing, plus up to an additional $5.5
million payable over a five-year period based upon the future financial
performance of Shaanxi. The earn-out payments are due in five installments of
$1.1 million beginning in 2005, with each installment payable in full if Shaanxi
achieves pre-tax income of at least $4.0 million in each of the earn-out years.
In the event there is a shortfall in pre-tax income, the earn-out payment for
that year will be reduced on a dollar-for-dollar basis by the amount of the
shortfall. Shortfalls may be carried over or back to the extent that pre-tax
income in any other payout year exceeds the $4.0 million level. As additional
purchase price, on a post-closing basis the Company has agreed to pay Shaanxi
for 55% of its closing date working capital. The common shares issued in the
transaction are subject to a one year restriction on sale and are subject to a
pro rata forfeiture based upon a formula that compares the actual pre-tax income
of Shaanxi through December 31, 2004 with the targeted level of income of $4.0
million (on an annualized basis). Also, if the trading price of the Company's
common stock is less than $3.17 per share at the end of the one year
restriction, the Company will issue additional shares to the seller.
We will be required to make significant payments in the future if the
earn-out installments under our various acquisitions become due. While we
believe that a significant portion of the required payments will be generated by
the acquired subsidiaries, we may have to secure additional sources of capital
to fund some portion of the earn-out payments as they become due. This presents
us with certain business risks relative to the availability and pricing of
future fund raising, as well as the potential dilution to our stockholders if
the fund raising involves the sale of equity.
The following table summarizes our contingent base earn-out payments
for the years indicated based on results of the prior year (in thousands)(1)(2):
2005 2006 2007 2008 2009 TOTAL
----------------------------------------------------------------------------------------
Earn-out payments:
Domestic $ 9,040 $ 8,050 $ 2,500 $ 2,500 $ -- $ 22,090
International 3,904 3,904 4,276 2,542 2,010 16,636
----------- ------------ ------------ ------------ ------------ ------------
Total earn-out
payments $ 12,944 $ 11,954 $ 6,776 $ 5,042 $ 2,010 $ 38,726
=========== ============ ============ ============ ============ ============
Prior year pre-tax earnings targets(3)
Domestic $ 12,306 $ 12,306 $ 3,500 $ 3,500 $ -- $ 31,612
International 10,546 10,546 11,602 6,940 5,823 45,457
----------- ------------ ------------ ------------ ------------ ------------
Total pre-tax
earnings targets $ 22,852 $ 22,852 $ 15,102 $ 10,440 $ 5,823 $ 77,069
=========== ============ ============ ============ ============ ============
Earn-outs as a percentage of prior year pre-tax earnings targets:
Domestic 73.5% 65.4% 71.4% 71.4% -- 69.9%
International 37.0% 37.0% 36.9% 36.6% 34.5% 36.6%
Combined 56.6% 52.3% 44.9% 48.3% 34.5% 50.2%
24
----------------
(1) Excludes the impact of prior year's pre-tax earnings carryforwards (excess
or shortfalls versus earnings targets).
(2) During the 2003-2007 earn-out period, there is an additional contingent
obligation related to tier-two earn-outs that could be as much as $18.0
million if certain of the acquired companies generate an incremental $37.0
million in pre-tax earnings.
(3) Aggregate pre-tax earnings targets as presented here identify the uniquely
defined earnings targets of each acquisition and should not be interpreted
to be the consolidated pre-tax earnings of the Company which would give
effect for, among other things, amortization or impairment of intangible
assets created in connection with each acquisition or various other expenses
which may not be charged to the operating groups for purposes of calculating
earn-outs.
The Company is a defendant in a number of legal proceedings, including
one remaining material legal proceeding that arose prior to our transition to a
logistics business. That proceeding has been identified in our Annual Report on
Form 10-K for the year ended December 31, 2003. Although we believe that the
claims asserted in these proceedings are without merit, and we intend to
vigorously defend these matters, there is the possibility that the Company could
incur material expenses in the defense and resolution of these matters.
Furthermore, since the Company has not established any reserves in connection
with such claims, any such liability, if at all, would be recorded as an expense
in the period incurred or estimated. This amount, even if not material to the
Company's overall financial condition, could adversely affect the Company's
results of operations in the period recorded.
One of the Company's customers which is the subject of a Chapter 11
proceeding under the Bankruptcy Code, paid to the Company approximately $1.3
million of pre-petition indebtedness for shipping and delivery charges pursuant
to an order of a United States Bankruptcy Court authorizing the payment of such
charges. One of the creditors in the Chapter 11 proceeding appealed other orders
of the Bankruptcy Court authorizing the payment of pre-petition indebtedness to
other creditors for other charges and those orders have been reversed by a court
proceeding. While no action has been taken in the Bankruptcy Court to challenge
the payment made to the Company, if such action were taken in the future and
that action were successful, the Company could be required to return all or a
substantial portion of the payments made by the customer.
25
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's investment portfolio and its line of credit.
The Company does not have any derivative financial instruments in its investment
portfolio. The Company is averse to principal loss and ensures the safety and
preservation of its invested funds by limiting default risk, market risk and
reinvestment risk. The Company invests its excess cash in institutional money
market accounts. The Company does not use interest rate derivative instruments
to manage its exposure to interest rate changes. If market interest rates were
to change by 10% from the levels at March 31, 2004, the change in interest
expense would have had an immaterial impact on the Company's results of
operations and cash flows.
The Company also has exposure to foreign currency fluctuations with
respect to its offshore subsidiaries. The Company does not utilize derivative
instruments to manage such exposure. A hypothetical change of 10% in the value
of the U.S. dollar would have had an immaterial impact on the Company's results
of operations.
Item 4. Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934,
as of the end of the period covered by this report, the Company carried out an
evaluation of the effectiveness of the Company's disclosure controls and
procedures. This evaluation was carried out under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer. Based upon that evaluation, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective. Other than as
discussed in the fourth paragraph of this Item 4, there have been no significant
changes in the Company's internal controls or in other factors, which could
significantly affect internal controls subsequent to the date the Company
carried out its evaluation.
Disclosure controls and procedures are designed to ensure that
information required to be disclosed in Company reports filed or submitted under
the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in
Company reports filed under the Exchange Act is accumulated and communicated to
management, including the Company's Chief Executive Officer and Chief Financial
Officer as appropriate, to allow timely decisions regarding required disclosure.
In January 2004, the Company restated its consolidated statements of
operations for the last three quarters of fiscal 2002, the first three quarters
of fiscal 2003, and for the year ended December 31, 2002, as a result of an
error discovered in the legacy accounting processes of Stonepath Logistics
International Services, Inc. (f/k/a "Global Transportation Systems, Inc.") and
Global Container Line, Inc., its wholly owned subsidiary. The Company determined
that a process error existed which resulted in the failure to eliminate certain
intercompany transactions in consolidation. This process error had been embedded
within the legacy accounting processes of Global Transportation Systems, Inc.
for a period which began substantially before its acquisition by the Company in
April 2002.
The Company believes that the presence of this error, in and of itself,
constitutes a reportable condition as defined under standards established by the
American Institute of Certified Public Accountants. A reportable condition is a
significant deficiency in the design or operation of internal controls, which
could adversely affect an organization's ability to initiate, record, process
and report financial data consistent with the assertions of management in the
financial statements. To specifically respond to this matter, and in general to
meet our obligations under Section 404 of the Sarbanes-Oxley Act of 2002, the
Company commenced an overall review of its internal controls over financial
reporting. As part of the assessment of its internal controls over financial
reporting, the Company is focusing on its recent growth in terms of both size
and complexity, coupled with the fact that its finance and accounting functions
are largely decentralized. Although this review is not yet completed, the
Company has initiated an immediate change in process to correct the error that
occurred and to reduce the likelihood that a similar error could occur in the
future.
As of the date of this Report, the Company believes it has a plan that,
when completed, will eliminate the reportable condition described above. There
were no other changes during the first quarter ended March 31, 2004 that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Other than as described in the Company's Annual Report on Form 10-K for
the year ended December 31, 2003, there have been no material developments in
any of the reported legal proceedings.
The Company is involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse effect on
the Company's overall consolidated financial position, results of operations or
liquidity.
26
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
Effective as of February 9, 2004, we issued 630,915 shares of our common
stock to Andy Tsai in partial consideration for the acquisition of a
controlling interest in Shaanxi. The shares were valued, for purposes
of the acquisition, at $2.0 million ($3.17 per share), and were issued
in a private placement transaction exempt from the registration
requirements of the Securities Act of 1933 pursuant to Section 4(2) and
Rule 506 thereunder as an issuer transaction not involving a public
offering.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
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.(1)
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.(1)
10.14 Amendment to Executive Employment Agreement between Stonepath
Logistics International Services, Inc. and Jason Totah dated April
1, 2004.
12 Calculation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends.
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed
"filed" for purposes of Section 18 of the Securities Exchange Act of
1934, as amended, or otherwise subject to the liability of that
section. Further, this exhibit shall not be deemed to be
incorporated by reference into any filing under the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as
amended.)
32.2 Certification of Chief Financial Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed
"filed" for purposes of Section 18 of the Securities Exchange Act of
1934, as amended, or otherwise subject to the liability of that
section. Further, this exhibit shall not be deemed to be
incorporated by reference into any filing under the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as
amended.)
(1) Incorporated by reference to the Company's Current Report on Form 8-K dated
February 9, 2004.
27
(b) Reports on Form 8-K:
On February 24, 2004, the Company filed a Current Report on Form 8-K
dated February 9, 2004, reporting under Item 2 on the acquisition of a
majority interest in Shaanxi Sunshine Cargo Services International Co.,
Ltd.
On February 26, 2004, the Company furnished under Items 9 and 12 of
Form 8-K, a copy of its earnings release dated February 25, 2004.
On February 27, 2004, the Company furnished an amendment to its
Form 8-K dated February 26, 2004, to correct certain typographical
errors inadvertently contained in the summary financial data tables
that accompanied the February 25, 2004 earnings release.
28
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.
STONEPATH GROUP, INC.
Date: May 10, 2004 /s/ Dennis L. Pelino
-------------------------------------
Dennis L. Pelino
Chief Executive Officer and
Chairman of the Board of Directors
Date: May 10, 2004 /s/ Bohn H. Crain
-------------------------------------
Bohn H. Crain
Chief Financial Officer and Treasurer
Date: May 10, 2004 /s/ Thomas L. Scully
-------------------------------------
Thomas L. Scully
Vice President and Controller and
Principal Accounting Officer
29