SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): August 8, 2003
Stonepath Group, Inc.
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(Exact Name of Registrant as Specified in Charter)
Delaware 001-16105 65-0867684
---------------------------- ------------------------ -------------------
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
1600 Market Street, Suite 1515
Philadelphia, Pennsylvania 19103
---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (215) 979-8370
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report
Item 2. Acquisition or Disposition of Assets.
----------------------------------------------
On August 8, 2003, through two international subsidiaries, Stonepath
Group, Inc. (the "Company") acquired a seventy (70%) percent interest in the
assets and operations of G Link Express Pte. Ltd. and G Link Express (Cambodia)
Pte. Ltd. (collectively, "G-Link"). The acquired operations consist of the
Singapore and Cambodia offices of the G-Link Group of companies, a network of
affiliated logistics companies with offices in Southeast Asia and agency
relationships with partners located around the world. The acquired operations
provide a full range of international logistics services, including
international air and ocean transportation to a worldwide customer base of
manufacturers and distributors. Following the transaction, the acquired G-Link
offices will continue as a neutral provider of services to the freight
forwarding community while operating a division dedicated to the emerging global
logistics business of Stonepath Logistics.
The assets acquired consist primarily of the goodwill and other
intangible assets, such as intellectual property, employee base, operating
methods, systems and customer relationships, associated with the ongoing
operations of G-Link's Singapore and Cambodia offices. Personal property
consisting primarily of office equipment and eligible accounts receivable were
also acquired. In addition accounts payable and certain leases were assumed as
part of the acquisitions.
In consideration for the acquired assets, the Company paid $3.7 million
at closing through a combination of $2.8 million in cash and $900 thousand in
value of the Company's common stock and agreed to issue to G-Link a thirty (30%)
interest in the subsidiaries which acquired the assets. G-Link will also be
entitled to an earn-out arrangement over a period of four years of up to $2.5
million contingent upon the future financial performance of the acquired
offices. The funds required for the cash payment at the closing were obtained by
the Company from its credit facility with LaSalle Business Credit, Inc. As
additional purchase price, on a post-closing basis the Company has also agreed
to pay G-Link for excess closing date working capital estimated at $1.6 million
through the issuance of additional Company stock. The consideration for the
transaction was determined based on arms-length negotiations between the
parties.
The acquisition was completed through two subsidiaries created by the
Company which acquired 100% of the assets and operations of the Singapore and
Cambodia offices of G-Link. To give effect for the 70% interest intended to be
acquired, the Company has agreed to issue G-Link a 30% interest in the
subsidiaries. The Company has a five-year option to acquire the 30% interest
issued to G-Link.
For the year ended December 31, 2002, the two G-Link offices acquired
by the Company reported pre-tax operating income of approximately $1.8 million
(USD) on revenues of approximately $15.5 million.
The acquisition also included the employment of the principal managers
of the businesses.
2
On August 11, 2003, the Company issued a Press Release announcing the
transaction. A copy of the Press Release is attached to this Form 8-K as
Exhibit 99.1.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Acquired Businesses.
(i) Financial Statements of G Link Express Pte. Ltd
Independent Auditors' Report
Balance Sheets as of December 31, 2002 and March 31, 2003
(unaudited)
Statement of Operations for the Year ended December 31, 2002
and for the three months ended March 31, 2003 and 2002
(unaudited)
Statement of Stockholders' Equity for the Year ended December
31, 2002 and for the three months ended March 31, 2003
(unaudited)
Statement of Cash Flows for the Year ended December 31, 2002
and for the three months ended March 31, 2003 and 2002
(unaudited)
Notes to the Financial Statements
(ii) Financial Statements of G Link Express (Cambodia) Pte. Ltd.
Independent Auditors' Report
Balance Sheets as of December 31, 2002 and March 31, 2003
(unaudited)
Statement of Operations for the Year ended December 31, 2002
and for the three months ended March 31, 2003 and 2002
(unaudited)
Statement of Stockholders' Equity for the Year ended December
31, 2002 and for the three months ended March 31, 2003
(unaudited)
Statement of Cash Flows for the Year ended December 31, 2002
and for the three months ended March 31, 2003 and 2002
(unaudited)
Notes to the Financial Statements
(b) Pro Forma Financial Information.
(i) Unaudited Pro Forma Condensed Consolidated Financial
Statements of Stonepath Group, Inc.
Pro Forma Balance Sheet, March 31, 2003
3
Pro Forma Statements of Operations, Three Months Ended March
31, 2003 and Year Ended December 31, 2002
(c) Exhibits (referenced to Item 601 of Regulation S-K).
2.7 Asset Purchase Agreement by and among Stonepath Holdings (Hong
Kong) Limited, G Link Express Logistics (Singapore) Pte. Ltd.,
G Link Express Pte. Ltd. and the shareholders of G Link
Express Pte. Ltd., dated August 8, 2003.
2.8 Asset Purchase Agreement by and among Stonepath Holdings (Hong
Kong) Limited, G Link Express (Cambodia) Pte. Ltd. and the
shareholders of G Link Express (Cambodia) Pte. Ltd., dated
August 8, 2003.
23.1 Independent Auditors' Consent
23.2 Independent Auditors' Consent
99.1 Press Release dated August 11, 2003
4
Financial Information provided
under Item 7(a)
Financial Statements of Acquired Businesses
G LINK EXPRESS PTE. LTD.
REPORT ON AUDIT OF FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2002
G LINK EXPRESS PTE. LTD.
TABLE OF CONTENTS
Independent Auditors' Report................................................1
Balance Sheets..............................................................2
Statements of Income........................................................3
Statements of Stockholders' Equity..........................................4
Statements of Cash Flows....................................................5
Notes to the Financial Statements...........................................6
INDEPENDENT AUDITORS' REPORT
To the Stockholders and the Board of Directors of
G Link Express Pte. Ltd.
We have audited the accompanying balance sheet of G Link Express Pte. Ltd. as of
December 31, 2002 and the related statements of income, stockholders' equity and
cash flows for the year ended December 31, 2002. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of G Link Express Pte. Ltd. as of
December 31, 2002 and the results of its operations and its cash flows for the
year ended December 31, 2002 in conformity with accounting principles generally
accepted in the United States of America.
Ho, Sneddon, Chui,
Certified Public Accountants Limited
Hong Kong
June 28, 2003
1
G LINK EXPRESS PTE. LTD.
BALANCE SHEETS
March 31 December 31
2003 2002
Note US$ US$
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,707,041 $1,938,579
Accounts receivable, net of provision for doubtful debts of
US$97,642 (March 31, 2003 US$97,642) 1,319,021 1,842,419
Prepayments and other assets 72,108 75,768
Amount due from directors 6 541,495 520,783
Amount due from related parties 6 7,406 32,121
---------- ----------
TOTAL CURRENT ASSETS 3,647,071 4,409,670
---------- ----------
BANK BALANCES SECURING GUARANTEES 5 250,000 250,000
---------- ----------
FURNITURE AND EQUIPMENT, NET 7 28,242 31,008
---------- ----------
TOTAL ASSETS $3,925,313 $4,690,678
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 339,445 $ 720,973
Amount due to related parties 6 2,333,928 2,810,501
Provision for income taxes 3 203,534 187,110
---------- ----------
TOTAL CURRENT LIABILITIES 2,876,907 3,718,584
---------- ----------
DEFERRED TAXES 1,429 1,429
---------- ----------
COMMITMENTS AND CONTINGENCIES 5
STOCKHOLDERS' EQUITY
Common stock of par value S$1
-authorized, issued and outstanding - 120,000 shares 65,574 65,574
Retained earnings 981,403 905,091
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 1,046,977 970,665
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,925,313 $4,690,678
========== ==========
See accompanying notes to the financial statements.
2
G LINK EXPRESS PTE. LTD.
STATEMENTS OF INCOME
Year ended Three months ended Three months ended
December 31 March 31 March 31
2002 2003 2002
Note US$ US$ US$
(unaudited) (unaudited)
Gross revenues 6 $10,189,215 $2,130,001 $1,963,748
Direct cost of service 6 8,302,125 1,738,216 1,491,155
----------- ---------- ----------
Net revenues 1,887,090 391,785 472,593
Personnel costs 525,631 158,005 107,781
Other selling, general and administrative costs 523,755 140,912 88,036
----------- ---------- ----------
Income from operations 837,704 92,868 276,776
Other non-operating income 5,566 135 90
----------- ---------- ----------
Income before income taxes 843,270 93,003 276,866
Income taxes expense 3 172,813 16,691 58,142
----------- ---------- ----------
Net income $ 670,457 $ 76,312 $ 218,724
=========== ========== ==========
See accompanying notes to the financial statements.
3
G LINK EXPRESS PTE. LTD.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 2002 AND
THREE MONTHS ENDED MARCH 31, 2003 (UNAUDITED)
Common Stock
Shares Amount Retained Stockholders'
earnings equity
US$ US$ US$
Balance at December 31, 2001 120,000 $65,574 $234,634 $ 300,208
Net income 670,457 670,457
------- ------- -------- ----------
Balance at December 31, 2002 120,000 65,574 905,091 970,665
Net income 76,312 76,312
------- ------- -------- ----------
Balance at March 31, 2003 120,000 $65,574 $981,403 $1,046,977
======= ======= ======== ==========
(unaudited)
See accompanying notes to the financial statements.
4
G LINK EXPRESS PTE. LTD.
STATEMENTS OF CASH FLOWS
Year ended Three months ended Three months ended
December 31 March 31 March 31
2002 2003 2002
Note US$ US$ US$
(unaudited) (Unaudited)
Cash flow from operating activities
Net income $ 670,457 $ 76,312 $ 218,724
---------- ---------- ----------
Adjustments to reconcile net income to net cash
(used in) provided by operating activities
Depreciation 31,405 4,957 10,418
Changes in assets and liabilities
Accounts receivable (779,379) 523,398 (98,591)
Other assets (6,933) 28,375 (133,399)
Accounts payable and other liabilities 1,230,082 (858,101) 597,161
Taxation 175,500 16,424 (11,610)
---------- ---------- ----------
Net cash (used in) provided by operating activities 1,321,132 (208,635) 582,703
---------- ---------- ----------
Cash flow from investing activities
Purchases of furniture and equipment (46,044) (2,191) (595)
---------- ---------- ----------
Net cash used in investing activities (46,044) (2,191) (595)
---------- ---------- ----------
Cash flow from financing activities
Increase in amount due to director (598,829) (20,712) (510,979)
---------- ---------- ----------
Net cash used in financing activities (598,829) (20,712) (510,979)
---------- ---------- ----------
Net (decrease)/increase in cash and cash equivalents 676,259 (231,538) 71,129
---------- ---------- ----------
Cash and cash equivalents at beginning of period 1,262,320 1,938,579 1,262,320
---------- ---------- ----------
Cash and cash equivalents at the end of period $1,938,579 $1,707,041 $1,333,449
========== ========== ==========
Supplementary disclosures of cash flow information
Cash paid (recovered) during the period for
income taxes $ (2,687) $ 267 $ (672)
========== ========== ==========
See accompanying notes to the financial statements.
5
G LINK EXPRESS PTE. LTD.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2002 AND
THE THREE MONTHS ENDED MARCH 31, 2003 AND MARCH 31, 2002
(Information with respect to the three months ended
March 31, 2003 and March 31, 2002 is unaudited)
1. ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS
Nature of Operations
G Link Express Pte. Ltd. (the "Company"), a company incorporated in the Republic
of Singapore, is a freight forwarding company, offering a full range of
international logistics services including international air and ocean
transportation. The Company services a customer base of manufacturers and
distributors through a network of affiliated offices in Asia and partner offices
located in the principal global centers.
Basis of Preparation
The financial statements of the Company have been prepared in accordance with
accounting principles generally accepted in the United States of America ("U.S.
GAAP").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company derives its revenues from three principal sources: freight
forwarding, customs brokerage and warehousing and other value added services.
As a freight forwarder, the Company is primarily a non-asset based carrier that
does not own or lease any significant transportation assets. The Company
generates the majority of its revenues by purchasing transportation services
from direct (asset-based) carriers and using those services to provide
transportation of property for compensation to its customers. The Company is
able to negotiate favorable buy rates from the direct carriers by consolidating
shipments from multiple customers and concentrating its buying power, while at
the same time offering lower sell rates than most customers would otherwise be
able to negotiate themselves. When acting as an indirect carrier, the Company
will enter into a written agreement with its customers or issue a tariff and a
house bill of lading to customers as the contract of carriage. When the freight
is physically tendered to a direct carrier, the Company receives a separate
contract of carriage, or master bill of lading. In order to claim for any loss
associated with the freight, the customer is first obligated to pay the freight
charges.
Based on the terms in the contract of carriage, revenues related to shipments
where the Company issues a house bill of lading are recognized when the freight
is delivered to the direct carrier at origin. Costs related to the shipment are
also recognized at this same time.
All other revenues, including revenues for customs brokerage and warehousing and
other value added services, are recognized upon completion of the service.
6
G LINK EXPRESS PTE. LTD.
NOTES TO THE FINANCIAL STATEMENTS - continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and investments in money market
funds and investment grade securities held with high quality financial
institutions. The Company considers all highly liquid instruments with a
remaining maturity of 90 days or less at the time of purchase to be cash
equivalents.
Evaluation of Trade Receivables
Management must make estimates of the uncollectability of accounts receivable.
Management specifically analyzed accounts receivable and analyzes historical bad
debts, customer concentrations, customer credit-worthiness, current economic
trends and changes in customer payment terms when evaluating the adequacy of the
allowance for doubtful accounts.
Furniture and Equipment
Furniture and equipment are stated at cost, less accumulated depreciation
computed on a straight-line basis over the estimated useful lives of the
respective assets. Depreciation is computed using three-year lives for all
Furniture and equipment. Upon retirement or other disposition of these assets,
the cost and related accumulated depreciation are removed from the accounts and
the resulting gain or loss, if any, is reflected in results of operations.
Expenditures for maintenance, repairs, and renewals of minor items are charged
to expense as incurred. Major renewals and improvements are capitalized.
Use of Estimates
The presentation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Such estimates include the establishment
of an allowance for doubtful accounts and the valuation allowance for deferred
income tax assets. Actual results could differ from those estimates.
Income Taxes
Taxes on income are provided in accordance with Statement of Financial
Accounting Standard (SFAS) No. 109, Accounting for Income Taxes. Deferred income
tax assets and liabilities are recognized for the expected future tax
consequences of events that have been reflected in the financial statements.
Deferred tax assets and liabilities are determined based on the differences
between the book values and the tax bases of particular assets and liabilities
and the tax effects of net operating loss and capital loss carry forwards.
Deferred tax assets and liabilities are measured using tax rates in effect for
the years in which the differences are expected to reverse. A valuation
allowance is provided to offset the net deferred tax assets if, based upon the
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized.
7
G LINK EXPRESS PTE. LTD.
NOTES TO THE FINANCIAL STATEMENTS - continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Foreign Currency Translation
Balance sheet accounts are translated using year-end exchange rates. The
resulting translation adjustment is recorded as a separate component of
stockholders' equity, if material. Statement of income accounts are translated
at the average exchange rate during the year. Gains and losses from foreign
currency transactions are included in income. Most of the Company's business is
transacted in United States Dollars and, as such, the translation amounts were
not material for the year ended December 31, 2002.
Translation into United States Dollars
The financial statements of the Company are maintained and expressed in
Singapore dollars. The translation of Singapore dollar amounts into US dollars
for balance sheet amounts have been made at the rate of S$1.761 to US$1, the
approximate free rate of exchange at December 31, 2002 (March 31, 2003 at a rate
of S$1.733 to US$1). Revenues and expenses are translated at average exchange
rate during the year. The resulting translation adjustment is recorded as a
separate component of stockholders' equity. Gains and losses from foreign
currency transactions are included in income.
Such translation should not be construed as representations that the Singapore
dollar amounts could be converted into US dollars, at that rate or any other
rate.
Staff Retirement Plan Costs
The Company's costs related to the staff retirement plans are charged to the
statement of income as incurred.
Major Customers and Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash investments and accounts receivable.
The Company maintains its cash accounts with high quality financial
institutions. With respect to accounts receivable, such receivables are
primarily from manufacturers and distributors with whom the management has
maintained long term business relationships. Credit is granted to customers on
an unsecured basis, and generally provides for 30-day payment terms. To reduce
credit risk, the Company performs ongoing credit evaluations of its customers'
financial conditions. Credit losses, have occurred from time to time, but have
not been material to the overall operations of the Company.
For the year ended December 31, 2002, no one customer accounted for greater than
10% of our revenue.
8
G LINK EXPRESS PTE. LTD.
NOTES TO THE FINANCIAL STATEMENTS - continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
New Accounting Pronouncements
On January 1, 2002, the Company adopted SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which establishes accounting
standards for the impairment of long-lived assets such as property, plant and
equipment and intangible assets subject to amortization. The Company reviews
long-lived assets to be held-and-used for impairment whenever events or changes
in circumstances indicate that the carrying amount of the assets may not be
recoverable. If the sum of the undiscounted expected future cash flows over the
remaining useful life of a long-lived asset is less than its carrying amount,
the asset is considered to be impaired. Impairment losses are measured as the
amount by which the carrying amount of the asset exceeds the fair value of the
asset. When fair values are not available, the Company estimates fair value
using the expected future cash flows discounted at a rate commensurate with the
risks associated with the recovery of the asset. Assets to be disposed of are
reported at the lower of carrying amount or fair value less costs to sell. The
adoption of SFAS No. 144 did not have a material impact on the Company's
financial statements.
In June 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
146, Accounting for Costs Associated with Exit or Disposal Activities, requiring
companies to recognize liabilities and costs associated with exit or disposal
activities initiated after December 31, 2002 when they are incurred, rather than
when management commits to an exit or disposal plan. SFAS No. 146 also requires
that such liabilities be measured at fair value. SFAS No. 146 had no impact on
the Company's financial statements.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure of Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, which elaborates on the existing disclosure requirements
for guarantees and provides clarification on when a company must measure and
recognize a liability related to guarantees issued. The disclosure requirements
of Interpretation No. 45 are effective for the Company's financial statements
for the year ended December 31, 2002. The measurement and recognition provisions
are to be applied on a prospective basis for guarantees issued or modified after
December 31, 2002. The adoption of Interpretation No. 45 did not require
additional disclosures in 2002 and is not expected to impact the Company's
financial statements as the Company does not typically issue guarantees related
to third-party indebtedness or performance.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, which provides new guidance with respect to the
consolidation of all unconsolidated entities, including special purpose
entities. The adoption of Interpretation No. 46 in 2003 is not expected to
impact the Company's financial statements, as the Company does not have
investments in any unconsolidated special purpose or variable interest entities.
9
G LINK EXPRESS PTE. LTD.
NOTES TO THE FINANCIAL STATEMENTS - continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Interim Financial Information (unaudited)
Information presented as of March 31, 2003 and for the three month period ended
March 31, 2003 and March 31, 2002 is unaudited. In the opinion of management,
the unaudited financial statements have been prepared on the same basis as the
audited financial statements, and reflect all adjustments necessary to present
fairly the financial position as of March 31, 2003 and the result of operations
and cash flows for the three month period ended March 31, 2003 and March 31,
2002. The results of operations for this interim period are not necessarily
indicative of results that may be expected for any other interim period or for
the year as a whole.
3. INCOME TAXES
Income is subject to taxation only in Singapore. Singapore companies are subject
to Singapore taxation on their activities conducted in Singapore. Under the
current Singapore laws dividends and capital gains arising from realization of
investments are not subject to income taxes. For the year ended December 31,
2002, the income tax expense was composed of current taxes of US$171,410 (March
31, 2003 Nil) and deferred taxes of US$1,402 (March 31, 2003 Nil).
The deferred tax balance relates to timing differences arising from the
depreciation of the furniture and equipment. The management believes that this
benefit will be realizable in the future and thus no valuation adjustment has
been made.
Deferred income tax assets and liabilities are classified as current and
non-current based on the financial reporting classification of the related
assets and liabilities that give rise to the temporary difference. The tax
effects of temporary differences that give rise to the Company's deferred tax
accounts are as follows:
March 31 December 31
2003 2002
US$ US$
(unaudited)
Deferred tax asset: Amortization and depreciation 1,429 1,429
Less: valuation allowance 0 0
----- -----
Net deferred taxes 1,429 1,429
===== =====
4. STAFF RETIREMENT PLAN
According to the Central Provident Fund ("CPF") legislation regulated by the
Central Provident Fund Board in Singapore, the Company is required to
participate in CPF and to make contributions for its eligible employees. The
contributions borne by the Company are calculated at 16% of the salaries and
wages (monthly contribution is limited to 16% of S$6,000 for each eligible
employee) as calculated under the CPF legislation. Contributions for the year
ended December 31, 2002 were US$76,784.
10
G LINK EXPRESS PTE. LTD.
NOTES TO THE FINANCIAL STATEMENTS - continued
5. COMMITMENTS AND CONTINGENCIES
As at December 31, 2002 the Company had bank guarantees outstanding of
US$246,536 (March 31, 2003 US$248,096) secured by cash balances of the Company.
These guarantees include US$40,000 (March 31, 2003 US$40,000) issued on behalf
of a related party. The performance guarantees were given to suppliers of the
Company and its related party as assurance for payment of services contracted
for.
The Company leases equipment, office and warehouse space under operating leases
expiring at various times through 2005. Total rent expense related to continuing
operations for the year ended December 31, 2002 was US$49,731 (March 31, 2003
US$15,096). Future minimum lease payments are as follows:
December 31
2002
US$
2003 60,385
2004 60,385
2005 37,102
-------
Total 157,872
=======
6. RELATED PARTY TRANSACTIONS
The amount due from the directors and officers is unsecured, interest free and
bears no fixed term of repayment.
The amounts due from and to related parties, being companies related through
common ownership, are unsecured, interest free and bear no fixed term of
repayment. During the financial year ended December 31, 2002, the Company sold
services in the amount of US$228,219 (March 31, 2003 US$15,151) and purchased
services in the amount of US$118,458 (March 31, 2003 US$1,384) from these
related parties.
The bank balances of the Company as at December 31, 2002 included an amount of
US$1,250,951 (March 31, 2003 US$1,498,535) that is held in trust by the Company
on behalf of these related parties, but there exists no formal agreement
evidencing this arrangement. As at December 31, 2002 the Company had bank
guarantees outstanding of US$40,000 (March 31, 2003 US$40,000) secured by these
cash balances.
11
G LINK EXPRESS PTE. LTD.
NOTES TO THE FINANCIAL STATEMENTS - continued
7. FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following:
Three months Year ended
ended March 31 December 31
2,003 2002
US$ US$
(unaudited)
Furniture and fixtures 25,291 25,291
Office Equipment and computers 72,880 70,689
Less: Accumulated depreciation (69,929) (64,972)
======= =======
Total 28,242 31,008
======= =======
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No.107, "Disclosure about Fair
Value of Financial Instruments". The estimated fair value amounts have been
determined by the Company, using available market information and appropriate
valuation methodologies. The estimates presented herein are not necessarily
indicative of amounts that the Company could realize in a current market
exchange.
At December 31, 2002 and March 31, 2003 the carrying values of cash and cash
equivalents, accounts receivable, loans receivable and accounts payable
approximated their fair values as they are short term and are generally
receivable or payable on demand.
9. SUBSEQUENT EVENT
The stockholders have agreed in principle for the sale of the Company's assets
for a base price of US$3.0 million, with approximately US$1.8 million to be
received at closing, and the balance to be received ratably under a four-year
earn-out arrangement based upon the future financial performance of the Company.
12
G LINK EXPRESS (CAMBODIA) PTE. LTD.
REPORT ON AUDIT OF FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2002
G LINK EXPRESS (CAMBODIA) PTE. LTD.
TABLE OF CONTENTS
Independent Auditors' Report..................................................1
Balance Sheets................................................................2
Statements of Income..........................................................3
Statements of Stockholders' Equity............................................4
Statements of Cash Flows......................................................5
Notes to the Financial Statements.............................................6
INDEPENDENT AUDITORS' REPORT
To the Stockholders and the Board of Directors of
G Link Express (Cambodia) Pte. Ltd.
We have audited the accompanying balance sheet of G Link Express (Cambodia) Pte.
Ltd. as of December 31, 2002 and the related statements of income, stockholders'
equity and cash flows for the year ended December 31, 2002. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of G Link Express (Cambodia) Pte.
Ltd. as of December 31, 2002 and the results of its operations and its cash
flows for the year ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America.
Ho, Sneddon, Chui,
Certified Public Accountants Limited
Hong Kong
June 28, 2003
G LINK EXPRESS (CAMBODIA) PTE. LTD.
BALANCE SHEETS
March 31 December 31
2003 2002
Note US$ US$
(Unaudited)
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 166,898 $ 64,482
Accounts receivable, net of provision for doubtful debts of
US$9,275 (March 31, 2003 US$9,275) 1,081,157 738,571
Prepayments and other assets 2,565 5,932
Amount due from directors 6 44,268 --
Amount due from related parties 6 1,581,168 1,965,349
----------- -----------
TOTAL CURRENT ASSETS 2,876,056 2,774,334
----------- -----------
DEFERRED INCOME TAXES 3 18,970 17,818
FURNITURE AND EQUIPMENT, NET 7 65,908 56,972
----------- -----------
TOTAL ASSETS $ 2,960,934 $ 2,849,124
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,883,404 $ 1,536,495
Amount due to related parties 6 25,192 32,915
Amount due to directors 6 -- 42,032
----------- -----------
TOTAL CURRENT LIABILITIES 1,908,596 1,611,442
----------- -----------
COMMITMENTS AND CONTINGENCIES 3,5
STOCKHOLDERS' EQUITY
Common stock of par value of Riel 200,000 each
-authorized, issued and outstanding - 100 shares 9 7,353 7,353
Retained earnings 1,044,985 1,230,329
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,052,338 1,237,682
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,960,934 $ 2,849,124
=========== ===========
See accompanying notes to the financial statements.
G LINK EXPRESS (CAMBODIA) PTE. LTD.
STATEMENTS OF INCOME
Year ended Three months ended Three months ended
December 31 March 31 March 31
2002 2003 2002
Note US$ US$ US$
(unaudited) (unaudited)
Gross revenues $5,332,888 $1,721,164 $807,378
Direct cost of service 3,837,323 1,396,807 539,108
---------- ---------- --------
Net revenues 1,495,565 324,357 268,270
Personnel costs 253,898 65,281 49,842
Other selling, general and administrative costs 327,008 71,544 67,283
---------- ---------- --------
Income from operations 914,659 187,532 151,145
Other non-operating income 5,851 599 571
---------- ---------- --------
Income before income taxes 920,510 188,131 151,715
Income taxes expense 3 178,967 36,474 30,343
---------- ---------- --------
Net income $741,543 $151,657 $121,372
========== ========== ========
See accompanying notes to the financial statements.
G LINK EXPRESS (CAMBODIA) PTE. LTD.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 2002 AND
THREE MONTHS ENDED MARCH 31, 2003 (UNAUDITED)
Common Stock
Shares Amount Retained Stockholders'
earnings equity
US$ US$ US$
Balance at December 31, 2001 100 $7,353 $1,209,878 $1,217,231
--- ------ ---------- ----------
Net income 741,543 741,543
Dividend (721,092) (721,092)
--- ------ ---------- ----------
Balance at December 31, 2002 100 7,353 1,230,329 1,237,682
Net income 151,657 157,901
Dividend (337,001) (337,001)
--- ------ ---------- ----------
Balance at March 31, 2003 100 $7,353 $1,044,985 $1,052,338
=== ====== ========== ==========
(Unaudited)
See accompanying notes to the financial statements.
G LINK EXPRESS (CAMBODIA) PTE. LTD.
STATEMENTS OF CASH FLOWS
Year ended Three months ended Three months ended
December 31 March 31 March 31
2002 2003 2002
Note US$ US$ US$
(unaudited) (unaudited)
Cash flow from operating activities
Net income $ 741,543 $ 151,657 $ 121,372
--------- --------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities
Deferred income taxes (5,135) (1,152) --
Depreciation 25,676 5,759 6,449
Changes in assets and liabilities
Accounts receivable (238,173) (342,586) 66,796
Other assets (393,869) 387,548 154,042
Accounts payable and other liabilities 489,698 283,019 (338,519)
--------- --------- ---------
Net cash provided by operating activities 619,740 484,245 10,140
--------- --------- ---------
Cash flow from investing activities
Purchases of furniture and equipment (18,838) (14,695) (12,024)
--------- --------- ---------
Net cash used in investing activities (18,838) (14,695) (12,024)
--------- --------- ---------
Cash flow from financing activities
(Decrease)/Increase in amount due to director 49,922 (86,300) 14,217
Dividends paid (600,910) (280,834) --
--------- --------- ---------
Net cash used in financing activities (550,988) (367,134) 14,217
--------- --------- ---------
Net increase in cash and cash equivalents 49,914 102,416 12,333
--------- --------- ---------
Cash and cash equivalents at beginning of period 14,568 64,482 14,568
--------- --------- ---------
Cash and cash equivalents at the end of period $ 64,482 $ 166,898 $ 26,901
========= ========= =========
Supplementary disclosures of cash flow information
Cash paid during the period for income taxes -- $ 1,655 --
========= ========= =========
See accompanying notes to the financial statements.
G LINK EXPRESS (CAMBODIA) PTE. LTD.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2002 AND
THE THREE MONTHS ENDED MARCH 31, 2003 AND MARCH 31, 2002
(Information with respect to the three months ended
March 31, 2003 and March 31, 2002 is unaudited)
1. ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS
Nature of Operations
G Link Express (Cambodia) Pte. Ltd. (the "Company"), a company incorporated in
the Kingdom of Cambodia, is a freight forwarding company, offering a full range
of international logistics services including international air and ocean
transportation. The Company services a customer base of manufacturers and
distributors through a network of affiliated offices in Asia and partner offices
located in the principal global centers.
Basis of Preparation
The financial statements of the Company have been prepared in accordance with
accounting principles generally accepted in the United States of America ("U.S.
GAAP").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company derives its revenues from three principal sources: freight
forwarding, customs brokerage and warehousing and other value added services.
As a freight forwarder, the Company is primarily a non-asset based carrier that
does not own or lease any significant transportation assets. The Company
generates the majority of its revenues by purchasing transportation services
from direct (asset-based) carriers and using those services to provide
transportation of property for compensation to its customers. The Company is
able to negotiate favorable buy rates from the direct carriers by consolidating
shipments from multiple customers and concentrating its buying power, while at
the same time offering lower sell rates than most customers would otherwise be
able to negotiate themselves. When acting as an indirect carrier, the Company
will enter into a written agreement with its customers or issue a tariff and a
house bill of lading to customers as the contract of carriage. When the freight
is physically tendered to a direct carrier, the Company receives a separate
contract of carriage, or master bill of lading. In order to claim for any loss
associated with the freight, the customer is first obligated to pay the freight
charges.
Based on the terms in the contract of carriage, revenues related to shipments
where the Company issues a house bill of lading are recognized when the freight
is delivered to the direct carrier at origin. Costs related to the shipment are
also recognized at this same time.
All other revenues, including revenues for customs brokerage and warehousing and
other value added services, are recognized upon completion of the service.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and investments in money market
funds and investment grade securities held with high quality financial
institutions. The Company considers all highly liquid instruments with a
remaining maturity of 90 days or less at the time of purchase to be cash
equivalents.
G LINK EXPRESS (CAMBODIA) PTE. LTD.
NOTES TO THE FINANCIAL STATEMENTS - continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Evaluation of Trade Receivables
Management must make estimates of the uncollectability of accounts receivable.
Management specifically analyzed accounts receivable and analyzes historical bad
debts, customer concentrations, customer credit-worthiness, current economic
trends and changes in customer payment terms when evaluating the adequacy of the
allowance for doubtful accounts.
Furniture and Equipment
Furniture and equipment are stated at cost, less accumulated depreciation
computed on a straight-line basis over the estimated useful lives of the
respective assets. Depreciation is computed using five- to ten-year lives for
furniture and office equipment and a five-year life for vehicles. Upon
retirement or other disposition of these assets, the cost and related
accumulated depreciation are removed from the accounts and the resulting gain or
loss, if any, is reflected in results of operations. Expenditures for
maintenance, repairs, and renewals of minor items are charged to expense as
incurred. Major renewals and improvements are capitalized.
Use of Estimates
The presentation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Such estimates include the establishment
of an allowance for doubtful accounts and the valuation allowance for deferred
income tax assets. Actual results could differ from those estimates.
Income Taxes
Taxes on income are provided in accordance with Statement of Financial
Accounting Standard (SFAS) No. 109, Accounting for Income Taxes. Deferred income
tax assets and liabilities are recognized for the expected future tax
consequences of events that have been reflected in the financial statements.
Deferred tax assets and liabilities are determined based on the differences
between the book values and the tax bases of particular assets and liabilities
and the tax effects of net operating loss and capital loss carry forwards.
Deferred tax assets and liabilities are measured using tax rates in effect for
the years in which the differences are expected to reverse. A valuation
allowance is provided to offset the net deferred tax assets if, based upon the
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized.
Foreign Currency Translation
Balance sheet accounts are translated using year-end exchange rates. The
resulting translation adjustment is recorded as a separate component of
stockholders' equity, if material. Statements of income accounts are translated
at the average exchange rate during the year. Gains and losses from foreign
currency transactions are included in income. Such amounts were not material for
the year ended December 31, 2002.
G LINK EXPRESS (CAMBODIA) PTE. LTD.
NOTES TO THE FINANCIAL STATEMENTS - continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Staff Retirement Plan Costs
The Company's costs related to the staff retirement plans are charged to the
statement of income as incurred.
Major Customers and Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash investments and accounts receivable.
The Company maintains its cash accounts with high quality financial
institutions. With respect to accounts receivable, such receivables are
primarily from manufacturers and distributors with whom the management has
maintained long term business relationships. Credit is granted to customers on
an unsecured basis, and generally provides for 30-day payment terms. To reduce
credit risk, the Company performs ongoing credit evaluations of its customers'
financial conditions. Credit losses, have occurred from time to time, but have
not been material to the overall operations of the Company.
For the year ended December 31, 2002, our two largest customers, being a textile
company and a logistics company respectively, accounted for approximately 23%
and 11% of our revenues, respectively, and approximately 9% and 9% of our
accounts receivable balance, respectively, as of December 31, 2002. No other
customers accounted for greater than 10% of our revenue.
New Accounting Pronouncements
On January 1, 2002, the Company adopted SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which establishes accounting
standards for the impairment of long-lived assets such as property, plant and
equipment and intangible assets subject to amortization. The Company reviews
long-lived assets to be held-and-used for impairment whenever events or changes
in circumstances indicate that the carrying amount of the assets may not be
recoverable. If the sum of the undiscounted expected future cash flows over the
remaining useful life of a long-lived asset is less than its carrying amount,
the asset is considered to be impaired. Impairment losses are measured as the
amount by which the carrying amount of the asset exceeds the fair value of the
asset. When fair values are not available, the Company estimates fair value
using the expected future cash flows discounted at a rate commensurate with the
risks associated with the recovery of the asset. Assets to be disposed of are
reported at the lower of carrying amount or fair value less costs to sell. The
adoption of SFAS No. 144 did not have a material impact on the Company's
financial statements.
In June 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
146, Accounting for Costs Associated with Exit or Disposal Activities, requiring
companies to recognize liabilities and costs associated with exit or disposal
activities initiated after December 31, 2002 when they are incurred, rather than
when management commits to an exit or disposal plan. SFAS No. 146 also requires
that such liabilities be measured at fair value. SFAS No. 146 had no impact on
the Company's financial statements.
G LINK EXPRESS (CAMBODIA) PTE. LTD.
NOTES TO THE FINANCIAL STATEMENTS - continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure of Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, which elaborates on the existing disclosure requirements
for guarantees and provides clarification on when a company must measure and
recognize a liability related to guarantees issued. The disclosure requirements
of Interpretation No. 45 are effective for the Company's financial statements
for the year ended December 31, 2002. The measurement and recognition provisions
are to be applied on a prospective basis for guarantees issued or modified after
December 31, 2002. The adoption of Interpretation No. 45 did not require
additional disclosures in 2002 and is not expected to impact the Company's
financial statements as the Company does not typically issue guarantees related
to third-party indebtedness or performance.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, which provides new guidance with respect to the
consolidation of all unconsolidated entities, including special purpose
entities. The adoption of Interpretation No. 46 in 2003 is not expected to
impact the Company's financial statements, as the Company does not have
investments in any unconsolidated special purpose or variable interest entities.
Interim Financial Information (unaudited)
Information presented as of March 31, 2003 and for the three month period ended
March 31, 2003 and March 31, 2002 is unaudited. In the opinion of management,
the unaudited financial statements have been prepared on the same basis as the
audited financial statements, and reflect all adjustments necessary to present
fairly the financial position as of March 31, 2003 and the result of operations
and cash flows for the three month period ended March 31, 2003 and March 31,
2002. The results of operations for this interim period are not necessarily
indicative of results that may be expected for any other interim period or for
the year as a whole.
3. INCOME TAXES
Income is subject to taxation only in Cambodia.
The amount of tax charge is computed based on taxable income for the period.
Also, the Company is required to file a monthly tax return and a yearly tax
declaration. The monthly tax return is to be filed by the 15th of the following
month and encompasses VAT, turnover tax, withholding tax and employee tax.
Turnover tax is a minimum tax calculated on 1% of sales. It is an advance tax
that is to be offset against year-end tax on profit.
G LINK EXPRESS (CAMBODIA) PTE. LTD.
NOTES TO THE FINANCIAL STATEMENTS - continued
3. INCOME TAXES - continued
Deferred income tax assets and liabilities are classified as current and
non-current based on the financial reporting classification of the related
assets and liabilities that give rise to the temporary difference. The tax
effects of temporary differences that give rise to the Company's deferred tax
accounts are as follows:
March 31 December 31
2003 2002
US$ US$
(unaudited)
Deferred tax asset: Amortization and depreciation $18,970 $17,818
Less: valuation allowance 0 0
------- -------
Net deferred taxes $18,970 $17,818
======= =======
The components of income tax expense are as follows: March 31 December 31
2003 2002
US$ US$
(unaudited)
Current income taxes expense $37,626 $184,102
Deferred income taxes expense (1,152) (5,135)
------- --------
Income taxes expense $36,474 $178,967
======= ========
4. STAFF RETIREMENT PLAN
There is no staff retirement plan currently in place. However, the Company makes
voluntary contributions on behalf of certain of its staff to the Central
Provident Fund ("CPF") in Singapore, a fund regulated by the Central Provident
Fund Board in Singapore. Contributions for the year ended December 31, 2002 were
US$9,636.
G LINK EXPRESS (CAMBODIA) PTE. LTD.
NOTES TO THE FINANCIAL STATEMENTS - continued
5. COMMITMENTS AND CONTINGENCIES
As at December 31, 2002 the Company had bank guarantees outstanding of US$40,000
(March 31, 2003 US$40,000) secured by cash balances of the Company. These
guarantees were issued as performance bonds for the Company.
The Company leases office and warehouse space under operating leases expiring at
various times through 2003. Total rent expense related to continuing operations
for the year ended December 31, 2002 was US$25,905 (March 31, 2003 US$6,642).
Future minimum lease payments are as follows:
December 31
2002
US$
2003 $26,568
-------
Total $26,568
=======
6. RELATED PARTY TRANSACTIONS
The amount due from the directors and officers is unsecured, interest free and
bears no fixed term of repayment.
The amounts due from and to related parties, being companies related through
common ownership, are unsecured, interest free and bear no fixed term of
repayment. During the financial year ended December 31, 2002, the Company sold
services in the amount of US$120,371 (March 31, 2003 US$1,384) and purchased
services in the amount of US$256,045 (March 31, 2003 US$15,151) from these
related parties.
7. FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following:
Three months Year ended
ended March 31 December 31
2003 2002
US$ US$
(unaudited)
Furniture and fixtures $ 35,498 $ 35,498
Office equipment and computers 86,860 72,165
Motor vehicles 38,400 38,400
Less: Accumulated depreciation (94,850) (89,091)
-------- --------
Total $ 65,908 $ 56,972
======== ========
G LINK EXPRESS (CAMBODIA) PTE. LTD.
NOTES TO THE FINANCIAL STATEMENTS - continued
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No.107, "Disclosure about Fair
Value of Financial Instruments". The estimated fair value amounts have been
determined by the Company, using available market information and appropriate
valuation methodologies. The estimates presented herein are not necessarily
indicative of amounts that the Company could realize in a current market
exchange.
At December 31, 2002 and March 31, 2003 the carrying values of cash and cash
equivalents, accounts receivable, loans receivable and accounts payable
approximated their fair values as they are short term and are generally
receivable or payable on demand.
9. STOCK
The Company registered in 1999 for a period of 99 years as a single member
private limited company. The Company's single registered shareholder is Mr. Law
Teck Wah. Although Mr. Law Teck Wah is the sole shareholder of record, he is
holding the majority of the shares in trust for other persons.
A statutory filing is required to be made with the Ministry of Commerce in
Cambodia in respect of all appointments of directors, changes in directors or
shareholders of the Company as well as the yearly annual return. To date, no
such filings have been made. Failure to file such documents on a timely basis
may result in corporate actions that have been undertaken not being recognized
by the authorities. This is not expected to have a material impact on the
financial condition or operations of the Company.
10. SUBSEQUENT EVENT
The stockholders have agreed in principle for the sale of the Company's assets
for a base price of US$3.2 million, with approximately US$1.9 million to be
received at closing, and the balance to be received ratably under a four-year
earn-out arrangement based upon the future financial performance of the Company.
PRO FORMA FINANCIAL INFORMATION PROVIDED UNDER ITEM 7(b)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
BASIS OF PRESENTATION
On August 8, 2003, through two international subsidiaries, Stonepath
Group, Inc. (the "Company") acquired a seventy (70%) percent interest in the
assets and operations of the Singapore and Cambodia offices of the G-Link Group.
The G Link Group is a non-asset based logistics business which provides a full
range of international logistics services including international air and ocean
transportation. The business services a customer base of manufacturers and
distributors through a network of affiliated offices in Southeast Asia and
agency relationships with partners located around the world.
The assets acquired from G-Link consist primarily of the goodwill and
other intangible assets, such as intellectual property, employee base, operating
methods, systems and customer relationships, associated with the ongoing
operations of its Singapore and Cambodia offices. Personal property consisting
primarily of office equipment and eligible accounts receivable were also
acquired. In addition accounts payable and certain leases were assumed as part
of the acquisitions.
In consideration for a 70% interest in the assets and operations of the
two G-Link offices, the Company paid $3.7 million at closing through a
combination of $2.8 million in cash and $900 thousand in value of the Company's
common stock. G-Link will also be entitled to an earn-out arrangement over a
period of four years of up to $2.5 million contingent upon the future financial
performance of the acquired offices. The funds required for the cash payment at
the closing were obtained by the Company from its credit facility with LaSalle
Business Credit, Inc. As additional purchase price, on a post-closing basis the
Company has also agreed to pay G-Link for excess Closing date working capital
estimated at $1.6 million through the issuance of additional Company stock. The
consideration for the transaction was determined based on arms-length
negotiations between the parties.
The acquisition was completed through two subsidiaries created by the
Company which acquired 100% of the assets and operations of the Singapore and
Cambodia offices of G-Link. To give effect for the 70% interest intended to be
acquired, the Company has agreed to issue G-Link a 30% interest in the
subsidiaries. As part of the transaction, the Company also secured a five-year
option to acquire the remaining 30% interest not acquired at the closing.
The contingent earn-out payments will be accounted for as additional
cost of the acquired G-Link offices when the earnings contingency is resolved
and the consideration is issued or becomes issuable. Accordingly, the purchase
price allocation presented herein is preliminary and includes only the $3.7
million paid at closing plus approximately $436,000 of capitalized closing
costs.
5
The following unaudited pro forma condensed consolidated balance
sheet at March 31, 2003 presents the Company's acquisition of both G-Link
offices on a combined basis as if it had occurred on March 31, 2003. The
unaudited pro forma condensed consolidated statements of operations for the year
ended December 31, 2002 and the three months ended March 31, 2003 presents the
Company's acquisition of both G-Link offices on a combined basis as if it had
occurred on January 1, 2002. The unaudited condensed consolidated pro forma
financial information also reflects the recent acquisition of certain assets and
operations of Regroup Express, LLC, which was acquired by the Company on June
20, 2003. Pro forma financial statements giving effect to the Regroup
acquisition were included within a Current Report on Form 8-K/A filed with the
SEC on August 7, 2003. The detailed assumptions used to prepare the unaudited
pro forma condensed consolidated financial information are contained in the
accompanying explanatory notes.
The unaudited pro forma condensed consolidated financial information
is presented for illustrative purposes only and is not necessarily indicative of
the financial position or results of operations which would have actually been
reported had the transactions been consummated at the dates mentioned above or
which may be reported in the future. This unaudited pro forma condensed
consolidated financial information is based upon the respective historical
financial statements of the Company, Regroup and the two acquired G-Link offices
and should be read in conjunction with those statements and the related notes.
6
STONEPATH GROUP, INC.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
March 31, 2003
(amounts in thousands)
Historical Statements Regroup
--------------------------- Pro Forma Adjusted
Stonepath Regroup Adjustments Results
--------- ------- ----------- --------
Current assets:
Cash and cash equivalents $ 2,669 $ 52 $ (3,700) (a) $ 2,669
(52) (b)
3,700 (d)
Accounts receivable, net 19,411 1,578 (1,578) (b) 19,411
Other current assets 1,288 96 (96) (b) 1,288
-------- ------- ------- --------
Total current assets 23,368 1,726 (1,726) 23,368
Goodwill and acquired intangibles, net 26,790 - 4,980 (c) 31,770
Furniture and equipment, net 4,748 100 (80) (b) 4,768
Other assets 1,228 7 (7) (b) 1,228
-------- ------- ------- --------
$ 56,134 $ 1,833 $ 3,167 $ 61,134
======== ======= ======= ========
Current liabilities:
Accounts payable and accrued expenses $ 12,319 $ 78 $ (78) (b) $ 12,619
300 (e)
Earn-out payable 1,061 - - 1,061
Other current liabilities - 31 (31) (b) 3,700
3,700 (d)
-------- ------- ------- --------
Total current liabilities 13,380 109 3,891 17,380
Long-term debt - 36 (36) (b) -
Deferred Taxes - - - -
-------- ------- ------- --------
Total liabilities 13,380 145 3,855 17,380
Minority interests - - - -
Stockholders' equity
Common stock 28 - 1 (a) 29
Additional paid in capital 201,808 - 999 (a) 202,807
Members' equity - 1,688 (1,688) (b) -
Accumulated deficit (158,989) - - (158,989)
Deferred compensation (93) - - (93)
-------- ------- ------- --------
Total stockholders' equity 42,754 1,688 (688) 43,754
-------- ------- ------- --------
$ 56,134 $ 1,833 $ 3,167 $ 61,134
======== ======= ======= ========
[RESTUBBED]
Combined G Link Adjusted
Historical Pro Forma Pro Forma
G Link Adjustments Results
---------- ----------- ---------
Current assets:
Cash and cash equivalents $ 1,874 (2,791) (u) $ 4,543
2,791 (x)
Accounts receivable, net 2,400 - 21,811
Other current assets 2,499 (2,174) (v) 1,613
------- ------- --------
Total current assets 6,773 (2,174) 27,967
Goodwill and acquired intangibles, net - 4,000 (w) 35,770
Furniture and equipment, net 94 - 4,862
Other assets 19 (19) (v) 1,228
------- ------- --------
$ 6,886 $ 1,807 $ 69,827
======= ======= ========
Current liabilities:
Accounts payable and accrued expenses 2,223 436 (y) 15,278
Earn-out payable - - 1,061
Other current liabilities 2,563 (2,563) (v) 6,491
2,791 (x)
------- ------- --------
Total current liabilities 4,786 664 22,830
Long-term debt - - -
Deferred liabilities 1 (1) (v) -
------- ------- --------
Total liabilities 4,787 663 22,830
Minority interests - 741 (z) 741
Stockholders' equity
Common stock 73 (72) (u)(v) 30
Additional paid in capital - 1 205,308
2,501 (u)
Members' equity - - -
Accumulated deficit 2,026 (2,026) (v) (158,989)
Deferred compensation - - (93)
------- ------- --------
Total stockholders' equity 2,099 403 46,256
------- ------- --------
$ 6,886 $ 1,807 $ 69,827
======= ======= ========
Regroup Pro Forma Adjustments
-----------------------------
(a) To reflect payment of $3.7 million in cash and $1.0 million in Company
stock paid at closing.
(b) To reflect the elimination of assets, liabilities and equity balances not
acquired in the asset purchase.
(c) To reflect goodwill and other acquired intangibles.
(d) To reflect $3.7 million of incremental borrowings in connection with the
transaction.
(e) To reflect approximately $300 thousand of capitalized closing costs.
G Link Pro Forma Adjustments
(u) To reflect payment of $2.8 million in cash and $0.9 million in Company
stock paid at closing and $1.6 million in Company stock paid on a
post-closing basis for excess working capital.
(v) To reflect the elimination of assets, liabilities and equity balances not
acquired in the asset purchase.
(w) To reflect goodwill and other acquired intangibles.
(x) To reflect $2.8 million of incremental borrowings in connection with the
transaction.
(y) To reflect approximately $436 thousand of capitalized closing costs.
(z) To reflect minority interest.
STONEPATH GROUP, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year ended December 31, 2002
(amounts in thousands, except share and per share information)
Historical Statements Regroup
--------------------------- Pro Forma Adjusted
Stonepath Regroup Adjustments Results
--------- ------- ----------- --------
Total revenues $ 139,649 $ 4,163 $ 14,297 (a) $ 158,109
Cost of transportation 101,339 - 13,110 (a) 114,449
--------- ------- -------- ---------
Net revenue 38,310 4,163 1,187 43,660
Selling, general and administrative costs 34,770 2,310 1,187 (a) 38,018
(399) (b)
150 (c)
--------- ------- -------- ---------
Income from operations 3,540 1,853 249 5,642
Other income (expense) 128 - (148) (d) (20)
--------- ------- -------- ---------
Income before income taxes and minority interest 3,668 1,853 101 5,622
Income taxes 102 - 55 (e) 157
Minority interest - - - -
--------- ------- -------- ---------
Net income 3,566 1,853 46 5,465
Preferred stock dividends 15,020 - - 15,020
--------- ------- -------- ---------
Net income attributable to
common stockholders $ 18,586 $ 1,853 $ 46 $ 20,485
========= ======= ======== =========
Basic earnings per common share $ 0.84 $ 0.91
Diluted earnings per common share $ 0.12 $ 0.18
Basic weighted average common
shares outstanding 22,154,861 22,522,508
Diluted weighted average common
shares outstanding 29,232,568 29,600,215
[RESTUBBED]
Combined G Link Adjusted
Historical Pro Forma Pro Forma
G Link Adjustments Results
---------- ----------- ---------
Total revenues $ 15,522 (130) (v) $ 173,501
Cost of transportation 12,139 (130) (v) 126,458
-------- ---- ---------
Net revenue 3,383 - 47,043
Selling, general and administrative costs 1,630 120 (w) 39,768
-------- ---- ---------
Income from operations 1,753 (120) 7,275
Other income (expense) 11 (112) (x) (121)
-------- ---- ---------
Income before income taxes and minority interest 1,764 (232) 7,154
Income taxes 352 (3) (y) 506
Minority interest - 424 (z) 424
-------- ---- ---------
Net income 1,412 (653) 6,225
Preferred stock dividends - - 15,020
-------- ---- ---------
Net income attributable to
common stockholders $ 1,412 $ (653) $ 21,245
======== ====== =========
Basic earnings per common share $ 0.90
Diluted earnings per common share $ 0.20
Basic weighted average common
shares outstanding 23,489,844
Diluted weighted average common
shares outstanding 30,567,551
Regroup Pro Forma Adjustments
(a) To reflect revenues, cost of purchased transportation services and the
accounting and factoring fees charged under an agency agreement with
another logistics services organization on a gross basis.
(b) To eliminate accounting and factoring fees associated with agent
operations, net of incremental compensation to former owners and additional
personnel.
(c) To reflect amortization of acquired identifiable intangibles.
(d) To reflect incremental interest expense at 4.0% associated with borrowings
for the $3.7 million in cash paid at closing.
(e) To reflect state income tax expense.
G Link Pro Forma Adjustments
(v) To eliminate intercompany forwarding services.
(w) To reflect amortization of acquired identifiable intangibles.
(x) To reflect incremental interest expense at 4.0% associated with borrowings
for the $2.8 million in cash paid at closing.
(y) To reflect reduction of state income tax expense for interest expense
associated with the $2.8 million in borrowings.
(z) To eliminate minority interests.
STONEPATH GROUP, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Three months ended March 31, 2003
(amounts in thousands, except share and per share information)
Historical Statements Regroup
--------------------------- Pro Forma Adjusted
Stonepath Regroup Adjustments Results
--------- ------- ----------- --------
Total revenues $ 45,365 $ 397 $ 4,118 (a) $ 49,880
Cost of transportation 33,182 - 3,720 (a) 36,902
-------- ----- ------- --------
Net revenues 12,183 397 398 12,978
Selling, general and administrative costs 11,173 285 398 (a) 11,693
(201) (b)
38 (c)
Litigation settlement 750 - - 750
-------- ----- ------- --------
Income from operations 260 112 163 535
Other income (expense) 30 - (37) (d) (7)
-------- ----- ------- --------
Income before income taxes and minority interest 290 112 126 528
Income taxes 15 - 12 (e) 27
Minority interest - - - -
-------- ----- ------- --------
Net income $ 275 $ 112 $ 114 $ 501
======== ===== ======= ========
Basic earnings per common share $ 0.01 $ 0.02
Diluted earnings per common share $ 0.01 $ 0.02
Basic weighted average common
shares outstanding 24,764,810 25,132,457
Diluted weighted average common
shares outstanding 32,313,842 32,681,489
[RESTUBBED]
Combined G Link Adjusted
Historical Pro Forma Pro Forma
G Link Adjustments Results
---------- ----------- ---------
Total revenues $ 3,851 (17) (v) $ 53,714
Cost of transportation 3,135 (17) (v) 40,020
------- --- --------
Net revenues 716 - 13,694
Selling, general and administrative costs 436 30 (w) 12,159
Litigation settlement - - 750
------- --- --------
Income from operations 280 (30) 785
Other income (expense) 1 (28) (x) (34)
------- --- --------
Income before income taxes and minority interest 281 (58) 751
Income taxes 53 (1) (y) 79
Minority interest - 68 (z) 68
------- --- --------
Net income $ 228 $ (125) $ 604
======= ====== ========
Basic earnings per common share $ 0.02
Diluted earnings per common share $ 0.02
Basic weighted average common
shares outstanding 26,099,793
Diluted weighted average common
shares outstanding 33,648,825
Regroup Pro Forma Adjustments
(a) To reflect revenues, cost of purchased transportation services and the
accounting and factoring fees charged under an agency agreement with
another logistics services organization on a gross basis.
(b) To eliminate accounting and factoring fees associated with agent
operations, net of incremental compensation to former owners and additional
personnel.
(c) To reflect amortization of acquired identifiable intangibles.
(d) To reflect incremental interest expense at 4.0% associated with borrowings
for the $3.7 million in cash paid at closing.
(e) To reflect state income tax expense.
G Link Pro Forma Adjustments
(v) To eliminate intercompany forwarding services.
(w) To reflect amortization of acquired identifiable intangibles.
(x) To reflect incremental interest expense at 4.0% associated with borrowings
for the $2.8 million in cash paid at closing.
(y) To reflect reduction of state income tax expense for interest expense
associated with the $2.8 million in borrowings.
(z) To eliminate minority interests.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
STONEPATH GROUP, INC.
Date: August 13, 2003 By: Dennis L. Pelino
-------------------------------------------
Name: Dennis L. Pelino
Title: Chairman and Chief Executive Officer
Exhibit Index
-------------
Exhibit Number Description
-------------- -----------
2.7 Asset Purchase Agreement by and among Stonepath
Holdings (Hong Kong) Limited, G Link Express
Logistics (Singapore) Pte. Ltd., G Link Express
Pte. Ltd. and the shareholders of G Link Express
Pte. Ltd., dated August 8, 2003.
2.8 Asset Purchase Agreement by and among Stonepath
Holdings (Hong Kong) Limited, G Link Express
(Cambodia) Pte. Ltd. and the shareholders of G
Link Express (Cambodia) Pte. Ltd., dated August 8,
2003.
23.1 Independent Auditors' Consent
23.2 Independent Auditors' Consent
99.1 Press Release dated August 11, 2003