U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File No. 0-25319
TRANSPORTATION LOGISTICS INT'L, INC.
--------------------------------------------
(Name of Small Business Issuer in its Charter)
Colorado 84-1191355
------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
136 Freeway Drive East, East Orange, NJ 07018
---------------------------------------------
(Address of Principal Executive Offices)
Issuer's Telephone Number: (973) 266-7020
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the Registrant's classes of common stock, as of the
latest practicable date:
November 18, 2002
Common Voting Stock: 42,409,205
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
PART 1 - FINANCIAL INFORMATION
Transportation Logistics Int'l Inc. and Subsidiaries
Consolidated Condensed Interim Balance Sheet
September 30, 2002
Assets
Current Assets
Cash and equivalents $ -
Accounts receivable, net of allowance for
doubtful accounts of $87,497 1,568,055
Prepaid expenses 23,136
Notes receivable 35,000
---------
Total Current Assets 1,626,191
---------
Property and equipment, at cost, less accumulated
depreciation 364,374
Goodwill and customer lists, net of accumulated
amortization 541,304
Other Assets
Notes receivable 386,000
Security deposits 61,500
Other assets 56,911
---------
Total Other Assets 504,411
---------
Total Assets $ 3,036,280
=========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses $ 1,049,936
Convertible debenture 200,000
Notes payable to bank 648,247
Current maturities of long term debt 442,577
Income taxes payable 7,446
---------
Total Current Liabilities 2,348,206
---------
Loan payable 932,891
Minority interest payable 146,208
---------
Total Liabilities 3,427,305
Stockholders' Equity
Common stock, no par value;
50,000,000 shares authorized,
42,409,205 shares issued and outstanding 3,657,892
Additional paid-in capital - stock options 36,748
Retained earnings (2,293,288)
Less: treasury stock, 235,652 shares at cost (522,537)
Consulting services to be provided (1,269,840)
---------
Total Stockholders' Equity (391,025)
---------
Total Liabilities and Stockholders' Equity $ 3,036,280
=========
-2-
Transportation Logistics Int'l Inc. and Subsidiaries
Consolidated Condensed Interim Statements of Operations
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
----------------------------------------------------------------------------
Operating Revenues $2,891,642 $4,136,884 $9,071,971 $8,541,441
Direct Operating Expenses 1,807,873 3,351,216 6,014,519 6,682,246
---------------------------------------------
Gross Profit 1,083,769 785,668 3,057,452 1,859,195
---------------------------------------------
Operating Expenses
Selling, general and
administrative 1,016,747 1,034,848 2,596,731 2,459,276
Depreciation and amortization 33,260 65,539 151,800 187,494
Stock issued for consulting
services 25,080 - 75,920 -
---------------------------------------------
Total Operating Expenses 1,075,087 1,100,387 2,824,451 2,646,770
---------------------------------------------
Operating Income (Loss) 8,682 (314,719) 233,001 (787,575)
Other Income (Expense)
Interest expense (14,009) - (38,185) -
Interest income - 48,894 - 25,051
---------------------------------------------
Total Other Income (Expense) (14,009) 48,894 (38,185) 25,051
---------------------------------------------
Income (Loss) Before Income
Taxes (5,327) (265,825) 194,816 (762,524)
Provision for Income Taxes - - - -
---------------------------------------------
Income (Loss) Before Minority
Interest (5,327) (265,825) 194,816 (762,524)
Minority Interest (68,552) - (146,208) -
---------------------------------------------
Net Income (Loss) $ (73,879) $ (265,825) $ 48,608 $ (762,524)
=============================================
Earnings Per Share
Basic and diluted earnings
(loss) per share $ - $ (.01) $ - $ (.04)
=============================================
Weighted Average Number of
Common Shares Outstanding:
Basic and Diluted 41,409,205 20,902,500 34,002,686 20,902,500
==============================================
-3-
Transportation Logistics Int'l Inc. and Subsidiaries
Consolidated Condensed Interim Statements of Cash Flows
Nine Months Ended
September 30,
----------------------
2002 2001
-------- --------
Cash Used in Operating Activities $ 79,471 $ (754,484)
-------- --------
Cash Flows From Investing Activities
Purchase of property and equipment (118,041) (175,730)
Collection of notes receivable - 508,579
Investments in joint ventures
and subsidiaries - (35,244)
-------- ---------
Net Cash Provided by (Used in)
Investing Activities (118,041) 297,605
-------- ---------
Cash Flows From Financing Activities
Issuance of convertible debentures - 200,000
Proceeds from bank loans 164,903 274,952
Issuance of common stock and options - 26,709
Repayments of loans payable to
affiliates and capital leases - (75,902)
Loans to affiliates and shareholders - (78,460)
Repayment of long-term debt (150,000) -
-------- --------
Net Cash Provided by Financing
Activities 14,903 347,299
-------- --------
Net (Decrease) in Cash and Equivalents (23,667) (109,580)
Cash and Equivalents at Beginning
of Period 23,667 195,616
-------- -------
Cash and Equivalents at End of Period $ - $ 86,036
======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $ 38,185 $ 23,843
Income taxes $ - $ -
-4-
Transportation Logistics Int'l Inc. and Subsidiaries
Notes to the Consolidated Condensed Interim Financial Statements
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Item 310 of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine months ended September 30, 2002 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2002. The unaudited condensed financial statements should be
read in conjunction with the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10- K for the year
ended December 31, 2001.
STOCK ISSUED FOR CONSULTING SERVICES
During the first quarter of 2002 the Company issued 7,730,000 shares of
common stock in consideration of commitments from the recipients to provide
consulting services. The terms of the consulting agreements vary from two to
five years. The market value of the common stock on the date of issuance will
be recorded as an expense - "stock issued for consulting services" - over the
term of each consulting agreement.
SALE OF TLI(U.K.)
On April 19, 2002 the Company sold all of the capital stock of its subsidiary,
Transportation Logistics Int'l (UK) Ltd. ("TLI(U.K.)"). TLI(U.K.) was sold
to four individuals, including James Thorpe, who had been a member of the
Board of Directors and President of the Company. Mr. Thorpe resigned from
those positions on April 19, 2002. The purchase price given by the purchasers
consisted of (a) $35,000 to be paid between November 2002 and April 2003 and
(b) 940,867 shares of the Company's common stock, which were surrendered by
Mr. Thorpe. As part of the transaction, TLI(U.K.) and the purchasers agreed
that if within the next two years they participate in the Translogistics
Network or in any similar cooperative global network of logistics providers,
then 50% of the profits they derive from the network during the next five
years will be paid to the Company.
ACQUISITION OF XCALIBUR XPRESS INC.
On May 23, 2002 the Company acquired all of the capital stock of Xcalibur
Xpress Inc. Xcalibur Xpress is based in Charleston, South Carolina. It
performs intermodal trucking and delivery, warehousing and third party
logistics for its clients. The capital stock of Xcalibur Xpress was acquired
by the Company in exchange for (1) the Company's undertaking to provide
financial services to Xcalibur Xpress and (2) the agreement by the Company to
forebear immediate collection of $200,000 owed by Xcalibur Xpress to the
Company.
-5-
RESTRICTED STOCK GRANT PROGRAM
On May 28, 2002 the Company granted 10,000,000 shares of its common stock to
Michael Margolies, its Chief Executive Officer, pursuant to the Company's
Restricted Stock Grant Program (the "Program"). The grant represented the
entirety of the 10,000,000 shares included in the Program. The shares
issued under the Program are subject to the following restrictions:
1. After this fiscal year and each of the following four fiscal years
(2002 through 2006) one-fifth of the shares granted (the "At-Risk Shares")
will be forfeited if the Company's' revenue during the year does not
exceed the following thresholds:
2002 - $ 4,000,000
2003 - $ 6,000,000
2004 - $ 8,000,000
2005 - $ 10,000,000
2006 - $ 12,000,000
2. All of the restricted shares shall be forfeited if Mr. Margolies'
employment by the Company terminates prior to the date the restrictions
lapse.
3. The shares granted under the Program cannot be sold, assigned, pledged,
transferred or hypothecated in any manner, by operation of law or
otherwise, other than by writ or the laws of descent and distribution,
and shall not be subject to execution, attachment or similar process.
These restrictions will lapse with respect to any At-Risk Shares that
are not forfeited as described above. In addition, the restrictions will
lapse with respect to all unforfeited shares if in any year the Company's
revenue exceeds $12,000,000.
4. The restrictions shall also lapse as to all restricted shares on the
first to occur of (i) the termination of Mr. Margolies' employment with
the Company by reason of his disability, (ii) Mr. Margolies' death,
(iii) termination of Mr. Margolies'employment by the Company without
good reason, or (iv) a change of control of the Company. The Program
defines "Change of Control" as an acquisition by a person or group of
more than 50% of the Company's outstanding shares, a transfer of the
Company's property to an entity of which the Company does not own at
least 50%, or the election of directors constituting a majority of the
Board who have not been approved by the existing Board.
OPERATING SEGMENTS
The Company's operations are classified into five principal reportable
segments that provide different products or services: U.S. Logistics Services,
Foreign Logistics Services, Student Transportation, Employee Leasing
Services, and Financial Services. Separate management of each segment is
required because each business unit is subject to different marketing and
operating strategies and different geographic locations.
-6-
Segmental Data
Reportable Segments Nine Months Ended September 30, 2002
Student
US Foreign Trans- Employee
Logistics Logistic portation Leasing Financial
Services Services Services Services Services Total
-----------------------------------------------------------------------------------
External Revenue $1,796,810 $ 858,842 $ 1,873,119 $3,857,071 $ 686,129 $9,071,971
=================================================================
Depreciation and
Amortization $ - $ - $ 76,200 $ 28,277 $ 47,323 $ 151,800
=================================================================
Operating Income
(Loss) $ (103,297)$ 27,148 $ 12,390 $ 298,385 $ (1,625) $ 233,001
=================================================================
Assets $ 892,372 $ - $ 441,181 $ 223,775 $1,478,952 $3,036,280
=================================================================
Capital
Expenditures $ - $ - $ 118,041 $ - $ - $ 118,041
=================================================================
Reportable Segments Nine Months Ended September 30, 2002
Student
US Foreign Trans- Employee
Logistics Logistic portation Leasing
Services Services Services Services Total
------------------------------------------------------------------------
External Revenue $4,368,473 $1,704,325 $1,955,875 $ 512,768 $8,541,441
=======================================================
Depreciation and
Amortization $ 42,413 $ 12,282 $ 126,746 $ 6,053 $ 187,494
=======================================================
Operating Income
(Loss) $ (556,713) $ (404,252)$ 196,347 $ (22,956)$ (787,574)
=======================================================
Assets $1,197,644 $1,173,563 $1,022,010 $ 347,348 $3,740,565
=======================================================
Capital
Expenditures $ 13,809 $ 5,387 $ 154,913 $ 1,621 $ 175,730
=======================================================
-7-
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS
Forward-looking Statements: No Assurances Intended
This Report contains certain forward-looking statements regarding
Transportation Logistics, its business and financial prospects. These
statements represent Management's present intentions and its present belief
regarding the company's future. Nevertheless, there are numerous risks and
uncertainties that could cause our actual results to differ from the results
suggested in this Report. Among the more significant risks are:
* the fact that Transportation Logistics' growth will be limited by
its ability to obtain additional capital;
* the fact that the industry in which Transportation Logistics
operates is dominated by large logistics companies, against whom
Transportation Logistics must compete;
* the fact that Transportation Logistics may not be able to attract
the skilled managers it will need in order to expand its operations
efficiently.
Because these and other risks may cause the Company's actual results to
differ from those anticipated by Management, the reader should not place undue
reliance on any forward-looking statements that appear in this Report. Readers
should also take note that Transportation Logistics will not necessarily make
any public announcement of changes affecting these forward-looking statements,
which should be considered accurate on this date only.
Results of Operations
During 2001 we reoriented our business plan, moving away from a dominant
focus on international logistics operations and moving towards the establish
ment of Transportation Logistics as a provider of domestic logistics services.
Subsequent to the end of the year we sold TLI(U.K.), the subsidiary which was
devoted to international logistics, thus finalizing the reorientation of our
business. To replace that lost revenue stream, in May 2002 we acquired
Xcalibur Xpress, Inc., an intermodal trucking company. Then in the third
quarter of 2002 we further streamlined our operations by reducing our involve
ment in employee leasing and financial services. As a result of all these
transformations, in the first nine months of 2002 we have achieved a return to
profitability.
During the third quarter of 2002 management re-evaluated our involvement
in providing services to the logistics industry - specifically personnel
services and financial services. Although these operations had grown during
the first half of 2002, they required continuing capital commitments that were
not justified by the returns we were experiencing. Particularly in light of
our limited capital resources, the decision was made to reduce both of those
segments of our operations. The results of those operations remain
consolidated with our operating statements for the first nine months of 2002,
as we continue to unwind our involvement in those businesses. We expect that
at year-end they will be re-categorized as discontinued operations.
-8-
Our acquisition of Xcalibur Xpress contributed $1,707,458 to our revenue
for the third quarter of 2002. These operations were based in Charleston,
South Carolina when we acquired them, and were capital-intensive. Since the
June 2002 acquisition we have consolidated the management operations of
Xcalibur Xpress in our corporate headquarters in New Jersey. We have also
disposed of all of the rolling stock previously leased by Xcalibur Xpress, and
reoriented its business to an exclusive reliance on agency relationships. The
intermodal trucking business of Xcalibur Xpress is now carried out by a five
person staff. By pursuing this low-overhead business model, we hope to achieve
significant growth and profits despite our lack of capital resources.
Revenue from Pupil Transportation were 39% lower in the third quarter of
2002 than in the third quarter of 2001. The reduction in revenue resulted
from our loss of several large contracts to competitive bidding. During the
same periods, income from the busing division fell from a gain of $24,243
during the third quarter of 2001 to a net loss of $34,481 during the third
quarter of 2002. The reversal was a result, in part, of the reduction in
revenue during the same period and a result, in part, of our new policy
regarding allocation of corporate overhead among our subsidiaries.
Our operating divisions produced operating income during the first nine
months of 2002. That operating income was partially offset, however, by
expenses attributable to the operations of the corporate parent. These
expenses primarily relate to corporate management, including the professional
fees that are attendant to being a public company. In addition, one of the
ways in which we established the network of significant relationships that
facilitate our business operations was by issuing common stock to consultants
and other individuals and enterprises which committed to assist our develop
ment. During the first nine months of 2002 we recorded $75,920 in expenses
attributable to the market value of that stock. Our expectation is that these
non-cash expenses will be offset by future cash benefits arising from the
relationships we are developing.
Our overall gross profit margin for the quarter ended September 30, 2002
was 37%, compared to 19% in the quarter ended September 30, 2001. For the
nine month periods, the gross margin was 34% in 2002 compared to 22% in 2001.
The improvement is attributable to the fact that in the beginning of 2001 our
revenues were primarily international transportation revenues, and our gross
margins were dictated by the shipping industry: 12%-18% for ocean freight and
25% for air freight Our revenues in 2002 have been from domestic logistics-
related services, and in the third quarter arose primarily from intermodal
trucking. The range within which we can expect the gross margin from current
businesses has not yet been determined, as those divisions do not have
sufficient operating history to be predictive. Our goal, however, is to
continue to achieve the margin reported for the third quarter of this year.
Liquidity and Capital Resources
The primary roadblock facing our plans for growth is our need for capital.
We are actively seeking additional capital resources, through sale
of equity or debt, and hope to increase our available resources. With
additional capital resources, we expect to be able to expand all of our
service offerings to achieve the economies of scale that will facilitate
profitability and growth.
Our operations produced positive cash of $79,471 during the first nine
months of 2002. An amount in excess of that sum, however, was used to acquire
property and equipment. In the meantime, we reduced our long-term debt by
$150,000 while increasing our short-term bank debt by $164,903. As a result,
our working capital deficit at September 30, 2002 totaled $722,015, a
weakening of our capital position by $281,690 compared with the working
capital deficit on $440,325 at December 31, 2001. As noted, above, management
is seeking to stem this outflow of working capital by adopting a business
model that requires only limited capital investments. The situation, however,
will continue to restrict our ability to grow our businesses until we achieve
growth in working capital.
-9-
At the present time the only significant credit available to us is a facility
of up to $2,000,000, based on eligible receivables, which was issued
by Merchant Financial Corp. At September 30, 2002 we had an outstanding
balance of $648,247 due to Merchant Financial. The facility expires in March
2003.
Our working capital position is insufficient to fund a significant growth rate.
To fund growth, we will require additional capital resources. Management,
therefore, is actively engaged in exploring opportunities for equity or debt
financing, to obtain the funds needed for this planned expansion.
ITEM 3. CONTROLS AND PROCEDURES
Michael Margolies, our Chief Executive Officer and Chief Financial Officer,
performed an evaluation of the Company's disclosure controls and procedures
within 90 days prior to the filing date of this report. Based on his
evaluation, he concluded that the controls and procedures in place are
sufficient to assure that material information concerning the Company which
could affect the disclosures in the Company's quarterly and annual reports is
made known to him by the other officers and employees of the Company, and that
the communications occur with promptness sufficient to assure the inclusion of
the information in the then-current report.
There have been no significant changes in the Company's internal controls or
in other factors that could significantly affect those controls subsequent to
the date on which Mr. Margolies performed his evaluation.
PART II - OTHER INFORMATION
Items 1/3. Legal Proceedings/Defaults in Senior Securities
Michael Seeley, the holder of a Convertible Debenture issued by the Company in
the principal amount of $200,000, has commenced action in the District Court
for the City and County of Denver, State of Colorado, against the Company.
The action alleges that the Company has defaulted in payment of the principal
and $40,000 in interest accrued on the debenture.
Item 6. Exhibits and reports on Form 8-K.
Reports on Form 8-K. None
Exhibits. None
-10-
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.
TRANSPORTATION LOGISTICS INT'L, INC.
Date: November 18, 2002 By: /s/ Michael Margolies
-------------------------
Michael Margolies, Chief
Executive Officer, Chief
Financial Officer, Chief
Accounting Officer
CERTIFICATION
I, Michael Margolies, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
Transportation Logistics Int'l, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements and other
financial information included in this quarterly report fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons performing
the equivalent functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for
the registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 18, 2002 /s/ Michael Margolies
----------------------------------
Michael Margolies, Chief Executive
Officer and Chief Financial Officer