Item
2.
Management’s
Discussion and Analysis of Financial Condition and
Results
of Operations
Special
Note of Caution Regarding Forward-Looking Statements
Certain
statements in this report, including statements in the following discussion,
which are not statements of historical fact, are what are known as
“forward-looking statements,” which are basically statements about the future.
For that reason, these statements involve risk and uncertainty since no one
can
accurately predict the future. Words such as “plans,” “intends,” “hopes,”
“seeks,” “anticipates,” “expects,” and the like, often identify such
forward-looking statements, but are not the only indication that a statement
is
a forward-looking statement. Such forward-looking statements include statements
concerning our plans and objectives with respect to the present and future
operations of the Company, and statements, which express or imply that such
present and future operations will, or may, produce revenues, income or profits.
Numerous factors and future events could cause the Company to change such plans
and objectives, or fail to successfully implement such plans or achieve such
objectives, or cause such present and future operations to fail to produce
revenues, income or profits. Therefore, the reader is advised that the following
discussion should be considered in light of the discussion of risks and other
factors contained in this report on Form 10-Q and in the Company’s other filings
with the SEC including, but not limited to, its Annual Report on Form 10-K.
No
statements contained in the following discussion should be construed as a
guarantee or assurance of future performance or future results.
These
forward-looking statements are based largely on our current expectations,
assumptions, plans, estimates, judgments and projections about our business
and
our industry, and they involve inherent risks and uncertainties. Although we
believe that these forward-looking statements are based upon reasonable
estimates, judgments and assumptions, we can give no assurance that our
expectations will in fact occur or that our estimates, judgments or assumptions
will be correct, and we caution that actual results may differ materially and
adversely from those in the forward-looking statements. Forward-looking
statements involve known and unknown risks, uncertainties, contingencies and
other factors that could cause our or our industry’s actual results, level of
activity, performance or achievement to differ materially from those discussed
in or implied by any forward-looking statements made by or on behalf of us
and
could cause our financial condition, results of operations or cash flows to
be
materially adversely affected. Accordingly, investors and all others are
cautioned not to place undue reliance on such forward-looking
statements.
Potential
risks, uncertainties, and other factors which could cause the Company’s
financial performance or results of operations to differ materially from current
expectations or such forward-looking statements include, but are not limited
to:
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International economic and political risks, over which we have little
or
no control;
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Challenges posed by competing in a changing international
environment;
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Political uncertainty in Hong Kong and China making it difficult
to
develop any long range planning;
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Relations between the United States and China remaining
stable;
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The Chinese government could change its policies toward private
enterprises or expropriate private enterprises;
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The lack of adequate remedies and impartiality under China’s legal system
may adversely impact our ability to do business and enforce our agreements
with third parties;
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Fluctuations in exchange rates;
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Our dependence on third parties for equipment and
services;
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Competition from our own cargo agents;
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Having seasonal business that causes fluctuations in our results
of
operations and financial condition;
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A lack of ongoing contractual relationships with our
customers;
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Taking on significant credit risks in the operation of our business
as
East Coast U.S. freight forwarders expect us to offer thirty days
credit
from the time of cargo delivery;
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Our inventory of shipping space is subject to the significant risk
that we
may not be able to “fill” the space while having contracted for that
space; and
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Our insurance may not be sufficient to cover losses or damages to
the
freight we ship or for consequential damages for a shipment of hazardous
materials.
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Many
of
these factors are beyond our control, and you should read carefully the factors
described in “Risk Factors” in our filings (including this Form 10-Q, our Forms
10-K and our other periodic filings) with the SEC for a description of some,
but
not all, risks, uncertainties and contingencies. These forward-looking
statements speak only as of the date of this document. We do not undertake
any
obligation to update or revise any of these forward-looking statements to
reflect events or circumstances occurring after the date of this document or
to
reflect the occurrence of unanticipated events. Any forward-looking statements
are not guarantees of future performance.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Management’s
discussion and analysis of financial condition and results of operations are
based upon our consolidated financial statements. These statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America. These principles require management to make certain
estimates, judgments and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, based on
historical experience, and various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
The
following critical accounting policies rely upon assumptions, judgments and
estimates and were used in the preparation of our consolidated financial
statements:
RECOGNITION
OF COST OF FORWARDING
The
billing of cost of forwarding is usually delayed. As a result, we must estimate
the cost of purchased transportation and services, and accrue an amount on
a
load-by-load basis in a manner that is consistent with revenue recognition.
Such
estimate is based on past trends, and on the judgment of management.
Historically, upon completion of the payment cycle (receipt and payment of
transportation bills), the actual aggregate transportation costs are not
materially different than the accrual. However, in any case in which the actual
cost varies significantly from the accrual, a revision to the accrual would
be
required.
ACCOUNTING
FOR INCOME TAXES
In
preparing our consolidated financial statements, we are required to estimate
our
income taxes in each of the jurisdictions where we operate. This process
involves estimating actual current tax exposure, together with assessing
temporary differences resulting from differing treatment of items for tax and
accounting purposes. These differences result in deferred tax assets and
liabilities, which are included in our condensed consolidated balance sheet.
We
are required to assess the likelihood that our deferred tax assets will be
recovered from future taxable income, and to the extent that we believe that
recovery is not likely, we must establish a valuation allowance. To the extent
we establish a valuation allowance, we must include an expense within the tax
provision of the consolidated statement of income in each period in which the
allowance is increased.
Significant
judgment is required in determining the provision for income taxes, deferred
tax
assets and liabilities, and any valuation allowance, against our deferred tax
assets. In the event that actual results differ from these estimates or the
estimates are adjusted in future periods, then we may need to establish an
additional valuation allowance, which could materially impact our financial
position and results of operations.
If
the
realization of the deferred tax assets in the future is considered more likely
than not, an adjustment to the deferred tax assets would increase net income
in
the period such determination is made. The establishment of the valuation
allowance for the full amount for our US deferred tax assets aggregating
$2,137,000 during the fourth quarter of 2006 does not impair our ability to
use
the deferred tax assets upon achieving profitability. Our federal and state
net
operating loss carry-forwards do not expire for the next 13 to 20 years.
VALUING
LONG-LIVED ASSETS, INTANGIBLES AND GOODWILL
We
assess
the impairment of identifiable long-lived assets purchased, intangible assets
and goodwill whenever events or changes in circumstances indicate that the
carrying amount may be impaired. Factors that we consider when evaluating for
possible impairment include the following:
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Significant
under-performance relative to expected historical or projected future
operating results;
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Significant
changes in the manner of our use of the acquired assets or the strategy
for our overall business; and
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Significant
negative economic trends.
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When
determining whether the carrying value of long-lived assets and goodwill is
impaired based upon the existence of one or more of the above factors, we
determine the existence of impairment by comparison of the carrying amount
of
the asset to expected future cash flows to be generated by the asset. If such
assets are considered impaired, the impairment is measured as the amount by
which the carrying value of the assets exceeds their fair values. As of
September 30, 2007, goodwill totaled approximately $4.2 million, other
intangible assets amounted to approximately $602,000 and our long-lived assets,
consisting primarily of net property, plant and equipment, totaled approximately
$1.6 million.
Due
to
the financial results of our third quarter, we have engaged an independent
valuation expert to complete an impairment analysis to determine whether our
goodwill is impaired and if so, by how much. This analysis will be completed
when we announce our fourth quarter results.
ACCOUNTS
AND NOTES RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts
receivable are stated at the amount billed to customers. The Company provides
an
allowance for doubtful accounts, which is based upon a review of outstanding
receivables, historical collection information and existing economic conditions.
The allowance is provided for accounts with a significant pattern of
uncollectibility based on historical experience and management’s evaluation of
accounts receivable. Accounts receivable are ordinarily due 30 days after the
issuance of the invoice. The Company does not accrue interest on past due
receivables.
OVERVIEW
The
Company does not carry on any business activities by itself. Instead, through
its subsidiaries and associated companies, it provides supply chain management
solutions, contract logistics services and international freight forwarding
services. The Company’s current business was formed from a base of two freight
forwarders, AGI Logistics (HK) Ltd. (“AGI”) and Airgate International Corp.
(“Airgate”) which were acquired in 2000 and 2002, respectively, and the business
is managed from our principal support group offices in New York and Hong
Kong.
The
Company’s wholly owned subsidiary AGI was established in August 1998
and operates an integrated logistics and freight forwarding business which
is based in Hong Kong. The principal services are provided by AGI and its own
subsidiaries (wholly owned and majority owned) and its associated (those
companies that it holds a minority equity position) companies. At June 30,
2007,
AGI wholly-owned subsidiaries included Careship International Transportation
Limited (formerly known as Shenzhen Careship International Transportation Ltd.)
(“HK Careship”), Pacific CMA Limited (formerly known as AGI China Limited), WCL
Global Logistics Limited (“WCL”) and Parco Shipping Co. Ltd. (“Parco”) which
were acquired by AGI in 2000, 2002, 2006 and 2007, respectively. The majority
owned subsidiaries included AIO Global Logistics Limited (62%) and SDA
Forwarding Co. Limited (51%). AGI also has investments in equity method
subsidiaries: Vantage Point Services Limited (“Vantage Point”), Careship
International Transportation Ltd. (“Careship International”), Careship Aviation
Limited (“Careship Aviation”) and AGI Logistics (Vietnam) Limited of, 40%,
46.92%, 20% and 49% of their total equity, respectively.
Airgate,
a privately held New York based freight forwarder that was established in 1995,
was acquired on April 30, 2002. Airgate is a non-asset based logistics services
company which primarily handles the air and ocean import shipments from the
Far
East and Southwest Asia to the U.S.
Paradigm,
a privately held freight forwarder was acquired on April 30, 2004. Paradigm
is a
non-asset based logistics services company which primarily handles the air
and
ocean import shipments from Asia to the U.S. Paradigm’s office in Los Angeles
was opened in 2005.
In
addition, the Company completed the acquisition of Parco Shipping Co., Ltd.
(“Parco”) for $1,031,620 on January 2, 2007. Parco is a non-asset based
logistics services company based in Hong Kong, which handles both air and ocean
shipments between Hong Kong and mainland China. Goodwill and intangible assets
of $568,790 and $450,156, respectively, were recognized in this
transaction.
OVERALL
RESULTS
Freight
forwarders are compensated on a transactional basis for the movement of goods
and provision of related services to their customers. Therefore, our revenue
is
derived from our freight forwarding services based upon the rates that we charge
our customers for the movement of their freight from origin to destination.
The
carrier’s contract is with us, not with our customers. We are responsible for
the payment of the carrier’s charges and we are legally responsible for the
shipment of the goods. We are responsible for any claims for damage to the
goods
while in transit. In most cases, we receive reimbursement from the carriers
for
any claims. Since many shippers do not carry insurance sufficient to cover
all
losses, we also carry insurance to cover any unreimbursed claims for goods
lost
or destroyed in the event of a total loss. Gross revenue represents the total
dollar value of services we sell to our customers. Our costs of transportation,
products and handling include the direct cost of transportation, including
tracking, rail, ocean, air and other costs. We commit to pay for space with
shippers prior to receiving committed orders from our customers. We act
principally as a service provider to add value and expertise in the procurement
and execution of these services for our customers. Therefore, our gross profits
(gross revenues less the direct costs of transportation, products, and handling)
are indicative of our ability to source, add value and resell services and
products that are provided by third parties.
The
majority of our transactions are denominated in Hong Kong dollars or United
States dollars. The risk due to exchange rate fluctuation is negligible so
long
as the Hong Kong dollar remains “pegged” to the United States dollar. Sales are
made on credit, generally thirty days, or on a cash basis. We have a credit
control policy, that our employees have been instructed to follow by checking
or
obtaining the credit reference of new customers. The credit records of our
customers are reviewed by senior staff. A chief executive officer of the
Company’s respective subsidiaries
must
give his/her prior approval for orders in excess of a pre-determined amount.
We,
on the other hand, receive credit on a short-term basis, generally thirty days,
from airlines and shipping lines. In the United States, we generally have to
pay
vendors immediately.
THREE
MONTHS ENDED SEPTEMBER 30, 2007 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30,
2006
Total
revenue for the three months ended September 30, 2007 decreased approximately
17% compared with the three months ended September 30, 2006, from $45,055,638
in
2006 to $37,549,376 in 2007. The decrease in revenue was primarily the result
of
decrease in airfreight traffic between US and Asia Pacific.
Revenue
derived from the operations of AGI and its subsidiaries (“AGI Group”) increased
approximately 7% during the three months ended September 30, 2007 as compared
with the same period of 2006. The significant growth of AGI Group was the
result of the following factors:
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The business of WCL in Guangzhou PRC matured after a year in development;
and
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Improvements in the agency network which enabled the Company to secure
new
freight business.
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The
revenue of Airgate represented approximately 42% of our total revenue for the
three months ended September 30, 2007. Airgate focuses its operations on the
import of goods from the Far East and deconsolidation of cargo. Revenue derived
from the operations of Airgate decreased approximately 40% for the three months
ended September 30, 2007 when compared with the same period of 2006. The
decrease is the result of an unexpected decrease in airfreight traffic
between US and Asia Pacific areas during the third quarter of 2007. Starting
from the first quarter of 2007, Airgate ceased its business
relationships with certain customers with low profit margin and lower
credit worthiness..
Total
revenue derived from Paradigm and AGI Singapore amounted to approximately $5.57
million, for the three monhs ended September 30, 2007, which represents
approximately 15% of total revenue of the Group.. Increased 3% comparing to
the
same period of 2006.
When
compared with the three months ended September 30, 2006, the cost of freight
forwarding for the same period of 2007 decreased approximately 17%, from
$39,033,203 in 2006 to $32,407,477 in 2007. The decrease in costs was primarily
the result of the corresponding decreases in Airgate’s revenue.
Gross
profit margin (freight forwarding income less cost of forwarding) for the three
months ended September 30 increased from approximately 13.37% in 2006 to
approximately 13.69% for the same period in 2007. The increase in gross profit
margin is the result of our enhanced controls of freight costs, focusing on
higher margin sales as well as passing through fuel surcharges to our
customers. Our increase was tempered by lower margin airfreight revenue for
some
Airgate customers.
Net
loss
attributable to common stockholders for the three months ended September 30th
increased approximately 1182%, from $123,603 in 2006 to $2,085,331 in 2007.
The
increase in net loss was mainly due to the decrease in margins & SGA and the
significant increase in general and administrative costs, interest expenses,
pre-payment penalty on convertible and non-convertible note, and write offs
of
unamortized deferred financing costs and discounts on the convertible and
non-convertible notes. Details of expense fluctuations will be discussed in
the
sections "Operating expenses" and "Non-operating expenses" respectively.
BUSINESS
SEGMENT OPERATING RESULTS
The
results of operations for each segment are as follows:
AIR
FREIGHT OPERATIONS:
Revenue
from airfreight operations decreased approximately 21%, from $26,771,763 for
the
three months ended September 30, 2006 to $20,968,955 for the same period of
2007. Airfreight revenue for international operations (that includes AGI Group
and AGI Singapore) was $12,743,217, while airfreight revenue for domestic
operations (that includes Airgate and Paradigm) was $7,415,406, and offsetting
inter-company transactions totaled $810,331. The volume of airfreight decreased
for the three months ended September 30, 2007, when compared with the same
period of 2006. The decrease was primarily due to the decrease in airfreight
traffic between US and Asia Pacific countries as a result of
increasing prices for aviation fuel. Customers shifted their shipments
from airfreight to seafreight. Airgate has also ceased doing business with
some
lower credit worthy customers during the third quarter of 2007 in order to
reduce credit risk and improve the cash flow.
Costs
for
the airfreight forwarding operations decreased approximately 17%, from
$23,109,357 for the three months ended September 30, 2006 to $19,087,511 for
the
same period of 2007. Airfreight cost attributable to foreign operations was
$10,611,750, while airfreight cost attributable to domestic operations was
$7,700,473, and offsetting inter-company costs were $775,288. The airfreight
cost decrease during the three months ended September 30, 2007 was due to
corresponding revenue decrease. Gross profit margin decreased from approximately
13.7% for the three months ended September 30, 2006 to approximately 8.9% for
the same period of 2007. The decrease in gross profit was due to the business
with some low poor margin customers.
Total
segment overhead attributable to the airfreight operation decreased by
approximately 34%, from $1,678,278 for the three months ended September 30,
2006
to $1,114,342 for the same period of 2007, as a result of increased
concentration on seafreight. Details regarding the increase in overhead expenses
are discussed below in "Operating Expenses".
Overall,
net segment income for the airfreight operation decreased by approximately
95%
from $1,750,311 for the three months ended September 30, 2006 to $94,715 for
the
same period of 2007. The decrease in net segment income was mainly the result
of
a decrease in segment revenue.
SEA
FREIGHT OPERATION:
Revenue
from sea freight operations decreased approximately 9%, from $18,283,875 for
the
three months ended September 30, 2006 to $16,583,262 for the same period of
2007. Sea freight revenue for international operations was $7,127,733, while
sea
freight revenue for domestic operations was $12,494,433, and offsetting
inter-company transactions were $3,038,904. The decrease in revenue was
partially due to the contribution from the decrease in quantity of freight
consolidation by Airgate Chicago. New customers in Europe and our agents in
India, Japan and Turkey introducing more customers into our network, which
led
to greater revenue from the Shanghai market in 2007.
Costs
for
the sea freight forwarding operation increased approximately 16%, from
$15,923,846 for the three months ended September 30, 2006 to $13,321,752 for
the
same period of 2007. Sea freight costs attributable to foreign operations were
$6,322,621, while costs attributable to domestic operations were $10,002,993,
and inter-company costs were $3,003,862. However, the gross profit margin
increased from approximately 12.9% for the three months ended September 30,
2006
to approximately 19.7% for the same period of 2007. As a result of increased
revenues, overall gross profits increased approximately 6.76%, to $3,261,510
for
the three months ended September 30, 2007 when compared to the corresponding
period in 2006.
Total
segment overhead attributable to the sea freight operation decreased
approximately 39%, from $879,549 for the three months ended September 30, 2006
to $538,459 for the same period of 2007. Overall net income for the sea freight
operation increased approximately 52%, from $1,369,183 for the three months
ended September 30, 2006 to $2,868,854 for the same period of 2007. The increase
in net segment income was mainly the result of increased air costs causing
customers to concentrate on seafreight. Details regarding the decrease in
overhead expenses are discussed below in “Operating Expenses”.
OPERATING
EXPENSES
GENERAL
AND ADMINISTRATIVE EXPENSES
General
and administrative expenses increased approximately 10%, from $4,852,464 for
the
three months ended September 30, 2006 to $5,846,052 for the same period of
2007.
There was a significant incremental increase in expenses for the following
items
for the three months ended September 30, 2007: rent and rates, as well as
salaries and allowance. As the Company has been continuously growing and in
order to cope with future growth, our staff planning needs called for the hiring
of additional staff throughout our offices during 2006 and 2007.
Sales
commission: Sales commission decreased approximately 11% from $774,629 for
the
three months ended September 30, 2006 to $688,057 for the same period of 2007;
the decrease is a result of decrease in business.
Rent
and
Rates: Rent and rates increased approximately 10%, from $296,595 for the three
months ended September 30, 2006 to $327,222 for the same period of 2007. The
increase was due to the new leases for the expansion of the office spaces in
our
HK, PRC and Los Angeles offices during the last half of 2006 in order to support
the growth of these subsidiaries.
Salaries
and allowance: Salaries and allowance increased approximately 13% from
$2,147,041 for the three months ended September 30, 2006 to $2,417,211 for
the
same period of 2007. This increase was the result of the addition of
approximately 40 staff persons during 2006 and the first half of 2007 in order
to keep pace with our expansion in Asia Pacific countries.
STOCK-BASED
COMPENSATION COST
Stock-based
compensation cost remained the same at $34,912 for the three months ended
September 30, 2006 and the same period of 2007.
DEPRECIATION
AND AMORTIZATION
Depreciation
and amortization increased approximately 12% from $269,955 for the three months
ended September 30, 2006 to $236,905 for the same period of 2007. The increase
was mainly attributable to purchases of additional fixture and furniture and
office equipment for the new offices in Los Angeles and Hong Kong during 2006
and 2007.
Amortization
arises from intangible customer relationship assets recorded in conjunction
with
the acquisitions of Airgate on April 30, 2002, Paradigm on April 30, 2004,
WCL
on July 1, 2005 and May 1, 2006, and Parco on January 2, 2007. These intangible
assets are amortized on a straight-line basis over a period of five to eight
years. During the three months ended September 30, 2007 and 2006, the
amortization expense attributable to these assets was $70,752 and $151,104,
respectively, an decrease of $80,352.
NON
OPERATING INCOME AND EXPENSES
INTEREST
AND OTHER INCOME
Interest
and other income increased from $27 for the three months ended September 30,
2006 to $426,519 for the same period of 2007.
INTEREST
EXPENSE
Interest
expense increased from $75,186 for the three months ended September 30, 2006
to
$326,160 due to the additional financing from BHC for the same period of 2007.
The increase in interest expense is primarily due to the increase in interest
rate during 2006 and the increase in notes payable from banking
facilities.
PRE-PAYMENT
PENALTY ON CONVERTIBLE AND NON-CONVERTIBAL NOTE
During
April 2007, the Company fully repaid the convertible and non-convertible note.
A
pre-payment penalty of $218,219 which is equal to 8% on the outstanding balance
of convertible and non-convertible notes was paid to Laurus Master Fund, Ltd
( “
Laurus ” ).
CONVERTIBLE
NOTE AND NON-CONVERTIBLE NOTE AMORTIZATION OF DEFERRED FINANCING
COST
The
deferred financing costs related to Convertible Note and Non-Convertible Note
is
amortized over their term to maturity, which is three years. A total of $Nil
and
$26,677 was expensed for the three months ended September 30, 2007 and 2006,
respectively. The decrease in expense was the result of the early repayment,
during the second quarter of 2007, of the notes resulting in the outstanding
amount of the deferred financing costs related to the notes being
expensed.
AMORTIZATION
OF CONVERTIBLE NOTE AND NON-CONVERTIBLE NOTE DISCOUNT
This
discount is amortized ratably over the term of the Convertible Note and
Non-Convertible Note, which is three years. A total of $Nil and $18,400 of
the
discount was amortized into expense for the three months ended September 30,
2007 and 2006, respectively. The decrease in expense was the result of the
early
repayment of the notes.
REVOLVING
NOTE AMORTIZATION OF DEFERRED FINANCING COSTS
On
April
6, 2007, the Company completed a financing transaction with Wells Fargo Bank,
National Associates. The deferred financing costs related to this revolving
note
are amortized over the term of the note, which is two years. A total of $97,859
was expensed for the three months ended September 30, 2007.
ACCRETION
OF SERIES A PREFERRED STOCK, NET TO REDEMPTION VALUE AND
DIVIDENDS
Accretion
of Series A Preferred Stock and Dividends was $615,905 and $616,425 for the
three months ended September 30, 2007 and 2006, respectively. The decrease
is
primarily related to the conversion of 1,450 shares of preferred stock into
common stock during 2006, and the deferred costs related to those shares were
expensed immediately after redemptions.
NINE
MONTHS ENDED SEPTEMBER 30, 2007 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30,
2006
OVERALL
RESULTS
Total
revenue for the nine months ended September 30, 2007 decreased approximately
7.76% compared with the nine months ended September 30, 2006, from $112,815,905
in 2006 to $104,058,410 in 2007. The decrease in revenue was primarily the
result of the scaling down of Paradigm International Inc.’s operations in Miami
which began in the third quarter of 2006. It is also the result of reduced
airfreight transportation between Asia Pacific countries and the US and Airgate
focus on higher profit margin business which will result in enhanced
cashflow.
Revenue
derived from the operations of AGI increased approximately 11% during the nine
months ended September 30, 2007 as compared with 2006. The significant growth
of
AGI was the result of the following factors:
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An
increase in the routed freight traffic from the existing agency
partners;
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Improvements
in the agency network which enabled AGI to secure new freight
business;
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The
business of WCL in Guangzhou PRC matured after a year in development;
and
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The
inclusion of the results of Parco after the acquisition on January
2,
2007.
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The
revenue of Airgate represented approximately 47% of our total revenue for the
nine months ended September 30, 2007. Airgate focuses its operations on the
import of goods from the Far East and deconsolidation of cargo. Revenue derived
from the operations of Airgate decrease by 24% from 63,790,477 to 48,434,900
for
the nine months ended September 30, 2007 when compared with the same period
of
2006. The decrease was primarily due to the decrease in airfreight traffic
between US and Asia Pacific countries.
Total
revenue derived from Paradigm and AGI Singapore for the nine months ended
September 30, 2007 amounted to approximately $14 million, which represents
approximately 14% of total revenue of the Pacific CMA. Increased 2% when
comparing with the same period of 2006.
When
compared with 2006, the cost of forwarding for the nine months ended September
30, 2007 decreased approximately 9.43%, from $96,984,176 in 2006 to $87,834,404
in 2007. The decrease in costs was primarily due to a corresponding
decrease in revenue.
Gross
profit margin for the nine months ended September 30, 2007 increased, from
approximately 14.03% in 2006 to 15.59% in 2007 and gross profit (revenue minus
cost of forwarding) for the nine months ended September 30, 2007 increased
2.48%, from $15,831,729 in 2006, to $16,224,006 in 2007.
Net
loss
for the nine months ended September 30, 2007 increased approximately 726%,
from
net income of $493,479 in 2006, to a net loss of $(3,591,363) in 2007. The
increase in net loss was mainly due to the significant increases in general
and
administrative expenses. Details of expense fluctuations will be discussed
in
the sections "Operating expenses".
Net
loss
attributable to common shareholders for the nine months ended September 30,
2007
increased approximately 284%, from a net loss of $1,100,512 in 2006 to a net
loss of $4,732,880 in 2007. The increase in net loss attributable to common
shareholders was mainly due to the decrease in operating income and significant
increases in interest expense, pre-payment penalty on convertible and
non-convertible note, and the write off of unamortized deferred financing costs
and discounts on the convertible and non-convertible note. Details of expense
fluctuations will be discussed in the section “Non Operating Income and
Expenses”.
BUSINESS
SEGMENT OPERATING RESULTS
The
results of operations for each segment are as follows:
AIRFREIGHT
OPERATIONS: Revenue from airfreight operations decreased approximately 21%,
from
$70,543,346 for the nine months ended September 30, 2006 to $55,744,002 in
the
same period of 2007. Airfreight revenue for foreign operations (which includes
AGI Group and AGI Singapore) was $34,124,507, while airfreight revenue for
domestic operations (which includes Airgate and Paradigm) was $25,212,245,
and
offsetting inter-company transactions totaled $3,592,750. The decrease was
primarily due to (i) the decrease in volume of airfreight in the third quarter
of 2007 compared with 2006 (ii) the scaling down of Paradigm International
Inc.’s operations in Miami during the third quarter of 2006 and (iii) Airgate
has also ceased doing business with some lower credit worthy customers during
the second and third quarter of 2007 in order to reduce our credit risk and
improve our cash flow.
Costs
for
airfreight forwarding operations decreased approximately 22%, from $60,232,867
for the nine months ended Spetember 30, 2006 to $46,777,636 in the same period
of 2007. Airfreight cost attributable to foreign operations was $28,620,951,
while airfreight cost attributable to domestic operations was $21,749,436 and
offsetting inter-company costs were $3,592,751. The airfreight cost decrease
in
2007 was due to the corresponding decrease in revenue from airfreight
forwarding. However, increased fuel surcharges have been passed on to customers
during 2007, gross profit margin increased from approximately 14.62% in 2006
to
approximately 16.08% in 2007. Despite the decrease in revenue, overall gross
profits increased approximately 1.4% to $8,966,366.
Total
segment overhead attributable to the airfreight operations decreased by
approximately 19%, from $4,897,259 for the nine months ended September 30,
2006
to $3,964,385 in the same period of 2007, as a result of greater resources
being
allocated to seafreight operations. Details regarding the decrease in overhead
expenses are discussed below in "Non Operating Income and
Expenses".
Overall,
net segment income for the airfreight operation decreased by approximately
17%
from $4,748,827 for the nine months ended September 30, 2006 to $3,961,640
in
the same period of 2007. The decrease in net income was mainly the result of
decrease in revenue.
SEA
FREIGHT OPERATION: Revenue from sea freight operations increased approximately
12% to $48,314,408 for the nine months ended September 30, 2007 from $42,272,559
in the same period of 2006. Sea freight revenue for foreign operations was
$18,505,666, while sea freight revenue for domestic operations was $33,228,249,
and offsetting inter-company transactions were $3,419,507. The increase in
revenue was due to the contribution from the new branch offices of Shenzhen
Careship in China. It was also due to the shifting of airfreight to
seafreight by certain of our customers.
The
increase in revenue for 2007 from 2006 was due to revenues derived from new
customers in European countries. In addition, our agents in India, Japan and
Turkey introduced more customers into our network, which led to greater revenue
from the Shanghai market in the first quarter of 2007.
Costs
for
the sea freight forwarding operation increased approximately 12%, from
$36,751,309 for the nine months ended September 30, 2006 to $41,056,767 in
the
same period of 2007. Sea freight costs attributable to foreign operations were
$15,782,333, while costs attributable to domestic operations were $28,693,941,
and inter-company costs were $3,419,507. The gross profit margin increased
from,
approximately 13.06% in 2006 to approximately 15.02% in 2007. As a result of
increased revenues, overall gross profits increased approximately 2%, to
$7,257,641.
Total
segment overhead attributable to the sea freight operation increased
approximately 18%, from $2,604,401 for the nine months ended September 30,
2006
to $3.061,837 in the same period of 2007 as a result of greater resources being
allocated to sea freight operations. Details regarding the increase in overhead
expenses are discussed below in "Non Operating Income and Expenses". Overall
net
income for the sea freight operation increased approximately 38%, from
$2,607,228 for the nine months ended September 30, 2006 to $3,604,642 in the
same period of 2007. The increase in net segment income was mainly the result
of
increased air costs causing customers to concentrate on seafreight.
OPERATING
EXPENSES
GENERAL
AND ADMINISTRATIVE EXPENSES
General
and administrative expenses increased approximately 15%, from $14,078,375 for
the nine months ended September 30, 2006 to $16,708,574 for the same period
of
2007. There was a significant incremental increase in expenses for the following
items for the nine months ended September 30, 2007: sales commissions, rent
and
rates, as well as salaries and allowance. As the Company has been continuously
growing and in order to cope with future growth, our staff planning needs called
for the hiring of additional staff throughout our offices during 2006 and
2007.
Sales
commission: Sales commission increased approximately 22% from $2,037,566 for
the
nine months ended September 30, 2006 to $2,490,693 for the same period of 2007;
the increase is a result of increase in business generated by a leading salesman
who received a higher commission rate for his high profit margin
business.
Rent
and
Rates: Rent and rates increased approximately 61%, from $730,625 for the nine
months ended September 30, 2006 to $1,174,519 for the same period of 2007.
The
increase was due to the new leases for the expansion of the office spaces in
our
HK, PRC and Los Angeles offices during the last half of 2006 in order to cope
with the growth of these subsidiaries.
Salaries
and allowance: Salaries and allowance increased approximately 9% from $6,366,626
for the nine months ended September 30, 2006 to $7,026,222 for the same period
of 2007. This increase was the result of the addition of approximately 40 staff
persons during 2006 and in order to keep pace with our expansion in
2007.
STOCK-BASED
COMPENSATION COST
Stock-based
compensation cost increased approximately 32% from $153,850 for the nine months
ended September 30, 2006 to $104,735 for the same period of 2007
.
DEPRECIATION
AND AMORTIZATION
Depreciation
and amortization increased approximately 14% from $774,082 for the nine months
ended September 30, 2006 to $886,724 for the same period of 2007. The increase
was mainly attributable to purchases of additional fixture and furniture and
office equipment for the new offices in Los Angeles and Hong Kong during 2006
and 2007.
Amortization
arises from intangible customer relationship assets recorded in conjunction
with
the acquisitions of Airgate on April 30, 2002, Paradigm on April 30, 2004,
WCL
on July 1, 2005 and May 1, 2006, and Parco on January 2, 2007. These intangible
assets are amortized on a straight-line basis over a period of five to eight
years. During the nine months ended September 30, 2007 and 2006, the
amortization expense attributable to these assets was $258,586 and $455,366,
respectively, a decrease of $196.780.
NON
OPERATING INCOME AND EXPENSES
INTEREST
AND OTHER INCOME
Interest
and other income increased from $22 for the nine months ended September 30,
2006
to $490,293 for the same period of 2007. This increase is mainly due to the
increase in the amount of bank pledge deposits securing additional banking
facilities.
INTEREST
EXPENSE
Interest
expense increased from $199,954 for the nine months ended September 30, 2006
to
$845,034 for the same period of 2007. The increase in interest expense is
primarily due to the increase in interest rates during the nine months ended
September 30, 2007 and the increase in notes payable from banking
facilities.
PRE-PAYMENT
PENALTY ON CONVERTIBLE AND NON-CONVERTIBAL NOTE
During
April 2007, the Company fully repaid the convertible and non-convertible note.
A
pre-payment penalty of $218,219 which is equal to 8% on the outstanding balance
of convertible and non-convertible notes was paid to Laurus.
CONVERTIBLE
NOTE AND NON-CONVERTIBLE NOTE AMORTIZATION OF DEFERRED FINANCING
COST
The
deferred financing costs related to Convertible Note and Non-Convertible Note
is
amortized over their term to maturity, which is three years. It remained the
same at $67,143 for the nine months ended September 30, 2006 and the same period
of 2007.
AMORTIZATION
OF CONVERTIBLE NOTE AND NON-CONVERTIBLE NOTE DISCOUNT
This
discount is amortized ratably over the term of the Convertible Note and
Non-Convertible Note, which is three years. A total of $487,190 and $43,074
of
the discount was amortized into expense for the nine months ended September
30,
2007 and 2006, respectively. The increase in expense was the result of the
early
repayment of the notes resulting in the outstanding amount of the deferred
financing costs relate to the notes are written off. The increase was also
due
to the effective interest rate method being used to calculate the expenses.
The
expense becomes larger when amortized deferred financial cost and loan balance
becomes larger.
REVOLVING
NOTE AMORTIZATION OF DEFERRED FINANCING COSTS
On
April
6, 2007, the Company completed a financing transaction with Wells Fargo Bank,
National Associates ( “ Wells Fargo ” ). The deferred financing costs related to
this revolving note are amortized over the term of the note, which is two years.
A total of $92,312 was expensed for the nine months ended September 30,
2007
ACCRETION
OF SERIES A PREFERRED STOCK, NET TO REDEMPTION VALUE AND
DIVIDENDS
Accretion
of Series A Preferred Stock and Dividends was $450,111 and $ 977,567 for the
nine months ended September 30, 2007 and 2006, respectively. The decrease is
primarily related to the conversion of 1,450 shares of preferred stock into
common stock during 2006, and the deferred costs related to those shares were
expensed immediately after redemptions.
LIQUIDITY
AND CAPITAL RESOURCES
We
provided approximately $857,567 and $788,208 of cash from operating activities
for the nine months ended September 30, 2007 and 2006, respectively. This
increase in cash from operations was mainly attributable to the larger net
loss
in 2007, amortization of convertible and non-convertiable note discount and
its
deferred financing cost.
Net
cash
used in investing activities was $(767,346) and $(1,817,996) for the three
months ended September 30, 2007 and 2006, respectively. During the nine months
ended September 30, 2007, we used $467,859 to purchase equipment to improve
our
office facilities and used $718,939 for acquisition of Parco. We received a
partial refund, $140,000 of our deposit from an equity investment that we
ultimately declined.
Net
cash
used in financing activities was $151,197 and $2,301,935 for the three months
ended September 30, 2007 and 2006, respectively. During the nine months ended
September 30, 2007, we made principal payments under capital lease obligations
and repayment of profit tax loan and short-term loan of $50,092 and $849,398,
respectively. During the third quarter of 2007, we repaid the convertible and
non-convertible note of $4 millions while have proceed of revolving loan from
two commercial banks for $4,405,698. With our lockbox arrangement with Wells
Fargo and the banking facilitates with other banks our restricted cash increased
$960,328. Moreover, $69,906 was used to pay dividends on preferred stock and
net
proceeds from note payable in bank were $511,861.
Working
capital was $(2,956,329) (inclusive of restricted cash of approximately $4.9.
million) and $5,863,185 (inclusive of restricted cash of approximately $5.9
million) as of September 30, 2007 and December 31, 2006, respectively. The
decrease in working capital is due to $1,026,343 was used for acquisition of
100% of common stock of Parco Shipping Company Limited, $53,624 was used for
acquisition of 49% of outstanding common stock of AGI Logistics (Vietnam)
Limited. We believe that we will be able to rely on cash flow from operations
for short-term liquidity, and also believe that we have adequate liquidity
to
satisfy our material commitments for the twelve months following September
30,
2007. On July 17, 2007, the Company entered into a Loan and Security Agreement,
with BHC Interim Funding II, L.P. (“BHC”), The Company received an additional
$3,292,000 in funding, excluding approximately $208,000 in fees, costs and
expenses of BHC (the “BHC Financing”).
The
$2,950,000 received from the BHC Financing was used to repurchase 3,000 shares
of the Company’s Series A Preferred Stock and 937,500 common stock purchase
warrants from Midsummer Investment Limited (“Midsummer”). The stated value of
3,000 shares of the Company’s Series A Preferred Stock is $3,000,000 and they
had a current redemption value of $3,300,000.
We
intend
to continue our expansion plans through a mixture of organic growth and
acquisitions. Future acquisitions will focus on companies that serve as freight
forwarders in key markets or offer services (such as customs brokerage) that
complement our existing services. We intend to achieve organic growth through
the establishment of new branch offices in Latin America, joint ventures in
the
PRC and through a major marketing campaign through the Indian subcontinent,
including India, Sri Lanka and Bangladesh. In order to achieve this goal, we
will be required to raise a certain amount of capital. To a certain extent,
these activities will have a significant impact on both liquidity and capital
resources.
CONTRACTUAL
OBLIGATIONS AND COMMERCIAL COMMITMENT
We
have
entered into various contractual obligations, which are summarized as
follows:
|
|
|
Payments Due by Period
|
|
|
Contractual
Obligations
|
|
Total
|
|
Less than 1 year
|
|
1-3 years
|
|
4-5 years
|
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
Capital
Lease Obligations
|
|
|
150,893
|
|
|
60,318
|
|
|
90,575
|
|
|
—
|
|
|
Operating
Leases
|
|
|
2,765,710
|
|
|
1,472,920
|
|
|
1,291,102
|
|
|
1,688
|
|
|
Cargo
Space Commitments
|
|
|
1,537,600
|
|
|
1,537,600
|
|
|
—
|
|
|
—
|
|
We
have
entered into various lease commitments for office premises and warehouses in
the
United States, Hong Kong, Singapore and China.
We
have
entered into written agreements with various sea and airfreight carriers
committing to take up a guaranteed minimum amount of cargo space each
year.
As
of
September 30, 2007, our commercial commitments may be summarized as
follows:
|
Other
Commercial Commitments
|
|
Total Amounts
Committed
|
|
Amount of
Commitment
Less than
1 year
|
|
Expiration Per
Period
1-3 years
|
|
|
|
|
$
|
|
$
|
|
$
|
|
|
Bank
Overdraft and Invoice Trust Receipt
|
|
|
6,265,700
|
|
|
6,265,700
|
|
|
—
|
|
|
Guarantees
by bank
|
|
|
1,225,384
|
|
|
1,225,384
|
|
|
—
|
|
|
Revolving
notes
|
|
|
3,105,340
|
|
|
3,105,340
|
|
|
—
|
|
|
Payable
- minority shareholders
|
|
|
143,791
|
|
|
143,791
|
|
|
—
|
|
As
of
September 30, 2007, to finance our working capital, our available banking
facilities were $7,237,174 with creditworthy commercial banks in Hong Kong.
As
of that date, the total amount of bank credit facilities utilized was
$6,265,700. This was made up of (i) $3,137,391 of overdrafts; (ii) $3,128,309
of
invoice trust receipts. Moreover, we had a borrowing facility with Wells Fargo
totaling $10 millions. As of September 30, 2007, the total amount outstanding
under this credit facility was $3,105,340.
The
interest payment of bank overdraft and invoice trust receipt were $396,983
for
the period of nine month ended September 2007. Increased 23% comparing to the
same period of 2006, due to the increase of using of short term
financing.
While
the
banks are not obligated to advance any further funds to us, we believe that
absent any significant downtrend in business, these sources of credit will
continue to be available to us.
Effective
April 6, 2007, the Company completed a financing transaction with Wells Fargo
pursuant to the terms of the C&S Agreement, by and between the Company,
certain of the Company’s United States subsidiaries (the “Subsidiaries”), and
Wells Fargo (the “Well Fargo Financing”). Pursuant to the C&S Agreement, the
Company issued to Wells Fargo a revolving note in the principal amount of $10
million (the “Note”).
On
that
date, the Company received initial funding under the Wells Fargo Financing
of
approximately $2,947,000, excluding fees and costs in the amount of $50,000
payable to Wells Fargo, in connection with the Wells Fargo Financing. This
initial funding was used to pay all of the Company’s payment obligations under
its financing arrangements with Laurus.
The
interest rate on the Note is Wells Fargo’s prime rate, plus 0.75%. Prime at
September 30, 2007 was 8.25%.
OUTLOOK
We
believe the following factors may have a positive impact on our future results
of operation and our financial conditions:
CHINA'S
INCREASED EXPORTS
According
to the report on China’s 2006 Economic, Social Development Plan issued by
official Chinese News Agency Xinhua, China’s economic growth was fast but
steady. China’s GDP for the year 2006 reached 20.94 trillion yuan, up 10.7
percent from the year before. Economic development became more stable, and
the
development of service industries related to business and production such as
logistics, banking, insurance and information services was
accelerated.
The
report states that vigorous efforts were made to change the pattern of growth
of
China’s foreign trade. The country’s export and import volume reached US$1.76
trillion in 2006, up 23.8 percent from the year before. Because the current
international environment should remain favorable overall and domestic
enterprises and their products are becoming more competitive, growth in exports
should remain strong. There should be a reasonable increase in the scale of
imports as a result of the end of the transition period for China’s WTO entry
coupled with policies to encourage imports and the service trade, which should
hold down the excessive rate of increase in the trade surplus to a certain
extent.
The
report also estimates that government revenue for the year 2007 will total
4.4065 trillion yuan, with GDP increasing by about 8%. GDP growth has hovered
around 10% or slightly higher in recent years.
As
a
result, the rising trading power of China has been especially important for
transportation companies. With extensive operational centers based in Hong
Kong
and South China, management believes the Company is well positioned to take
advantage of this rapid growth in trade.
CLOSER
ECONOMIC PARTNERSHIP
We
have
updated our research on the effects of CPEA since it became operational, and
certain of the following information was extracted from the Trade and Industry
Department, The Government of HKSAR Press Release “The CEPA benefits Hong Kong
economy” on January 5, 2006.
The
Closer Economic Partnership Arrangement ("CEPA") that was signed on June 29,
2003, originally focused on stimulating and enhancing Hong Kong's economic
recovery. After that, Six Annexes to CEPA Main Text, Supplement to CEPA (CEPA
II) and Supplement II to CEPA (CEPA III) were subsequently signed on September
23, 2003, October 27, 2004 and October 18, 2005, respectively. In theory, CEPA
significantly lowers the barriers for Hong Kong enterprises to tap the Mainland
China market. Now in its third year of operation, CEPA fostered closer economic
co-operation between the Mainland and Hong Kong and contributed to the long-term
economic development in both places.
Under
the
CEPA, Hong Kong companies are permitted to set up wholly owned enterprises
in
Mainland China to provide logistics services and related consultancy services
for ordinary road freight, and to engage in the management and operation of
logistics services through electronic means. It permits freight forwarding
agents to operate in Mainland China on a wholly owned basis a full two years
ahead of China's WTO entrance timetable, and will permit such agents to enjoy
national treatment in respect of the minimum registered capital
requirement.
CEPA
III,
signed in October 2005, just came into effect on January 1, 2006, provides
tariff-free access for all products of Hong Kong origin (except prohibited
articles) imported into the Mainland upon applications by local manufacturers
and upon CEPA rules of origin being met and agreed upon. On trade in services,
taking the three phases of CEPA together, the Mainland has agreed to provide
preferential treatment to Hong Kong service suppliers in 27 service areas.
Twenty three liberalization measures spread across 10 service areas, including
distribution and transport, became effective on January 1, 2006 under CEPA
III.
In
reviewing its operations in the past two years, CEPA has been implemented
smoothly since its inception. More than 10,000 applications for Certificate
of
Origin under CEPA (CO(CEPA)), with a total export value exceeding HK$3.5 billion
(around US$449 million) have been issued. The products concerned range from
textiles and clothing and foods to pharmaceutical, plastics and plastics
products. The amount of CO(CEPA) issued and the value of CEPA exports in 2005
both recorded more than a 100% increase compared with 2004 after a wide range
of
products including food and beverages were granted zero-tariff preference under
CEPA II.
Through
our Hong Kong-based AGI Logistics (HK) Ltd and Careship International
Transportation Limited, we believe we can enjoy "first mover" advantage; that
is, we believe that our Hong Kong-based subsidiaries can benefit from CEPA
because we have experience in doing business in, and we believe that we are
knowledgeable in the PRC regulations and business practices. We believe that
our
existing offices in Hong Kong and Mainland China can also respond quicker than
other U.S. freight forwarders to ongoing developments in China.
OUTSOURCING
OF NON-CORE ACTIVITIES
Companies
are increasingly outsourcing freight forwarding, warehousing and other supply
chain activities so that they may focus on their respective core competencies.
Companies are increasingly turning to freight forwarders, and logistics and
supply chain management providers, to manage their purchase orders and assure
timely delivery of products at a lower cost and at greater efficiency than
if
the function was undertaken directly.
GLOBALIZATION
OF TRADE
As
barriers to international trade are gradually reduced, international trade
will
similarly increase. In addition, companies are increasingly sourcing for
supplies and raw materials from the most competitive suppliers throughout the
world. This form of sourcing would generally also lead to increased volumes
of
trade.
INCREASED
NEED FOR TIME-DEFINITE DELIVERY
The
demand for just-in-time and other time definite delivery has increased as a
result of the globalization of manufacturing, greater implementation of
demand-driven supply chains, the shortening of product cycles and the increasing
value of individual shipments.
Companies
are decreasing the number of freight forwarders and supply chain management
providers with which they interact so that they work with providers who are
more
familiar with their requirements, processes and procedures, and who can function
as long-term partners. As such, freight forwarders that are globally integrated
and are able to provide a full complement of services, including pick-up and
delivery, shipment via air, sea and land, warehousing and distribution and
customs brokerage, are well positioned to gain from this shift.
The
following is a list of significant new developments occurring since December
31,
2006:
|
·
|
In
April 2007, we completed a financing transaction with Wells Fargo
pursuant
to the terms of the C&S Agreement, by and between the Company, certain
of the Company’s United States subsidiaries, and Wells Fargo (the “Wells
Fargo Financing”). Pursuant to the C&S Agreement, the Company issued
to Wells Fargo a revolving note in the principal amount of $10 million
(the “Note”) representing the maximum amount that the Company may be
advanced pursuant to the terms of the C&S Agreement. The Company
received approximately $2,950,000 as an initial advance under the
Wells
Fargo Financing that was used to pay the Company’s indebtedness to
Laurus.
|
|
·
|
In
July 2007, pursuant to a Loan and Security Agreement with BHC, Airgate
International, Inc. (NY), the Company, Airgate International Corporation
(Chicago), Paradigm International, Inc., Pacific CMA International,
LLC,
the Company’s three other U.S. Subsidiaries (the “Other U.S.
Subsidiaries”) and AGI Logistics (Hong Kong), Ltd., a Hong Kong subsidiary
of the Company (“AGI”), the Company received an additional $3,292,000 in
funding, excluding approximately $208,000 in fees, costs and expenses
of
BHC (the “BHC Financing”). The $2,950,000 received from the BHC Financing
was used to repurchase 3,000 shares of the Company’s Series A Preferred
Stock and 937,500 common stock purchase warrants from Midsummer Investment
Limited (“Midsummer”). BHC received a Term Note in the principal amount of
$3,500,000 bearing interest at the rate of 12% per year. The Loan
and
Security Agreement provides for additional potential funding of up
to
$1,500,000. The Term Note matures on July 16,
2009.
|
|
·
|
In
late 2006, the staff of the American Stock Exchange (the “AMEX”) advised
that they had determined to proceed with the filing of an application
with
the SEC to strike our common stock from listing and registration
on the
AMEX, based upon assertions of alleged events relating to our initial
listing application. We deny the AMEX’s allegation. However, resisting
these allegations drew management’s time and attention away from our
business and the fees of the Company’s counsel and experts continued to
mount. As a result, we decided to voluntarily delist our securities
from
the AMEX and the delist letter was
withdrawn.
|