| TARGET LOGISTICS INC ITEM 1A RISK FACTORS An investment in our Common Stock is subject to risks inherent to our business |
| The material risks and uncertainties that management believes affect the Company are described below |
| Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair the Company’s business operations |
| Risk Factors Relating To Our Business Generally We have incurred historic losses and only recently achieved profitability |
| Until June 30, 2002, we and our wholly-owned subsidiary Target Logistic Services, Inc |
| For the fiscal year ended June 30, 2006, we generated, on a consolidated basis, approximately dlra160 million in operating revenues, and net income of approximately dlra2cmam705cmam600 |
| As of June 30, 2006, total stockholders’ equity was dlra21cmam681cmam010, and excluding intangible assets such as goodwill, we had a tangible net worth of dlra9cmam808cmam037 |
| We will be unable to sustain profitability unless we maintain our improved operating results |
| Management continues to believe that we must focus on increasing revenues and must maintain gross profit margin to continue profitability |
| While we intend to continue to work on growing revenue by increasing sales, by strategic acquisitions, and by continuing to work on maintaining our Target subsidiary’s gross profit margins by reducing transportation costs, there can be no assurance that we will be able to increase revenues or maintain profitability |
| - 5- _________________________________________________________________ We face aggressive competition from freight carriers with greater financial resources and with companies that operate in areas that we plan on expanding to in the future |
| We face intense competition within the freight industry on a local, regional and national basis |
| Many of our competitors have much larger facilities and far greater financial resources than ours |
| In the freight forwarding industry, we compete with a large and diverse group of national freight forwarding concerns, commercial air and ocean carriers and a large number of locally established companies in geographic areas where we do business or intend to do business in the future |
| The loss of customers, agents or employees to competitors could adversely impact our ability to maintain profitability |
| We may have to compete with inner-city truckers that have greater goodwill, name, resources and trade recognition than us |
| Insofar as inter-city trucking is a portion of our method of freight transport, we compete with a large number of long-haul, medium-haul, truckload and less than truckload carriers, and railroads |
| While we do not consider ourselves to be competing with traditional small package delivery services such as Federal Express Corporation, United Parcel Service of America, Inc |
| and DHL Worldwide Express, Inc, in the event that any of these established businesses, with their goodwill, name, resources and trade recognition, decide to further expand into the heavy freight business, such circumstances could have a material adverse effect upon our business |
| We rely on other carriers to provide transportation facilities |
| We do not own or operate any trucks, nor do we own or operate any aircraft for the movement of either domestic or international freight |
| We do not have any present or anticipated future plans to acquire, by lease or otherwise, or own or operate any freight transportation equipment |
| Our ability to service customers depends on the availability of space on air passenger and cargo airlines and trucking carriers |
| The quality and timeliness of our freight forwarding services will be dependent upon the services of these independent contractors, over which we have no control |
| Our reliance on independent contractors subjects us to risks such as: · shortages of freight space which are most likely to develop around holidays and on routes upon which traffic is especially heavy; · competition with other companies for the availability and utilization of freight space; · fluctuations in the availability of air cargo space on passenger airlines due to changes in the types of aircraft or decreases in the number of passenger airlines serving particular routes at particular times which could occur as a result of economic conditions and other factors beyond our control |
| While we have not experienced shortages of freight space in the past, significant shortages of suitable space in the future and associated increases in rates charged by carriers could have a material adverse affect on our future operating results |
| Our failure to comply with, or the costs of complying with, government regulation could negatively affect our results of operation |
| Our freight forwarding business as an indirect air cargo carrier is subject to regulation by the United States Department of Transportation (DOT) under the Federal Aviation Act, and by the Department of Homeland Security and the Transportation Security Administration (TSA) |
| Our overseas independent agents’ air freight forwarding operations are subject to regulation by the regulatory authorities of the respective foreign jurisdictions |
| The air freight forwarding industry is subject to regulatory and legislative changes which can affect the economics of the industry by requiring changes in operating practices or influencing the demand for, and the costs of providing, services to customers |
| We do not believe that costs of regulatory compliance have had a material adverse impact on our operations to date |
| However, our failure to comply with any applicable regulations could have an adverse effect |
| There can be no assurance that the adoption of future regulations would not have a material adverse effect on our business |
| - 6- _________________________________________________________________ Terrorist attacks and other acts of violence or war may affect any market on which our shares trade, the markets in which we operate, our operations and our profitability |
| Terrorist acts or acts of war or armed conflict could negatively affect our operations in a number of ways |
| Primarily, any of these acts could result in increased volatility in or damage to the US and worldwide financial markets and economy and could lead to increased regulatory requirements with respect to the security and safety of freight shipments and transportation |
| They could also result in a continuation of the current economic uncertainty in the United States and abroad |
| Acts of terrorism or armed conflict, and the uncertainty caused by such conflicts, could cause an overall reduction in worldwide sales of goods and corresponding shipments of goods |
| This would have a corresponding negative effect on our operations |
| Also, terrorist activities similar to the type experienced on September 11, 2001 could result in another halt of trading of securities, which could also have an adverse affect on the trading price of our shares and overall market capitalization |
| We intend to continue expansion through acquisition |
| We have grown through the acquisitions of other freight forwarders and intend to continue our program of business expansion through acquisitions |
| There can be no assurance that our: · financial condition will be sufficient to support the funding needs of an expansion program; · that acquisitions will be successfully consummated or will enhance profitability; or · that any expansion opportunities will be available upon reasonable terms |
| We expect future acquisitions to encounter risks similar to the risks that past acquisitions have had such as: · difficulty in assimilating the operations and personnel of the acquired businesses; · potential disruption of our ongoing business; · the inability of management to realize the projected operational and financial benefits from the acquisition or to maximize our financial and strategic position through the successful incorporation of acquired personnel and clients; · the maintenance of uniform standards, controls, procedures and policies; and · the impairment of relationships with employees and clients as a result of any integration of new management personnel |
| We expect that any future acquisitions could provide for consideration to be paid in cash, stock or a combination of cash and stock |
| There can be no assurance that any of these acquisitions will be accomplished |
| If an entity we acquire is not efficiently or completely integrated with us, then our business, financial condition and operating results could be materially adversely affected |
| We are dependent upon key officers |
| The success of our operations will be largely dependent upon the efforts of Stuart Hettleman, our President and Chief Executive Officer, and Christopher A Coppersmith, the President of our Target subsidiary |
| Hettleman or Mr |
| Coppersmith could have a material adverse effect on our operating results |
| Currently there is no “key person” life insurance in place for Messrs |
| Economic and other conditions in the markets in which we operate can affect demand for services and results of operations |
| Our future operating results are dependent upon the economic environments of the markets in which we operate |
| Demand for our services could be adversely affected by economic conditions in the industries of our customers |
| Many of our principal customers are in the fashion, computer and electronics industries |
| Adverse conditions in any one of these industries or loss of the major customers in such industries could have a material adverse impact upon us |
| We expect the demand for our services (and consequently our results of operations) to continue to be sensitive to domestic and, increasingly, global economic conditions and other factors beyond our control |
| - 7- _________________________________________________________________ In addition, the transport of freight, both domestically and internationally, is highly competitive and price sensitive |
| Changes in the volume of freight transported, shippers preferences as to the timing of deliveries as a means to control shipping costs, economic and political conditions, both in the United States and abroad, work stoppages, United States and foreign laws relating to tariffs, trade restrictions, foreign investments and taxation may all have significant impact on our overall business, growth and profitability |
| Substantially all of our assets are pledged to secure indebtedness |
| Substantially all of our assets are pledged to secure indebtedness |
| If our secured creditor forecloses upon security interest in our assets, such action would, in all likelihood, result in our inability to continue in business |
| We may also be required to obtain the consent of our secured creditor in order to complete future financings, and there can be no assurance that consent would be forthcoming |
| A substantial portion of our voting stock is controlled by TIA TIA, Inc |
| (“TIA”) beneficially owns approximately 47prca of our voting stock |
| As a result, TIA is in a position to control us through its ability to determine the outcome of elections of our directors and to prevail in matters submitted to a vote of stockholders |
| While, under Delaware corporate law, a majority stockholder owes certain fiduciary duties to minority stockholders, there may be circumstances in which these different relationships create material conflicts of interest which TIA is under no obligation to resolve in favor of us or other stockholders |
| Stuart Hettleman, one of our directors and our President, and David E Swirnow, one of our directors, each owns a non-controlling indirect minority interest in TIA In addition, Mr |
| Hettleman is an executive officer of, TIA Our officers and directors owe a fiduciary duty to us and our shareholders to act in our best interest and the best interest of our shareholders |
| Risk Factors Relating to our Articles of Incorporation and our Stock The liability of our directors is limited |
| Our Articles of Incorporation limit the liability of directors to the maximum extent permitted by Delaware law |
| It is unlikely that we will issue dividends on our Common Stock in the foreseeable future |
| We have never declared or paid dividends on our Common Stock and do not intend to pay dividends in the foreseeable future |
| The payment of dividends in the future will be at the discretion of our board of directors |
| The exercise of outstanding options and conversion rights will dilute the percentage ownership of our stockholders, and any sales in the public market of shares of our Common Stock underlying such options and conversion rights may adversely affect prevailing market prices for our Common Stock |
| As of June 30, 2006, there are outstanding options to purchase an aggregate of 520cmam000 shares of our Common Stock at per share exercise prices ranging from dlra0dtta50 to dlra1dtta125 |
| Furthermore, outstanding shares of Class F Preferred Stock may be converted into an aggregate of 3cmam073cmam650 shares of our Common Stock at any time |
| In addition, we may issue additional shares of our Common Stock in respect of dividends paid on outstanding shares of our Class F Preferred Stock |
| The exercise of such outstanding options and conversion rights will dilute the percentage ownership of our stockholders, and any sales in the public market of shares of our Common Stock underlying such options and conversion rights may adversely affect prevailing market prices for our Common Stock |
| Future sales of our Common Stock by existing shareholders could negatively affect the market price of our Common Stock and make it more difficult for us to sell shares of our Common Stock in the future |
| Sales of our common stock in the public market, or the perception that such sales could occur, could result in a drop in the market price of our Common Stock and make it more difficult for us to complete future equity financings |
| We have in effect registration statements under the Securities Act registering shares of Common Stock on behalf of certain selling stockholders |
| If these stockholders sell large portions of their holdings in a relatively short time, for liquidity or other reasons, the market price of our Common Stock could drop significantly |
| - 8- _________________________________________________________________ The price of our Common Stock has historically been volatile |
| The market price of our Common Stock has in the past been, and may in the future continue to be, volatile |
| A variety of events, including quarter to quarter variations in operating results or news announcements by us or our competitors as well as market conditions in the freight forwarding industry or changes in earnings estimates by securities analysts may cause the market price of our Common Stock to fluctuate significantly |
| In addition, the stock market in recent months has experienced significant price and volume fluctuations which have particularly affected the market prices of equity securities of many companies and which often have been unrelated to the operating performance of such companies |
| These market fluctuations may adversely affect the price of our Common Stock |
| The issuance of Preferred Stock may have the effect of delaying, deterring or preventing a change in our control |
| Pursuant to our Certificate of Incorporation, we have authority to issue 2cmam500cmam000 shares of Preferred Stock which may be issued by our board of directors with such preferences, limitations and relative rights as the Board may determine without any vote of the stockholders |
| As of the date of this Prospectus, 122cmam946 shares of preferred stock are outstanding |
| Issuance of additional shares of preferred stock, depending upon the preferences, limitations and relative rights thereof, may have the effect of delaying, deterring or preventing a change in our control |