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Power2Ship Reports Preliminary Record Revenue Wednesday May 4, 10:13 am ET 208% Increase for Quarter Ended 3/31/05 and 1,565% Increase in April 2005
BOCA RATON, Fla.--(BUSINESS WIRE)--May 4, 2005--Power2Ship, Inc. (OTCBB:PWRI - News), a Web-based Collaborative Marketplace for the freight transportation industry, reported that its consolidated revenue surged approximately $1.03 million (208%) to approximately $1,527,000 during the quarter ended March 31, 2005 from $496,453 during the comparable quarter of 2004. Given that the Company closed two acquisitions on March 21, 2005, it only has included the revenue for the last 11 days of March from its wholly-owned subsidiaries Commodity Express Transportation and Power2Ship Intermodal. For the month of April 2005, the Company's consolidated revenue shot up approximately $1.95 million (1,565%) to approximately $2,076,000 from $124,650 during April 2004. Based on April's revenue, the Company's annualized revenue is approximately $25 million versus $2,091,965 during the fiscal year ended June 30, 2004. The 2005 quarterly and monthly revenues are preliminary, internally-prepared figures that are subject to adjustment. This press release includes certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, but are not limited to, statements regarding our current business plans, strategies and objectives that involve risks and uncertainties that could cause actual results to differ materially from anticipated results. The forward-looking statements are based on our current expectations and what we believe are reasonable assumptions; however, our actual performance, results and achievements could differ materially from those expressed in, or implied by, these forward-looking statements. Factors, within and beyond our control, that could cause or contribute to such differences include, among others, the following: the loss of one or more of our major customers, our inability to negotiate mutually acceptable agreements with prospective new customers and a lack of sufficient capital to fund our operations; as well as those factors discussed under "Risk Factors" in our Form SB-2/A dated December 15, 2004 and various disclosures in other reports filed from time to time with the United States Securities and Exchange Commission.
About Power2Ship, Inc.
Power2Ship (P2S) is a Web-based Collaborative Marketplace that provides supply chain, tracking and other logistics information that enables freight carriers (trucking companies), shippers (senders and receivers of freight) and their customers to make better-informed, cost-effective transportation / logistics decisions. This information assists P2S Member Shippers to optimize their supply chain and reduce their transportation, warehousing and inventory carrying costs. P2S Member Carriers receive free, unlimited use of our Asset Management System through their use of the MobileMarket(TM) to track the location, destination and availability of their transportation assets. P2S has formed three new divisions in order to accelerate the market penetration of its patent-pending P2S MobileMarket(TM): An International Licensing Division, headed by Emerson Fittipaldi, markets the P2S MobileMarket(TM) abroad; a Security Division to support Homeland Security objectives primarily related to transportation security; and, the Mergers, Acquisitions, and Joint Ventures Division seeking relationships with strategic, non-asset based, trucking companies and transportation-related providers.
-------------------------------------------------------------------------------- Contact: Power2Ship, Inc., Boca Raton Richard Hersh, 561-998-7557 or 866-727-4995 e-mail: rhersh@power2ship.com or To become a Member Carrier or Member Shipper contact: Arnie Werther, 732-625-3088 or 561-262-7015 e-mail: awerther@power2ship.com http://www.power2ship.com
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion and analysis of financial condition and results of our operations should be read in conjunction with the consolidated financial statements and the notes to those statements included elsewhere in this report. For accounting purposes, our merger with Freight Rate, Inc. was treated as a recapitalization of Freight Rate, Inc. and accounted for as a reverse acquisition. Therefore, the financial statements and accompanying notes thereto included elsewhere in this report reflect the assets, liabilities and operations of Freight Rate, Inc. as if it had been the reporting entity since inception. In February 2004 we changed our fiscal year from May 31 to June 30 in order to align our quarterly reporting obligations with calendar quarters.
FORWARD-LOOKING INFORMATION
This quarterly report on Form 10-QSB, including the discussion and analysis of our financial condition and results of operations and our disclosures about market risk, contain certain "forward-looking statements." These statements represent our expectations, beliefs, intentions, or strategies concerning future events and by their nature involve risks and uncertainties. Forward-looking statements include, among others, statements about our future performance, the continuation of historical trends, the sufficiency of our sources of capital for future needs, the expected impact of recently issued accounting pronouncements, and the outcome or effects of litigation. Risks that could cause actual results to differ materially from our current expectations include changes in market demand and pricing for our services, the impact of competition, changes in relationships with our customers, our ability to obtain sufficient carrier capacity at competitive rates to transport freight, our ability to retain shippers willing to have us move their freight, the risks associated with litigation and insurance coverage, the impacts of war on the economy, and changing economic conditions. Therefore, actual results may differ materially from our expectations based on these and other risks and uncertainties.
CRITICAL ACCOUNTING POLICIES
Financial Reporting Release No. 60, which was released by the SEC, requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. Note 2 to our consolidated financial statements includes a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. The following is a brief discussion of the more significant accounting policies and methods used by us:
- General. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ from those estimates.
- Revenue Recognition. The Company recognizes freight transportation revenue when shipments reach their destinations and the receiver acknowledges the receipt of goods by signing a bill of lading. Revenue from access fees is recognized in the month that access to our P2S MobileMarket(TM) is provided to customers. Revenue generated from implementation services, pursuant to software development contracts with customers defining the scope of work, is recognized on the percentage of completion basis for each deliverable provided for in the contract. Revenue from implementation services are non-recurring and are expected to significantly decrease in total and as a percent of total revenue in future periods.
- Stock Based Compensation. The Company uses SFAS No. 123, "Accounting for Stock-Based Compensation," which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provision of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants as if the fair-value-based method defined in SFAS No. 123 has been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123 and SFAS No. 148.
OVERVIEW
We operate as an application service provider that delivers supply chain, tracking and logistics information to the freight industry. We provide logistics information and services to shippers that need to have truckloads of goods transported to or from their facilities. In certain instances, we provide consulting services to enable our shipper customers to integrate their systems with our logistics information system. We also provide logistics information and services to trucking companies (carriers) that operate fleets of trucks which enable these companies to manage the utilization of their transportation assets and personnel. Our mission is to provide our shipper and carrier members with easily accessible and useful information that allows them to be more profitable by improving the utilization of transportation assets and optimizing the efficiency of the supply chain.
We began providing our freight transportation and implementation services in October 2002 and we began providing logistics information access services in March 2003. A key component of our business model is building our customer base so that we have a sufficient number of shippers and carriers utilizing our Web-based P2S MobileMarket(TM) system so that when a shipper customer wants to move a load of freight we can offer one or more carriers with available trucks and trailers that meet their criteria. We have been able to increase the number of shipper customers from whom we generated revenue from eight at March 31, 2004 to 27 at March 31, 2005. We have entered into agreements to provide transportation services with some of our shipper customers including International Paper, Nestle Waters, Tyco International, Ltd., Tofutti Brands, Luckey Logistics, Gold Coast Freightways, Associated Grocers, Caruso Foods, Compass Roadmaster, Paper Pak and Valmont Industries. We can provide no assurance, however, as to the amount of revenue, if any, we will generate from such customers, since these agreements do not commit them to using us for any specific volume of transportation services.
We are presently able to identify available capacity among our carrier customers to move only a very small percentage of these loads. Given the tens of thousand of transportation routes in the U.S., in order to have the P2S MobileMarket(TM) be successful we must substantially increase the number of our carrier customers in order to capture a greater percentage of our shipper customer's inbound and outbound transportation business. We spent $106,534 in the nine months ended March 31, 2005 compared to $12,165 in the nine months ended March 31, 2004 in marketing our services to potential carriers and shippers. As of March 31, 2005, approximately 2,095 carriers had registered on our website to become members. Of the 2,095 carriers that are currently registered to participate in our MobileMarket(TM), approximately 1,907 have entered into carrier agreements with us. We have used approximately 496 of these carriers to transport freight for our shipper customers. We intend to continue to increase our marketing efforts during fiscal 2005, including utilizing trade publications, transportation industry websites and direct mail as well as company participation in industry trade shows and trade organizations.
Our business model also includes the pursuit of mergers, acquisitions and joint ventures of strategic, trucking companies and other transportation-related providers. These transactions result in our gaining additional trucking capacity for our existing shipper customers without incurring any additional marketing expense and obtaining new shipper customers. In addition, the acquisition of Commodity Express Transportation, Inc., which has the federal operating authorities required to operate as a trucking company, enables us to recruit truck owner-operators to increase our trucking capacity. During the quarter ended March 31, 2005, we consummated the acquisitions of Commodity Express Transportation, Inc. and GFC, Inc. as described in Note 7 to the financial statements in this Form 10-QSB and in Forms 8-K filed on March 25, 2005 and March 28, 2005. Our ability to pursue additional transactions is subject to the availability of sufficient capital as may be necessary. While we have identified potential targets for additional mergers, acquisitions or joint ventures, we have not signed any definitive agreements with any parties as of the date of this report and we cannot assure you we will be successful in consummating any transactions with any of these targets.
We also are in discussions with several technology and defense companies that, in response to the Homeland Security Act and Operation Safe Commerce, are collaborating to develop solutions that address global transportation security issues. We believe that our secure, wireless, Internet-based system which uses a combination of global positioning satellite technologies can become a key component in the security solutions being developed by other companies to counteract the threat of terrorism. Our system is capable of capturing and processing data transmitted wirelessly from other technologies that could be part of any comprehensive security system. Examples of these technologies may include radio-frequency identification (RFID) tags fastened to containers and/or trailers, smart tags affixed to the goods inside shipping containers, electronic seals applied at the time the container is loaded and geo fencing to alert a truck's owner or authorities if a vehicle deviates from its designated route. There can be no assurances, however, that we will ever enter into any agreements with the companies we are in discussions with or that we will ever generate any significant revenues.
Also, we have begun marketing the P2S MobileMarket(TM) outside of the United States. In November 2004, we retained International Logistics Solutions to represent the company outside of North America. In April, 2005, our President, Michael Darden, traveled to Brazil to attend meetings with several major Brazilian companies to educate them about the P2S MobileMarket(TM) and explore their interest in becoming customers if it was introduced in Brazil.
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 2005 COMPARED TO NINE MONTHS ENDED MARCH 31, 2004
REVENUE
Total revenue generated during the nine months ended March 31, 2005 increased by $1,575,086 or approximately 115% as compared with total revenue generated during the nine months ended March 31, 2004. The increase during the nine month period ended March 31, 2005 was attributed to the following:
- Freight transportation revenue increased $1,888,843 or approximately 179%. Approximately $777,545 or 41% of this increase was generated by Commodity Express Transportation, Inc. (CXT) and Power2Ship Intermodal, Inc. (P2SI), our two acquisitions that closed on March 21, 2005. The remainder of the increase was attributed to $1,111,478 or 105% greater revenue generated by our pre-acquisition Power2Ship operations as a result of growth of revenue from existing customers such as Tire Kingdom and Carroll Tire and additional revenue from several new shipper customers.
- Revenue from access services and implementation services decreased approximately $314,000 or 100%. We generated minimal revenue from access services and implementation services during the nine month period ended March 31, 2005 as our sole contract for such services was terminated in January 2004. Access services provide unlimited use of the information available through the Power2Ship MobileMarket(TM) for a fixed monthly fee. Implementation services generally involve software development related to the design, programming and testing of a custom developed interface to the Power2Ship MobileMarket(TM).
OPERATING EXPENSES
Total operating expenses incurred during the nine months ended March 31, 2005 increased by $2,938,759 or approximately 76% compared to the nine month period ended March 31, 2004. The increase during the nine month period ended March 31, 2005 was attributed to the following:
- Freight transportation expense, consisting of charges from trucking companies that we hired to transport freight for our shipper customers, increased by $1,589,257 or approximately 171% in the nine month period ended March 31, 2005 as compared with the nine month period ended March 31, 2004. This percentage increase in freight transportation expense was relatively close to the 179% increase in revenue which indicates that our gross margins were relatively constant during the period.
- Selling, general and administrative expenses increased by $1,349,502 or approximately 46% during the nine month period ended March 31, 2005 compared to the nine month period ended March 31, 2004. The increase during the nine month period ended March 31, 2005 was attributed to the following:
- Salaries, benefits and consulting fees increased by $824,732 or approximately 38% during the nine months ended March 31, 2005 as follows:
- Salaries and benefits increased by $326,282 or approximately 30% to $1,396,416 in the nine month period ended March 31, 2005 from $1,070,134 during the nine month period ended March 31, 2004. This increase can be attributed to adding several employees, providing salary raises and incurring approximately $72,400 in salaries and benefits for CXT and P2SI employees for the period following their acquisition on March 21, 2005.
- Consulting fees increased by $498,450 or approximately 46% in the nine month period ended March 31, 2005 to $1,592,803 from $1,094,353 during the nine month period ended March 31, 2004. This increase was attributed to more consultants receiving greater compensation, primarily in the forms of common stock and warrants.
- Other selling, general and administrative expenses increased by $524,770 or approximately 68% during the nine month period ended March 31, 2005 as compared to the nine month period ended March 31, 2004. The most significant contributors to this increase were:
- Advertising and marketing expenses, including convention and trade show expenses, which increased by $138,249 or approximately 265% to $190,447 during the nine months ended March 31, 2005 from $52,198 during the nine month period ended March 31, 2004. This increase was attributed to the expenses associated with an outside public relations firm, advertising our products and services to shippers and carriers in trade publications, transportation industry websites and other media and attending regional and national trade shows.
- Amortization expenses associated with software development costs and intangible assets which increased by $88,808 or approximately 328% to $115,905 during the nine month period ended March 31, 2005 from $27,097 during the nine month period ended March 31, 2004. The increase was due to an increase in monthly amortization of software development costs from $1,500 to $4,500 in December 2003 and an increase from $0 to approximately $9,400 in monthly amortization of intangible assets beginning in August 2004 upon the Company acquiring certain intellectual property from three of its executives in consideration for common stock valued at $226,000.
- Web hosting expenses which increased by $69,671 or approximately 152% to $115,361 during the nine months ended March 31, 2005 from $45,690 during the nine month period ended March 31, 2004. This increase was a result of incurring additional monthly fees associated with software licenses in the nine months ended March 31, 2005 and a one-time credit of $30,982 from our Web hosting vendor received in the nine months ended March 31, 2004 as restitution for service problems we encountered.
- Legal fees and expenses which increased by $46,238 or approximately 34% to $180,385 during the nine month period ended March 31, 2005 from $134,147 during the nine month period ended March 31, 2004. This increase resulted from our requiring a greater amount of legal services to prepare and review agreements and other documents incurred in the ordinary course of business including our required public filings, customer contracts and securities offerings and to represent us in various legal proceedings. In addition, we incurred significant legal expenses during the nine months ended March 31, 2005 related to the preparation of our registration statement on Form SB-2 and amendments thereto which subsequently was withdrawn.
- Rent expense, including our share of common area maintenance fees, increased by $45,607 or approximately 48% to $139,885 during the nine month period ended March 31, 2005 from $94,278 during the nine month period ended March 31, 2004. This increase was a result of a scheduled increase in rent per the lease agreement.
- Other selling, general and administrative expenses of approximately $89,920 incurred by CXT and P2SI for the period following their acquisition on March 21, 2005.
OTHER INCOME (EXPENSES)
Total other expenses increased by $614,102 or approximately 193% during the nine month period ended March 31, 2005 as compared with the nine month period ended March 31, 2004. This increase primarily resulted from an increase in interest expense of $642,266 or approximately 221%. The higher interest expense was associated with the increase in our long term debt associated with our issuances of $1,747,000 of 14.25% secured convertible debentures during March and April of 2004 and $2,000,000 of 5% Series B secured convertible debentures during June and September of 2004, the issuances of $110,000 of 5% unsecured short term promissory notes in October and November 2004 and $482,500 of 10% unsecured short term promissory notes in January and February 2005. In addition, interest expense increased due to our $1,000,000 revolving line of credit beginning in December 2004 and the amortization of deferred financing costs of $303,491 and discounts on notes payable of $68,211 during the nine months ended March 31, 2005.
LIQUIDITY AND CAPITAL RESOURCES
We have experienced losses and negative cash flows from operations since our inception, and our independent auditors' report on our financial statements for fiscal year 2004 contains an explanatory paragraph regarding our ability to continue as a going concern. As of March 31, 2005, we had an accumulated deficit of $17,208,712, a stockholders' deficit of $1,573,479, and cash and cash equivalents of $887,543.
At March 31, 2005, we had a working capital deficit of $135,502 as compared with a working capital surplus of $603,380 at June 30, 2004. This $738,882 decrease in working capital during this nine month period was attributed to an increase of $560,863 in current assets offset by an increase of $1,299,745 in current liabilities. The increase in current assets consisted of increases in cash of $55,413 and accounts receivable of $542,480 partially offset by a decrease in prepaid insurance of $37,030. The increase in current liabilities consisted of increases in short term notes payable of $567,500, accounts payable and accrued expenses of $530,890, accrued salaries of $72,491 and an increase of $145,731 in the outstanding balance of our line of credit.
During the nine months ended March 31, 2005, our cash balance increased by $55,413. This increase was the result of $3,284,776 provided by financing activities offset by $2,644,426 used in operating activities and $584,937 used in investing activities. This compared with an increase in our cash balance of $461,209 during the nine months ended March 31, 2004 as a result of $2,271,067 provided by financing activities offset by $1,499,028 used in operating activities and $310,830 used in investing activities.
During the nine months ended March 31, 2005, we used $2,644,426 in operating activities which was comprised of our net loss of $4,797,939 and $112,849 associated with changes in operating assets and liabilities during the nine month period offset by $674,670 of depreciation and amortization and $1,591,691 associated with issuances of our common stock, options and warrants as payment for services, interest, compensation and conversions. This compared with $1,499,028 used in operating activities during the nine months ended March 31, 2004 which was comprised of our net loss of $2,820,164 offset by $99,334 of depreciation and amortization, $1,045,675 associated with the issuance of our common stock, options and warrants for services, interest, compensation, conversions and litigation settlement and $176,127 associated with changes in operating assets and liabilities during the nine month period.
The $584,937 cash used in investing activities during the nine months ended March 31, 2005 consisted of $316,435 used to purchase property and equipment, including $110,000 for GPS devices and $156,000 associated with the acquired assets of Commodity Express Transportation, and $268,502 used in the development of internal use software. This compared with $310,830 used in investing activities during the nine months ended March 31, 2004 which consisted of $58,054 used to purchase property and equipment and $252,776 used in the development of internal use software
During the nine months ended March 31, 2005, we generated net cash from financing activities of $3,284,776 which consisted of net proceeds of $1,831,850 from the issuance of common stock, $900,000 from the issuance of a Series B secured convertible debenture, $642,500 from the issuance of short term unsecured promissory notes and $105,426 from our revolving line of credit less $195,000 from the repayment of promissory notes. This compared with net cash provided by financing activities of $2,271,067 during the nine months ended March 31, 2004 which consisted of net proceeds of $1,257,929 from the issuance of shares of our 14.25% secured convertible debentures and promissory notes, $1,110,960 from the sales of shares of our Series B and Series C convertible preferred stock, $287,178 from the sales of shares of our common stock less $385,000 from the repayment of promissory notes.
We estimate that our $887,543 of cash on hand at March 31, 2005 plus $251,100 in net proceeds received pursuant to our unit offering from April 1 through May 20, 2005 and additional borrowings from our $1,000,000 credit facility will be sufficient to fund our operating activities until approximately July 31, 2005. Thereafter, we will need additional working capital to fund our operations.
Our future capital requirements depend primarily on the rate at which we can decrease our use of cash to fund operations. Cash used for operations will be affected by numerous known and unknown risks and uncertainties including, but not limited to, our ability to successfully market our products and services, the degree to which competitive products and services are introduced to the market, and our ability to attract key personnel as we grow. As long as our cash flow from operations remains insufficient to completely fund operations, we will continue depleting our financial resources and seeking additional capital through equity and/or debt financing. If we raise additional capital through the issuance of debt, this will result in increased interest expense. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of Power2Ship held by existing stockholders will be reduced and those stockholders may experience significant dilution. In addition, new securities may contain certain rights, preferences or privileges that are senior to those of our common stock. There can be no assurance that acceptable financing to fund our ongoing operations and for future acquisitions or for the integration and expansion of existing operations can be obtained on suitable terms, if at all. Our ability to continue our existing operations and to continue to implement our growth and acquisition strategy could suffer if we are unable to raise the additional funds on acceptable terms which will have the effect of adversely affecting our ongoing operations and limiting our ability to increase our revenues or possibly attain profitable operations in the future. We are constantly evaluating our cash needs and current burn rate, and we have a strategy whereby certain non-essential personnel and administrative costs will be reduced or eliminated so that we may continue to meet operating obligations until such time as we can raise additional working capital. If we are unable, however, to secure the necessary additional working capital as needed, we may be forced to curtail some or all of our operations.
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