UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
[ ] Quarterlyreport pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1999 or
[ ] Transition report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the transition period from_______________to____________
Commission File Number: 0-26954
CONSOLIDATED DELIVERY & LOGISTICS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 22-3350958
(State or other jurisdiction of I.R.S. Employer Identification No.)
incorporation or organization
380 Allwood Road 07012
Clifton, New Jersey (Zip Code)
(Address of principal executive offices)
(973) 471-1005
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __ No___
The number of shares of common stock of the Registrant, par value $.001 per
share, outstanding as of May 10, 1999 was 7,311,026.
<PAGE>
CONSOLIDATED DELIVERY & LOGISTICS, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
INDEX
Page
Part I - Financial Information (unaudited)
Item 1 - Financial Statements
Consolidated Delivery & Logistics, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets as of March 31, 1999,
and December 31, 1998 3
Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II - Other Information
Item 1 - Legal Proceedings 16
Item 6 - Exhibits and Reports on Form 8-K 17
Signature 18
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share information)
March 31, December 31,
1999 1998
-------------- -------------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $1,063 $295
Accounts receivable, net 24,710 24,491
Prepaid expenses and other current assets 5,094 2,560
-------------- -----------
Total current assets 30,867 27,346
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net 6,599 6,630
INTANGIBLE ASSETS, net 22,733 16,491
OTHER ASSETS 1,736 1,621
============== ===========
Total assets $61,935 $52,088
============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $1,252 $13,577
Current maturities of long-term debt 3,078 3,181
Accounts payable and accrued liabilities 19,102 14,784
-------------- -----------
Total current liabilities 23,432 31,542
LONG-TERM DEBT 21,967 6,383
OTHER LONG-TERM LIABILITIES 3,127 2,756
-------------- -----------
Total liabilities 48,526 40,681
-------------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; 2,000,000 shares
authorized; no shares issued and outstanding - -
Common stock, $.001 par value; 30,000,000 shares
authorized; 7,043,702 and 6,843,702 shares issued and
outstanding at March 31, 1999 and December 31, 1998,
respectively 7 7
Additional paid-in capital 11,330 9,670
Treasury stock, 29,367 shares at cost (162) (162)
Retained earnings 2,234 1,892
-------------- ----------
Total stockholders' equity 13,409 11,407
============== ==========
Total liabilities and stockholders' equity $61,935 $52,088
============== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
For the Three Months
Ended March 31,
-----------------------------------
1999 1998
---------------- ---------------
<S> <C> <C>
Revenue $51,307 $42,686
Cost of revenue 39,554 33,059
---------------- ---------------
Gross profit 11,753 9,627
Selling, general, and administrative expenses 9,755 8,428
Depreciation and amortization 1,019 614
---------------- ---------------
Operating income 979 585
Other (income) expense:
Interest expense 647 264
Other income, net (234) (80)
---------------- ---------------
Income before provision for income taxes 566 401
Provision for income taxes 224 160
---------------- ---------------
Net income $342 $241
================ ===============
Net income per share:
Basic $.05 $.04
================ ===============
Diluted $.05 $.04
================ ===============
Basic weighted average common shares outstanding 6,939 6,667
================ ===============
Diluted weighted average common shares outstanding 7,447 6,783
================ ===============
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the Three Months Ended
March 31,
--------------------------------
1999 1998
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $342 $241
Adjustments to reconcile net income to net cash provided by
operating activities -
Gain on disposal of equipment and leasehold improvements (31) -
Depreciation and amortization 1,019 614
Changes in operating assets and liabilities
(Increase) decrease in -
Accounts receivable, net 1,124 2,686
Prepaid expenses and other current assets (2,653) 271
Other assets (216) 211
Increase (decrease) in -
Accounts payable and accrued liabilities 3,537 (483)
Other long-term liabilities (77) (134)
-------------- --------------
Net cash provided by operating activities 3,045 3,406
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment and leasehold improvements 166 -
Purchase of business, net of cash acquired (3,180) -
Additions to equipment and leasehold improvements (707) (1,033)
-------------- --------------
Net cash used in investing activities (3,721) (1,033)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings repayments, net (12,325) (3,007)
Borrowing (repayments) of long-term debt, net 13,886 (371)
Issuance of stock warrants in connection with long-term financing 885 -
Deferred financing costs (1,002) -
-------------- --------------
Net cash (used in) provided by financing activities 1,444 (3,378)
-------------- --------------
CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS - 46
-------------- --------------
Net increase (decrease) in cash and cash equivalents 768 (959)
CASH AND CASH EQUIVALENTS, beginning of period 295 1,812
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period $1,063 $853
============== ==============
See accompanying notes to condensed consolidated financial
statements.
</TABLE>
<PAGE>
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The
condensed consolidated balance sheet at December 31, 1998 has been
derived from the audited financial statements at that date. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 31,
1999 are not necessarily indicative of the results that may be expected
for any other interim period or for the year ending December 31, 1999.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Form 10-K for the year
ended December 31, 1998.
(2) BUSINESS COMBINATIONS:
On February 16, 1999, Consolidated Delivery & Logistics, Inc. ("CDL" or
the "Company") entered into and consummated an asset and stock purchase
agreement (the "Purchase Agreement") with its subsidiary, Sureway Air
Traffic Corporation ("Sureway") and Victory Messenger Service, Inc.,
Richard Gold, Darobin Freight Forwarding Co., Inc.,("Darobin") and The
Trust Created Under Paragraph Third of the Last Will and Testament of
Charles Gold (the "Trust"), (collectively "Gold Wings"), whereby
Sureway purchased all of the outstanding shares of the capital stock of
Darobin and certain of the assets and liabilities of the other sellers.
The purchase price was comprised of approximately $3.0 million in cash
including estimated direct acquisition costs, $1,650,000 in a 7%
subordinated note (the "Note") and 200,000 shares of CDL common stock
at $3.875 per share. The Note is due April 16, 2001 with interest
payable quarterly commending April 1, 1999. The Note is subordinate to
all existing or future senior debt of CDL. In addition, a contingent
earn out in the aggregate amount of up to $520,000 is payable based on
the achievement of certain financial goals during the two year period
following the closing. The earn out is payable 55% in cash and 45% in
CDL common stock. CDL financed the acquisition using proceeds from its
revolving credit facility with First Union Commercial Corporation.
The above transaction has been accounted for under the purchase method
of accounting. Accordingly, the allocation of the cost of the acquired
assets and liabilities has been made on the basis of the estimated fair
value. The consolidated financial statements include the operating
results of Gold Wings from the date of acquisition.
<PAGE>
The following summarized unaudited pro forma financial information
assumes that the Gold Wings acquisition was consummated on January 1,
respectively of 1999 and 1998. This information is not necessarily
indicative of the results the Company would have obtained had these
events actually occurred or of the Company's actual or future results.
Three Months Ended
----------------------------------------
March 31, 1999 March 31, 1998
Pro Forma Combined Pro Forma Combined
----------------------------------------
(In thousands except per share amounts)
Revenue $53,163 $46,399
Income from Operations 1,013 652
Net Income $ 333 $ 223
Net Income per share - basic $ .05 $ .03
Net Income per share - diluted $ .04 $ .03
(3) EXCHANGE LISTING:
As of February 23, 1999, shares of the Company's common stock began
trading on the American Stock Exchange under the symbol CDV. The
Company's stock formerly traded on the Nasdaq National Market under the
symbol CDLI.
(4) SHORT-TERM BORROWINGS:
In November 1998, CDL and First Union Commercial Corporation ("First
Union") modified an agreement entered into in July 1997, establishing a
revolving credit facility (the "First Union Agreement"). The First
Union Agreement provides for an increase in the original credit
facility from $15 million to $22.5 million, provides CDL with an
equipment acquisition term loan facility of up to $2.5 million and
modifies other terms and conditions. Under the terms of the First Union
Agreement, the Company is required to maintain certain financial ratios
and comply with other financial conditions. The First Union Agreement
contains certain covenants for which the Company is in compliance as of
March 31, 1999.
<PAGE>
(5) LONG-TERM DEBT:
On January 29, 1999, the Company completed a $15 million private
placement of senior subordinated notes and warrants with three
financial institutions. The notes bear interest at 12% per annum and
are subordinate to all senior debt including the Company's credit
facility with First Union Commercial Corporation. Under the terms of
the notes, the Company is required to maintain certain financial ratios
and comply with other financial conditions for which the Company is in
compliance as of March 31, 1999. The notes mature on January 29, 2006
and may be prepaid by the Company under certain circumstances. The
warrants expire January 19, 2009 and are exercisable at any time prior
to expiration at a price of $.001 per equivalent share of common stock
for an aggregate of 506,250 shares of the Company's stock, subject to
additional adjustments. The Company has recorded the fair value of the
warrants of $885,000 as a credit to additional paid-in-capital and a
debt discount on the senior subordinated notes. The Company plans to
use the proceeds to finance acquisitions as they arise and for general
working capital purposes.
6) REPORTABLE SEGMENTS:
Effective December 31, 1998, CDL implemented Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," ("SFAS 131"). SFAS 131 requires a
company to disclose reportable segments based on the way management
organizes its segments for making operating decisions and assessing
performance. CDL has two reportable segments: Air and Ground. Separate
management of each segment is required because each business unit is
subject to different cost and delivery parameters. Segment information
for the three months ending March 31, 1999 and 1998 is as follows (in
thousands).
<TABLE>
<CAPTION>
Air Ground Total
------------- ------------- ------------
Revenue from external customers
<S> <C> <C> <C> <C>
1999 $15,023 $36,284 $51,307
1998 13,375 29,311 42,686
Intersegment revenue
1999 13 348 361
1998 18 418 436
Interest Expense
1999 189 458 647
1998 82 182 264
Depreciation and Amortization
1999 205 814 1,019
1998 131 483 614
Segment profit
1999 48 294 342
1998 36 205 241
Segment Assets
March 31, 1999 20,724 41,211 61,935
December 31, 1998 11,489 40,599 52,088
Expenditures for segment assets
1999 423 284 707
1998 664 369 1,033
</TABLE>
(7) LITIGATION:
In February 1996, Liberty Mutual Insurance Company ("Liberty Mutual")
filed an action against Securities Courier Corporation ("Securities"),
a subsidiary of the Company, Mr. Vincent Brana and certain other
parties in the United States District Court for the Southern District
of New York alleging, among other things, that Securities Courier had
fraudulently obtained automobile liability insurance from Liberty
Mutual in the late 1980s and early 1990s at below market rates. This
suit, which claims common law fraud, fraudulent inducement, unjust
enrichment and violations of the civil provisions of the Federal RICO
statute, among other things, seeks an unspecified amount of
compensatory and punitive damages from the defendants, as well as
attorneys' fees and other expenses. Three additional defendants were
added by way of a second amended complaint on April 9, 1998. Securities
and Mr. Brana have filed cross claims against each of these additional
defendants and certain original defendants who had acted as insurance
brokers for certain of the policies at issue. Under the terms of its
acquisition of Securities Courier, the Company has certain rights to
indemnification from Mr. Brana. In connection with the indemnification,
Mr. Brana has entered into a settlement agreement and executed a
promissory note and security agreement securing up to $500,000 or such
greater amount as may be due for any defense costs or award arising out
of this suit. Mr. Brana has delivered 150,000 shares of CDL common
stock to the Company as collateral security for the promissory note
which was recently agreed to be amended and is due for repayment on
December 1, 2002.
On April 13, 1999 a motion for summary judgement dismissing the
complaint, based upon statute of limitation defenses, was filed on
behalf of Securities and Mr. Brana. According to the briefing schedule
as presently set, the plaintiff will file its opposing papers on or
about June 11, 1999. The defendants will then have until July 12, 1999
to serve reply papers. Discovery is currently pending and as a result,
the Company is unable to make a determination as to the merits of the
<PAGE>
claim. The Company does not believe that an adverse determination in
this matter would result in a material adverse effect on the
consolidated financial position or results of operations of the
Company.
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for
personal injury and property damage incurred in connection with its
same-day ground and air delivery operations. Management believes that
none of these actions, including the action described above, will have
a material adverse effect on the consolidated financial position or
results of operations of the Company.
(8) INCOME (LOSS) PER SHARE:
Basic earnings per share includes no dilution and is computed by
dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution if certain
securities are converted and also includes certain shares that are
contingently issuable.
A reconciliation of weighted average common shares outstanding to
weighted average common shares outstanding assuming dilution follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------
1999 1998
--------------- --------------
<S> <C> <C>
Basic weighted average common
shares oustanding 6,939,258 6,666,884
Effect of dilutive securities:
Stock options 157,376 115,832
Warrants 348,651 -
ESPP 1,833 -
=============== ==============
Diluted weighted average common
shares outstanding 7,447,118 6,782,716
=============== ==============
</TABLE>
The following common stock equivalents were excluded from the
computation of diluted earnings per share because the exercise or
conversion price was greater than the average market price of common
shares:
<TABLE>
<CAPTION>
1999 1998
--------------- --------------
<S> <C> <C>
Stock options 563,125 603,915
Subordinated convertible debentures 161,818 180,995
Seller financed convertible notes 685,470 -
</TABLE>
(9) SUBSEQUENT EVENTS:
On April 30, 1999, CDL entered into and consummated an asset purchase
agreement with its subsidiary, Silver Star Express, Inc. ("Silver
Star") and Metro Parcel Service, Inc., Nathan Spaulding and Kelly M.
Spaulding, (collectively, "Metro Parcel"), whereby Silver Star
purchased certain of the assets and assumed certain liabilities of
Metro Parcel. The purchase price was comprised of approximately
$710,000 in cash, $202,734 in a 7% subordinated note (the "Note") and
40,000 shares of CDL's common stock at $3.25 per share. The Note is due
April 30, 2001 with interest payable quarterly commencing August 1,
1999. The Note is subordinate to all existing or future senior debt of
CDL. CDL financed the acquisition using proceeds from its revolving
credit facility with First Union Commercial Corporation.
On April 30, 1999, CDL also entered into and consummated an asset
purchase agreement with its subsidiary, Clayton/National Courier
Systems, Inc. ("Clayton/National") and Westwind Express, Inc.,
Logistics Delivery Systems, Inc., Fastrak Delivery Systems, Inc.,
Sierra Delivery Services, Inc., and Steven S. Keihner (collectively,
"Westwind"), whereby Clayton/National purchased certain of the assets
and assumed certain liabilities of Westwind. The purchase price was
comprised of approximately $2,650,000, $1,680,000 in various 7%
subordinated notes (the "Westwind Notes") and 149,533 shares of CDL's
common stock at $3.21 per share. The Westwind Notes are comprised of
two-year notes due April 30, 2001 with a total principal amount of
$1,200,000 and three-year notes due April 30, 2002 with a total
principal amount of $480,000. Interest on the Westwind Notes is payable
quarterly commencing July 31, 1999. The Westwind Notes are subordinate
to all existing or future senior debt of CDL. In addition, a contingent
earn out in the aggregate amount of up to $700,000 is payable based on
the achievement of certain financial goals during the two year period
following the closing. The earn out is payable 60% in cash and 40% in
<PAGE>
one year promissory notes bearing interest at a rate of 7% per annum
having similar terms as the Westwind Notes referred to above. CDL
financed the acquisition using proceeds from its revolving credit
facility with First Union Commercial Corporation.
The following summarized unaudited pro forma financial
information assumes that the Metro Parcel Services, Inc. and the
Westwind Express, Inc. acquisitions, as well as the Gold Wings
acquisition discussed in Note 2, were consummated on January 1,
respectively of 1999 and 1998. This information is not necessarily
indicative of the results the Company would have obtained had these
events actually occurred or of the Company's actual or future results.
Three Months Ended
----------------------------------------
March 31, 1999 March 31, 1998
Pro Forma Combined Pro Forma Combined
----------------------------------------
(In thousands except per share amounts)
Revenue $55,608 $48,443
Income from Operations 1,076 770
Net Income $ 367 $ 192
Net Income per share - basic $ .05 $ .04
Net Income per share - diluted $ .05 $ .04
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The following discussion of the Company's results of operations and of
its liquidity and capital resources should be read in conjunction with the
Condensed Consolidated Financial Statements of the Company and the related Notes
thereto appearing elsewhere herein.
Disclosure Regarding Forward-Looking Statements
The Company is provided a "safe harbor" for forward-looking statements
contained in this report by the Private Securities Litigation Reform Act of
1995. The Company may discuss forward-looking information in this Report such as
its expectations for future performance, growth and acquisition strategies,
liquidity and capital needs and its future prospects. Actual results may not
necessarily develop as the Company anticipates due to many factors including,
but not limited to the timing of certain transactions, unexpected expenses
encountered, inability to conclude acquisitions on satisfactory terms, the
effect of economic and market conditions, the impact of competition and the
Company's actual results varying materially from management's current
expectations.
Results of Operations
Revenue for the first quarter of 1999 increased by $8.6 million, or 20.1% to
$51.3 million from $42.7 million for the first quarter of 1998. Revenue from the
Company's recently completed acquisitions contributed $7.2 million to the
increase, or 16.9%. Revenue from internal growth contributed $1.4 million to the
increase, or 3.2% for the quarter. Air courier revenue declined slightly from
$13.4 million in 1998 to $13.3 million in 1999 (not considering revenue
contributed by acquisitions) as the Company continues to eliminate unprofitable
business. Ground delivery revenue, not considering revenue contributed by
acquisitions, increased from $29.3 million to $30.8 million primarily due to the
expansion of business with existing customers.
Cost of revenue increased by $6.5 million, or 19.6%, to $39.6 million for the
first three months of 1999 from $33.1 million for the similar period of 1998
resulting from costs associated with the increase in revenue previously
discussed.
Selling, general and administrative expense increased by $1.4 million or 16.7%
to $9.8 million for the first quarter of 1999 from $8.4 million for the first
quarter of 1998. The increase is primarily attributed to the administrative
expense associated with the Company's recent acquisitions. Depreciation and
amortization increased $405,000 to $1.0 million for the first three months of
1999 compared to $614,000 for the first three months of 1998 reflecting an
increase attributable to the goodwill recorded as a result of the Company's
acquisitions.
<PAGE>
As a result of the matters discussed above, operating income increased by
$394,000, or 67.4%, from $585,000 for the first quarter of 1998 to $979,000 for
the first quarter of 1999. Interest expense increased by $383,000, or 145.1%,
from $264,000 for the three months ended March 31, 1998 to $647,000 for the
three months ended March 31, 1999 due to increased borrowing to fund the recent
acquisitions.
Liquidity and Capital Resources
Working capital increased by $11.6 million from a deficit of $4.2 million as of
December 31, 1998 to working capital of $7.4 million at March 31, 1999. The
increase results from a repayment of the Company's short-term borrowings under
the Revolving Credit Facility with proceeds from the Senior Subordinated Notes
and Warrants. Cash and cash equivalents increased to $1.1 million as of March
31, 1999 from $295,000 at December 31, 1998. Cash of $3.1 million was provided
by operations and $1.4 million from financing activities. Of the cash provided,
$3.2 million was used to purchase businesses and approximately $500,000 was used
to purchase equipment and leasehold improvements net of the cash provided from
the sale of similar equipment. Capital expenditures amounted to $707,000 and
$1.0 million for the three months periods ended March 31, 1999 and 1998,
respectively. These expenditures upgraded our computer systems capabilities and
maintained Company facilities in the ordinary course of business. As of March
31, 1999 the Company had available under its revolving credit facility $12.2
million. The Company completed a $15 million private placement of Senior
Subordinated Notes and Warrants on January 29, 1999. Proceeds will be used
primarily to finance acquisitions and to reduce outstanding short-term
borrowings. The notes mature in 2006 and bear interest at the rate of 12% per
annum. The notes were issued with detachable warrants subject to a Warrant
Agreement dated January 29, 1999.
Management believes that cash flows generated from operations, together with its
borrowing capacity, are sufficient to support the Company's operations and
general business and liquidity requirements for the foreseeable future.
Year 2000 Compliance
The Company is currently in the process of evaluating its information
technology infrastructure for the Year 2000 compliance. The Company does not
expect that the cost to modify its information technology infrastructure to be
Year 2000 compliant will be material to its financial position or results of
operations. The Company does not anticipate any material disruption in its
operations as a result of any failure by the Company to be in compliance. The
Company is in the process of obtaining information concerning the Year 2000
compliance status of its suppliers and customers. In the event that any of the
Company's significant suppliers or customers does not successfully and timely
achieve Year 2000 compliance, the Company's business or operations could be
adversely affected.
<PAGE>
The Company continues to implement its Year 2000 compliance program.
The following table provides a summary of the Company's progress in each of the
phases, estimated percentage complete and the anticipated completion date of
each phase:
<TABLE>
<CAPTION>
Estimated % Estimated
Definition Complete Complete Date
Phase
- ------------------------ ---------------------------------------------------------------- -------------- ---------------
<S> <C> <C>
Awareness Generate awareness of the Y2K issue 100%
throughout the organization and establish
compliance program.
- ------------------------ ---------------------------------------------------------------- -------------- ---------------
Inventory Analyze all relevant hardware/application 100%
software/operating systems and networks for
compliance
- ------------------------ ---------------------------------------------------------------- -------------- ---------------
Assessment, Prioritize hardware and software issues, 80% 8/31/99
Conversion initiate changes necessary to achieve
Testing and compliance and test changes made for
Implementation actual compliance.
- ------------------------ ---------------------------------------------------------------- -------------- ---------------
Imbedded Technology Determine whether equipment with imbedded 90% 8/31/99
technology, such as PBX switches, elevators,
alarm systems, etc. are Y2K compliant.
Analysis to date has identified limited exposure
in this area. Analysis of recent acquisitions
continues.
- ------------------------ ---------------------------------------------------------------- -------------- ---------------
Third-Party Interfaces Determine whether electronic interfaces with 70% 9/30/99
third parties are compliant. There are only a
few such interfaces that will be fully tested
later in the year. If necessary, contingency
arrangements will be readily available, as the
interfaces are not "real-time".
- ------------------------ ---------------------------------------------------------------- -------------- ---------------
Third-Party Determine whether third parties that provide 70% 7/30/99
Relationships material services/supplies are compliant. Feedback
to date indicates that companies with whom we have
a material relationship are well advanced in
bringing their internal systems into compliance.
Less well defined is whether their third parties
are in compliance.
- ------------------------ ---------------------------------------------------------------- -------------- ---------------
We will continue to cooperate in the exchange of 50% 9/30/99
information with material third parties in an
effort to ensure their compliance and/or
assess the impact of their non-compliance.
Where the risk of non-compliance is serious
we will select alternate vendors.
- ------------------------ ---------------------------------------------------------------- -------------- ---------------
</TABLE>
The Company estimates that the cost of compliance will not exceed the
initial amount budgeted of $250,000.
Where practical the Company will develop contingency plans during the
coming months in an effort to ensure minimal disruption to our clients. A pilot
project in this regard is currently in development with a major client.
Inflation
Inflation has not had a material impact on the Company's results of
operations for the past three years.
Quantitative and Qualitative Disclosures About Market Risk.
CDL's major "market risk" exposure is the effect of changing interest
rates. CDL manages its interest expenses by using a combination of fixed and
variable rate debt. At March 31, 1999, the Company's debt consisted of
approximately $25 million of fixed rate debt with a weighted average interest
rate of 10.6% and $1.3 million of variable rate debt with a weighted average
interest rate of 7.5% The amount of variable rate debt fluctuates during the
year based on CDL's cash requirements. If interest rates on such variable rate
debt were to increase by 75 basis points (one-tenth of the rate at March 31,
1999), the net impact to the Company's results of operations and cash flows
would decrease by approximately $30,000.
<PAGE>
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings.
In February 1996, Liberty Mutual Insurance Company ("Liberty Mutual")
filed an action against Securities Courier Corporation ("Securities"), a
subsidiary of the Company, Mr. Vincent Brana and certain other parties in the
United States District Court for the Southern District of New York alleging,
among other things, that Securities Courier had fraudulently obtained automobile
liability insurance from Liberty Mutual in the late 1980s and early 1990s at
below market rates. This suit, which claims common law fraud, fraudulent
inducement, unjust enrichment and violations of the civil provisions of the
Federal RICO statute, among other things, seeks an unspecified amount of
compensatory and punitive damages from the defendants, as well as attorneys'
fees and other expenses. Three additional defendants were added by way of a
second amended complaint on April 9, 1998. Securities and Mr. Brana have filed
cross claims against each of these additional defendants and certain original
defendants who had acted as insurance brokers for certain of the policies at
issue. Under the terms of its acquisition of Securities Courier, the Company has
certain rights to indemnification from Mr. Brana. In connection with the
indemnification, Mr. Brana has entered into a settlement agreement and executed
a promissory note and security agreement securing up to $500,000 or such
greater amount as may be due for any defense costs or award arising out of this
suit. Mr. Brana has delivered 150,000 shares of CDL common stock to the Company
as collateral security for the promissory note which was recently agreed to be
amended and is due for repayment on December 1, 2002.
On April 13, 1999 a motion for summary judgement dismissing the
complaint, based upon statute of limitation defenses, was filed on behalf of
Securities and Mr. Brana. According to the briefing schedule as presently set,
the plaintiff will file its opposing papers on or about June 11, 1999. The
defendants will then have until July 12, 1999 to serve reply papers. Discovery
is currently pending and as a result, the Company is unable to make a
determination as to the merits of the claim. The Company does not believe that
an adverse determination in this matter would result in a material adverse
effect on the consolidated financial position or results of operations of the
Company.
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for personal injury
and property damage incurred in connection with its same-day ground and air
delivery operations. Management believes that none of these actions, including
the action described above, will have a material adverse effect on the
consolidated financial position or results of operations of the Company.
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit
27.1 Financial Data Schedule (for electronic submission only)
(b) Report on Form 8-K/A filed on May 3, 1999 concerning the
Company's asset and stock purchase agreement between Gold
Wings and Sureway Air Traffic Corporation.
(c) Report on Form 8-K filed February 26, 1999 concerning the
Company's asset and stock purchase agreement between Gold
Wings and Sureway Air Traffic Corporation.
(d) Report on Form 8-K filed February 26, 1999 concerning the
Company's $15 million private placement of senior subordinated
notes and warrants with three financial institutions.
(e) Report on Form 8K/A filed on February 22, 1999 concerning the
Company's asset and stock purchase agreement of Manteca
Enterprises, Inc.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 17, 1999 CONSOLIDATED DELIVERY & LOGISTICS, INC.
By: \s\ Albert W. Van Ness, Jr.
__________________________________
Albert W. Van Ness, Jr.
Chairman of the Board, Chief
Executive Officer and Chief
Financial Officer
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