UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED: JUNE 30, 1998
COMMISSION FILE NUMBER: 33-29985-NY
THE FREIGHT CONNECTION, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 11-2994672
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
12900 DUPONT CIRCLE, TAMPA, FLORIDA 33626
-------------------------------------------------------------
(Address, including zip code, of principal executive offices)
(813) 854-1500
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by Sections 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filings for the past 90 days. YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of August 13, 1998, the number of the Company's shares of par value $.001
common stock outstanding was 4,825,630.
<PAGE>
THE FREIGHT CONNECTION, INC.
FORM 10-Q
JUNE 30, 1998
INDEX
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheets ............................................................. 3
Statements of Operation .................................................... 4
Statements of Stockholders' Equity ......................................... 5
Statements of Cash Flow .................................................... 6
Notes to Financial Statements .............................................. 7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 8
PART II - OTHER INFORMATION .............................................. 10
SIGNATURES ................................................................ 11
2
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THE FREIGHT CONNECTION, INC.
BALANCE SHEETS
ASSETS JUNE 30, DECEMBER 31,
1998 1997
(UNAUDITED) (AUDITED)
---------- ------------
Current assets:
Cash and cash equivalents $1,299,928 $1,285,929
Accounts receivable - trade
net of allowance for uncollectible accounts
of $81,580 and $201,053, respectively 3,398,891 3,025,938
Deferred tax asset 43,256 58,256
Prepaid expenses and other receivables 35,695 23,556
---------- ----------
Total current assets 4,777,770 4,393,679
---------- ----------
Property and equipment
(net of accumulated depreciation) 199,934 207,448
---------- ----------
Deposits and other assets 78,463 56,183
---------- ----------
$5,056,167 $4,657,310
========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $2,721,590 $2,425,517
Income taxes payable 1,308 68,846
---------- ----------
Total current liabilities 2,722,898 2,494,363
---------- ----------
Stockholders' equity
Common stock, $.001 par value;
authorized 20,000,000 shares;
4,825,630 shares issued and outstanding 4,826 4,826
Additional paid-in capital 918,982 918,982
Retained earnings 1,409,461 1,239,139
---------- ----------
Total stockholders' equity 2,333,269 2,162,947
---------- ----------
$5,056,167 $4,657,310
========== ==========
3
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<TABLE>
<CAPTION>
THE FREIGHT CONNECTION, INC.
STATEMENTS OF OPERATION
SIX MONTHS SIX MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
JUNE 30,1998 JUNE 30,1997 JUNE 30, 1998 JUNE 30,1997
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Freight income $13,634,009 $13,060,906 $7,064,883 $6,777,441
Freight expense 12,273,565 11,866,150 6,322,659 6,162,469
----------- ----------- ---------- ----------
Gross profit 1,360,444 1,194,756 742,224 614,972
Selling, general and
administrative expenses 1,046,395 840,258 565,793 427,112
Depreciation & amortization 35,361 33,254 17,012 16,883
----------- ----------- ---------- ----------
Income from operations 278,688 321,244 159,419 170,977
Other income (expenses):
Interest income 32,634 9,491 16,318 5,967
Interest expense (4,213) (2,673)
----------- ----------- ---------- ----------
Total other income 32,634 5,278 16,318 3,294
----------- ----------- ---------- ----------
Income before income taxes $ 311,322 $ 326,522 $ 175,737 $ 174,271
Income tax expense 141,000 131,000 78,000 70,000
----------- ----------- ---------- ----------
Net income $ 170,322 $ 195,522 $ 97,737 $ 104,271
=========== =========== ========== ==========
Net income per share $ 0.04 $ 0.04 $ 0.02 $ 0.02
=========== =========== ========== ==========
Weighted average
shares outstanding 4,825,630 4,825,630 4,825,630 4,825,630
=========== =========== ========== ==========
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
THE FREIGHT CONNECTION, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK
-------------------- ADDITIONAL
NUMBER OF PAR PAID-IN RETAINED
SHARES VALUE CAPITAL EARNINGS TOTAL
--------- ------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Balance
December 31, 1997 (audited) 4,825,630 $4,826 $918,982 $1,239,139 $2,162,947
Net income for six months
ended June 30, 1998 170,322 170,322
--------- ------ -------- ---------- ----------
Balance
June 30, 1998 (unaudited) 4,825,630 $4,826 $918,982 $1,409,461 $2,333,269
========= ====== ======== ========== ==========
</TABLE>
5
<PAGE>
THE FREIGHT CONNECTION INC.
STATEMENTS OF CASH FLOW
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30,1998 JUNE 30, 1997
(UNAUDITED) (UNAUDITED)
------------ -------------
Cash flows from operating activities:
Net income $ 170,322 $ 195,522
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 35,361 33,254
Deferred tax asset 15,000
Changes in assets and liabilities:
Accounts receivable (372,953) (930,798)
Prepaid expenses and other receivables (12,139) 6,920
Deposits and other assets (22,280) (466)
Accounts payable and accrued expenses 296,073 894,760
Income taxes payable (67,538) 19,200
---------- ---------
Total adjustments (128,476) 22,870
---------- ---------
Net cash provided by operations 41,846 218,392
---------- ---------
Net cash used in investing activities:
Purchase of equipment (27,847) (21,883)
---------- ---------
Net increase in cash 13,999 196,509
Cash and cash equivalents
beginning of period 1,285,929 173,911
---------- ---------
Cash and cash equivalents,
end of period $1,299,928 $370,420
========== ========
Supplemental disclosure:
cash paid for interest $ 0 $ 4,213
========== ========
6
<PAGE>
THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1: FINANCIAL STATEMENTS
The balance sheet as of June 30, 1998, the statements of operation for the six
months and three months ended June 30, 1998, and 1997, the statements of
stockholders' equity as of June 30, 1998, and the statements of cash flows for
the six months and three months ended June 30, 1998, and 1997, have been
prepared by the Company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows at
June 30, 1998, and for all periods presented, have been made.
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the financial statements and notes thereto as of
December 31, 1997.
NOTE 2: NET INCOME PER SHARE
Net income per share is computed by dividing net income by the average number of
common shares outstanding, increased by common stock equivalents determined
using the treasury stock method.
NOTE 3: COMMITMENTS
On August 18, 1997, the Company renewed a $2,000,000 revolving line of credit
with a commercial bank. The line of credit has a one year term and is renewable
upon expiration. The Company did not have any outstanding debt on this line at
June 30, 1998.
7
<PAGE>
THE FREIGHT CONNECTION, INC.
FORM 10-Q
JUNE 30, 1998
PART I - FINANCIAL INFORMATION
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Financial Statements appearing elsewhere in this Report. It includes an analysis
of the six months and three months ended June 30, 1998, and 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $2,054,872 including cash of $1,299,928 at
June 30, 1998, compared to working capital of $1,899,316 including cash of
$1,285,929 at December 31, 1997 and $1,611,202 including cash of $370,420 at
June 30, 1997. The Company intends to use a portion of its working capital to
open additional sales offices in various geographic locations.
The accounts receivable balance at June 30, 1998, was $3,398,891 compared to
$3,025,938 at December 31, 1997, an increase of 12.3%. The accounts payable
balance was $2,721,590 at June 30, 1998, a rise of 12.2% from $2,425,517 at
December 31, 1997. The increase in both the accounts receivable and the accounts
payable balances is due to the additional business generated by the Company
during 1998.
Stockholders' equity was $2,333,269 at June 30, 1998, up 7.9%, or $170,322 from
December 31, 1997, and up 23.2%, or $439,471 from June 30, 1997. The increase in
stockholders' equity was a result of the net income that was generated by the
Company during the period.
The Company had net cash provided by operations of $41,846 for the six months
ended June 30, 1998, compared to net cash provided by operations of $218,392 for
the comparable period in 1997. The net cash provided from operations for the six
months ended June 30, 1998 and 1997 was primarily due to the net income of the
Company, combined with the rise in accounts payable, and offset by the rise in
accounts receivable. The 1998 net cash provided by operations was further
lowered by the reduction in income taxes payable. The collection of a
significant amount of past due balances during the first quarter of 1997
contributed to the net cash provided by operations for the 1997 period. The
Company had a use of cash for operations of $82,130 for the three months ended
June 30, 1998 due to the start-up costs associated with opening a new office in
Chicago and the continued start-up costs for the office opened in San Francisco
during the first quarter. For the three months ended June 30, 1997, the Company
had a use of cash of $264,088, primarily due to a significant rise in the
accounts receivable balance during the second quarter of 1997.
In compliance with provisions in the Company's contracts with certain railroads,
the Company has obtained an unsecured surety bond in the amount of $150,000. In
addition, the Federal Highway Administration requires the Company to maintain a
surety bond in the amount of $10,000, which is secured by a certificate of
deposit.
On August 18, 1997, the Company renewed its revolving line of credit with
Republic Bank, St. Petersburg, Florida in the amount of $2,000,000. This line is
secured by the Company's accounts receivable. The Company intends to use the
line, as necessary, to provide cash required by the Company's acceptance of new
8
<PAGE>
business and for the possible opening of new sales offices. The Company does not
have any outstanding bank debt as of the date of this Report, nor did it have
any bank debt at June 30, 1998.
At June 30, 1998, the Company did not have any capital lease obligations nor did
it have any long-term debt.
The Company has implemented a plan for addressing the Year 2000 issues and it is
currently evaluating its software to determine the programs that will require
modification. The expected completion date of this process is anticipated to be
February 1, 1999. The Company is using internal resources and may utilize
outside resources where necessary to meet the targeted completion date. The
projected cost to ensure that the Company is Year 2000 compliant is expected to
be minimal.
RESULTS OF OPERATIONS
Revenues for the six months ended June 30, 1998 were $13,634,009 compared to
$13,060,906 for the six months ended June 30, 1997, an increase of 4.4%. For the
quarter ended June 30, 1998, revenues were $7,064,883, up 4.2% from the
comparable months in 1997. The Company increased its revenues despite the
lingering problems of inconsistent west coast rail service. It has accomplished
this through escalated marketing efforts and through the opening of two
additional sales offices, San Francisco in February and Chicago in May.
Gross profit for the six months ended June 30, 1998, was $1,360,444, or 10.0% of
revenues, compared to $1,194,756 or 9.1% of revenues for the comparable period
in 1997. Gross profit for the quarter ended June 30, 1998, was $742,224, or
10.5% of revenues, compared to $614,972 or 9.1% of revenues for the quarter
ended June 30, 1997. The growth in the gross margin is due to the Company's
efforts to improve pricing and better manage expenses. The Company is also
attempting to develop better margin business as it expands and diversifies its
client base. Additionally, the growth of the highway brokerage division has
contributed to the rise in the gross profit margin, as this mode of
transportation is generally more profitable.
Selling, general and administrative "SG&A" expenses for the six months ended
June 30, 1998, and 1997 were 7.7% and 6.4% of revenues, respectively. For the
three months ended June 30, 1998, and 1997, the SG&A expenses were 8.0% and 6.3%
of revenues, respectively. The increased SG&A percentage for the six months and
three months ended June 30, 1998, was due to the start-up costs associated with
the opening of the San Francisco and Chicago offices. The Company is continuing
in its efforts to streamline SG&A and to achieve administrative efficiencies
between the various offices.
Pretax income was $311,322 for the six months ended June 30, 1998, compared to
$326,522 for the prior year period. For the quarters ended June 30, 1998, and
1997, the pretax income was $175,737 and $174,271, respectively. Despite
increased revenues and profit margins, the start-up costs for the new offices
impacted earnings for the six months and three months ended June 30, 1998. The
Company anticipates that the new offices will make a contribution to the pretax
income by the fourth quarter of 1998.
Income tax expense was $141,000 and $131,000 for the six months ended June 30,
1998, and 1997, respectively. The tax expense for the 1998 period included
$15,000 of deferred tax expense. Income tax expense for the quarters ended June
30, 1998, and 1997, was $78,000 and $70,000, respectively.
Net income was $170,322, or $.04 per share for the six months ended June 30,
1998, as compared to $195,522 or $.04 per share for the six months ended June
30, 1997. Net income for the quarter ended June 30, 1998, was $97,737, or $.02
per share, compared to $104,271 or $.02 per share for the comparable 1997
period. Earnings per share are based on 4,825,630 weighted average shares
outstanding.
The Company will continue to market its services and promote its ISO 9002
registration. In addition, it will strive to open sales offices and obtain sales
representation in the major geographic areas of North America.
9
<PAGE>
THE FREIGHT CONNECTION, INC.
FORM 10-Q
JUNE 30, 1998
PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS
None
Item 2 - CHANGES IN SECURITIES
None
Item 3 - DEFAULTS UPON SENIOR SECURITIES
None
Item 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
Item 5 - OTHER INFORMATION
During the quarter ended June 30, 1998, the Company's 81% shareholder,
Vitran Corporation Inc. "Vitran", a Canadian company, transferred its
shares in the Company to a U.S. holding company, Vitran Corporation, a
Nevada corporation. The beneficial owner of the shares remains Vitran.
This transaction was the result of Vitran's plan to have common
ownership for its various U.S. subsidiaries, all of which are owned by
the Nevada corporation.
Item 6 - Exhibits and reports on Form 8-K
a) There are no exhibits to be filed.
b) There were no reports filed on Form 8-K during the quarter ended
June 30, 1998.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE FREIGHT CONNECTION, INC.
Registrant
Date: August 13, 1998 /s/ RICHARD E. GAETZ
------------------------------------------
Richard E. Gaetz, Chief Executive Officer
Date: August 13, 1998 /s/ GEOFF DUNCAN
------------------------------------------
Geoff Duncan, President
Date: August 13, 1998 /s/ MILISSA SIBSON
------------------------------------------
Milissa Sibson, Controller, Secretary
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,299,928
<SECURITIES> 0
<RECEIVABLES> 3,398,891
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,777,770
<PP&E> 381,496
<DEPRECIATION> 181,562
<TOTAL-ASSETS> 5,056,167
<CURRENT-LIABILITIES> 2,722,898
<BONDS> 0
0
0
<COMMON> 4,826
<OTHER-SE> 2,328,443
<TOTAL-LIABILITY-AND-EQUITY> 5,056,167
<SALES> 13,634,009
<TOTAL-REVENUES> 13,634,009
<CGS> 12,273,565
<TOTAL-COSTS> 12,273,565
<OTHER-EXPENSES> 1,081,756
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 311,322
<INCOME-TAX> 141,000
<INCOME-CONTINUING> 170,322
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 170,322
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
