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: MARCH 31, 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
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(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 May 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
MARCH 31, 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
<PAGE>
THE FREIGHT CONNECTION, INC.
BALANCE SHEETS
MARCH 31, DECEMBER 31,
ASSETS 1998 1997
(UNAUDITED) (AUDITED)
----------- ----------
Current assets:
Cash and cash equivalents $1,396,243 $1,285,929
Accounts receivable -trade
net of allowance for uncollectible accounts
of $84,154 and $201,053, respectively 2,992,118 3,025,938
Deferred tax asset 50,256 58,256
Prepaid expenses and other receivables 48,312 23,556
---------- ----------
Total current assets 4,486,929 4,393,679
---------- ----------
Property and equipment (net of
accumulated depreciation) 202,761 207,448
---------- ----------
Deposits and other assets 56,606 56,183
---------- ----------
$4,746,296 $4,657,310
========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $2,509,918 $2,425,517
Income taxes payable 846 68,846
---------- ----------
Total current liabilities 2,510,764 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 1,311,724 1,239,139
---------- ----------
Total stockholders' equity 2,235,532 2,162,947
---------- ----------
$4,746,296 $4,657,310
========== ==========
3
<PAGE>
THE FREIGHT CONNECTION, INC.
STATEMENTS OF OPERATION
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH MARCH
31, 1998 31, 1997
(UNAUDITED) (UNAUDITED)
------------- ------------
Freight income $ 6,569,126 $ 6,283,465
Freight expense 5,950,906 5,703,681
------------- ------------
Gross profit 618,220 579,784
Selling, general and
administrative expense 480,602 413,146
Depreciation and amortization 18,349 16,371
------------- ------------
Income from operations 119,269 150,267
------------- ------------
Other income (expenses):
Interest income 16,316 3,524
Interest expense -- (1,540)
------------- ------------
Total other income (expenses) 16,316 1,984
------------- ------------
Income before income taxes $ 135,585 $ 152,251
Income tax expense 63,000 61,000
------------- ------------
Net income $ 72,585 $ 91,251
============= ============
Net income per share $ 0.02 $ 0.02
============= ============
Weighted average
shares outstanding 4,825,630 4,825,630
============= ============
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 the three months ended
March 31, 1998 72,585 72,585
---------- ---------- ---------- ---------- ----------
Balance,
March 31, 1998 (unaudited) 4,825,630 $ 4,826 $ 918,982 $1,311,724 $2,235,532
========== ========== ========== ========== ==========
</TABLE>
5
<PAGE>
THE FREIGHT CONNECTION, INC.
STATEMENTS OF CASH FLOW
THREE MONTHS THREE MONTHS
ENDED MARCH ENDED MARCH
31, 1998 31, 1997
(UNAUDITED) (UNAUDITED)
------------ -----------
Cash flows from operating activities:
Net income $ 72,585 $ 91,251
Adjustments to reconcile net
income to net cash
provided by operating activities:
Depreciation and amortization 18,349 16,371
Deferred tax asset 8,000 --
Changes in assets and liabilities:
Accounts receivable 33,820 (298,024)
Prepaid expenses and other
receivables (24,756) 5,771
Deposits and other assets (423) (466)
Accounts payable and
accrued expenses 84,401 688,377
Income taxes payable (68,000) (20,800)
----------- -----------
Total adjustments 51,391 391,229
----------- -----------
Net cash provided by operations 123,976 482,480
----------- -----------
Net cash used in investing activities:
Purchase of equipment (13,662) (11,168)
----------- -----------
Net increase in cash $ 110,314 $ 471,312
Cash and cash equivalents,
beginning of period 1,285,929 173,911
----------- -----------
Cash and cash equivalents,
end of period $ 1,396,243 $ 645,223
----------- -----------
Supplemental disclosure:
Cash paid for interest $ 0 $ 1,540
----------- -----------
6
<PAGE>
THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 1: FINANCIAL STATEMENTS
The balance sheet as of March 31, 1998, the statements of operation for the
three months ended March 31, 1998 and 1997, the statements of stockholders'
equity as of March 31, 1998, and the statements of cash flows for the three
months ended March 31, 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 March 31, 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
March 31, 1998.
7
<PAGE>
THE FREIGHT CONNECTION, INC.
FORM 10-Q
MARCH 31, 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 in this Report. It includes an analysis of the
quarters ended March 31, 1998, and 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $1,976,165 including cash of $1,396,243 at
March 31, 1998 compared to working capital of $1,899,316 including cash of
$1,285,929 at December 31, 1997 and $1,500,763 including cash of $645,223 at
March 31, 1997. The Company's working capital is continuing to increase due to
the net income it is producing. As part of its ongoing expansion initiatives,
the Company intends to use a portion of its working capital to expand its
operations by opening sales offices in various geographic locations.
The Company's accounts receivable balance at March 31, 1998 was $2,992,118 down
1.1% from December 31, 1997. Although sales volume increased for the first
quarter of 1998, the accounts receivable balance decreased, due to improved
timeliness in customer collections. The accounts payable balance at March 31,
1998 was $2,509,918, up 3.5% from December 31, 1997.
Stockholders' equity was $2,235,532 at March 31, 1998 up $72,585, or 3.4%, from
December 31, 1997, and up $446,005, or 24.9%, from March 31, 1997. The
stockholders' equity increased between March 31, 1997 and 1998 as a result of
the Company's continued profitability.
The Company had net cash provided by operations of $123,976 and $482,480 for the
quarters ended March 31, 1998, and 1997, respectively. The cash provided by
operations for the three months ended March 31, 1998 was primarily due to the
net income generated during this period combined with improved customer
collections. The net cash provided at March 31, 1997 was primarily due to the
net income generated during the quarter combined with the collection of a
significant amount of past due balances.
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
business and for the possible opening of new sales offices. The
8
<PAGE>
Company does not have any outstanding bank debt as of the date of this Report,
nor did it have any bank debt at March 31, 1998.
At March 31, 1998 and 1997, the Company did not have any capital lease
obligations nor did it have any long-term debt.
RESULTS OF OPERATIONS
Revenues for the three months ended March 31, 1998 were $6,569,126 compared to
$6,283,465, for the three months ended March 31, 1997, an increase of 4.5%. The
increased revenues are due to the Company's expansion of its highway brokerage
division, the opening of its new office in San Francisco, California during the
month of February, and its continued marketing efforts. Although the Company had
increased revenues through its expansion initiatives, the percentage of growth
was impacted by factors affecting the transportation industry, namely the
inconsistent west coast rail service which forced many customers to find
alternative modes of transportation. The growth of the Company's highway
brokerage division will enable the Company to continue to offer viable
transportation alternatives to its customers.
Gross profit for the quarter ended March 31, 1998 was $618,220, or 9.4% of
revenues, compared to $579,784, or 9.2% of revenues, for the same quarter in
1997. The gross profit margin increased despite the extremely competitive nature
of the transportation industry. The Company is attempting to develop better
margin business as it continues to expand and diversify its client base.
Selling, general and administrative expenses ("SG&A") were $480,602, or 7.3% of
revenues, compared to $413,146, or 6.6% of revenues for the quarters ended March
31, 1998 and 1997, respectively. For the quarter ended March 31, 1998, the
Company had increased SG&A expenses due primarily to start-up costs associated
with opening the San Francisco office. The Company's goals are to continue to
improve administrative efficiencies within the various offices.
Pretax income was $135,585 or 2.1% of revenues, compared to $152,251 or 2.4% of
revenues for the three months ended March 31, 1998 and 1997, respectively. The
pre-tax income for the quarter ended March 31, 1998 was impacted by start-up
losses for the new office. Management expects this office will become profitable
late in the second quarter.
Income tax expense for the quarters ended March 31, 1998 and 1997 was $63,000
and $61,000, respectively. The tax expense for the quarter ended March 31, 1998
was increased by the reversal of $8,000 of the Company's deferred tax asset.
Net income was $72,585 and $91,251 for the quarters ended March 31, 1998 and
1997, respectively. Net income per share was $.02 for each of these periods. Per
share calculations 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. As part of this
committed expansion plan, the Company obtained sales representation in Ohio
during the second quarter of 1998.
9
<PAGE>
THE FREIGHT CONNECTION, INC.
FORM 10-Q
MARCH 31, 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
On April 1, 1998, the Board of Directors resolved to elect Geoff
Duncan, formerly the Executive Vice President of the Company, to the
position of President. Richard E. Gaetz relinquished this position, but
remains the Chief Executive Officer of the Company.
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
March 31, 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: May 13, 1998 /s/ RICHARD E. GAETZ
------------ -----------------------------------------
Richard E. Gaetz, Chief Executive Officer
Date: May 13, 1998 /s/ GEOFF DUNCAN
------------ -----------------------------------------
Geoff Duncan, President
Date: May 13, 1998 /s/ MILISSA SIBSON
------------ -----------------------------------------
Milissa Sibson, Controller, Secretary
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,396,243
<SECURITIES> 0
<RECEIVABLES> 2,992,118
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,486,929
<PP&E> 367,311
<DEPRECIATION> 164,550
<TOTAL-ASSETS> 4,746,296
<CURRENT-LIABILITIES> 2,510,764
<BONDS> 0
0
0
<COMMON> 4,826
<OTHER-SE> 2,230,706
<TOTAL-LIABILITY-AND-EQUITY> 4,746,296
<SALES> 6,569,126
<TOTAL-REVENUES> 6,569,126
<CGS> 5,950,906
<TOTAL-COSTS> 5,950,906
<OTHER-EXPENSES> 498,951
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 135,585
<INCOME-TAX> 63,000
<INCOME-CONTINUING> 72,585
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,585
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
