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: SEPTEMBER 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
- --------------------------------------------------------------------------------
(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 November 11, 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
SEPTEMBER 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...................................................11
SIGNATURES....................................................................12
2
<PAGE>
THE FREIGHT CONNECTION, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, DECEMBER 31,
1998 1997
(UNAUDITED) (AUDITED)
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,031,378 $1,285,929
Accounts receivable - trade
net of allowance for uncollectible accounts
of $82,922 and $201,053, respectively 3,566,034 3,025,938
Deferred tax asset 33,256 58,256
Prepaid expenses and other receivables 49,727 23,556
---------- ----------
Total current assets 4,680,395 4,393,679
---------- ----------
Property and equipment
(net of accumulated depreciation) 212,713 207,448
---------- ----------
Deposits and other assets 86,653 56,183
---------- ----------
$4,979,761 $4,657,310
========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $2,659,150 $2,425,517
Income taxes payable 795 68,846
---------- ----------
Total current liabilities 2,659,945 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 1,396,008 1,239,139
---------- ----------
Total stockholders' equity 2,319,816 2,162,947
---------- ----------
$4,979,761 $4,657,310
========== ==========
</TABLE>
3
<PAGE>
THE FREIGHT CONNECTION, INC.
STATEMENTS OF OPERATION
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Freight income $ 20,661,584 $ 19,889,716 $ 7,027,575 $ 6,828,810
Freight expense 18,650,104 18,086,626 6,376,539 6,220,476
------------ ------------ ------------ ------------
Gross profit 2,011,480 1,803,090 651,036 608,334
Selling, general and
administrative expenses 1,698,536 1,254,922 652,141 414,664
Depreciation & amortization 55,056 50,616 19,695 17,362
------------ ------------ ------------ ------------
Income from operations 257,888 497,552 (20,800) 176,308
Other income (expenses):
Interest income 46,981 14,203 14,347 4,712
Interest expense (7,984) (3,771)
------------ ------------ ------------ ------------
Total other income 46,981 6,219 14,347 941
------------ ------------ ------------ ------------
Income before income taxes $ 304,869 $ 503,771 $ (6,453) $ 177,249
Income tax expense 148,000 203,000 7,000 72,000
------------ ------------ ------------ ------------
Net income $ 156,869 $ 300,771 $ (13,453) $ 105,249
============ ============ ============ ============
Net income per share $ 0.03 $ 0.06 $ (0.00) $ 0.02
============ ============ ============ ============
Weighted average
shares outstanding 4,825,630 4,825,630 4,825,630 4,825,630
============ ============ ============ ============
</TABLE>
4
<PAGE>
THE FREIGHT CONNECTION, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
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 nine months
ended September 30, 1998 156,869 156,869
---------- ---------- ---------- ---------- ----------
Balance
September 30, 1998 (unaudited) 4,825,630 $ 4,826 $ 918,982 $1,396,008 $2,319,816
========== ========== ========== ========== ==========
</TABLE>
5
<PAGE>
THE FREIGHT CONNECTION INC.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED SEPTEMBER ENDED SEPTEMBER
30,1998 30, 1997
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 156,869 $ 300,771
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 55,056 50,616
Deferred tax asset 25,000
Changes in assets and liabilities:
Accounts receivable (540,096) (765,392)
Prepaid expenses and other receivables (26,171) (20,992)
Deposits and other assets (30,470) (1,656)
Accounts payable and accrued expenses 233,633 684,786
Income taxes payable (68,051) 31,423
----------- -----------
Total adjustments (351,099) (21,215)
----------- -----------
Net cash (used in) provided by operations (194,230) 279,556
----------- -----------
Net cash used in investing activities:
Purchase of equipment (60,321) (33,137)
----------- -----------
Net (decrease) increase in cash (254,551) 246,419
Cash and cash equivalents
beginning of period 1,285,929 173,911
----------- -----------
Cash and cash equivalents,
end of period $ 1,031,378 $ 420,330
=========== ===========
Supplemental disclosure:
Cash paid for interest $ 0 $ 7,984
=========== ===========
</TABLE>
6
<PAGE>
THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1: FINANCIAL STATEMENTS
The balance sheet as of September 30, 1998, the statements of operation for the
nine months and three months ended September 30, 1998, and 1997, the statements
of stockholders' equity as of September 30, 1998, and the statements of cash
flows for the nine months and three months ended September 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
September 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 September 1, 1998, 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
September 30, 1998.
7
<PAGE>
THE FREIGHT CONNECTION, INC.
FORM 10-Q
SEPTEMBER 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 nine months and three months ended September 30, 1998, and 1997,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $2,020,450 including cash of $1,031,378 at
September 30, 1998, compared to working capital of $1,899,316 including cash of
$1,285,929 at December 31, 1997 and $1,721,369 including cash of $420,330 at
September 30, 1997. The Company intends to use a portion of its working capital
to open additional sales offices in various geographic locations. During 1998
the Company used working capital to open an office in San Francisco, two offices
in the Chicago area and an office in Minneapolis.
The accounts receivable balance at September 30, 1998, was $3,566,034 compared
to $3,025,938 at December 31, 1997, an increase of 17.8%. The accounts payable
balance was $2,659,150 at September 30, 1998, a rise of 9.6% 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. The accounts receivable balance rose by a larger percentage due to
the fact that the Company's customers generally make payments ranging between 15
and 45 days from date of invoice, however, the Company's terms with its carrier
vendors range between 7 and 30 days.
Stockholders' equity was $2,319,816 at September 30, 1998, up 7.3%, or $156,869
from December 31, 1997, and up 16.0%, or $320,769 from September 30, 1997. The
increase in stockholders' equity was a result of the net income that was
generated by the Company during the nine months and twelve months ended
September 30, 1998.
The Company had net cash used in operations of $194,230 for the nine months
ended September 30, 1998, compared to net cash provided by operations of
$279,556 for the comparable period in 1997. The net cash used in operations for
the nine months ended September 30, 1998 was primarily due to the start-up costs
associated with the opening of the four new offices. These offices were not yet
contributing to profit at September 30, 1998. The greater rise in the accounts
receivable balance compared to the rise in the accounts payable balance also
contributed to the use of cash. The provision of cash for the nine months ended
September 30, 1997 is primarily due to the net income of the Company combined
with the rise in the accounts payable balance and offset by the rise in the
accounts receivable balance.
8
<PAGE>
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 September 1, 1998, 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 Company does not
have any outstanding bank debt as of the date of this Report, nor did it have
any bank debt at September 30, 1998.
At September 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 has
named a Year 2000 Coordinator. The software has been fully evaluated and the
programs that will require modification are in the process of being updated. All
other systems are being evaluated to ensure compliance and the expected
completion date for the Company to be fully compliant in all aspects has been
revised to May 1, 1999. The Company is using internal resources and has hired
additional expertise in order to meet the targeted completion date. The costs to
ensure that the Company is Year 2000 compliant are expected to fall within
budget and are not expected to have a material impact on the Company.
RESULTS OF OPERATIONS
Revenues for the nine months ended September 30, 1998 were $20,661,584 compared
to $19,889,716 for the nine months ended September 30, 1997, an increase of
3.9%. For the quarter ended September 30, 1998, revenues were $7,027,575, up
2.9% from the comparable months in 1997. During the quarter, one of the
Company's major customers shipped significantly less than the prior year, which
impacted the growth in revenues. Additionally, revenues were affected by the
deterioration in rail service, which resulted in equipment shortage in certain
lanes. Despite these issues, the Company was able to increase its overall
revenues due to the new business generated by the four additional offices opened
during 1998. The Company is also developing its highway brokerage division in
order to provide viable alternatives to its customers, and as a result, highway
brokerage revenues rose 78.7% and 94.5% for the nine months and three months
ended September 30, 1998 compared to the corresponding months in the prior year.
Gross profit for the nine months ended September 30, 1998, was $2,011,480 or
9.7% of revenues, compared to $1,803,090 or 9.1% of revenues for the comparable
period in 1997. Gross profit for the quarter ended September 30, 1998, was
$651,036, or 9.3% of revenues, compared to $608,334 or 8.9% of revenues for the
quarter ended September 30, 1997. The Company is continuously working to improve
pricing and to better manage expenses as it expands. In addition, the highway
brokerage segment of the business has generated higher gross profit margins and
its development should show further improvement in the Company's margins.
9
<PAGE>
Selling, general and administrative "SG&A" expenses for the nine months ended
September 30, 1998, and 1997 were 8.2% and 6.3% of revenues, respectively. For
the three months ended September 30, 1998, and 1997, the SG&A expenses were 9.3%
and 6.1% of revenues, respectively. The increased SG&A percentage for the nine
months and three months ended September 30, 1998, was primarily due to the
start-up costs associated with the opening of the San Francisco, Minneapolis and
two Chicago offices compounded by the impacted revenue growth. The Company is
continuing in its efforts to streamline SG&A and to achieve administrative
efficiencies between the various offices.
Pretax income was $304,869 for the nine months ended September 30, 1998,
compared to $503,771 for the prior year period. For the quarter ended September
30, 1998, the Company had a pretax loss of $6,453 compared to pretax income of
$177,249 for the quarter ended September 30, 1997. As mentioned above, the
reduction in business from a major customer and the poor rail service impeded
the growth in revenues for the quarter ended September 30, 1998. Although the
Company's revenues grew compared to the prior year, and there was an improvement
in margins, it was not sufficient to absorb the start-up costs for the new
offices. This resulted in the loss for the period. The Company anticipates that
two of the new offices will make a contribution to pretax income by the fourth
quarter of 1998, and the other two by the first quarter of 1999.
Income tax expense was $148,000 and $203,000 for the nine months ended September
30, 1998, and 1997, respectively. The tax expense for the 1998 period included
$25,000 of deferred tax expense. Income tax expense for the quarters ended
September 30, 1998, and 1997, was $7,000, including $10,000 of deferred tax
expense, and $72,000, respectively.
Net income was $156,869 or $.03 per share for the nine months ended September
30, 1998, as compared to $300,771 or $.06 per share for the nine months ended
September 30, 1997. The net loss for the quarter ended September 30, 1998, was
$13,453, or $(.00) per share, compared to net income of $105,249 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.
10
<PAGE>
THE FREIGHT CONNECTION, INC.
FORM 10-Q
SEPTEMBER 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
None
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
September 30, 1998.
11
<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: NOVEMBER 11, 1998 /S/ RICHARD E. GAETZ
------------------- ---------------------
Richard E. Gaetz, Chief Executive Officer
Date: NOVEMBER 11, 1998 /S/ GEOFF DUNCAN
------------------- -----------------
Geoff Duncan, President
Date: NOVEMBER 11, 1998 /S/ MILISSA SIBSON
------------------- ------------------
Milissa Sibson, Vice President - Finance, Secretary
12
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,031,378
<SECURITIES> 0
<RECEIVABLES> 3,566,034
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,680,395
<PP&E> 412,174
<DEPRECIATION> 199,461
<TOTAL-ASSETS> 4,979,761
<CURRENT-LIABILITIES> 2,659,945
<BONDS> 0
0
0
<COMMON> 4,826
<OTHER-SE> 2,314,990
<TOTAL-LIABILITY-AND-EQUITY> 4,979,761
<SALES> 20,661,584
<TOTAL-REVENUES> 20,661,584
<CGS> 18,650,104
<TOTAL-COSTS> 18,650,104
<OTHER-EXPENSES> 1,753,592
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 304,869
<INCOME-TAX> 148,000
<INCOME-CONTINUING> 156,869
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 156,869
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
