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, 1999
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 9, 1999, 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, 1999
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
ASSETS SEPTEMBER 30, DECEMBER 31,
1999 1998
(UNAUDITED) (AUDITED)
------------- ------------
Current assets:
Cash and cash equivalents $ 86,015 $ 515,125
Accounts receivable - trade
net of allowance for uncollectible accounts
of $86,167 and $115,474, respectively 4,582,963 4,248,718
Due from affiliate 601,167 --
Accounts receivable-income taxes 0 50,005
Deferred tax asset 14,400 20,456
Prepaid expenses and other receivables 55,120 13,259
---------- ----------
Total current assets 5,339,665 4,847,563
---------- ----------
Property and equipment
(net of accumulated depreciation) 175,420 193,192
---------- ----------
Deposits and other assets 54,868 87,083
---------- ----------
$5,569,953 $5,127,838
========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $3,118,493 $2,788,222
Income taxes payable 8,186 --
---------- ----------
Total current liabilities 3,126,679 2,788,222
---------- ----------
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 1,519,466 1,415,808
---------- ----------
Total stockholders' equity 2,443,274 2,339,616
---------- ----------
$5,569,953 $5,127,838
========== ==========
3
<PAGE>
THE FREIGHT CONNECTION, INC.
STATEMENTS OF OPERATION
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER
30, 1999 30, 1998 30, 1999 30,1998
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Freight income $21,564,649 $20,661,584 $6,462,919 $ 7,027,575
Freight expense 19,506,750 18,650,104 5,803,206 6,376,539
----------- ----------- ---------- -----------
Gross profit 2,057,899 2,011,480 659,713 651,036
Selling, general and
administrative expenses 1,846,592 1,698,536 604,868 652,141
Depreciation & amortization 61,924 55,056 20,838 19,695
----------- ----------- ---------- -----------
Income from operations 149,383 257,888 34,007 (20,800)
Other income (expenses):
Interest income 29,275 46,981 14,487 14,347
----------- ----------- ---------- -----------
Income before income taxes $ 178,658 $ 304,869 $ 48,494 $ (6,453)
Income tax expense 75,000 148,000 19,000 7,000
----------- ----------- ---------- -----------
Net income $ 103,658 $ 156,869 $ 29,494 $ (13,453)
=========== =========== ========== ===========
Net income per share
(Basic and diluted) $ 0.02 $ 0.03 $ 0.00 $ (0.00)
=========== =========== ========== ===========
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, 1998 (audited) 4,825,630 $4,826 $918,982 $1,415,808 $2,339,616
Net income for nine months
ended September 30, 1999 103,658 103,658
---------- ------ -------- ---------- ----------
Balance
September 30, 1999 (unaudited) 4,825,630 $4,826 $918,982 $1,519,466 $2,443,274
========== ====== ======== ========== ==========
</TABLE>
5
<PAGE>
THE FREIGHT CONNECTION INC.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED SEPTEMBER ENDED SEPTEMBER
30,1999 30, 1998
(UNAUDITED) (UNAUDITED)
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 103,658 $ 156,869
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 61,924 55,056
Deferred tax asset 6,056 25,000
Changes in assets and liabilities:
Accounts receivable (334,245) (540,096)
Accounts receivable - income taxes 50,005 --
Prepaid expenses and other receivables (41,861) (26,171)
Deposits and other assets 32,215 (30,470)
Accounts payable and accrued expenses 330,271 233,633
Income taxes payable 8,186 (68,051)
--------- -----------
Total adjustments 112,551 (351,099)
--------- -----------
Net cash provided by operations 216,209 (194,230)
--------- -----------
Net cash used in investing activities:
Purchase of equipment (44,152) (60,321)
--------- -----------
Net cash used in financing activities:
Due from affiliate (601,167) --
--------- -----------
Net (decrease)increase in cash (429,110) (254,551)
Cash and cash equivalents
beginning of period 515,125 1,285,929
--------- -----------
Cash and cash equivalents,
end of period $ 86,015 $ 1,031,378
========= ===========
Supplemental disclosure:
cash paid for interest $ 0 $ 0
========= ===========
</TABLE>
6
<PAGE>
THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 1: FINANCIAL STATEMENTS
The balance sheet as of September 30, 1999, the statements of operation for the
nine months and three months ended September 30, 1999, and 1998, the statements
of stockholders' equity as of September 30, 1999, and the statements of cash
flows for the nine months and three months ended September 30, 1999, and 1998,
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, 1999, 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, 1998.
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, 1999, the Company renewed a $2,000,000 revolving line of credit
with a commercial bank. The line of credit will expire on May 31, 2000 and is
renewable upon expiration. The Company did not have any outstanding debt on this
line at September 30, 1999.
7
<PAGE>
THE FREIGHT CONNECTION, INC.
FORM 10-Q
SEPTEMBER 30, 1999
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, 1999, and 1998,
respectively.
FORWARD-LOOKING STATEMENTS
Except for the historical statements and discussions contained herein,
statements contained in this report constitute "forward-looking statements" as
defined in the Securities Act of 1933 and the Securities Exchange Act of 1934,
as amended. These forward-looking statements rely on a number of assumptions
concerning future events, and are subject to a number of risks and uncertainties
and other factors, many of which are outside the control of the Company, that
could cause actual results to differ materially from such statements.
Readers are cautioned not to put undue reliance on such forward-looking
statements, each of which speaks only as of the date hereof. Factors and
uncertainties that could affect the outcome of such forward-looking statements
include, among others, market and industry conditions, increased competition,
changes in governmental regulations, general economic conditions, pricing
pressures, and the Company's ability to continue its growth and expand
successfully into new markets and services. The Company disclaims any intention
or obligation to update publicly or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $2,212,986 at September 30, 1999, compared to
working capital of $2,059,341 at December 31, 1998 and $2,020,450 at September
30, 1998. The Company intends to use a portion of its working capital to open
additional sales offices in various geographic locations as it deems necessary.
The Company's cash position at September 30, 1999, was $86,015, compared to
$515,125 at December 31, 1998, and $1,031,378 at September 30, 1998. The cash
balance at September 30, 1999 was impacted by (i) the Company's extension of a
$600,000 short-term loan to an affiliate and (ii) a change in the payment cycle
of one of the Company's major customers which resulted in a $583,000 payment
being received October 1, 1999 instead of September 30, 1999. At December 31,
1998, the cash balance was impacted by slow collections of customer receivables.
Many of the Company's new customers require documentation before they will remit
payment and the Company faced difficulty in collecting this paperwork from its
carrier vendors. Although this continues to be a challenge, the Company has a
system in place to obtain this documentation more efficiently, resulting in
timelier payments by customers.
The accounts receivable balance at September 30, 1999, was $4,582,963 compared
to $4,248,718 at December 31, 1998, an increase of 7.9%. The accounts payable
balance was $3,118,493 at September 30, 1999, a rise of 11.8% from $2,788,222 at
December 31, 1998. The growth in the accounts receivable balance was minimized
due to the collection efforts of the Company. The increase in the accounts
payable balance is primarily due to the growth of the highway brokerage
division. The Company pays its highway carriers on the 30-day basis required by
those vendors, versus the 7-14 days required by the rails.
8
<PAGE>
Stockholders' equity was $2,443,274 at September 30, 1999, compared to
$2,339,616 at December 31, 1998. The increase in stockholders' equity was a
result of the net income that was generated by the Company during the nine-month
period.
The Company had net cash provided by operations of $216,209 for the nine months
ended September 30, 1999, compared to net cash used in operations of $194,230
for the comparable period in 1998. The net cash provided from operations for the
nine months ended September 30, 1999, was primarily due to the collection of a
significant amount of the Company's receivables combined with the increase in
the accounts payable balance. 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 four new offices during the year. The greater
rise in the accounts receivable balance as compared to the rise in the accounts
payable balance also contributed to the use of cash.
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. In March 1999, the Company obtained an unsecured surety bond in the
amount of $500,000 as a requirement of one of its major customers.
On September 1, 1999, 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, 1999.
At September 30, 1999, the Company did not have any capital lease obligations
nor did it have any long-term debt.
RESULTS OF OPERATIONS
Revenues for the nine months ended September 30, 1999, were $21,564,649 compared
to $20,661,584 for the nine months ended September 30, 1998, an increase of
4.4%. For the quarter ended September 30, 1999, revenues were $6,462,919, down
8.0% from the comparable months in 1998. In June 1999, a portion of business
from one of the Company's major customers was lost in a tender process resulting
in the decline in revenues for the third quarter of 1999 as compared to 1998.
Although the Company secured new clients and increased business from existing
customers, the growth was not sufficient to mitigate the reduction in volume
from this major customer. The Company is continuing to market its services in an
effort to find additional replacement business.
Gross profit for the nine months ended September 30, 1999, was $2,057,899, or
9.5% of revenues, compared to $2,011,480 or 9.7% of revenues for the comparable
period in 1998. Gross profit for the quarter ended September 30, 1999, was
$659,713, or 10.2% of revenues, compared to $651,036 or 9.3% of revenues for the
quarter ended September 30, 1998. For the nine-month period ended September 30,
1999, the gross profit margin declined from the prior year, due to the mix of
business generated from the new offices. The Company, however, is continuing in
its efforts to increase margins through better pricing and tightly managed
expenses and as a result, the Company's margins for the quarter ended September
30, 1999 improved as compared to the prior year.
Selling, general and administrative "SG&A" expenses for the nine months ended
September 30, 1999 and 1998, were $1,846,592, or 8.6% of revenues and
$1,698,536, or 8.2% of revenues, respectively. For the three months ended
September 30, 1999 and 1998, the SG&A expenses were $604,868, or 9.4% of
revenues and $652,141, or 9.3% of revenues, respectively. Although a substantial
portion of business from a major customer was lost, as mentioned above, there
were only minimal cost savings associated with the revenue reduction, resulting
in the increased SG&A as a percentage of revenues for the quarter
9
<PAGE>
ended September 30, 1999. The SG&A for the 1998 third quarter was impacted by
the start-up costs associated with opening the new offices during the year.
Pretax income was $178,658 for the nine months ended September 30, 1999,
compared to $304,869 for the prior year period. For the quarters ended September
30, 1999 and 1998, the pretax income was $48,494 and $(6,453) respectively.
Despite increased revenues for the nine-month period ended September 30, 1999,
the reduced profit margins and the higher SG&A expenses resulted in less income
for the period as compared to the prior year. For the quarter ended September
30, 1999, the Company had reduced revenues, however, it improved its profit
margins and SG&A resulting in pretax income versus a loss for the comparable
period in 1998.
Net income was $103,658, or $.02 per share for the nine months ended September
30, 1999, as compared to $156,869 or $.03 per share for the nine months ended
September 30, 1998. Net income for the quarter ended September 30, 1999, was
$29,494 or $.00 per share, compared to $(13,453) or $(.00) per share for the
comparable 1998 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.
OUTLOOK
During the fourth quarter of 1999, two of the Company's locations will cease
operations; San Francisco and Minneapolis. It is anticipated that the majority
of the business from the Minneapolis office will be retained and will be handled
by the Atlanta terminal. It is also anticipated that the Company will retain a
portion of business from the San Francisco office and will handle it through the
Los Angeles location. The Company will adjust its SG&A expenses appropriately in
the fourth quarter.
YEAR 2000 READINESS
The Year 2000 computer issue creates certain risks for the Company. If internal
systems do not correctly recognize and process date information beyond the year
1999, the Company's operations could be adversely impacted as the result of
system failures.
In 1998, the Company implemented a plan for addressing the Year 2000 issues and
has named a Year 2000 Coordinator. The plan involves the testing of (i)
information technology ("IT"), which includes computer and network hardware,
operating systems, third-party and internally developed software, files and
databases, end-use extracts and electronic interfaces, and (ii) external
dependencies, which includes relationships with suppliers and customers.
As of the date of this Report, the area of IT has been tested to ensure Year
2000 compliance and the Company is implementing corrective actions for systems
that were determined to be non-compliant. This process is substantially
complete, including developing contingency plans where appropriate. The Company
has worked with suppliers of products and services to determine and monitor
their level of compliance and compliance testing. Year 2000 readiness of
significant customers was also assessed. The Company's evaluation of Year 2000
compliance as it relates to the Company's external dependencies was
substantially complete September 30, 1999.
The Company is using internal resources in order to meet the targeted completion
dates. 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.
10
<PAGE>
THE FREIGHT CONNECTION, INC.
FORM 10-Q
SEPTEMBER 30, 1999
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) 27 Financial Data Schedule (for SEC use only).
b) There were no reports filed on Form 8-K during the quarter
ended September 30, 1999.
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, 1999 /s/ RICHARD E. GAETZ
----------------------------------
Richard E. Gaetz, Chief Executive Officer
Date: November 11, 1999 /s/ GEOFF DUNCAN
----------------------------------
Geoff Duncan, President
Date: November 11, 1999 /s/ MILISSA SIBSON
-----------------------------------
Milissa Sibson, Vice President-Finance,
Secretary
12
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 86,015
<SECURITIES> 0
<RECEIVABLES> 4,582,963
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,339,665
<PP&E> 454,893
<DEPRECIATION> 279,473
<TOTAL-ASSETS> 5,569,953
<CURRENT-LIABILITIES> 3,126,679
<BONDS> 0
0
0
<COMMON> 4,826
<OTHER-SE> 2,438,448
<TOTAL-LIABILITY-AND-EQUITY> 5,569,953
<SALES> 21,564,649
<TOTAL-REVENUES> 21,564,649
<CGS> 19,506,750
<TOTAL-COSTS> 19,506,750
<OTHER-EXPENSES> 1,908,516
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 178,658
<INCOME-TAX> 75,000
<INCOME-CONTINUING> 103,658
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 103,658
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
