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, 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 August 13, 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
JUNE 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 JUNE 30, DECEMBER 31,
1999 1998
(UNAUDITED) (AUDITED)
----------- ------------
Current assets:
Cash and cash equivalents $ 309,496 $ 515,125
Accounts receivable - trade
net of allowance for uncollectible accounts
of $102,276 and $115,474, respectively 4,323,892 4,248,718
Due from affiliate 750,000 --
Accounts receivable-income taxes 3,614 50,005
Deferred tax asset 17,600 20,456
Prepaid expenses and other receivables 27,053 13,259
---------- ----------
Total current assets 5,431,655 4,847,563
---------- ----------
Property and equipment
(net of accumulated depreciation) 192,324 193,192
---------- ----------
Deposits and other assets 60,824 87,083
---------- ----------
$5,684,803 $5,127,838
========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $3,271,023 $2,788,222
---------- ----------
Total current liabilities 3,271,023 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 1,489,972 1,415,808
---------- ----------
Total stockholders' equity 2,413,780 2,339,616
---------- ----------
$5,684,803 $5,127,838
========== ==========
3
<PAGE>
THE FREIGHT CONNECTION, INC.
STATEMENTS OF OPERATION
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
JUNE 30,1999 JUNE 30,1998 JUNE 30, 1999 JUNE 30,1998
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
Freight income $15,101,730 $13,634,009 $ 7,763,404 $ 7,064,883
Freight expense 13,703,544 12,273,565 6,995,838 6,322,659
----------- ----------- ----------- -----------
Gross profit 1,398,186 1,360,444 767,566 742,224
Selling, general and
administrative expenses 1,241,724 1,046,395 628,339 565,793
Depreciation & amortization 41,086 35,361 20,838 17,012
----------- ----------- ----------- -----------
Income from operations 115,376 278,688 118,389 159,419
Other income (expenses):
Interest income 14,788 32,634 9,736 16,318
----------- ----------- ----------- -----------
Income before income taxes $ 130,164 $ 311,322 $ 128,125 $ 175,737
Income tax expense 56,000 141,000 55,000 78,000
----------- ----------- ----------- -----------
Net income $ 74,164 $ 170,322 $ 73,125 $ 97,737
=========== =========== =========== ===========
Net income per share
(Basic and diluted) $ 0.02 $ 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>
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 six months
ended June 30, 1999 74,164 74,164
--------- ---------- ---------- ---------- ----------
Balance
June 30, 1999 (unaudited) 4,825,630 $ 4,826 $ 918,982 $1,489,972 $2,413,780
========= ========== ========== ========== ==========
</TABLE>
5
<PAGE>
THE FREIGHT CONNECTION INC.
STATEMENTS OF CASH FLOW
SIX MONTHS SIX MONTHS
ENDED JUNE ENDED JUNE
30, 1999 30, 1998
(UNAUDITED) (UNAUDITED)
----------- -----------
Cash flows from operating activities:
Net income $ 74,164 $ 170,322
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 41,086 35,361
Deferred tax asset 2,856 15,000
Changes in assets and liabilities:
Accounts receivable (75,174) (372,953)
Accounts receivable - income taxes 46,391 --
Prepaid expenses and other receivables (13,794) (12,139)
Deposits and other assets 26,259 (22,280)
Accounts payable and accrued expenses 482,801 296,073
Income taxes payable -- (67,538)
----------- -----------
Total adjustments 510,425 (128,476)
----------- -----------
Net cash provided by operations 584,589 41,846
----------- -----------
Net cash used in investing activities:
Purchase of equipment (40,218) (27,847)
----------- -----------
Net cash used in financing activities:
Due from affiliate (750,000) --
----------- -----------
Net (decrease)increase in cash (205,629) 13,999
Cash and cash equivalents
beginning of period 515,125 1,285,929
----------- -----------
Cash and cash equivalents,
end of period $ 309,496 $ 1,299,928
=========== ===========
Supplemental disclosure:
cash paid for interest $ 0 $ 0
=========== ===========
6
<PAGE>
THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 1: FINANCIAL STATEMENTS
The balance sheet as of June 30, 1999, the statements of operation for the six
months and three months ended June 30, 1999, and 1998, the statements of
stockholders' equity as of June 30, 1999, and the statements of cash flows for
the six months and three months ended June 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
June 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, 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
June 30, 1999.
7
<PAGE>
THE FREIGHT CONNECTION, INC.
FORM 10-Q
JUNE 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 six months and three months ended June 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 $2,160,632 at June 30, 1999, compared to
working capital of $2,059,341 at December 31, 1998 and $2,054,872 at June 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 June 30, 1999, was $309,496, compared to $515,125
at December 31, 1998, and $1,299,928 at June 30, 1998. 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. The Company instituted procedures during the first quarter of 1999 to
collect this information more efficiently, resulting in improved cash flow. At
June 30, 1999, the Company's cash balance exceeded $1,000,000 prior to the
Company extending a short-term loan of $750,000 to an affiliate.
The accounts receivable balance at June 30, 1999, was $4,323,892 compared to
$4,248,718 at December 31, 1998, an increase of 1.8%. The accounts payable
balance was $3,271,023 at June 30, 1999, a rise of 17.3% 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 $2,413,780 at June 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 six-month period.
The Company had net cash provided by operations of $584,589 for the six months
ended June 30, 1999, compared to net cash provided by operations of $41,846 for
the comparable period in 1998. The net cash provided from operations for the six
months ended June 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 provided by operations for the six months ended
June 30, 1998 was impacted by a use of cash of $82,130 during the second quarter
for start-up costs associated with opening new offices.
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, 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 June 30, 1999.
At June 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 six months ended June 30, 1999, were $15,101,730 compared to
$13,634,009 for the six months ended June 30, 1998, an increase of 10.8%. For
the quarter ended June 30, 1999, revenues were $7,763,404, up 9.9% from the
comparable months in 1998. The growth in revenues is primarily due to the
contributions of the three offices which the Company opened in San Francisco,
Chicago and Minneapolis during 1998. In June 1999, a portion of business from
one of the Company's major customers was lost in a tender process and this will
have a negative impact on revenues until it is replaced. The Company will
continue its marketing efforts to secure new clients to replace this business.
The Company is also continuing to develop its highway brokerage division. For
the six months ended June 30,1999, the division represented 27.9% of revenues
compared to 17.5% in the prior year period.
Gross profit for the six months ended June 30, 1999, was $1,398,186, or 9.3% of
revenues, compared to $1,360,444 or 10.0% of revenues for the comparable period
in 1998. Gross profit for the quarter ended June 30, 1999, was $767,566, or 9.9%
of revenues, compared to $742,224 or 10.5% of revenues for the quarter ended
June 30, 1998. The gross profit margin for the 1999 period declined from the
prior year, due to the mix of business generated from the new offices. The
Company is continuing in its efforts to increase margins through improved
pricing and better managed expenses and as a result, the margin for the quarter
ended June 30, 1999 was 1.3% higher than the quarter ended March 31, 1999.
9
<PAGE>
Selling, general and administrative "SG&A" expenses for the six months ended
June 30, 1999 and 1998, were 8.2% and 7.7% of revenues, respectively. For the
three months ended June 30, 1999 and 1998, the SG&A expenses were 8.1% and 8.0%
of revenues, respectively. The SG&A began to increase during the second quarter
of 1998, due to the addition of the new offices, and the Company has been
working to achieve administrative efficiencies between the offices since that
time. Additionally, the new offices were not able to generate sufficient volume
to cover their overhead costs until the end of the first quarter of 1999. The
offices are now covering their overhead and, as a result, the SG&A as a
percentage of revenue dropped by .3% from the first quarter of 1999. Management
will continue to monitor expenses to further reduce the SG&A percentage.
Pretax income was $130,164 for the six months ended June 30, 1999, compared to
$311,322 for the prior year period. For the quarters ended June 30, 1999 and
1998, the pretax income was $128,125 and $175,737, respectively. Despite
increased revenues, the reduced profit margins and the higher SG&A expenses
resulted in less income for the period as compared to the prior year. The
Company, however, managed to increase its pretax income by $126,086 compared to
the first quarter of 1999.
Net income was $74,164, or $.02 per share for the six months ended June 30,
1999, as compared to $170,322 or $.04 per share for the six months ended June
30, 1998. Net income for the quarter ended June 30, 1999, was $73,125 or $.02
per share, compared to $97,737 or $.02 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.
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
and IT is expected to be fully compliant and tested by September 30, 1999. Where
appropriate, the Company is developing a contingency plan to be in effect by
September 30, 1999. The Company is currently working with suppliers of products
and services to determine and monitor their level of compliance and compliance
testing. Year 2000 readiness of significant customers is also being assessed.
The Company's evaluation of Year 2000 compliance as it relates to the Company's
external dependencies is expected to be complete by 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
JUNE 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) Exhibit 27 Financial Data Schedule (for SEC use only).
b) There were no reports filed on Form 8-K during the quarter ended
June 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: August 13, 1999 /s/ RICHARD E. GAETZ
------------------- ----------------------------------
Richard E. Gaetz, Chief Executive Officer
Date: August 13, 1999 /s/ GEOFF DUNCAN
-------------------- ----------------------------------
Geoff Duncan, President
Date: August 13, 1999 /s/ MILISSA SIBSON
-------------------- ---------------------------------
Milissa Sibson, Vice President-Finance,
Secretary
12
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
27 Financial Data Schedule (for SEC use only).
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 309,496
<SECURITIES> 0
<RECEIVABLES> 4,323,892
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,431,655
<PP&E> 450,959
<DEPRECIATION> 258,635
<TOTAL-ASSETS> 5,684,803
<CURRENT-LIABILITIES> 3,271,023
<BONDS> 0
0
0
<COMMON> 4,826
<OTHER-SE> 2,408,954
<TOTAL-LIABILITY-AND-EQUITY> 5,684,803
<SALES> 15,101,730
<TOTAL-REVENUES> 15,101,730
<CGS> 13,703,544
<TOTAL-COSTS> 13,703,544
<OTHER-EXPENSES> 1,282,810
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 130,164
<INCOME-TAX> 56,000
<INCOME-CONTINUING> 74,164
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,164
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
