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, 2000
COMMISSION FILE NUMBER: 33-29985-NY
THE FREIGHT CONNECTION, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 11-2994672
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
9870 HIGHWAY 92, SUITE 110 WOODSTOCK, GA 30188
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(Address, including zip code, of principal executive offices)
(770) 517-7744
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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 14, 2000, 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, 2000
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,
2000 1999
(UNAUDITED) (AUDITED)
---------- ----------
Current assets:
Cash and cash equivalents $ 280,071 $ 746,353
Accounts receivable - trade
net of allowance for uncollectible
accounts of $160,088 4,385,210 3,490,511
Due from affiliate 13,760 38,933
Accounts receivable-income taxes 57,658 20,258
Deferred tax asset 39,606 40,956
Prepaid expenses and other receivables 29,690 8,779
---------- ----------
Total current assets 4,805,995 4,345,790
---------- ----------
Property and equipment
(net of accumulated depreciation) 209,170 176,217
---------- ----------
Deposits and other assets 56,825 58,028
---------- ----------
$5,071,990 $4,580,035
========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $2,764,302 $2,219,125
---------- ----------
Total current liabilities 2,764,302 2,219,125
---------- ----------
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 1,383,880 1,437,102
---------- ----------
Total stockholders' equity 2,307,688 2,360,910
---------- ----------
$5,071,990 $4,580,035
========== ==========
3
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THE FREIGHT CONNECTION, INC.
STATEMENTS OF OPERATION
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
JUNE 30,2000 JUNE 30,1999 JUNE 30, 2000 JUNE 30,1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Freight income $ 10,826,719 $ 15,101,730 $ 5,658,305 $ 7,763,404
Freight expense 9,795,233 13,703,544 5,123,429 6,995,838
------------ ------------ ------------ ------------
Gross profit 1,031,486 1,398,186 534,876 767,566
Selling, general and
administrative expenses 1,106,703 1,241,724 545,551 628,339
Depreciation & amortization 41,276 41,086 18,431 20,838
------------ ------------ ------------ ------------
Income (loss) from operations (116,493) 115,376 (29,106) 118,389
Other income (expenses):
Interest income 27,221 14,788 10,271 9,736
------------ ------------ ------------ ------------
Income (loss)
before income taxes $ (89,272) $ 130,164 $ (18,835) $ 128,125
Income tax
(recoverable) expense (36,050) 56,000 (7,650) 55,000
------------ ------------ ------------ ------------
Net income (loss) $ (53,222) $ 74,164 $ (11,185) $ 73,125
============ ============ ============ ============
Net income (loss) per share
(Basic and diluted) $ (0.01) $ 0.02 $ 0.00 $ 0.02
============ ============ ============ ============
Weighted average
shares outstanding 4,825,630 4,825,630 4,825,630 4,825,630
============ ============ ============ ============
</TABLE>
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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, 1999 (audited) 4,825,630 $ 4,826 $ 918,982 $ 1,437,102 $ 2,360,910
Net loss for six months
ended June 30, 2000 (53,222) (53,222)
----------- ----------- ----------- ----------- -----------
Balance
June 30, 2000 (unaudited) 4,825,630 $ 4,826 $ 918,982 $ 1,383,880 $ 2,307,688
=========== =========== =========== =========== ===========
</TABLE>
5
<PAGE>
THE FREIGHT CONNECTION INC.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED JUNE ENDED JUNE
30, 2000 30, 1999
(UNAUDITED) (UNAUDITED)
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (53,222) $ 74,164
--------- ---------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 41,276 41,086
Deferred tax asset 1,350 2,856
Changes in assets and liabilities:
Accounts receivable (894,699) (75,174)
Accounts receivable - income taxes (37,400) 46,391
Prepaid expenses and other receivables (20,911) (13,794)
Deposits and other assets 1,203 26,259
Accounts payable and accrued expenses 545,177 482,801
--------- ---------
Total adjustments (364,004) 510,425
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Net cash provided by (used in) operations (417,226) 584,589
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Net cash used in investing activities:
Purchase of equipment (74,229) (40,218)
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Net cash provided by (used in)
financing activities:
Due from affiliate 25,173 (750,000)
--------- ---------
Net decrease in cash (466,282) (205,629)
Cash and cash equivalents
beginning of period 746,353 515,125
--------- ---------
Cash and cash equivalents,
end of period $ 280,071 $ 309,496
========= =========
Supplemental disclosure:
Cash paid for interest $ 0 $ 0
========= =========
</TABLE>
6
<PAGE>
THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 1: FINANCIAL STATEMENTS
The balance sheet as of June 30, 2000, the statements of operation for the six
months and three months ended June 30, 2000, and 1999, the statements of
stockholders' equity as of June 30, 2000, and the statements of cash flows for
the six months ended June 30, 2000, and 1999, 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, 2000, 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, 1999.
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 expires on October 31, 2000. The
Company did not have any outstanding debt on this line at June 30, 2000.
7
<PAGE>
THE FREIGHT CONNECTION, INC.
FORM 10-Q
JUNE 30, 2000
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, 2000, and 1999, 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 $2,041,693 at June 30, 2000, compared to
working capital of $2,126,665 at December 31, 1999. The Company intends to use
its working capital to fund its operations.
The Company's cash position at June 30, 2000, was $280,071, compared to $746,353
at December 31, 1999. The decrease in cash is due in part to the increase in
sales in the second quarter ended June 30, 2000 and the resulting increase in
accounts receivable without a proportional increase in accounts payable. The
Company has reviewed the remittance process and has a system in place to obtain
required documentation more efficiently, resulting in timelier payments by
customers.
The accounts receivable balance at June 30, 2000, was $4,385,210 compared to
$3,490,511 at December 31, 1999, an increase of $894,699 or 25.6%. The accounts
payable balance at June 30, 2000 was $2,764,302 compared to $2,219,125 at
December 31, 1999, a rise of $545,177 or 24.6%. The Company's business increased
in the second quarter ended June 30, 2000, which accounted for the rise in the
accounts receivable and accounts payable balances. The dedicating of a full time
associate to accounts receivable collection has enhanced the collection efforts.
The increase in the accounts payable balance is primarily due to the growth of
the highway brokerage division.
8
<PAGE>
Stockholders' equity was $2,307,688 at June 30, 2000, compared to $2,360,910 at
December 31, 1999. The decrease in stockholders' equity was a result of the net
loss that was generated by the Company during the six-month period.
The Company had net cash used in operations of $417,226 for the six months ended
June 30, 2000, compared to net cash provided by operations of $584,589 for the
comparable period in 1999. The decrease in cash provided from operations for the
six months ended June 30, 2000, was primarily due to the net loss for the period
and the increase in accounts receivable. The net cash provided by operations for
the six months ended June 30, 1999 was impacted by the collection of a
significant amount of the Company's receivables combined with the increase in
the accounts payable balance.
The Company continues to purchase fixed assets as it deems necessary. During the
six months ended June 30, 2000, the Company purchased fixed assets in the amount
of $74,229 primarily for a new phone system in conjunction with the move of the
Corporate office from Tampa, Florida to Atlanta, Georgia and for a new financial
software package. This compared to $40,218 in the prior year. The 1999 purchases
included an imaging unit to assist the Company in the electronic storage of
documents.
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. The Company also maintains 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 June 30, 2000.
At June 30, 2000, 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, 2000, were $10,826,719 compared to
$15,101,730 for the six months ended June 30, 1999, a decrease of $4,275,011 or
28.3%. For the quarter ended June 30, 2000, revenues were $5,658,305, a 27.1%
decrease from the comparable quarter in 1999. The decrease in revenues is
primarily due to the loss of a substantial portion of business from one of its
major customers in a tender process. As a result, revenues generated by this
customer decreased by $2,691,806 for the six months ended June 30, 2000, as
compared to the six months ended June 30, 1999. Although the Company obtained
new clients and increased the volume from its existing customers, it was not
sufficient to replace the business that was lost. The Company also closed the
Minneapolis, Minnesota and San Francisco, California offices during November
1999, which impacted revenues. The Company is targeting new customers through
its marketing efforts to replace the lost revenues.
9
<PAGE>
Gross profit for the six months ended June 30, 2000, was $1,031,486, or 9.5% of
revenues, compared to $1,398,186 or 9.3% of revenues for the comparable period
in 1999. Gross profit for the quarter ended June 30, 2000, was $534,876, or 9.5%
of revenues, compared to $767,566 or 9.9% of revenues for the quarter ended June
30, 1999. The increase in gross profit as a percent of revenue for the six
months ended June 30, 2000, as compared to the prior year is an indication that
the lost business as described above had lower margins. Although the industry is
extremely competitive, the Company is working to improve its margins.
The profit margin for the three months ended June 30, 2000 was comparable to the
three months ended March 31, 2000 despite the impact of fuel surcharges which
has affected the industry in the second quarter.
Selling, general and administrative "SG&A" expenses for the six months ended
June 30, 2000 and 1999, were 10.2% and 8.2% of revenues, respectively. For the
three months ended June 30, 2000 and 1999, the SG&A expenses were 9.6% and 8.1%
of revenues, respectively. The increased SG&A percentage for the six months
ended June 30, 2000 as compared to the same period of the prior year was
primarily due to loss of revenue as described above. Also, the Company merged
its Tampa office with the Atlanta office in February 2000 incurring certain
non-recurring expense totaling $29,000 associated with closing the Tampa office.
Management expects to achieve administrative efficiencies by merging the Tampa
office thereby lowering the SG&A as a percent of revenue. As a result, the SG&A
as a percentage of revenue dropped by 1.3% from the first quarter of 2000.
Management will continue to monitor expenses to further reduce the SG&A
percentage.
The pretax loss was $89,272 for the six months ended June 30, 2000, compared to
pretax income of $130,164 for the prior year period. For the quarter ended June
30, 2000 the pretax loss was $18,835 compared to pretax income of $128,125 for
the quarter ended June 30, 1999. The decrease in the Company's revenues and the
percentage increase in SG&A resulted in the loss for the periods.
The net loss was $53,222 or $.01 per share for the six months ended June 30,
2000, as compared to net income of $74,164 or $.02 per share for the six months
ended June 30, 1999. Net loss for the quarter ended June 30, 2000, was $11,185
or $.00 per share, compared to net income of $73,125 or $.02 per share for the
comparable 1999 period. Earnings per share are based on 4,825,630 weighted
average shares outstanding.
The Company is working to continue to increase its revenues and margins. In
July, 2000, an office was opened in Lincoln, Nebraska. The Company will continue
to market its services and strive to obtain sales representation in other major
geographic areas of North America.
10
<PAGE>
THE FREIGHT CONNECTION, INC.
FORM 10-Q
JUNE 30, 2000
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
June 30, 2000.
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 9, 2000 /s/ RICHARD E. GAETZ
------------------- --------------------
Richard E. Gaetz, Chief Executive Officer
Date: AUGUST 9, 2000 /s/ GEOFF DUNCAN
-------------------- ----------------
Geoff Duncan, President
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