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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, 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)
________________________________________________________________________________
(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, 2000, the number of the Company's shares of par value $.001
common stock outstanding was 4,825,630.
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THE FREIGHT CONNECTION, INC.
FORM 10-Q
SEPTEMBER 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
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THE FREIGHT CONNECTION, INC.
BALANCE SHEETS
ASSETS September 30, December 31,
2000 1999
(unaudited) (audited)
------------- ------------
Current assets:
Cash and cash equivalents $ 679,051 $ 746,353
Accounts receivable - trade
net of allowance for uncollectible accounts
of $83,747 and $160,088, respectively 3,674,139 3,490,511
Due from affiliate (3,683) 38,933
Accounts receivable-income taxes 52,758 20,258
Deferred tax asset 39,606 40,956
Prepaid expenses and other receivables 38,804 8,779
---------- ----------
Total current assets 4,480,675 4,345,790
---------- ----------
Property and equipment
(net of accumulated depreciation) 205,486 176,217
---------- ----------
Deposits and other assets 63,307 58,028
---------- ----------
$4,749,468 $4,580,035
========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $2,434,062 $2,219,125
---------- ----------
Total current liabilities 2,434,062 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 1,391,598 1,437,102
---------- ----------
Total stockholders' equity 2,315,406 2,360,910
---------- ----------
$4,749,468 $4,580,035
========== ==========
3
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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, 2000 30, 1999 30, 2000 30, 1999
(unaudited) (unaudited) (unaudited) (unaudited)
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Freight income $16,285,744 $21,564,649 $5,459,025 $6,462,919
Freight expense 14,674,675 19,506,750 4,879,442 5,803,206
----------- ----------- ---------- ----------
Gross profit 1,611,069 2,057,899 579,583 659,713
Selling, general and
administrative expenses 1,659,128 1,846,592 552,425 604,868
Depreciation & amortization 63,148 61,924 21,872 20,838
----------- ----------- ---------- ----------
Income (loss) from operations (111,207) 149,383 5,286 34,007
Other income (expenses):
Interest income 34,553 29,275 7,332 14,487
----------- ----------- ---------- ----------
Income (loss)
before income taxes $ (76,654) $ 178,658 $ 12,618 $ 48,494
Income tax
(recoverable) expense (31,150) 75,000 4,900 19,000
----------- ----------- ---------- ----------
Net income (loss) $ (45,504) $ 103,658 $ 7,718 $ 29,494
=========== =========== ========== ==========
Net income (loss) per share
(Basic and diluted) $(0.01) $0.02 $0.00 $0.00
=========== =========== ========== ==========
Weighted average
shares outstanding 4,825,630 4,825,630 4,825,630 4,825,630
=========== =========== ========== ==========
</TABLE>
4
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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 nine months
ended September 30, 2000 (45,504) (45,504)
--------- ------ -------- ---------- ----------
Balance
September 30, 2000 (unaudited) 4,825,630 $4,826 $918,982 $1,391,598 $2,315,406
========= ====== ======== ========== ==========
</TABLE>
5
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THE FREIGHT CONNECTION INC.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Nine months Nine months
ended September ended September
30, 2000 30, 1999
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (45,504) $ 103,658
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 63,148 61,924
Deferred tax asset 1,350 6,056
Changes in assets and liabilities:
Accounts receivable (183,628) (334,245)
Accounts receivable - income taxes (32,500) 50,005
Prepaid expenses and other receivables (30,025) (41,861)
Deposits and other assets (5,279) 32,215
Accounts payable and accrued expenses 214,937 330,271
Income taxes payable - 8,186
---------- ---------
Total adjustments 28,003 112,551
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Net cash provided by (used in) operations (17,501) 216,209
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Net cash used in investing activities:
Purchase of equipment (92,417) (44,152)
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Net cash provided by (used in) financing activities:
Due from affiliate 42,616 (601,167)
---------- ---------
Net decrease in cash (67,302) (429,110)
Cash and cash equivalents
beginning of period 746,353 515,125
---------- ---------
Cash and cash equivalents,
end of period $ 679,051 $ 86,015
========== =========
Supplemental disclosure:
cash paid for interest $ 0 $ 0
========== =========
</TABLE>
6
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THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 1: FINANCIAL STATEMENTS
The balance sheet as of September 30, 2000, the statements of operation for the
nine months and three months ended September 30, 2000, and 1999, the statements
of stockholders' equity as of September 30, 2000, and the statements of cash
flows for the nine months and three months ended September 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
September 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
The Company renewed a $2,000,000 revolving line of credit with a commercial bank
in St. Petersburg, Florida. The line of credit will expire on October 31, 2000.
The Company did not have any outstanding debt on this line at September 30,
2000.
7
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THE FREIGHT CONNECTION, INC.
FORM 10-Q
SEPTEMBER 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 nine months and three months ended September 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 $2,046,613 at September 30, 2000, compared to
working capital of $2,126,665 at December 31, 1999 and $2,212,986 at September
30, 1999. The Company intends to use its working capital to fund its operations.
The Company's cash position at September 30, 2000, was $679,051, compared to
$746,353 at December 31, 1999, and $86,015 at September 30, 1999. 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.
The accounts receivable balance at September 30, 2000, was $3,674,139 compared
to $3,490,511 at December 31, 1999, an increase of $183,628 or 5.3%. The
accounts payable balance was $2,434,062 at September 30, 2000, a rise of 214,937
or 9.7% from $2,219,125 at December 31, 1999. The growth in the accounts
receivable balance was minimized due to the collection efforts of the Company.
The Company intends to pursue collection efforts on the accounts written off
with outside agencies. The increase in the accounts payable balance is primarily
due to the growth of the highway brokerage division.
8
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Stockholders' equity was $2,315,406 at September 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 nine-month
period.
The Company had net cash used in operations of $17,501 for the nine months ended
September 30, 2000, compared to net cash provided by operations of $216,209 for
the comparable period in 1999. The net cash used in operations for the nine
months ended September 30, 2000 was primarily due to the net loss for the
period. 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.
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.
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 and expires on October 31, 2000. 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, 2000.
At September 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 nine months ended September 30, 2000, were $16,285,744 compared
to $21,564,649 for the nine months ended September 30, 1999, a decrease of
5,278,905 or 24.5%. For the quarter ended September 30, 2000, revenues were
$5,459,025 compared to $6,462,919 for the three months ended September 30, 1999,
a decrease of $1,003,894 or 15.5%. 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
$2,924,162 for the nine months ended September 30, 2000, as compared to the nine
months ended September 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 for the nine months ended September 30, 2000. The Company is
targeting new customers through its marketing efforts to replace the lost
revenues.
Gross profit for the nine months ended September 30, 2000, was $1,611,069, or
9.9% of revenues, compared to $2,057,899 or 9.5% of revenues for the comparable
period in 1999. Gross profit for the quarter ended September 30, 2000, was
$579,583, or 10.6% of revenues, compared to $659,713 or 10.2% of revenues for
the quarter ended September 30, 1999. The increase in gross profit as a percent
of revenue for the nine months ended September 30, 2000, as compared to the
prior year is an indication that the lost business as described above had lower
margins. The profit margin for the three months ended September 30, 2000 also
increased from the comparable period of the prior year despite the impact of
fuel surcharges that have affected the industry since the second quarter of
2000. Although the industry is extremely competitive, the Company is working to
improve its margins.
9
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Selling, general and administrative "SG&A" expenses for the nine months ended
September 30, 2000 and 1999, were $1,659,128, or 10.2% of revenues and
$1,846,592, or 8.6% of revenues, respectively. For the three months ended
September 30, 2000 and 1999, the SG&A expenses were $552,425, or 10.1% of
revenues and $604,868, or 9.4% of revenues, respectively. The increased SG&A
percentage for the nine months ended September 30, 2000 as compared to the same
period of the prior year was primarily due to loss of revenue as described
above. Although a substantial portion of business from a major customer was
lost, there were only minimal cost savings associated with the revenue
reduction, resulting in the increased SG&A as a percentage of revenues for the
nine months ended September 30, 2000. 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 for the three months ended September 30, 2000, dropped by .8% from the
first quarter of 2000. Management will continue to monitor expenses to further
reduce the SG&A percentage.
The pretax loss was $76,654 for the nine months ended September 30, 2000,
compared to pretax income of $178,658 for the prior year period. For the
quarters ended September 30, 2000 and 1999, the pretax income was $12,618 and
$48,494 respectively. The decrease in the Company's revenues and the percentage
increase in SG&A resulted in the decrease in profitability for the periods.
The net loss was $45,504, or $.01 per share for the nine months ended September
30, 2000, as compared to net income of $103,658 or $.02 per share for the nine
months ended September 30, 1999. Net income for the quarter ended September 30,
2000, was $7,718 or $.00 per share, compared to $29,494 or $.00 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
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THE FREIGHT CONNECTION, INC.
FORM 10-Q
SEPTEMBER 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) Ex 27 Financial Data Schedule (for SEC use only).
b) There were no reports filed on Form 8-K during the quarter ended
September 30, 2000.
11
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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 10, 2000 /s/ Richard E. Gaetz
--------------------------- --------------------
Richard E. Gaetz, Chief Executive Officer
Date: November 10, 2000 /s/ Geoff Duncan
--------------------------- ----------------
Geoff Duncan, President
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