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: MARCH 31, 2000
COMMISSION FILE NUMBER: 33-29985-NY
THE FREIGHT CONNECTION, INC.
(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
- --------------------------------------------------------------------------------
(Address, including zip code, of principal executive offices)
(770) 517-7744
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(Registrant's telephone number, including area code)
12900 Dupont Circle, Tampa, FL 33626
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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 May 12, 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
MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
<S> <C>
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..........................................................................12
SIGNATURES..............................................................................................13
</TABLE>
2
<PAGE>
THE FREIGHT CONNECTION, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS March 31, December 31,
2000 1999
(unaudited) (audited)
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 616,022 $ 746,353
Accounts receivable - trade
net of allowance for uncollectible accounts
of $160,088 3,847,658 3,490,511
Accounts receivable - affiliates 14,300 38,933
Accounts receivable - income taxes 48,658 20,258
Deferred tax asset 40,956 40,956
Prepaid expenses and other receivables 25,624 8,779
---------- ----------
Total current assets 4,593,218 4,345,790
---------- ----------
Property and equipment
(net of accumulated depreciation) 183,032 176,217
---------- ----------
Deposits and other assets 55,387 58,028
---------- ----------
$4,831,637 $4,580,035
========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $2,512,764 $2,219,125
---------- ----------
Total current liabilities 2,512,764 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 1,395,065 1,437,102
---------- ----------
Total stockholders' equity 2,318,873 2,360,910
---------- ----------
$4,831,637 $4,580,035
========== ==========
</TABLE>
3
<PAGE>
THE FREIGHT CONNECTION, INC.
STATEMENTS OF OPERATION
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
2000 1999
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Freight income $ 5,168,414 $ 7,338,326
Freight expense 4,671,804 6,707,706
----------- -----------
Gross profit 496,610 630,620
Selling, general and
administrative expenses 561,152 613,385
Depreciation & amortization 22,845 20,248
----------- -----------
Loss from operations (87,387) (3,013)
Other income (expenses):
Interest income 16,950 5,052
----------- -----------
Total other income 16,950 5,052
----------- -----------
Income (loss) before income taxes $ (70,437) $ 2,039
Income tax expense (recoverable) (28,400) 1,000
----------- -----------
Net income (loss) $ (42,037) $ 1,039
============ ===========
Net income (loss) per common share
(Basic and Diluted) $ (0.01) $ 0.00
============ ===========
Weighted average
shares outstanding 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, 1999 (audited) 4,825,630 $4,826 $918,982 $1,437,102 $2,360,910
Net loss for three months
ended March 31, 2000 (42,037) (42,037)
------- ------- ------- ------- -------
Balance
March 31, 2000 (unaudited) 4,825,630 $4,826 $918,982 $1,395,065 $2,318,873
========= ====== ======== ========== ==========
</TABLE>
5
<PAGE>
THE FREIGHT CONNECTION INC.
STATEMENTS OF CASH FLOW
Three months Three months
ended March ended March
31, 2000 31, 1999
(unaudited) (unaudited)
----------- -----------
Cash flows from operating activities:
Net income (loss) $ ( 42,037) $ 1,039
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 22,845 20,248
Deferred tax asset - (1,644)
Changes in assets and liabilities:
Accounts receivable (357,147) (458,005)
Accounts receivable - income taxes (28,400) 2,497
Due from affiliate 24,633 -
Prepaid expenses and other receivables (16,845) (803)
Deposits and other assets 2,641 14,899
Accounts payable and accrued expenses 293,638 717,211
-------- --------
Total adjustments (58,635) 294,403
-------- --------
Net cash provided by (used in) operations (100,672) 295,442
-------- --------
Net cash used in investing activities:
Purchase of equipment (29,659) (39,225)
-------- --------
Net increase (decrease) in cash (130,331) 256,217
Cash and cash equivalents
beginning of period 746,353 515,125
-------- --------
Cash and cash equivalents,
end of period $616,022 $771,342
======== ========
Supplemental disclosure:
Cash paid for interest $ 0 $ 0
======== ========
6
<PAGE>
THE FREIGHT CONNECTION, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1: FINANCIAL STATEMENTS
The balance sheet as of March 31, 2000, the statements of operation for the
three months ended March 31, 2000 and 1999, the statements of stockholders'
equity as of March 31, 2000, and the statements of cash flows for the three
months ended March 31, 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 March 31, 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 that expires on May 31, 2000. The line of credit is
renewable upon expiration. The Company did not have any outstanding debt on this
line at March 31, 2000.
7
<PAGE>
THE FREIGHT CONNECTION, INC.
FORM 10-Q
MARCH 31, 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 three months ended March 31, 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 $2,080,454 at March 31, 2000, compared to
working capital of $2,126,665 at December 31, 1999, and $2,056,302 at March 31,
1999. The Company intends to use it's working capital to fund its operations.
The Company's cash position at March 31, 2000, was $616,022 compared to $746,353
at December 31, 1999, and $771,342 at March 31, 1999. The decrease in cash is
due in part to the increase in sales in the month of March 2000 and the
resulting increase in Accounts Receivable. 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.
8
<PAGE>
The accounts receivable balance at March 31, 2000, was $3,847,658 compared to
$3,490,511 at December 31, 1999, an increase of 10.2%. The accounts payable
balance was $2,512,764 at March 31, 2000, a rise of 13.2% from $2,219,125 at
December 31, 1999. The Company's business increased significantly in the month
of March 2000, which accounted for the rise in the accounts receivable and
accounts payable balances. The collection efforts made during the first quarter
of 1999, however, minimized the growth in the accounts receivable balance. The
increase in the accounts payable balance is primarily due to the growth of the
highway brokerage division
The accounts receivable - affiliates balance decreased 63.3% to $14,300 at March
31, 2000 from $38,933 at December 31, 1999. This decrease was the result of
payments received from an affiliate during the quarter ended March 31, 2000.
Accounts receivable - income taxes increased $28,400 from the December 31, 1999
balance due to the net loss for the quarter. The prepaid expenses balance at
March 31, 2000 was $25,624 compared to $8,779 at December 31, 1999. The increase
of $16,845 was primarily due to annual insurance premium's and expenses paid
during the quarter that will be amortized over the covered period throughout the
year.
Stockholders' equity was $2,318,873 at March 31, 2000, compared to $2,360,910 at
December 31, 1999. The decrease is due to the net loss generated by the Company
during the first quarter of 2000.
The Company had net cash used in operations of $100,672 for the three months
ended March 31, 2000, compared to net cash provided by operations of $295,442
for the comparable period in 1999. The cash used in operations for the period
ended March 31, 2000, was primarily due to the increase in the accounts
receivable balance compared to the accounts payable balance as explained above
and the net loss for the quarter. Cash provided by operations for the period
ended March 31, 1999, was primarily due to the large increase in the accounts
payable balance compared to the accounts receivable balance due to an increase
in the highway brokerage division as explained above.
The Company continues to purchase fixed assets as it deems necessary. During the
quarter ended March 31, 2000, the Company purchased fixed assets in the amount
of $29,659 primarily for a new phone system in conjunction with the move of the
Corporate office from Tampa, Florida to Atlanta, Georgia. This compared to
$39,225 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. In March 2000, the Company renewed an unsecured surety bond in the
amount of $500,000 as a requirement of one of its major customers.
9
<PAGE>
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 March 31, 2000.
At March 31, 2000, the Company did not have any capital lease obligations nor
did it have any long-term debt.
Results of Operations
Revenues for the three months ended March 31, 2000, were $5,168,414 compared to
$7,338,326 for the three months ended March 31, 1999, a decrease of 30%. 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 $1,335,088 for the quarter
ended March 31, 2000, as compared to the quarter ended March 31, 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.
Gross profit for the three months ended March 31, 2000, was $496,610 or 9.6% of
revenues, compared to $630,620 or 8.6% of revenues for the comparable period in
1999. The decline in gross profit for the quarter ended March 31, 2000, as
compared to the prior year is due to the lost business as described above.
However, the gross profit percent increased due to the lost business having
lower margins. Although the industry is extremely competitive, the Company is
working to improve its margins. The profit margin for the three months ended
March 31, 2000 increased by .6% from the year ended December 31, 1999.
Selling, general and administrative "SG&A" expenses for the three months ended
March 31, 2000, and 1999, were 10.9% and 8.4% of revenues, respectively. The
increased SG&A percentage for the quarter ended March 31, 2000, 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.
10
<PAGE>
Interest income was $16,950 for the quarter ended March 31, 2000, compared to
$5,052 for the quarter ended March 31, 1999. The increase was due primarily to
an increase in the average daily balance of available funds during the quarter
ended March 31, 2000.
The pretax loss was $70,437 for the quarter ended March 31, 2000, compared to
pretax income of $2,039 for the quarter ended March 31, 1999. The decrease in
the Company's revenues and the percentage increase in SG&A resulted in the loss
for the period.
The net loss was $42,037 or $.01 per share for the three months ended March 31,
2000, as compared to net income of $1,039 or $.00 per share for the three months
ended March 31, 1999. 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.
The Company will continue to market its services and strive to obtain sales
representation in the major geographic areas of North America.
11
<PAGE>
THE FREIGHT CONNECTION, INC.
FORM 10-Q
MARCH 31, 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 March 31, 2000.
12
<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: May 12, 2000 /s/ Richard E. Gaetz
- --------------------- -----------------------------------------
Richard E. Gaetz, Chief Executive Officer
Date: May 12, 2000 /s/ Geoff Duncan
--------------- -----------------------------------------
Geoff Duncan, President
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 616,022
<SECURITIES> 0
<RECEIVABLES> 3,847,658
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,593,218
<PP&E> 469,153
<DEPRECIATION> 286,121
<TOTAL-ASSETS> 4,831,637
<CURRENT-LIABILITIES> 2,512,764
<BONDS> 0
0
0
<COMMON> 4,826
<OTHER-SE> 2,314,047
<TOTAL-LIABILITY-AND-EQUITY> 4,831,637
<SALES> 5,168,414
<TOTAL-REVENUES> 5,168,414
<CGS> 4,671,804
<TOTAL-COSTS> 4,671,804
<OTHER-EXPENSES> 583,997
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (70,437)
<INCOME-TAX> (28,400)
<INCOME-CONTINUING> (42,037)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42,037)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
