e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly period ended September 30, 2009
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o |
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from to
Commission file number 001-32172
Express-1 Expedited Solutions, Inc.
(Exact name of small business issuer as specified in its charter)
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Delaware
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03-0450326 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
3399 South Lakeshore Drive, Suite 225
Saint Joseph, MI 49085
(Address of Principal Executive Offices)(Zip Code)
(269) 429-9761
(Issuers Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 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 filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
o Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The Registrant has 32,035,218 shares of its common stock outstanding as of November 9, 2009
Express-1 Expedited Solutions, Inc.
Form 10-Q
Three and Nine Months Ended September 30, 2009 and 2008
(Unaudited)
2
Part I Financial Information
Item 1 Financial Statements
Express-1 Expedited Solutions, Inc.
Consolidated Balance Sheets
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(Unaudited) |
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September 30, 2009 |
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December 31, 2008 |
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ASSETS
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Current assets: |
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Cash |
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$ |
683,000 |
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$ |
1,107,000 |
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Accounts receivable, net of allowances of $280,000 and $133,000, respectively |
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15,535,000 |
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12,202,000 |
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Prepaid expenses |
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188,000 |
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372,000 |
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Deferred tax asset, current |
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233,000 |
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493,000 |
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Other current assets |
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575,000 |
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650,000 |
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Total current assets |
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17,214,000 |
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14,824,000 |
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Property and equipment, net of $2,499,000 and $2,220,000 in accumulated
depreciation, respectively |
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2,836,000 |
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3,141,000 |
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Goodwill |
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15,602,000 |
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14,915,000 |
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Identifiable intangible assets, net of $2,015,000 and $1,682,000 in accumulated
amortization, respectively |
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7,508,000 |
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7,631,000 |
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Loans and advances |
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34,000 |
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63,000 |
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Other long-term assets |
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1,126,000 |
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1,108,000 |
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Total long term assets |
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27,106,000 |
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26,858,000 |
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Total assets |
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$ |
44,320,000 |
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$ |
41,682,000 |
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities: |
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Accounts payable |
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$ |
5,516,000 |
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$ |
6,578,000 |
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Accrued salaries and wages |
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421,000 |
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691,000 |
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Accrued expenses, other |
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2,279,000 |
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862,000 |
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Line of credit |
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5,116,000 |
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Current maturities of notes payable and capital leases |
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1,214,000 |
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1,235,000 |
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Other current liabilities |
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389,000 |
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1,030,000 |
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Total current liabilities |
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14,935,000 |
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10,396,000 |
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Line of credit |
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2,320,000 |
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Notes payable and capital leases, net of current maturities |
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516,000 |
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1,400,000 |
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Deferred tax liability, long-term |
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658,000 |
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583,000 |
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Other long-term liabilities |
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437,000 |
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456,000 |
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Total long-term liabilities |
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1,611,000 |
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4,759,000 |
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Stockholders equity: |
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Preferred stock, $.001 par value; 10,000,000 shares; no shares issued or outstanding |
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Common stock, $.001 par value; 100,000,000 shares authorized; 32,215,218 and
32,215,218 shares issued; and 32,035,218
shares outstanding, respectively |
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32,000 |
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32,000 |
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Additional paid-in capital |
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26,459,000 |
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26,316,000 |
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Treasury stock, at cost, 180,000 shares held |
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(107,000 |
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(107,000 |
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Accumulated earnings |
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1,390,000 |
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286,000 |
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Total stockholders equity |
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27,774,000 |
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26,527,000 |
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$ |
44,320,000 |
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$ |
41,682,000 |
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The accompanying notes are an integral part of the consolidated financial statements.
3
Express-1 Expedited Solutions, Inc.
Consolidated Statements of Operations
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, 2009 |
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September 30, 2008 |
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September 30, 2009 |
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September 30, 2008 |
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Revenues |
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Operating revenue |
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$ |
26,211,000 |
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$ |
31,117,000 |
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$ |
68,526,000 |
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$ |
84,508,000 |
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Expenses |
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Direct expense |
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21,482,000 |
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26,164,000 |
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56,944,000 |
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70,695,000 |
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Gross margin |
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4,729,000 |
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4,953,000 |
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11,582,000 |
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13,813,000 |
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Sales general and administrative expense |
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3,284,000 |
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3,148,000 |
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9,533,000 |
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9,687,000 |
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Operating income from continuing operations |
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1,445,000 |
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1,805,000 |
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2,049,000 |
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4,126,000 |
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Other expense |
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19,000 |
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21,000 |
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28,000 |
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36,000 |
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Interest expense |
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26,000 |
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94,000 |
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74,000 |
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273,000 |
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Income from continuing operations before income tax |
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1,400,000 |
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1,690,000 |
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1,947,000 |
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3,817,000 |
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Income tax provision |
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599,000 |
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672,000 |
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858,000 |
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1,528,000 |
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Income from continuing operations |
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801,000 |
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1,018,000 |
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1,089,000 |
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2,289,000 |
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Income from discontinued operations, net of tax |
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10,000 |
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134,000 |
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15,000 |
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280,000 |
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Net income |
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$ |
811,000 |
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$ |
1,152,000 |
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$ |
1,104,000 |
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$ |
2,569,000 |
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Basic income per share |
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Income from continuing operations |
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$ |
0.03 |
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$ |
0.03 |
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$ |
0.03 |
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$ |
0.07 |
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Income from discontinued operations |
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0.01 |
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0.01 |
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Net income |
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0.03 |
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0.04 |
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0.03 |
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0.08 |
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Diluted income per share |
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Income from continuing operations |
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0.03 |
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0.03 |
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0.03 |
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0.07 |
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Income from discontinued operations |
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0.01 |
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0.01 |
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Net income |
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$ |
0.03 |
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$ |
0.04 |
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$ |
0.03 |
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$ |
0.08 |
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Weighted average common shares outstanding |
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Basic weighted average common shares outstanding |
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32,035,218 |
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31,949,262 |
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32,035,218 |
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31,241,644 |
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Diluted weighted average common shares outstanding |
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32,138,885 |
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32,318,995 |
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32,142,150 |
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31,540,687 |
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The accompanying notes are an integral part of the consolidated financial statements.
4
Express-1 Expedited Solutions, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
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Nine Months Ended September 30, |
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2009 |
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2008 |
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Operating activities |
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Net income |
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$ |
1,104,000 |
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$ |
2,569,000 |
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Adjustments to reconcile net income to net cash from operating activities |
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Provisions for allowance for doubtful accounts |
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147,000 |
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12,000 |
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Depreciation & amortization expense |
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835,000 |
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847,000 |
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Stock compensation expense |
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143,000 |
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135,000 |
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Gain on disposal of equipment |
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(29,000 |
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Changes in assets and liabilities, net of effects of acquisition: |
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Account receivable |
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(3,480,000 |
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(5,227,000 |
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Other current assets |
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249,000 |
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568,000 |
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Prepaid expenses |
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184,000 |
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346,000 |
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Other assets |
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(36,000 |
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374,000 |
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Accounts payable |
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(1,062,000 |
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(152,000 |
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Accrued expenses |
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1,148,000 |
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704,000 |
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Other liabilities |
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(87,000 |
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1,307,000 |
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Cash (used) provided by operating activities |
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(884,000 |
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1,483,000 |
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Investing activities |
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Acquisition of businesses, net of cash acquired |
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(250,000 |
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(8,489,000 |
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Payment of acquisition earn-out |
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(1,100,000 |
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(2,210,000 |
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Payment for purchases of property and equipment |
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(103,000 |
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(1,010,000 |
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Proceeds from sale of property and equipment |
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63,000 |
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8,000 |
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Cash Flows used by investing activities |
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(1,390,000 |
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(11,701,000 |
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Financing activities |
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Credit line, net activity |
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2,796,000 |
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8,254,000 |
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Proceeds from debt for acquisition |
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3,600,000 |
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Payments of debt |
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(946,000 |
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(736,000 |
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Proceeds from exercise of warrants |
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168,000 |
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Cash flows provided by financing activities |
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1,850,000 |
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11,286,000 |
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Net (decrease) increase in cash |
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(424,000 |
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1,068,000 |
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Cash, beginning of period |
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1,107,000 |
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800,000 |
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Cash, end of period |
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$ |
683,000 |
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$ |
1,868,000 |
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Supplemental disclosure of noncash activities: |
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Cash paid during the period for interest |
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$ |
51,400 |
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$ |
238,000 |
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Cash paid during the period for income taxes |
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282,000 |
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267,000 |
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Acquisition of assets and liabilities (First Class 2009, Concert Group
Logistics 2008): |
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Cash |
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$ |
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$ |
671,000 |
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Accounts receivable |
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5,856,000 |
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Prepaid expenses |
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95,000 |
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Property and equipment |
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82,000 |
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415,000 |
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Other assets |
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872,000 |
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Goodwill and other intangible assets |
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210,000 |
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11,303,000 |
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Liabilities assumed |
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(42,000 |
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(4,704,000 |
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Total purchase price |
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250,000 |
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14,508,000 |
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Less equity issued |
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(4,848,000 |
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Less note payable issued |
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(500,000 |
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Less cash acquired |
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(671,000 |
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Net cash paid |
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$ |
250,000 |
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$ |
8,489,000 |
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The accompanying notes are an integral part of the consolidated financial statements.
5
Express-1 Expedited Solutions, Inc.
Consolidated Statement of Changes in Stockholders Equity
Nine Months Ended September 30, 2009
(Unaudited)
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Additional |
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Common Stock |
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Treasury Stock |
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Paid In |
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Accumulated |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Earnings |
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Total |
Balance, December 31, 2008 |
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32,215,218 |
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$ |
32,000 |
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(180,000 |
) |
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$ |
(107,000 |
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$ |
26,316,000 |
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$ |
286,000 |
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$ |
26,527,000 |
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Stock option expense |
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143,000 |
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143,000 |
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Issuance of common stock |
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Net income |
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1,104,000 |
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1,104,000 |
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Balance, September 30, 2009 |
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32,215,218 |
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$ |
32,000 |
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(180,000 |
) |
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$ |
(107,000 |
) |
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$ |
26,459,000 |
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$ |
1,390,000 |
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$ |
27,774,000 |
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The accompanying notes are an integral part of the consolidated financial statements.
6
Express-1 Expedited Solutions, Inc.
Notes to Consolidated Financial Statements
Three and Nine Months Ended September 30, 2009 and 2008
(Unaudited)
1. Significant Accounting Principles
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Express-1 Expedited
Solutions, Inc. (we, us, our or the Company) have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC) and in accordance with the
instructions to Form 10-Q. Certain information and footnote disclosures normally included in annual
financial statements have been condensed or omitted pursuant to those rules and regulations.
However, we believe that the disclosures contained herein are adequate to make the information
presented not misleading.
The financial statements reflect, in our opinion, all material adjustments (which include only
normal recurring adjustments) necessary to fairly present our financial position at September 30,
2009 and December 31, 2008 and results of operations for the three and nine-month periods ended
September 30, 2009 and 2008. The preparation of the financial statements requires management to
make estimates and judgments that affect the reported amounts of assets and liabilities and the
disclosure of contingencies at the date of the financial statements as well as the reported amounts
of revenues and expenses during the reporting period. Estimates have been prepared on the basis of
the most current and best available information and actual results could differ materially from
those estimates.
These unaudited condensed consolidated financial statements and notes thereto should be read
in conjunction with the audited financial statements and notes thereto for the fiscal year ended
December 31, 2008 included in our Annual Report on Form 10-K as filed with the SEC and available on
the SECs website (www.sec.gov). Results of operations in interim periods are not necessarily
indicative of results to be expected for a full year.
Evaluation of Subsequent Events
The Company has evaluated subsequent events after the balance sheet date through November 9,
2009, the date the financial statements were issued. Except as disclosed in Footnote 10
Subsequent Events, the Company did not note any events that would require disclosure in or
adjustment to the accompanying unaudited condensed consolidated financial statements.
Revenue Recognition
Within the Companys Express-1 and Bounce Logistics business units, revenue is recognized at
the time of freight delivery; with related costs of delivery being accrued as incurred and expensed
within the same period in which the associated revenue is recognized. For these business units, the
Company uses the following supporting criteria to determine revenue has been earned and should be
recognized:
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Persuasive evidence that an arrangement exists, |
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|
Services have been rendered, |
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The sales price is fixed and determinable, and |
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Collectability is reasonably assured. |
Within its Concert Group Logistics business unit, the Company utilizes an alternative point in
time to recognize revenue. Concert Group Logistics revenue and associated operating expenses are
recognized on the date the freight is picked up from the shipper. This method of revenue
recognition is not the preferred method of revenue recognition as prescribed within generally
accepted accounting principles in the United States of America (US GAAP). This method recognizes
revenue and associated expenses prior to the point in time that all services are completed;
however, the use of this method does not result in a material difference. The Company has evaluated
the impact of this alternative method on its consolidated financial statements and concluded that
the impact is not material to the financial statements.
7
The Company reports revenue on a gross basis in accordance with US GAAP principles. The
following facts justify our position of reporting revenue on a gross basis:
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The Company is the primary obligor and is responsible for providing the service desired
by the customer. |
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The customer holds the Company responsible for fulfillment including the acceptability of
the service. |
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The Company has discretion in setting sales prices and as a result, its earnings vary. |
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|
The Company has discretion to select its drivers, contractors, or other transportation
providers (collectively, service providers) from among thousands of alternatives, and |
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The Company bears credit risk on its receivables. |
Stock-Based Compensation
The Company has in place a stock option plan approved by the shareholders for 5,600,000 shares
of its common stock. Through the plan, the Company offers stock options to employees and directors
which assist in recruiting and retaining these individuals. Under the plan, the Company may also
grant restricted stock awards, subject to the satisfaction by the recipient of certain conditions
specified in the restricted stock grant.
Options generally become fully vested three to five years from the date of grant and expire
five to ten years from the grant date. During the nine-month period ended September 30, 2009, the
Company granted 175,000 options to purchase shares of its common stock while cancelling or retiring
609,000 options in the same period. As of September 30, 2009 the Company has 3,175,000 options
outstanding and an additional 2,425,000 options available for future grants under the existing
plan.
The weighted-average fair value of each stock option recorded in expense for the nine-month
period ended September 30, 2009 was estimated on the date of grant using the Black-Scholes option
pricing model and amortized over the requisite service period of the underlying options. The
Company has used one grouping for the assumptions, as its option grants are primarily basic with
similar characteristics. The expected term of options granted has been derived based upon the
Companys history of actual exercise behavior and represents the period of time that options
granted are expected to be outstanding. Historical data was also used to estimate option exercises
and employee terminations. Estimated volatility is based upon the Companys historical market price
at consistent points in a period equal to the expected life of the options. The risk-free interest
rate is based on the U.S. Treasury yield curve in effect at the time of grant and the dividend
yield is zero. The weighted average assumptions outlined in the table below were utilized in the
calculations of compensation expense from option grants in the reporting period reflected.
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Nine Months Ended |
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September 30, |
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|
2009 |
|
2008 |
Risk-free interest rate |
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|
2.8 |
% |
|
|
2.0 |
% |
Expected life |
|
5.3 Years |
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|
6.0 Years |
|
Expected volatility |
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|
39 |
% |
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|
35 |
% |
Expected dividend yield |
|
none |
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|
none |
|
Grant date fair value |
|
$ |
0.34 |
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$ |
0.38 |
|
8
The following table summarizes the option and warrant activity for the nine-month period ended
September 30, 2009:
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Options |
|
Warrants |
|
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|
Weighted |
|
Weighted |
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|
Weighted |
|
Weighted |
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Average |
|
Average |
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Average |
|
Average |
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|
Exercise |
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Remaining |
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|
Exercise |
|
Remaining |
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|
Options |
|
Price |
|
Life |
|
Warrants |
|
Price |
|
Life |
Outstanding at December 31, 2008 |
|
|
3,609,000 |
|
|
|
1.18 |
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|
|
6.2 Years |
|
|
|
2,252,000 |
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|
|
2.05 |
|
|
|
.3 Years |
|
Granted |
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|
175,000 |
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|
|
0.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired |
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|
(609,000 |
) |
|
|
1.27 |
|
|
|
|
|
|
|
(2,252,000 |
) |
|
|
2.05 |
|
|
|
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|
Exercised |
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Outstanding at September 30, 2009 |
|
|
3,175,000 |
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|
|
1.15 |
|
|
|
5.28 |
|
|
|
|
|
|
|
0.00 |
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|
|
|
|
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|
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|
|
|
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|
|
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|
Outstanding exercisable at September 30, 2009 |
|
|
2,641,000 |
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|
|
1.17 |
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|
|
4.72 |
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|
|
|
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|
|
0.00 |
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|
For the nine months ended September 30, 2009 and 2008, the Company recognized $143,000 and
$135,000, respectively, in stock based compensation. For the quarters ended September 30, 2009 and
2008, the Company recognized $51,000 and $45,000, respectively in stock based compensation.
As of September 30, 2009, the Company had approximately $174,000 of unrecognized compensation
cost related to non-vested share-based compensation that is anticipated to be recognized over a
weighted average period of approximately 1.0 years. Estimated remaining compensation expense
related to existing share-based plans is $37,000, $87,000, $43,000 and $7,000 for the years ended
December 31, 2009, 2010, 2011, and 2012, respectively.
At September 30, 2009, the aggregate intrinsic value of options outstanding was $149,000 and
the aggregate intrinsic value of options exercisable was $134,000. The total fair value of options
vested during the nine months ended September 30, 2009 and 2008 was $160,000 and $198,000,
respectively.
Cash proceeds received from the exercise of warrants for the nine months ended September 30,
2009 and 2008 was $0 and $168,000, respectively. During the first nine months of the year, the
Company also retired 2,252,000 warrants and currently has no outstanding warrants as of September
30, 2009.
Use of Estimates
The Company prepares its consolidated financial statements in conformity with US GAAP. These
principles require management to make estimates and assumptions that impact the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and expenses during the
reporting period. The Company reviews its estimates, including but not limited to, purchased
transportation, outstanding insurance claims, other accrued expenses, recoverability of long-lived
assets, recoverability of prepaid expenses, and allowance for doubtful accounts, on a regular basis
and makes adjustments based on historical experiences and existing and expected future conditions.
These evaluations are performed and adjustments are made as information is available. Management
believes that these estimates are reasonable and each has been discussed with the audit committee;
however, actual results could differ from these estimates.
Reclassifications
Certain prior year amounts shown in the accompanying consolidated financial statements have
been reclassified to conform to the 2009 presentation. These reclassifications did not have any
effect on total assets, total liabilities, total stockholders equity or net income.
Income Taxes
Taxes on income are provided in accordance with US GAAP. Deferred income tax assets and
liabilities are recognized for the expected future tax consequences of events that have been
reflected in the consolidated financial statements. Deferred tax assets and liabilities are
determined based on the differences between the book values and the tax basis of particular assets
and liabilities, and the tax effects of net operating loss and capital loss carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in the tax rate is
recognized as income or expense in the period that included the enactment date. A valuation
allowance is provided to offset the net deferred tax assets if, based upon the available evidence,
it is more likely than not that some or all of the deferred tax assets will not be realized. The
Company has evaluated its tax position and concluded no valuation allowance on its deferred tax
assets is required, as of September 30, 2009. The Company had gross federal net operating loss
carry forwards of approximately $1,300,000 as of December 31, 2008. Based upon the estimated
taxable income reported in the first nine months of 2009, the Company estimates that the federal
loss carry forward has decreased to approximately $70,000, and that accumulated loss carry forwards
attributable to various states equals approximately $2,900,000 as of September 30, 2009.
9
During the fourth quarter of 2008, the Internal Revenue Service of the United States (the
IRS) initiated an exam of the Companys 2006 tax year. The exam was concluded and closed with no
adjustments during the third quarter of 2009.
Goodwill
Goodwill consists of the excess of cost over the fair value of net assets acquired in business
combinations. The Company follows the provisions of US GAAP in its accounting of goodwill, which
requires an annual impairment, test for goodwill and intangible assets with indefinite lives. The
first step of the impairment test requires that the Company determine the fair value of each
reporting unit, and compare the fair value to the reporting units carrying amount. To the extent a
reporting units carrying amount exceeds its fair value, an indication exists that the reporting
units goodwill may be impaired and the Company must perform a second more detailed impairment
assessment. The second impairment assessment involves allocating the reporting units fair value to
all of its recognized and unrecognized assets and liabilities in order to determine the implied
fair value of the reporting units goodwill as of the assessment date. The implied fair value of
the reporting units goodwill is then compared to the carrying amount of goodwill to quantify an
impairment charge as of the assessment date. The Company performed the annual impairment testing
during the third quarter and determined that no impairment of the goodwill was warranted.
The Company added $687,000 of goodwill in the first quarter of 2009, as a result of the final
earnout settlement related to the acquisition of certain assets and liabilities of Concert Group
Logistics, LLC. For a more complete analysis of this item refer to Footnote 7 Related Party
Transactions.
Identified Intangible Assets
The Company follows the provisions of US GAAP in its accounting of identified intangible
assets, which establishes accounting standards for the impairment of long-lived assets such as
property, plant and equipment and intangible assets subject to amortization. The Company reviews
long-lived assets to be held-and-used for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable. If the sum of the
undiscounted expected future cash flows over the remaining useful life of a long-lived asset is
less than its carrying amount, the asset is considered to be impaired. Impairment losses are
measured as the amount by which the carrying amount of the asset exceeds the fair value of the
asset. When fair values are not available, the Company estimates fair value using the expected
future cash flows discounted at a rate commensurate with the risks associated with the recovery of
the asset. During the three and nine-month periods ended September 30, 2009, and 2008, there was no
impairment of intangible assets.
The Company added $210,000 of identified intangible assets in the first quarter of 2009, based
upon the acquisition of certain assets and liabilities from First Class Expediting Service, Inc
(FCES). FCES was a Rochester Hills Michigan based company providing regional expedited
transportation in the Midwest. For financial reporting purposes, First Class is included in the
operating results of Express-1. The Company has amortized the intangible assets over a range of 2-5
years. For the nine months ended September 30, 2009, the Company recorded $47,000 of amortization
expense related to these assets.
Other Long-Term Assets
Other long-term assets primarily consist of balances representing various deposits, and the
long-term portion of the Companys non-qualified deferred compensation plan. Also included within
this account classification are incentive payments to independent station owners within the Concert
Group Logistics network. These payments are made by Concert Group Logistics to certain station
owners as an incentive to join the network. These amounts are amortized over the life of each
independent station contract and the unamortized portion is recoverable in the event of default
under the terms of the agreements.
Estimated Fair Value of Financial Instruments
The aggregated net fair value estimates discussed herein are based upon certain market
assumptions and pertinent information available to management. The respective carrying value of
certain on-balance-sheet financial instruments approximated their fair values. These financial
instruments include cash, receivables, payables, accrued expenses and short-term borrowings. Fair
values were assumed to approximate carrying values for these financial instruments since they are
short-term in nature and their carrying amounts approximate fair values or they are receivable or
payable on demand. The fair value of the Companys debt is estimated based upon the quoted market
prices for the same or similar issues or on the current rates offered to the Company for debt of
similar maturities.
Earnings per Share
Earnings per common share are computed in accordance with US GAAP which requires companies to
present basic earnings per share and diluted earnings per share.
10
Basic earnings per share are computed by dividing net income by the weighted average number of
shares of common stock outstanding during the period.
Diluted earnings per share are computed by dividing net income by the combined weighted
average number of shares of common stock outstanding and dilutive options outstanding during the
period.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
Sept. 30, 2009 |
|
|
Sept. 30, 2008 |
|
|
Sept. 30, 2009 |
|
|
Sept. 30, 2008 |
|
Income from continuing operations |
|
$ |
801,000 |
|
|
$ |
1,018,000 |
|
|
$ |
1,089,000 |
|
|
$ |
2,289,000 |
|
Income from discontinued operations |
|
|
10,000 |
|
|
|
134,000 |
|
|
|
15,000 |
|
|
|
280,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
811,000 |
|
|
$ |
1,152,000 |
|
|
$ |
1,104,000 |
|
|
$ |
2,569,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted shares outstanding |
|
|
32,035,218 |
|
|
|
31,949,262 |
|
|
|
32,035,218 |
|
|
|
31,241,644 |
|
Diluted weighted shares outstanding |
|
|
32,138,885 |
|
|
|
32,318,995 |
|
|
|
32,142,150 |
|
|
|
31,540,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.03 |
|
|
$ |
0.03 |
|
|
$ |
0.03 |
|
|
$ |
0.07 |
|
Income from discontinued operations |
|
|
|
|
|
|
.01 |
|
|
|
|
|
|
|
.01 |
|
Net income |
|
|
0.03 |
|
|
|
0.04 |
|
|
|
0.03 |
|
|
|
0.08 |
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
0.03 |
|
|
|
0.03 |
|
|
|
0.03 |
|
|
|
0.07 |
|
Income from discontinued operations |
|
|
|
|
|
|
.01 |
|
|
|
|
|
|
|
.01 |
|
Net income |
|
$ |
0.03 |
|
|
$ |
0.04 |
|
|
$ |
0.03 |
|
|
$ |
0.08 |
|
Stock shares issued No shares of stock were issued during the nine-month period ended
September 30, 2009.
2. Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued Accountings Standards
Codification Topic 105 Generally Accepted Accounting Pronouncements (formerly SFAS 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles).
This standard will become the single source of authoritative nongovernmental US GAAP,
superseding existing FASB, American Institute of Certified Public Accountants (AICPA), Emerging
Issues Task Force (EFIT), and related accounting literature. This standard reorganizes the
thousands of US GAAP pronouncements into roughly 90 accounting topics and displays them using a
consistent structure. Also included is relevant Securities and Exchange Commission guidance
organized using the same topical structure in separate sections. The guidance will be effective
for financial statements issued for reporting periods that end after September 15, 2009. Beginning
in the third quarter of 2009, this guidance impacts the Companys financial statements and related
disclosures as all references to authoritative accounting literature reflect the newly adopted
codification.
In May 2009, the FASB issued Accounting Standards Codification Topic 855 Subsequent Events
(formerly SFAS No. 165, Subsequent Events). The guidance establishes principles and requirements
for subsequent events. Specifically, it sets forth guidance pertaining to the period after the
balance sheet date during which management should consider events and transactions for potential
recognition or disclosure, circumstances under which an event or transaction would be recognized
after the balance sheet date and the required disclosures that should be made about events or
transactions that occurred after the balance sheet date. The guidance is effective for interim or
annual financial periods ending after June 15, 2009, and as such, became effective for the Company
on June 30, 2009. The Companys adoption of the standard resulted in additional disclosure
surrounding the Companys subsequent events. For additional information refer to Footnote 10
Subsequent Events.
In December 2007, the FASB issued Accounting Standards Codification Topic 805 Business
Combinations (formerly SFAS No. 141(R), Business Combinations). This standard modifies certain
aspects of how the acquiring entity recognizes and measures the identifiable assets, the
liabilities assumed and the goodwill acquired in a business combination. The guidance is effective
for fiscal years beginning after December 15, 2008. The impact of this guidance will depend on the
nature of acquisitions completed after the date of adoption.
In April 2008, the FASB issued Accounting Standards Codification Topic 350 Intangibles
Goodwill and Other (formerly FASB Staff Position No. FAS 142-3, Determination of the Useful Life
of Intangible Assets). This guidance amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a recognized intangible asset
11
and require enhanced related disclosures. The guidance must be applied prospectively to all
intangible assets acquired as of and subsequent to fiscal years beginning on or after December 15,
2008. This guidance became effective for the Company on January 1, 2009, the impact of which will
depend on the nature of acquisition of any intangible assets acquired after the date of adoption.
The Companys management does not believe that other recent codified pronouncements by the
FASB has or will have a material impact on the Companys current or future financial statements.
3. Acquisitions
In January of 2009, the Company purchased certain assets and liabilities from First Class
Expediting Service, Inc (FCES) for $250,000. FCES was a Rochester Hills, Michigan based company
providing regional expedited transportation in the Midwest.
At closing, the Company paid the former owners of FCES $250,000 in cash. In return the Company
received approximately $40,000 of net assets consisting primarily of fixed assets net of related
debt. The transaction was funded through cash generated from operations.
For financial reporting purposes, First Class will be included with the operating results of
Express-1. The Company has recognized identifiable intangible assets of $210,000 which are being
amortized over a 2-5 year period. For the nine-month period ended September 30, 2009, the Company
recorded $47,000 of amortization expense related to these assets.
Proforma financial statement presentation including historical financial information from
First Class Expediting Services is not included in the 10-Q due to its immateriality.
On January 31, 2008, the Company completed the purchase of substantially all assets and
certain liabilities of Downers Grove, Illinois based Concert Group Logistics, LLC. (Concert LLC).
The transaction had an effective date of January 1, 2008, and the Company completed the purchase
through a newly formed wholly owned subsidiary, Concert Group Logistics, Inc.
At closing, the Company paid the former owners of Concert Group Logistics, LLC total
consideration that included $9.0 million in cash and 4.8 million shares of the Companys common
stock. The Company received $3.2 million of assets consisting of cash, receivables, office
equipment and other current assets, net of liabilities acquired in the transaction. The transaction
was financed through the Companys line of credit, a term note payable and cash available from
working capital.
The Company completed the acquisition in March 2009, through the final earnout settlement and
paid the former owners of CGL, LLC $1.1 million. The settlement included a general release between
the Company and the former owners of Concert Group Logistics, LLC. Subsequent to the release, the
Company has no future obligations related to the earnout provisions of the purchase agreement.
In October 2009, the Company completed the purchase of certain assets and
liabilities of LRG International, Inc. (LRG). The Company initially paid total consideration of $2
million in cash and assumed certain liabilities. For a more complete analysis of this acquisition
refer to Footnote 10 Subsequent Events.
4. Commitments and Contingencies
Litigation
In the ordinary course of business, the Company may be a party to a variety of legal actions.
The Company does not currently anticipate any of these matters or any matters in the aggregate to
have a materially adverse effect on the Companys business or its financial position or results of
operations.
Regulatory Compliance
The Companys activities are regulated by state and federal agencies under requirements that
are subject to broad interpretations. Among these regulations are limitations on the
hours-of-service that can be performed by the Companys drivers, limitations on the types of
commodities that can be hauled, limitations on the gross vehicle weight for each class of vehicle
utilized by the Company and
12
limitations on the transit authorities within certain regions. The Company cannot predict
future changes to be adopted by the regulatory bodies that could require changes to the manner in
which the Company operates.
Contingent Commitment
The Company has entered into an agreement with a third-party transportation equipment leasing
company which results in a contingent liability. The Company has accounted for this contingency
based upon the guidelines contained within US GAAP. Accordingly, the Company has estimated the
maximum amount of the contingent liability to be $51,000 as of September 30, 2009, and has recorded
this amount as a reserve within its balance sheet and as an expense within its statement of
operations. The Company periodically evaluates the contingency amount and adjusts the liability
based upon the results of those periodic evaluations. Based upon its analysis, the Company
estimates the liability range between $25,000 and $51,000, as of September 30, 2009 and 2008,
respectively.
5. Debt
Notes Payable and Capital Leases
The Company enters into notes payable and capital leases with various third parties from time
to time to finance certain operational equipment and other assets used in its business operations.
Generally, these loans and capital leases bear interest at market rates, and are collateralized
with equipment and certain assets of the Company.
The following table outlines the Companys debt obligations as of September 30, 2009 and
December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rates |
|
|
Term (months) |
|
|
As of September 30, 2009 |
|
|
As of December 31, 2008 |
|
Term notes payable |
|
|
2 |
% |
|
|
36 |
|
|
$ |
1,700,000 |
|
|
$ |
2,600,000 |
|
Capital leases payable |
|
|
5% 18 |
% |
|
|
1236 |
|
|
|
30,000 |
|
|
|
35,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable and capital leases |
|
|
|
|
|
|
|
|
|
|
1,730,000 |
|
|
|
2,635,000 |
|
Less: current maturities of notes payable and capital leases |
|
|
|
|
|
|
|
|
|
|
1,214,000 |
|
|
|
1,235,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current maturities of notes payable and capital leases |
|
|
|
|
|
|
|
|
|
$ |
516,000 |
|
|
$ |
1,400,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded interest expense associated with the above debt of $10,000 for the
third quarter and $34,000 for the nine-month period ended September 30, 2009. For these same
periods, the Company recorded gross payments for the debt of $314,000 and $980,000, respectively.
6. Revolving Credit Facilities
The Company entered into a new credit facility with National City Bank in January, 2008. This
facility provides for a receivables based line of credit of up to $11.0 million and a term note of
$3.6 million. The Company may draw upon the receivables based line of credit the lesser of $11.0
million or 80% of eligible accounts receivables, less amounts outstanding under letters of credit.
To fund the purchase of Concert Group Logistics, LLC, the Company drew $3.6 million on the term
facility and $5.4 million on the receivables based line of credit. Substantially all the assets of
the Company and its wholly owned subsidiaries (Express-1, Inc., Concert Group Logistics, Inc. and
Bounce Logistics, Inc.) are pledged as collateral securing performance under the terms of the
commitment. The line bears interest based upon a spread above thirty-day LIBOR with an initial
increment of 125 basis points above thirty-day LIBOR for the receivables line and 150 basis points
above thirty-day LIBOR for the term note. Amortizing over a thirty-six month period, the term note
requires monthly principal payments of $100,000 together with accrued interest be paid until
retired. As of September 30, 2009, the weighted average rate of interest on the credit facility for
the quarter was approximately 1.57% and rates are adjusted monthly.
The line carries certain covenants related to the Companys financial performance. Included
among the covenants are a fixed charge coverage ratio and a total funded debt to earnings before
interest and taxes, plus depreciation and amortization ratio. As of September 30, 2009, the Company
was in compliance with all terms under the credit facility and no events of default existed under
the terms of this agreement.
The Company had outstanding standby letters of credit at September 30, 2009, of $335,000,
related to insurance policies either continuing in force or recently canceled. Amounts outstanding
for letters of credit reduce the amount available under our line of credit, dollar-for-dollar.
13
Available capacity in excess of outstanding borrowings under the line was approximately $5.5
million as limited by 80% of the Companys eligible receivables as of September 30, 2009. The
credit facility carries a maturity date of May 31, 2010. The Company changed the classification of
the line of credit from a long-term liability to a current liability during the year based on its
maturity date.
7. Related Party Transaction
In January 2008, in conjunction with the Companys purchase of substantially all assets of
Concert Group Logistics, LLC (Concert Transaction), Daniel Para, was appointed to the Board of
Directors of the Company. Prior to the completion of the Concert Transaction, Mr. Para served as
the Chief Executive Officer of Concert Group Logistics, LLC, and was its largest stockholder. The
Company purchased substantially all the assets of Concert Group Logistics, LLC for $9.0 million in
cash, 4,800,000 shares of the Companys common stock and the assumption of certain liabilities. The
transaction contained performance targets, whereby the former owners of Concert Group Logistics,
LLC could earn up to $2.0 Million of additional consideration. During March of 2009, the final
earnout settlement with CGL was completed for consideration totaling $1.2 million that included a
$1.1 million cash payment in addition to the forgiveness of an $87,000 debt. The settlement
included a general release between the Company and the former owners of Concert Group Logistics,
LLC. Subsequent to the release, the Company has no future obligations related to the earnout
provisions of the Concert Transaction. As the largest shareholder of Concert Group Logistics, LLC,
Mr. Para received, either directly or through his family trusts and partnerships, approximately 85%
of the proceeds transferred in the transaction. Immediately after the transaction, Mr. Para became
the largest shareholder of the Company, through holdings attributable to himself and Dan Para
Investments, LLC.
In April 2009, the Company contracted the services of Daniel Para to serve as the Director of
Business Development. Mr. Para will manage all Company activity related to mergers and
acquisitions. His remuneration for these services is $10,000 per month.
In January 2008, in conjunction with the Concert Group Logistics acquisition, the Company
entered into a lease for approximately 6,000 square feet of office space located within an office
complex at 1430 Branding Avenue, Downers Grove, Illinois 60515. The lease calls for, among other
general provisions, rent payments in the amount of $98,000, $101,000, $104,000 and $107,000 to be
paid for 2009 and the three subsequent years thereafter. The building is owned by an Illinois
Limited Liability Company, which has within its ownership group, Daniel Para, the former CEO of
Concert Group Logistics, LLC.
In August of 2004, the Company acquired Express-1, Inc. and contractually agreed to provide
contingent earn-out payments to the former owners of Express-1, provided certain performance goals
were achieved. Among the goals were specified revenue growth rates and gross margin requirements.
Michael R. Welch and James M. Welch, both Named Executive Officers, were principals in the
ownership group of Express-1, Inc. For the years ended December 31, 2005 and 2006, the Company paid
$1,500,000 and $1,750,000 respectively to the former owners of Express-1, Inc. under the provisions
of the purchase agreement. In each of these periods, the Company accrued the payment within its
December 31 balance sheet and made the payment in the subsequent year per the terms of the purchase
agreement. For 2007, the Company accrued within its December 31, 2007 balance sheet, $2,000,000 to
satisfy the final remaining earn out payment related to the Express-1, Inc. acquisition and
subsequently satisfied this obligation through a cash payment during March of 2008.
The above transactions are not necessarily indicative of amounts, terms and conditions that
the Company may have received in transactions with unrelated third parties.
8. Operating Segments
The Company has three reportable segments based on the type of service provided, to its
customers:
|
|
|
Express-1, which provides expedited transportation services throughout North America. |
|
|
|
Concert Group Logistics, which provides domestic and international freight forwarding
services through a network of independently owned stations, and |
|
|
|
Bounce Logistics which provides premium freight brokerage services for truckload
shipments needing a high degree of customer service. |
The costs of the Companys Board of Directors, executive team and certain corporate costs
associated with operating as a public company are referred to as corporate charges. In addition
to the aforementioned items, the Company also commonly records items such as its income tax
provision and other charges that are reported on a consolidated basis within the corporate
classification item.
14
The accounting policies of the reportable segments are the same as those described in the
summary of significant accounting policies. Substantially all intercompany sales prices are market
based. The Company evaluates performance based on operating income of the respective business
segments.
The following schedule identifies select financial data for each of the business segments.
Express-1 Expedited Solutions, Inc
Segment Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Discontinued |
|
|
|
|
|
|
Concert Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing |
|
Operations |
Three Months Ended September 30, 2009 |
|
Express-1 |
|
Logistics |
|
Bounce |
|
Corporate |
|
Eliminations |
|
Operations |
|
E-1 Dedicated |
Revenues |
|
|
14,704,000 |
|
|
|
8,945,000 |
|
|
|
3,077,000 |
|
|
|
|
|
|
|
(515,000 |
) |
|
|
26,211,000 |
|
|
|
|
|
Operating income (loss) from continuing operations |
|
|
1,407,000 |
|
|
|
287,000 |
|
|
|
181,000 |
|
|
|
(430,000 |
) |
|
|
|
|
|
|
1,445,000 |
|
|
|
19,000 |
|
Depreciation and amortization |
|
|
176,000 |
|
|
|
96,000 |
|
|
|
7,000 |
|
|
|
|
|
|
|
|
|
|
|
279,000 |
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
19,000 |
|
|
|
6,000 |
|
|
|
1,000 |
|
|
|
|
|
|
|
26,000 |
|
|
|
|
|
Tax provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
599,000 |
|
|
|
|
|
|
|
599,000 |
|
|
|
9,000 |
|
Goodwill |
|
|
7,737,000 |
|
|
|
7,865,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,602,000 |
|
|
|
|
|
Total assets |
|
|
24,932,000 |
|
|
|
17,985,000 |
|
|
|
1,891,000 |
|
|
|
13,750,000 |
|
|
|
(14,238,000 |
) |
|
|
44,320,000 |
|
|
|
|
|
Three Months Ended September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
14,187,000 |
|
|
$ |
14,341,000 |
|
|
$ |
3,013,000 |
|
|
$ |
|
|
|
$ |
(424,000 |
) |
|
$ |
31,117,000 |
|
|
$ |
1,321,000 |
|
Operating income (loss) from continuing operations |
|
|
1,737,000 |
|
|
|
500,000 |
|
|
|
2,000 |
|
|
|
(434,000 |
) |
|
|
|
|
|
|
1,805,000 |
|
|
|
221,000 |
|
Depreciation and amortization |
|
|
180,000 |
|
|
|
87,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
272,000 |
|
|
|
16,000 |
|
Interest expense |
|
|
|
|
|
|
87,000 |
|
|
|
|
|
|
|
7,000 |
|
|
|
|
|
|
|
94,000 |
|
|
|
|
|
Tax provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
672,000 |
|
|
|
|
|
|
|
672,000 |
|
|
|
87,000 |
|
Goodwill |
|
|
7,737,000 |
|
|
|
8,303,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,040,000 |
|
|
|
|
|
Total assets |
|
|
23,659,000 |
|
|
|
20,655,000 |
|
|
|
1,949,000 |
|
|
|
16,279,000 |
|
|
|
(15,383,000 |
) |
|
|
47,159,000 |
|
|
|
754,000 |
|
Nine Months Ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
33,682,000 |
|
|
$ |
28,739,000 |
|
|
$ |
7,089,000 |
|
|
$ |
|
|
|
$ |
(984,000 |
) |
|
$ |
68,526,000 |
|
|
$ |
666,000 |
|
Operating income (loss) from continuing operations |
|
|
2,264,000 |
|
|
|
838,000 |
|
|
|
308,000 |
|
|
|
(1,361,000 |
) |
|
|
|
|
|
|
2,049,000 |
|
|
|
28,000 |
|
Depreciation and amortization |
|
|
537,000 |
|
|
|
278,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
|
|
|
|
835,000 |
|
|
|
1,000 |
|
Interest expense |
|
|
|
|
|
|
52,000 |
|
|
|
18,000 |
|
|
|
4,000 |
|
|
|
|
|
|
|
74,000 |
|
|
|
|
|
Tax provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
858,000 |
|
|
|
|
|
|
|
858,000 |
|
|
|
13,000 |
|
Goodwill |
|
|
7,737,000 |
|
|
|
7,865,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,602,000 |
|
|
|
|
|
Total assets |
|
|
24,932,000 |
|
|
|
17,985,000 |
|
|
|
1,891,000 |
|
|
|
13,750,000 |
|
|
|
(14,238,000 |
) |
|
|
44,320,000 |
|
|
|
|
|
Nine Months Ended September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
41,964,000 |
|
|
$ |
39,304,000 |
|
|
$ |
4,241,000 |
|
|
$ |
|
|
|
$ |
(1,001,000 |
) |
|
$ |
84,508,000 |
|
|
$ |
3,861,000 |
|
Operating income (loss) from continuing operations |
|
|
4,431,000 |
|
|
|
1,139,000 |
|
|
|
(191,000 |
) |
|
|
(1,253,000 |
) |
|
|
|
|
|
|
4,126,000 |
|
|
|
462,000 |
|
Depreciation and amortization |
|
|
525,000 |
|
|
|
252,000 |
|
|
|
7,000 |
|
|
|
|
|
|
|
|
|
|
|
784,000 |
|
|
|
63,000 |
|
Interest expense |
|
|
|
|
|
|
255,000 |
|
|
|
|
|
|
|
18,000 |
|
|
|
|
|
|
|
273,000 |
|
|
|
|
|
Tax provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,528,000 |
|
|
|
|
|
|
|
1,528,000 |
|
|
|
182,000 |
|
Goodwill |
|
|
7,737,000 |
|
|
|
8,303,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,040,000 |
|
|
|
|
|
Total assets |
|
|
23,659,000 |
|
|
|
20,655,000 |
|
|
|
1,949,000 |
|
|
|
16,279,000 |
|
|
|
(15,383,000 |
) |
|
|
47,159,000 |
|
|
|
745,000 |
|
9. Discontinued Operations
During the fourth quarter of 2008, the Company discontinued it Express-1 Dedicated business
unit. The Company had operated this unit under the terms of a dedicated contract to supply
transportation services to a domestic automotive manufacturer.
Substantially all of the assets of Express-1 Dedicated have been redeployed in other operating
units of the Company, and therefore, no impairment charges were recorded on the Companys financial
statements during 2008 or the first nine months of 2009. Management does not anticipate recording
any additional material activity on its discontinued operations in future periods.
The following table reflects the revenue, operating expenses, gross margins, and net income of
the Companys discontinued Express-1 Dedicated business unit for the three and nine-month periods
ending September 30, 2009 and 2008.
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
Sept. 30, 2009 |
|
|
Sept. 30, 2008 |
|
|
Sept. 30, 2009 |
|
|
Sept. 30, 2008 |
|
Operating revenue |
|
$ |
|
|
|
$ |
1,321,000 |
|
|
$ |
666,000 |
|
|
$ |
3,861,000 |
|
Operating expense |
|
|
(19,000 |
) |
|
|
972,000 |
|
|
|
532,000 |
|
|
|
3,006,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
19,000 |
|
|
|
349,000 |
|
|
|
134,000 |
|
|
|
855,000 |
|
Sales, general, and administrative |
|
|
|
|
|
|
128,000 |
|
|
|
106,000 |
|
|
|
393,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before tax provision |
|
|
19,000 |
|
|
|
221,000 |
|
|
|
28,000 |
|
|
|
462,000 |
|
Tax provision |
|
|
9,000 |
|
|
|
87,000 |
|
|
|
13,000 |
|
|
|
182,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
10,000 |
|
|
$ |
134,000 |
|
|
$ |
15,000 |
|
|
$ |
280,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. Subsequent Events
Acquisition of LRG
On October 1, 2009, the Company completed the purchase of certain assets and liabilities of Tampa,
Florida based LRG International, Inc. (LRG), an international freight forwarder. This acquisition
will complement the operations of CGL. The transaction has an effective date of October 1, 2009.
LRG will become a reporting division of the Companys fully owned subsidiary, Concert Group
Logistics.
At closing, the Company paid the former owners of LRG $2 million in cash. The Company used its
existing line of credit to finance the transaction. In addition, on the one year anniversary the
Company will pay the original owners $500,000. The transaction also provides for additional
consideration of $900,000 provided certain performance criteria are met within the new division of
CGL over a 2 year period. The Company has the discretion of paying the additional consideration in
the form of cash, stock or any combination thereof.
The Company accounted for the acquisition as a purchase and will include the results of operations
of the acquired business in the consolidated financial statements from the effective date of the
acquisition. The Company is in the process of allocating the cost of the acquisition to the assets
acquired and liabilities assumed based upon fair values. The Company anticipates that it will
complete its valuation in 2010.
The following unaudited proforma consolidated information presents the results of operations of the
Company for the nine months ended September 30, 2009 and 2008, as if the acquisition of LRG
International, Inc. had taken place at the beginning of each year presented. Proforma results
presented within the table do not include adjustments for amortization of intangibles and
depreciation of fixed assets as a result of the LRG purchase. The
Company disclosed herein all information regarding this acquisition
that was practicable as of the date of this filing given the time
constraints.
|
|
|
|
|
|
|
|
|
|
|
Proforma Consolidated Results (Unaudited) |
|
|
Nine Months Ended |
|
|
September 30, 2009 |
|
September 30, 2008 |
|
|
|
Operating revenue |
|
$ |
75,184,000 |
|
|
|
97,489,000 |
|
Income from continuing operations before tax |
|
|
2,551,000 |
|
|
|
4,695,000 |
|
Net Income |
|
|
1,451,000 |
|
|
|
2,746,000 |
|
|
|
|
|
|
|
|
|
|
Basic income from continuing operations per share |
|
|
0.05 |
|
|
|
0.09 |
|
Diluted income from continuing operations per share |
|
|
0.05 |
|
|
|
0.09 |
|
16
New CFO hired
On October 20, 2009, Express-1 Expedited Solutions, Inc. hired David G. Yoder to serve as the
Companys Chief Financial Officer. Mr. Yoders effective start date was November 2, 2009.
Most recently, Mr. Yoder worked as a financial and project management consultant with The Yoder
Group. From 1999 until 2008, Mr. Yoder served as Vice President of Operations & Finance for The
Woodwind & Brasswind. Prior thereto, Mr. Yoder served as the Chief Financial Officer of Towne Air
Freight, Inc., a transportation and logistics company with approximately $100 million in annual
revenues, from 1992 until March 1999. In addition, Mr. Yoder also worked for approximately 11 years
as a certified public accountant with Crowe, Chizek and Company. Mr. Yoder received a Bachelor of
Science in Industrial Management degree from Purdue University in 1979.
Mr. Yoder has three year employment agreement with the Company which provides for a base salary and
potential annual performance bonuses.
17
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements. This Form 10-Q includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All statements, other than statements of historical facts,
included or incorporated by reference in this Form 10-Q which address activities, events or
developments that the Company expects or anticipates will or may occur in the future, including
such things as future capital expenditures (including the amount and nature thereof), finding
suitable merger or acquisition candidates, expansion and growth of the Companys business and
operations, and other such matters are forward-looking statements. These statements are based on
certain assumptions and analyses made by the Company in light of its experience and its perception
of historical trends, current conditions and expected future developments as well as other factors
it believes are appropriate in the circumstances.
Investors are cautioned that any such forward-looking statements are not guarantees of future
performance and involve significant risks and uncertainties, and that actual results may differ
materially from those projected in the forward-looking statements. Factors that could adversely
affect actual results and performance include, among others, potential fluctuations in quarterly
operating results and expenses, government regulation, technology change and competition.
Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these
cautionary statements and there can be no assurance that the actual results or developments
anticipated by the Company will be realized or, even if substantially realized, that they will have
the expected consequence to or effects on the Company or its business or operations. The Company
assumes no obligations to update any such forward-looking statements.
Critical Accounting Policies
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions. In certain circumstances, those
estimates and assumptions can affect amounts reported in the accompanying consolidated financial
statements. We have made our best estimates and judgments of certain amounts included in the
financial statements, giving due consideration to materiality. We do not believe there is a great
likelihood that materially different amounts will be reported related to the accounting policies
described below. However, application of these accounting policies involves the exercise of
judgment and use of assumptions as to future uncertainties and, as a result, actual results could
differ from these estimates. Note 1 of the Notes to Consolidated Financial Statements in our
Annual Report on Form 10-K for the year ended December 31, 2008, includes a summary of the
significant accounting policies and methods used in the preparation of our consolidated financial
statements. Following is a brief discussion of the changes that occurred during 2009 to the
significant accounting policies and estimates disclosed in Note 1 of the Notes to Consolidated
Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2008. For
the period ended September 30, 2009, there were no significant changes to our critical accounting
policies.
New Pronouncements
Please refer to Footnote 2- Recent Accounting Pronouncements accompanying our financial
statements in this report.
Executive Summary
Express-1 Expedited Solutions, Inc. (the Company, we, our and us), a Delaware
corporation, is a transportation services organization focused upon premium logistics solutions
provided through its non-asset based or asset-light operating units. The Companys operations are
provided through three distinct but complementary reporting units, each with its own President. Our
wholly owned subsidiaries include; Express-1, Inc. (Express-1), Concert Group Logistics, Inc.
(Concert Group Logistics or CGL) and Bounce Logistics, Inc. (Bounce Logistics, or Bounce).
These operating units are more fully outlined in the following table.
|
|
|
|
|
|
|
Business Unit |
|
Primary Office Location |
|
Premium Industry Niche |
|
Initial Date |
Express-1
|
|
Buchanan, Michigan
|
|
Expedited Transportation
|
|
August 2004 |
Concert Group Logistics
|
|
Downers Grove, Illinois
|
|
Freight Forwarding
|
|
January 2008 |
Bounce Logistics
|
|
South Bend, Indiana
|
|
Premium Truckload Brokerage
|
|
March 2008 |
Express-1 and Concert Group Logistics were both existing companies acquired as part of two
separate acquisitions. Express-1, Inc. was formed in 1989, while Concert Group Logistics, LLC was
formed in 2001. Bounce Logistics was a start-up operation formed in March 2008.
18
Our business units serve a diverse client base within North America. Our Concert Group
Logistics business unit also provides international freight forwarding services to customers within
other regions of the world. Our premium services are focused on the needs of shippers for reliable
same-day, time-critical, special handling, premium truckload brokerage or customized logistics
solutions. We also provide aircraft charter services through third-party providers, in support of
our customers critical shipments.
During the fourth quarter of 2008, the Company discontinued its Express-1 Dedicated business
unit. The Company had operated this unit under the terms of a dedicated contract to supply
transportation services to a domestic automotive manufacturer. The automotive manufacturer did not
renew the contract and Express-1 Dedicated ceased operations in February of 2009. The financial
results of this discontinued business unit for all reported periods are included as discontinued
operations for reporting purposes.
Background
Historically, our revenue growth has been generated through two primary means:
|
|
|
Organic activity which is activity attributable to our existing operating segments,
and |
|
|
|
Acquisition activity which is activity attributable to mergers, acquisitions and
start-up activities. |
For the purposes of this report we refer to Express-1 and Concert Group Logistics as organic
activity since both have mature operations for the periods compared in 2008 and 2009, while we are
continuing to refer to Bounce Logistics as acquisition activity since the start-up of Bounce
Logistics didnt occur until March of 2008.
Throughout our reports, we refer to the impact of fuel on our business. For purposes of these
references, we have considered the impact of fuel surcharge revenues, and the related fuel
surcharge expenses only as they relate to our Express-1 business unit. The expediting
transportation industry commonly negotiates both fuel surcharges charged to its customers as well
as fuel surcharges paid to its carriers. Therefore, we feel that this approach, most readily
conveys the impact of fuel revenues, costs, and the resulting gross margin within this business
unit.
Alternatively, within our other two units, Concert Group Logistics and Bounce Logistics, fuel
charges to our customers are not commonly negotiated and identified separately from total revenue
and the associated cost of transportation. We therefore, have not included an analysis of fuel
surcharges for these two operating units. We believe this is a common practice within the freight
forwarding and freight brokerage business sectors.
We often refer to the costs of our Board of Directors, our executive team and certain
operating costs associated with operating as a public company as corporate charges. In addition
to the aforementioned items, we also record items such as our income tax provision and other
charges that are reported on a consolidated basis within the corporate line items of the following
tables.
For the three months ended September 30, 2009 compared to the three months ended September 30, 2008
The following table is provided to allow users to visualize quarterly results within our major
reporting classifications. The table does not replace the financial statements, notes thereto, or
management discussion contained within this report on Form 10-Q. We encourage users to review these
items for a more complete understanding of our financial position and results of operations.
19
Express-1 Expedited Solutions, Inc.
Summary Financial Table
For the Three Months Ended September 30,
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of |
|
|
|
Quarter to Date |
|
|
Quarter to Quarter Change |
|
|
Business Unit Revenue |
|
|
|
2009 |
|
|
2008 |
|
|
In Dollars |
|
|
In Percentage |
|
|
2009 |
|
|
2008 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Express-1 |
|
$ |
14,704,000 |
|
|
$ |
14,187,000 |
|
|
$ |
517,000 |
|
|
|
3.6 |
% |
|
|
56.1 |
% |
|
|
45.6 |
% |
Concert Group Logisitcs |
|
|
8,945,000 |
|
|
|
14,341,000 |
|
|
|
(5,396,000 |
) |
|
|
-37.6 |
% |
|
|
34.1 |
% |
|
|
46.1 |
% |
Bounce Logistics |
|
|
3,077,000 |
|
|
|
3,013,000 |
|
|
|
64,000 |
|
|
|
2.1 |
% |
|
|
11.7 |
% |
|
|
9.7 |
% |
Intercompany eliminations |
|
|
(515,000 |
) |
|
|
(424,000 |
) |
|
|
(91,000 |
) |
|
|
-21.5 |
% |
|
|
-1.9 |
% |
|
|
-1.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
26,211,000 |
|
|
|
31,117,000 |
|
|
|
(4,906,000 |
) |
|
|
-15.8 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Express-1 |
|
|
11,430,000 |
|
|
|
10,840,000 |
|
|
|
590,000 |
|
|
|
5.4 |
% |
|
|
77.7 |
% |
|
|
76.4 |
% |
Concert Group Logisitcs |
|
|
8,026,000 |
|
|
|
13,127,000 |
|
|
|
(5,101,000 |
) |
|
|
-38.9 |
% |
|
|
89.7 |
% |
|
|
91.5 |
% |
Bounce Logistics |
|
|
2,541,000 |
|
|
|
2,621,000 |
|
|
|
(80,000 |
) |
|
|
-3.1 |
% |
|
|
82.6 |
% |
|
|
87.0 |
% |
Intercompany eliminations |
|
|
(515,000 |
) |
|
|
(424,000 |
) |
|
|
(91,000 |
) |
|
|
-21.5 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total direct expenses |
|
|
21,482,000 |
|
|
|
26,164,000 |
|
|
|
(4,682,000 |
) |
|
|
-17.9 |
% |
|
|
82.0 |
% |
|
|
84.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Express-1 |
|
|
3,274,000 |
|
|
|
3,347,000 |
|
|
|
(73,000 |
) |
|
|
-2.2 |
% |
|
|
22.3 |
% |
|
|
23.6 |
% |
Concert Group Logisitcs |
|
|
919,000 |
|
|
|
1,214,000 |
|
|
|
(295,000 |
) |
|
|
-24.3 |
% |
|
|
10.3 |
% |
|
|
8.5 |
% |
Bounce Logistics |
|
|
536,000 |
|
|
|
392,000 |
|
|
|
144,000 |
|
|
|
36.7 |
% |
|
|
17.4 |
% |
|
|
13.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross margin |
|
|
4,729,000 |
|
|
|
4,953,000 |
|
|
|
(224,000 |
) |
|
|
-4.5 |
% |
|
|
17.9 |
% |
|
|
15.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general & administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Express-1 |
|
|
1,867,000 |
|
|
|
1,610,000 |
|
|
|
257,000 |
|
|
|
16.0 |
% |
|
|
12.7 |
% |
|
|
11.3 |
% |
Concert Group Logisitcs |
|
|
632,000 |
|
|
|
714,000 |
|
|
|
(82,000 |
) |
|
|
-11.5 |
% |
|
|
7.1 |
% |
|
|
5.0 |
% |
Bounce Logistics |
|
|
355,000 |
|
|
|
390,000 |
|
|
|
(35,000 |
) |
|
|
-9.0 |
% |
|
|
11.5 |
% |
|
|
12.9 |
% |
Corporate |
|
|
430,000 |
|
|
|
434,000 |
|
|
|
(4,000 |
) |
|
|
-0.9 |
% |
|
|
1.6 |
% |
|
|
1.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general & administrative |
|
|
3,284,000 |
|
|
|
3,148,000 |
|
|
|
136,000 |
|
|
|
4.3 |
% |
|
|
12.4 |
% |
|
|
10.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Express-1 |
|
|
1,407,000 |
|
|
|
1,737,000 |
|
|
|
(330,000 |
) |
|
|
-19.0 |
% |
|
|
9.6 |
% |
|
|
12.2 |
% |
Concert Group Logisitcs |
|
|
287,000 |
|
|
|
500,000 |
|
|
|
(213,000 |
) |
|
|
-42.6 |
% |
|
|
3.2 |
% |
|
|
3.5 |
% |
Bounce Logistics |
|
|
181,000 |
|
|
|
2,000 |
|
|
|
179,000 |
|
|
|
8950.0 |
% |
|
|
5.9 |
% |
|
|
0.1 |
% |
Corporate |
|
|
(430,000 |
) |
|
|
(434,000 |
) |
|
|
4,000 |
|
|
|
0.9 |
% |
|
|
-1.6 |
% |
|
|
-1.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income from continuing operations |
|
|
1,445,000 |
|
|
|
1,805,000 |
|
|
|
(360,000 |
) |
|
|
-19.9 |
% |
|
|
5.5 |
% |
|
|
5.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
26,000 |
|
|
|
94,000 |
|
|
|
(68,000 |
) |
|
|
-72.3 |
% |
|
|
0.1 |
% |
|
|
0.3 |
% |
Other expense |
|
|
19,000 |
|
|
|
21,000 |
|
|
|
(2,000 |
) |
|
|
-9.5 |
% |
|
|
0.1 |
% |
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before tax |
|
|
1,400,000 |
|
|
|
1,690,000 |
|
|
|
(290,000 |
) |
|
|
-17.2 |
% |
|
|
5.3 |
% |
|
|
5.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax provision |
|
|
599,000 |
|
|
|
672,000 |
|
|
|
(73,000 |
) |
|
|
-10.9 |
% |
|
|
2.3 |
% |
|
|
2.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
801,000 |
|
|
|
1,018,000 |
|
|
|
(217,000 |
) |
|
|
-21.3 |
% |
|
|
3.0 |
% |
|
|
3.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax |
|
|
10,000 |
|
|
|
134,000 |
|
|
|
(124,000 |
) |
|
|
-92.5 |
% |
|
|
0.0 |
% |
|
|
0.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
811,000 |
|
|
$ |
1,152,000 |
|
|
$ |
(341,000 |
) |
|
|
-29.6 |
% |
|
|
3.1 |
% |
|
|
3.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Consolidated Results
Although the current economic recession continues to hinder our growth, 2 of our 3 operating
segments saw growth as compared to the 3rd quarter of 2008. Quarterly revenues increased by 4% for
Express-1 and 2% for Bounce Logistics as compared to the same period in 2008. These gains were
offset by Concert Group Logistics (CGL) 38% decrease in revenue and resulted in an overall
reduction of 16%
company-wide for the current quarter as compared to the same quarter in 2008. We
continue to believe that each operating segment is poised for growth in the 4th quarter
of 2009. Historically, Express-1 has rebounded quickly from recessions as lower inventory levels
and capacity shortages increase the demand for expedited services as the economy begins to recover.
Additionally, Bounce which is still in a start-up growth mode has found it somewhat easier to
regain traction as the economic recovery begins. Although CGL revenues were somewhat depressed in
the 3rd quarter, we have seen signs of increased demand in the month of September and
believe that these demands will increase as we enter the 4th quarter of 2009.
Direct expenses represent expenses attributable to freight transportation. During the third
quarter of 2009, these expenses continued to maintain a direct relationship to our operating
revenues. Our asset light operating model provides transportation capacity through variable cost
transportation alternatives, and therefore enables us to control our operating costs as our volumes
fluctuate. Our primary means of providing capacity are through our fleet of independent contractors
and brokerage relationships. We view this operating model as a strategic advantage particularly in
difficult economic times. Our overall gross margin increased to 18% for the third quarter of 2009
as compared to 16% for the third quarter of 2008 thanks in large part to improved brokerage margins
at Bounce Logistics. We believe that this is also a positive sign for the economy as overall
industry capacity shortages coupled with slight economic improvements have put upward pressure on
margins.
Although, selling, general, and administrative (SG&A) expenses increased by $136,000 in the
third quarter of 2009 compared to the same period in 2008, we are encouraged that as a percentage
to total revenue our SG&A costs have dropped during the third quarter to 12% as compared to our
year to date percentage of 14%. Additionally, 2 of our 3 operating units, CGL and Bounce Logistics
have actually held costs for the quarter under 2008 levels. The overall increase on a quarter to
quarter basis has resulted from:
|
|
|
Operating costs incurred with the acquisition of First Class Expediting, |
|
|
|
Greater than expected health care cost associated with our self insured plan, and |
|
|
|
Additional labor costs associated with the pick-up of business at Express-1 in
the third quarter of 2009. |
We anticipate our SG&A percentage to revenue being further reduced as the economy improves and
we gain additional efficiencies. Our ability to manage our SG&A costs will continue to be a
critical component of our financial strategy.
We have reported all revenue and expenses, including income tax expense for Express-1
Dedicated as discontinued operations as the reporting unit lost its primary operating contract in
the fourth quarter of 2008. Express-1 Dedicated disbanded all operations in February 2009 resulting
in a gain of $10,000 in the third quarter of 2009 compared to a gain of $134,000 in the third
quarter of 2008.
Net
income for the quarter ended September 30, 2009, totaled $811,000 compared to $1,152,000
for the same quarter in 2008. The continued economic recession and related slowdown in demand for
transportation services contributed to the reduction in overall profitability compared to 2008,
however, we do anticipate continued profitability for the remainder of the year due to the
Companys expense reductions and our belief that transportation volumes will continue to make a
modest recovery for the remainder of the year.
21
Express-1
Express-1 generated record quarterly revenues in the third quarter as revenue grew by 4%
compared to the same period in 2008. As mentioned previously, Express-1 has historically rebounded
quickly from recessions as the expediting industry in general is typically one of the first
benefactors of a recovering economy. In addition, Express-1s continued investment in sales has
paid off handsomely as it has expanded its presence into other markets. Overall, Express-1 third
quarter revenues increased by 46% as compared to revenues in the second quarter of 2009.
Fuel prices have declined resulting in a corresponding drop in fuel surcharge revenues in
2009. For the three month period ended September 30, 2009, fuel surcharge revenues represented only
10% of our revenue as compared to 20% in the same period in 2008. This is a favorable trend for
Express-1 and the industry since fuel surcharge revenues are substantially passed through to our
owner operators and dont flow to our margin or bottom line. The auto industry also showed
increased activity during the quarter and represented 30% of our revenue in the 3rd
quarter of 2009 vs. 27% of our revenue in the 3rd quarter of 2008.
The purchase of certain assets and operations of First Class Expediting Services, Inc. that
occurred in January of 2009, also served to further diversify Express-1s operations in the third
quarter of 2009 as compared to 2008. This acquisition enabled the Company to enter a new geographic
area specializing in short haul expedites. As a division of Express-1, First Class contributed
$967,000 of revenue in the third quarter of 2009.
Express-1s gross margin percentage was 22% for the third quarter of 2009 compared to 24% for
the same quarter in 2008. In the face of a soft and competitive expediting market, our asset
light model continues to perform well, by protecting its gross margin percentage. We believe that
our margin percentage will increase slightly in the 4th quarter as the economy continues
to improve and available trucking capacity tightens.
Although, selling, general, and administrative (SG&A) expenses increased by $257,000 in the
third quarter of 2009 compared to the same period in 2008, we are encouraged that as a percentage
to total revenue our SG&A costs have dropped during the third quarter to 12.7% as compared to our
year to date percentage of 15.8%. The increase on a quarter to quarter basis has resulted from: 1)
operating costs incurred with the acquisition of First Class, 2) greater than expected health care
cost associated with our self insured plan, and 3) additional labor costs associated with the
pick-up of business in the third quarter of 2009.
For the quarter ended September 30, 2009, Express-1 generated income from operations before
tax of $1,407,000 compared to $1,737,000 in the same quarter in 2008. Management remains optimistic
about the remainder of the year and is committed to avoiding long-term, low margin solutions that
would jeopardize future profitability as the economy and Company recovers from the recession.
Concert Group Logistics (CGL)
Although CGL isnt dependent on any specific industry sector, it continues to feel the impact of
the overall economic recession. Revenue for CGL was $8.9 million for the third quarter of 2009,
compared to $14.3 million in the same period in 2008. Management continues to develop the
international freight forwarding market with revenue derived from international shipments
increasing from 23% of total revenue in the third quarter of 2008 to 30% for the third quarter of
2009.
On October 1, 2009, the Company completed the purchase of certain assets and liabilities of Tampa,
Florida based LRG International, Inc. (LRG). LRG will become a reporting division of the Companys
fully owned subsidiary, Concert Group Logistics. LRGs primary focus relates to international
freight. We believe that this will create significant growth opportunities for CGL and all of
Express-1 Expedited Solutions as we solidify our international freight capabilities. We anticipate
this new division will generate approximately $1.7 million of revenue in the 4th quarter
of 2009.
Direct expenses consist primarily of payments for purchased transportation in addition to
payments to CGLs independent station owners who control the overall operation of the freight move.
As a percentage of CGL revenue, direct expenses represented 90% for the third quarter of 2009
compared to 92% for the same quarter in 2008. This overall gain in efficiency resulted in CGLs
gross margin percentage improving from 9% in the third quarter of 2008 to 10% in the same quarter
in 2009. We believe that the improved margin will be sustainable for the remainder of the year.
22
Selling, general, and administrative expenses decreased in the third quarter of 2009 by
$82,000 as compared to the same period in 2008. These savings are a direct result of the
restructuring program adopted by the Company in the first quarter of 2009. Our savings for the
quarter were partially offset by $65,000 of additional expense related to severance payments
accrued for the departure of a company executive.
For the quarter ended September 30, 2009, Concert Group Logistics generated income from
operations before tax of $287,000 representing a decrease of 43% from the comparable prior period.
This is due primarily to the reduction in volume resulting from the economic recession. We are
optimistic that with the addition of LRG, continued tight controls on operating expenses, and an
improving overall economy we will be able to improve our bottom line in the 4th quarter
of 2009.
Management continues to focus on the expansion of its independent station network, and is
actively pursuing strategic opportunities. As of September 30, 2009, the Company maintained a
network of 26 independent station owners as compared to 25 network stations as of September 30,
2008.
Bounce Logistics
Bounce continues to mature as we have completed its 7th quarter of existence since our
inception. It is important to keep in mind that operating results and any comparisons between the
years should factor in the start-up nature of the Company in 2008.
Bounce continues to gain traction in the brokerage industry. Revenues for the third quarter of
2009 increased by $64,000 or 2% compared to the same quarter in 2008. Additionally, Bounce has been
able to improve its gross margin percentage by developing a more competitive carrier network which
has resulted in a gross margin percentage of 17% in the third quarter of 2009 compared to a 13%
margin percentage in the same period in 2008. We believe that this margin is sustainable and
represents a margin percentage that is more in line with a more mature brokerage operation.
Selling, general, and administrative expenses decreased by $35,000 in the third quarter of
2009 compared to the same period in 2008. The decrease on a quarter to quarter basis has resulted
from cost adjustments made in the first quarter along with efficiencies gained with a more mature
business model.
The above items have resulted in Bounce generating operating income of $181,000 in the third
quarter of 2009 compared to $2,000 in the same period in 2008. Management continues to be
optimistic regarding the future growth and profitability potential of Bounce moving forward in the
4th quarter of 2009.
Corporate
Corporate costs for the third quarter of 2009 decreased as compared to the same quarter in 2008 by
$4,000. Cost reductions made in the first quarter have been offset by costs associated with
increased efforts to identify potential acquisition candidates that will complement our existing
operation. Additional costs in the third quarter of 2009 have also been incurred in relation to
fees associated with our initial Sarbanes Oxley audit.
For the nine months ended September 30, 2009 compared to the nine months ended September 30,
2008
The following table is provided to allow users to visualize year-to-date results within our major
reporting classifications. The table does not replace the financial statements, notes thereto, or
management discussion contained within this report on Form 10-Q. We encourage users to review these
items for a more complete understanding of our financial position and results of operations.
23
Express-1 Expedited Solutions, Inc.
Summary Financial Table
For the Nine Months Ended September 30,
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of |
|
|
|
Year to Date |
|
|
Year to Year Change |
|
|
Business Unit Revenue |
|
|
|
2009 |
|
|
2008 |
|
|
In Dollars |
|
|
In Percentage |
|
|
2009 |
|
|
2008 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Express-1 |
|
$ |
33,682,000 |
|
|
$ |
41,964,000 |
|
|
$ |
(8,282,000 |
) |
|
|
-19.7 |
% |
|
|
49.0 |
% |
|
|
49.7 |
% |
Concert Group Logisitcs |
|
|
28,739,000 |
|
|
|
39,304,000 |
|
|
|
(10,565,000 |
) |
|
|
-26.9 |
% |
|
|
41.8 |
% |
|
|
46.5 |
% |
Bounce Logistics |
|
|
7,089,000 |
|
|
|
4,241,000 |
|
|
|
2,848,000 |
|
|
|
67.2 |
% |
|
|
10.3 |
% |
|
|
5.0 |
% |
Intercompany eliminations |
|
|
(984,000 |
) |
|
|
(1,001,000 |
) |
|
|
17,000 |
|
|
|
1.7 |
% |
|
|
-1.4 |
% |
|
|
-1.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
68,526,000 |
|
|
|
84,508,000 |
|
|
|
(15,982,000 |
) |
|
|
-18.9 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Express-1 |
|
|
26,099,000 |
|
|
|
32,145,000 |
|
|
|
(6,046,000 |
) |
|
|
-18.8 |
% |
|
|
77.5 |
% |
|
|
76.6 |
% |
Concert Group Logisitcs |
|
|
25,952,000 |
|
|
|
35,843,000 |
|
|
|
(9,891,000 |
) |
|
|
-27.6 |
% |
|
|
90.3 |
% |
|
|
91.2 |
% |
Bounce Logistics |
|
|
5,877,000 |
|
|
|
3,708,000 |
|
|
|
2,169,000 |
|
|
|
58.5 |
% |
|
|
82.9 |
% |
|
|
87.4 |
% |
Intercompany eliminations |
|
|
(984,000 |
) |
|
|
(1,001,000 |
) |
|
|
17,000 |
|
|
|
1.7 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total direct expenses |
|
|
56,944,000 |
|
|
|
70,695,000 |
|
|
|
(13,751,000 |
) |
|
|
-19.5 |
% |
|
|
83.1 |
% |
|
|
83.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Express-1 |
|
|
7,583,000 |
|
|
|
9,819,000 |
|
|
|
(2,236,000 |
) |
|
|
-22.8 |
% |
|
|
22.5 |
% |
|
|
23.4 |
% |
Concert Group Logisitcs |
|
|
2,787,000 |
|
|
|
3,461,000 |
|
|
|
(674,000 |
) |
|
|
-19.5 |
% |
|
|
9.7 |
% |
|
|
8.8 |
% |
Bounce Logistics |
|
|
1,212,000 |
|
|
|
533,000 |
|
|
|
679,000 |
|
|
|
127.4 |
% |
|
|
17.1 |
% |
|
|
12.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross margin |
|
|
11,582,000 |
|
|
|
13,813,000 |
|
|
|
(2,231,000 |
) |
|
|
-16.2 |
% |
|
|
16.8 |
% |
|
|
16.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general & administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Express-1 |
|
|
5,319,000 |
|
|
|
5,388,000 |
|
|
|
(69,000 |
) |
|
|
-1.3 |
% |
|
|
15.8 |
% |
|
|
12.8 |
% |
Concert Group Logisitcs |
|
|
1,949,000 |
|
|
|
2,322,000 |
|
|
|
(373,000 |
) |
|
|
-16.1 |
% |
|
|
6.8 |
% |
|
|
5.9 |
% |
Bounce Logistics |
|
|
904,000 |
|
|
|
724,000 |
|
|
|
180,000 |
|
|
|
24.9 |
% |
|
|
12.8 |
% |
|
|
17.1 |
% |
Corporate |
|
|
1,361,000 |
|
|
|
1,253,000 |
|
|
|
108,000 |
|
|
|
8.6 |
% |
|
|
2.0 |
% |
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general & administrative |
|
|
9,533,000 |
|
|
|
9,687,000 |
|
|
|
(154,000 |
) |
|
|
-1.6 |
% |
|
|
13.9 |
% |
|
|
11.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Express-1 |
|
|
2,264,000 |
|
|
|
4,431,000 |
|
|
|
(2,167,000 |
) |
|
|
-48.9 |
% |
|
|
6.7 |
% |
|
|
10.6 |
% |
Concert Group Logisitcs |
|
|
838,000 |
|
|
|
1,139,000 |
|
|
|
(301,000 |
) |
|
|
-26.4 |
% |
|
|
2.9 |
% |
|
|
2.9 |
% |
Bounce Logistics |
|
|
308,000 |
|
|
|
(191,000 |
) |
|
|
499,000 |
|
|
|
261.3 |
% |
|
|
4.3 |
% |
|
|
-4.5 |
% |
Corporate |
|
|
(1,361,000 |
) |
|
|
(1,253,000 |
) |
|
|
(108,000 |
) |
|
|
-8.6 |
% |
|
|
-2.0 |
% |
|
|
-1.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income from continuing operations |
|
|
2,049,000 |
|
|
|
4,126,000 |
|
|
|
(2,077,000 |
) |
|
|
-50.3 |
% |
|
|
3.0 |
% |
|
|
4.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
74,000 |
|
|
|
273,000 |
|
|
|
(199,000 |
) |
|
|
-72.9 |
% |
|
|
0.1 |
% |
|
|
0.3 |
% |
Other expense |
|
|
28,000 |
|
|
|
36,000 |
|
|
|
(8,000 |
) |
|
|
-22.2 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before tax |
|
|
1,947,000 |
|
|
|
3,817,000 |
|
|
|
(1,870,000 |
) |
|
|
-49.0 |
% |
|
|
2.8 |
% |
|
|
4.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax provision |
|
|
858,000 |
|
|
|
1,528,000 |
|
|
|
(670,000 |
) |
|
|
-43.8 |
% |
|
|
1.2 |
% |
|
|
1.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
1,089,000 |
|
|
|
2,289,000 |
|
|
|
(1,200,000 |
) |
|
|
-52.4 |
% |
|
|
1.6 |
% |
|
|
2.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax |
|
|
15,000 |
|
|
|
280,000 |
|
|
|
(265,000 |
) |
|
|
-94.6 |
% |
|
|
0.0 |
% |
|
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,104,000 |
|
|
$ |
2,569,000 |
|
|
$ |
(1,465,000 |
) |
|
|
-57.0 |
% |
|
|
1.6 |
% |
|
|
3.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
Consolidated Results
On a year to date basis the economic recession continues to be the overriding factor that has
resulted in the Companys operating revenue decrease. On a comparative basis, the Company recorded
an overall reduction of revenue of 19% for the first nine months of 2009 compared to the same
period in 2008. Organic revenues generated by Express-1 and CGL declined by $19 million (23%) while
Bounce generated acquisition revenue increases of $2.8 million in the first nine months of 2009
compared to the same period in 2008. Moving forward in 2009, the Company believes that with the
turnaround at Express-1 in the
3rd quarter and the addition of the LRG station at CGL,
fourth quarter revenues should show an overall improvement as compared with 2008.
Direct expenses represent expenses attributable to freight transportation. During the third
quarter of 2009, these expenses continued to decrease in direct relationship to our operating
revenues. Our asset light operating model provides transportation capacity through variable cost
transportation alternatives, and therefore enables us to control our operating costs as our volumes
fluctuate. Our primary means of providing capacity are through our fleet of independent contractors
and brokerage relationships. We view this operating model as a strategic advantage particularly in
continued difficult economic times. Our overall gross margin increased to 17% for the nine month
period ended September 30, 2009 as compared to 16% for the same period in 2008. We believe that
our margin percentage will increase slightly in the 4th quarter as the economy continues
to improve and available trucking capacity tightens.
Selling, general, and administrative expenses decreased by $154,000 in 2009 versus the same
period in 2008. The decrease was primarily attributable to the following adjustments which were
implemented during the first nine months of 2009:
|
|
|
Reduction of hours for certain staff. |
|
|
|
Salary and wage freeze for all employees. |
|
|
|
Salary reduction for Senior Management and other selected employees. |
|
|
|
Elimination of Employee Benefit Plans such as the: Bonus Plan, 401(K) match, and
ESOP contributions. |
|
|
|
Reduction of compensation paid to the Board of Directors. |
|
|
|
Reduction of travel and entertainment activities. |
We have reported all revenue and expenses, including income tax expense for Express-1
Dedicated as discontinued operations as the reporting unit lost its primary operating contract in
the fourth quarter of 2008. Express-1 Dedicated disbanded all operations in February 2009 resulting
in income of $15,000 for the first nine months of 2009 compared to income of $280,000 for the same
period in 2008. Management doesnt expect any additional material financial activity from this
business unit for the remainder of 2009.
Net income for the nine months period ended September 30, 2009 was $1,104,000 as compared to
$2,569,000 for the nine months ended September 30, 2008. Despite the year over year decline, the
Company is cautiously optimistic that volumes will increase modestly and that expenses can be held
at their current levels resulting in profitable operations for the remainder of 2009.
Express-1
Our Express-1 business unit experienced a 20% decrease in operating revenue during the first
three quarters of 2009 compared to the first three quarters of 2008. Approximately 56% of the
decrease in revenue relates to lower fuel surcharge revenues. Although this resulted in a revenue
loss, it also resulted in a corresponding reduction in fuel costs paid to owner operators, and
overall is viewed as a positive trend for the industry and our Company. We anticipate modest
overall revenue growth in the fourth quarter while maintaining this fuel surcharge trend.
The current restructuring of the automobile industry and the related transportation volume
reductions have caused Express-1 to become less reliant on the automobile industry during 2009.
Direct automotive industry business represented 31% of our business during the first nine months of
2008 and now represents only 26% in the same period of 2009. This represents quite a shift for the
company particularly when considering the 2009 percentage includes First Class Expediting
which was added during the year and
25
handles primarily automotive business. Of course, this has been
a painful process and has required Express-1 to adjust its operating costs to account for the
volume reductions; however, we believe that Express-1 is now coming out of this transition as a
more balanced company that has less exposure to any one industry. Other industries or sectors that
are currently making up a larger percentage of our business include: home appliance, aerospace,
printing, and international freight. Additionally, management continues to diversify our customer
mix by contracting business through third party logistics firms that represent a wide array of
industries. We have experienced a slight improvement in our automotive business in the
3rd quarter and anticipate this trend to continue for the remainder of the year.
The purchase of certain assets and operations of First Class Expediting Services, Inc. that
occurred in January of 2009, also served to further diversify Express-1s operations in the first
nine months of 2009. This enabled the Company to enter a new geographic area specializing in short
haul expedites. As a division of Express-1, First Class has contributed $2.0 million of revenue in
the first nine months of 2009.
Express-1s gross margin percentage remained at 23% for the first nine months of 2009 compared
to the same period in 2008. In the face of a soft and competitive expediting market, our asset
light model continues to perform well, by protecting its gross margin percentage. We believe that
our margin percentage will increase slightly in the 4th quarter as the economy continues
to improve and available trucking capacity tightens.
Selling, general, and administrative expenses decreased by $69,000 for the first nine months
of 2009 compared to the same period in 2008. We believe this represents the companys ability to
not only manage its variable costs, but also its fixed costs and subsequently its bottom line.
Express-1 will continue to efficiently manage operations and look for ways to further reduce costs
without sacrificing customer service. Although costs have increased more recently with Express-1s
increased business, we believe that our overall SG&A percentage to revenue will decrease for the
remainder of the year.
For the first nine months ended September 30, 2009, Express-1 generated income from operations
before tax of $2,264,000 compared to $4,431,000 in the same quarter in 2008. Management continues
to be optimistic about the remainder of the year and is committed to avoiding long-term, low margin
solutions that would jeopardize future profitability as the economy and Company recovers from the
recession. We believe that this will result in profitability that is more in line with historical
levels for the remainder of the year.
Concert Group Logistics (CGL)
Concert Group Logistics generated revenue of $28.7 million for the first nine months of 2009
which accounted for 42% of our consolidated revenue. CGL continues to develop its international
freight forwarding markets with revenue derived for international shipments increasing from 23% in
the nine months ended September 30, 2008 to 28% in the comparable period in 2009. Management
continues to emphasize its strategic focus on diversification of domestic and international
transportation services offerings within its independent station network.
On October 1, 2009, the Company completed the purchase of certain assets and liabilities of
Tampa, Florida based LRG International, Inc. (LRG). LRG will become a reporting division of the
Companys fully owned subsidiary, Concert Group Logistics. LRGs primary focus relates to
international freight. We believe that this will create significant growth opportunities for CGL
and all of Express-1 Expedited Solutions as we solidify our international freight capabilities. We
anticipate this new division will generate approximately $1.7 million of revenue in the
4th quarter of 2009.
Direct expenses consist primarily of payments for purchased transportation in addition to
payments to CGLs independent station owners who control the overall operation of the freight move.
As a percentage of CGL revenue, direct expenses represented 90% for the first nine months of 2009
compared to 91% for the same period in 2008. This resulted in CGLs gross margin percentage
increasing to 10% for the first nine months of 2009 compared to 9% for the same period in 2008. We
believe that the improved margin will be sustainable for the remainder of the year.
Selling, general, and administrative expenses decreased in the first nine months of 2009 by
$373,000 as compared to the same period in 2008. These savings are a direct result of the
restructuring program adopted by the Company in the first quarter of 2009. Our annual savings have
been partially offset by $65,000 of additional expense related to severance payments accrued for
the departure of a company executive.
26
For the nine months ended September 30, 2009, Concert Group Logistics generated income from
operations before tax of $838,000 representing a decrease of 26% from the comparable prior period.
This is due in large part to the reduction in volume resulting from the economic recession. We are
optimistic that with the addition of LRG, continued tight controls on operating expenses, and an
improving overall economy we will be able to improve our bottom line in the 4th quarter
of 2009.
Management continues to focus on the expansion of its independent station network, and is
actively pursuing strategic opportunities. As of September 30, 2009, the Company maintained a
network of 26 independent station owners as compared to 25 network stations as of September 30,
2008.
Bounce Logistics
Bounce continues to mature as it has completed its 7th quarter of existence. It is important
to keep in mind that operating results and any comparisons between the years should factor in the
start-up nature of the Company in 2008.
Bounce continues to gain traction in the brokerage industry. Revenues for the first nine
months of 2009 increased by $2.8 million or 67% compared to the same period in 2008. Additionally,
Bounce has been able to improve its gross margin percentage by developing a more competitive
carrier network which has resulted in a gross margin percentage of 17% for the first nine months of
2009 compared to a 13% margin percentage in the same period in 2008. We believe that this margin is
sustainable and represents a margin % that is more in line with a more mature brokerage operation.
Selling, general, and administrative expenses increased by $180,000 in the third quarter of
2009 compared to the same period in 2008. This increase is due primarily from the fact that Bounce
was a start up operation in 2008 and represents only 7 months of operations. Moving forward we
believe that the cost adjustments made in the first quarter along with efficiencies gained with a
more mature business model will continue.
The above items have resulted in Bounce generating operating income before tax of $308,000 for
the first nine months of 2009 compared to operating losses before tax of $191,000 in the same
period in 2008. Management continues to be optimistic regarding the future growth and profitability
potential of Bounce for the remainder of 2009.
Corporate
Corporate costs for the first nine months of 2009 exceeded costs for the same period in 2008
by $108,000. In 2009, the Company has increased its efforts and its related cost to identify
potential acquisition candidates that might complement our existing operation. Additional costs in
2009 have also been incurred in relation to fees associated with our initial audit of Concert Group
Logistics in addition to initial audit work performed related to the Sarbanes Oxley Act.
Additionally, a portion of this increase represents costs incurred due to the set up of the
corporate office in St. Joseph, MI that didnt exist in 2008.
Liquidity and Capital Resources
General
During the first nine months of 2009, the Company used $1.1 million in cash to pay the final
earnout payment to the former owners of Concert Group Logistics, $250,000 was used to purchase
certain assets and related liabilities of First Class Expediting Services, Inc., and $946,000 was
used to pay off term debt. These transactions were primarily funded through a net draw on the
Companys line of credit.
As of September 30, 2009, we had $2.3 million of working capital with associated cash of
$683,000 compared with working capital of $4.4 million and cash of $1.1 million as of December 31,
2008. This represents a decrease of $2.1 million which resulted primarily from our line of credit
being reclassified from a long term liability to a current liability based on its maturity date of
May 31, 2010.
Cash Flow
During the nine months ended September 30, 2009, $884,000 in cash was used in operations. The
primary use of cash was an increase in accounts receivable of $3.5 million, a decrease in accounts
payable of $1.1 million and a decrease in other liabilities of $87,000. The primary source of cash
for the nine month period was an increase of $1.1 million in accrued expenses. During the same
period in 2008, $1.5 million was generated from operating activities. Net income of $2.6 million
and increases of $2.0 million in
27
accrued expenses and other liabilities were the primary sources of income while an increase in
accounts receivable was the primary use of cash totaling $5.2 million.
Investing activities required approximately $1.4 million during the nine months ended
September 30, 2009. During this period, cash was used to: 1) satisfy earn-out payments of $1.1
million to the former owners of Concert Group Logistics, LLC (CGL) and, 2) purchase $250,000 in net
assets related to the purchase of First Class Expediting Service, LLC in January of 2009. During
the same period in 2008, we: 1) satisfied an earn out payment related to the Express-1 and Dasher
Express acquisitions in the amount of $2.2 million, 2) purchased CGL for $8.5 million, and 3)
purchased fixed assets of $1.0 million.
Financing activities generated approximately $1.9 million for the nine months ended September
30, 2009, which were derived primarily from net draws on the companys line of credit.
Additionally, $946,000 in payments on the Companys debt was made during the period. During the
same period in 2008, net cash in the amount of $8.2 million from the Companys line of credit was
received which was used primarily to fund the purchase of CGL. Additionally, the Company borrowed
$3.6 million of term debt to complete the funding of the CGL purchase.
Line of Credit
To ensure that our Company has adequate near-term liquidity, we entered into a new credit
facility with National City Bank in January, 2008. This $14.6 million facility provides for a
receivables based line of credit of up to $11.0 million and a term debt component of $3.6 million.
The Company may draw upon the receivables based line of credit the lesser of $11.0 million or 80%
of eligible accounts receivable, less amounts outstanding under letters of credit. To fund the
Concert Group Logistics, LLC purchase, the Company drew $3.6 million on the term facility and $5.4
million on the receivables based line of credit. Substantially all the assets of our Company and
wholly owned subsidiaries (Express-1, Inc., Concert Group Logistics, Inc. and Bounce Logistics,
Inc.) are pledged as collateral securing our performance under the line. The credit facility bears
interest based upon a spread above thirty-day LIBOR with an initial increment of 125 basis points
above thirty-day LIBOR for the receivables line and 150 basis points above thirty-day LIBOR for the
term portion. The term loan is payable over a thirty-six month period and requires that monthly
principal payments of $100,000 together with accrued interest be paid until retired. As of
September 30, 2009, the weighted average rate of interest on the credit facility was approximately
1.57% and rates are adjusted monthly.
The line carries certain covenants related to the Companys financial performance. Included
among the covenants are a fixed charge coverage ratio and a total funded debt to earnings before
interest and taxes, plus depreciation and amortization ratio. As of September 30, 2009, the Company
was in compliance with all terms under the credit facility and no events of default existed under
the terms of this agreement.
We had outstanding standby letters of credit at September 30, 2009 of $335,000, related to
insurance policies either continuing in force or recently canceled. Amounts outstanding for letters
of credit reduce the amount available under our line of credit, dollar-for-dollar.
Available capacity in excess of outstanding borrowings under the line was approximately $5.5
million as limited by 80% of the Companys eligible receivables as of September 30, 2009. The
credit facility carries a maturity date of May 31, 2010. The Company has changed the classification
of the line of credit from a long-term liability to a current liability during the current quarter
based on its maturity date.
Subsequent to the balance sheet date on October 1st, the Company purchased certain
assets and liabilities of LRG International and paid the former owners $2 million dollars which was
financed through a draw on the Companys line of credit. We believe that the credit facility
provides adequate capacity to fund our operations, when combined with our anticipated cash
generated from operations for the foreseeable future. In the event our operating performance
deteriorates, we might find it necessary to seek additional funding sources in the future.
28
Options and Warrants
The following schedule represents those options that the Company has outstanding as of
September 30, 2009. The schedule also segregates the options by expiration date and exercise price
to better identify their potential for exercise. Additionally, the total approximate potential
proceeds by year have been identified.
During the nine month period ended September 30, 2009, 2,252,000 warrants expired unexercised,
and currently there are no outstanding warrants.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Approximate |
|
|
|
Exercise pricing |
|
|
Outstanding |
|
|
Potential |
|
|
|
.50-.75 |
|
|
.76-1.00 |
|
|
1.01-1.25 |
|
|
1.26-1.50 |
|
|
1.51 > |
|
|
Options |
|
|
Proceeds |
|
|
|
|
Option Expiration Dates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
|
|
|
|
23,000 |
|
|
|
33,000 |
|
|
$ |
52,000 |
|
2010 |
|
|
|
|
|
|
|
|
|
|
600,000 |
|
|
|
|
|
|
|
|
|
|
|
600,000 |
|
|
|
750,000 |
|
2011 |
|
|
|
|
|
|
|
|
|
|
125,000 |
|
|
|
|
|
|
|
|
|
|
|
125,000 |
|
|
|
130,000 |
|
2014 |
|
|
|
|
|
|
50,000 |
|
|
|
|
|
|
|
500,000 |
|
|
|
|
|
|
|
550,000 |
|
|
|
769,000 |
|
2015 |
|
|
500,000 |
|
|
|
|
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
700,000 |
|
|
|
603,000 |
|
2016 |
|
|
|
|
|
|
50,000 |
|
|
|
125,000 |
|
|
|
100,000 |
|
|
|
|
|
|
|
275,000 |
|
|
|
314,000 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
322,000 |
|
|
|
|
|
|
|
372,000 |
|
|
|
518,000 |
|
2018 |
|
|
|
|
|
|
290,000 |
|
|
|
105,000 |
|
|
|
|
|
|
|
|
|
|
|
395,000 |
|
|
|
390,000 |
|
2019 |
|
|
25,000 |
|
|
|
75,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
125,000 |
|
|
|
112,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Options |
|
|
525,000 |
|
|
|
465,000 |
|
|
|
1,240,000 |
|
|
|
922,000 |
|
|
|
23,000 |
|
|
|
3,175,000 |
|
|
$ |
3,638,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations
The following table reflects all contractual obligations of our Company as of September 30,
2009.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
Less than 1 |
|
|
1 to 3 |
|
|
3 to 5 |
|
|
More than 5 |
|
Contractual Obligations |
|
Total |
|
|
Year |
|
|
Years |
|
|
Years |
|
|
Years |
|
Term notes payable |
|
$ |
1,700,000 |
|
|
$ |
1,200,000 |
|
|
$ |
500,000 |
|
|
$ |
|
|
|
$ |
|
|
Capital leases payable |
|
|
30,000 |
|
|
|
14,000 |
|
|
|
16,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total note payable and capital leases |
|
|
1,730,000 |
|
|
|
1,214,000 |
|
|
|
516,000 |
|
|
|
|
|
|
|
|
|
Line of credit |
|
|
5,116,000 |
|
|
|
5,116,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
431,000 |
|
|
|
160,000 |
|
|
|
230,000 |
|
|
|
41,000 |
|
|
|
|
|
Real estate commitments |
|
|
639,000 |
|
|
|
235,000 |
|
|
|
377,000 |
|
|
|
27,000 |
|
|
|
|
|
Employment contracts |
|
|
1,993,000 |
|
|
|
1,015,000 |
|
|
|
978,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations |
|
$ |
9,909,000 |
|
|
$ |
7,740,000 |
|
|
$ |
2,101,000 |
|
|
$ |
68,000 |
|
|
$ |
|
|
|
|
|
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Market risk generally represents the risk of loss that may result from the potential change in
value of a financial instrument as a result of fluctuations in interest rates and market prices. We
do not currently have any trading derivatives nor do we expect to have any in the future. We have
established policies and internal processes related to the management of market risks, which we use
in the normal course of our business operations.
29
Interest Rate Risk
We have interest rate risk, as borrowings under our credit facility are based on variable
market interest rates. As of September 30, 2009, we had $6.8 million of variable rate debt
outstanding under our credit facility. As of this date, the weighted average variable interest rate
on these obligations was 1.57%. A hypothetical 10% increase in our credit facilitys
weighted-average interest rate for the three months ended September 30, 2009, would correspondingly
decrease our earnings and operating cash flows by approximately $2,000 in the period or $8,000
annually.
Intangible Asset Risk
We have a substantial amount of intangible assets and are required to perform goodwill
impairment tests annually or whenever events or circumstances indicate that the carrying value may
not be recoverable from estimated future cash flows. As a result of our periodic evaluations, we
may determine that the intangible asset values need to be written down to their fair values, which
could result in material charges that could be adverse to our operating results and financial
position. Although at September 30, 2009, we believed our intangible assets were recoverable,
changes in the economy, the business in which we operate and our own relative performance could
change the assumptions used to evaluate intangible asset recoverability. We continue to monitor
those assumptions and their effect on the estimated recoverability of our intangible assets.
Equity Price Risk
We do not own any equity investments other than in our subsidiaries. As a result, we do not
currently have any direct equity price risk.
Commodity Price Risk
We do not enter into contracts for the purchase or sale of commodities. As a result, we do not
currently have any direct commodity price risk.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures. Under the supervision and with the
participation of the Companys management, including the Companys principal executive officer and
principal financial officer, the Company conducted an evaluation of the effectiveness of the design
and operations of its disclosure controls and procedures, as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act),
as of the end of the period covered by this report. Based on their evaluation, our principal
executive officer and principal financial officer concluded that our disclosure controls and
procedures were effective such that the material information required to be included in our
Securities and Exchange Commission (SEC) reports is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms relating to Express-1 Expedited Solutions,
Inc., including our consolidated subsidiaries, and was made known to them by others within those
entities, particularly during the period when this report was being prepared.
Changes in internal controls. There were no changes in our internal controls over financial
reporting during the last fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
From time-to-time, the Company is involved in various civil actions as part of its normal
course of business. The Company is not a party to any litigation that is material to ongoing
operations as defined in Item 103 of Regulation S-K as of the period ended September 30, 2009.
Item 1A. Risk Factors.
Refer to Item 1A of our annual report (Form 10K) for the year ended December 31, 2008, under
the caption RISK FACTORS for specific details on factors and events that are not within our
control and could affect our financial results.
30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
No unregistered equity securities were sold in the current reporting period.
Item 3. Defaults upon Senior Securities.
The Companys line of credit contains various covenants pertaining to the maintenance of
certain financial ratios. As of September 30, 2009, the Company was in compliance with the ratios
required under its revolving credit agreement. No events of default exist on the credit facility as
of the filing date.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits
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|
|
Exhibit No. |
|
Description |
|
|
|
31.1
|
|
Certification of the Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certification of the Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not
be deemed filed for the purposes of Section 18 of the Securities Exchange Act of
1934, as amended, or otherwise subject to the liability of that section. Further,
this exhibit shall not be deemed to be incorporated by reference into any filing
under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended.) |
|
|
|
32.2
|
|
Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be
deemed filed for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further,
this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended.) |
31
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
Express-1 Expedited Solutions, Inc.
|
|
|
/s/ Michael R. Welch
|
|
|
Michael R. Welch |
|
|
Chief Executive Officer |
|
|
|
/s/
David G. Yoder
|
|
|
David G. Yoder |
|
|
Chief Financial Officer |
|
|
Date: November 9, 2009
32
Exhibit Index
|
|
|
Exhibit No. |
|
Description |
|
|
|
31.1
|
|
Certification of the Chief Executive Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certification of the Chief Executive Officer Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed
filed for the purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, or otherwise subject to the liability of that section. Further, this exhibit
shall not be deemed to be incorporated by reference into any filing under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended.) |
|
|
|
32.2
|
|
Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be
deemed filed for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further,
this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended.) |
33