e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly period ended
June 30, 2006
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o
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
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For the transition period
from to
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Commission file number
Express-1 Expedited Solutions,
Inc.
(Exact name of small business
issuer as specified in its charter)
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Delaware
(State or other
jurisdiction of
incorporation or organization)
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03-0450326
(I.R.S. Employer
Identification No.)
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429 Post
Road
P.O. Box 210
Buchanan, MI 49107
(Address
of Principal Executive Offices)
(269) 695-4920
(Issuers Telephone Number,
Including Area Code)
Segmentz,
Inc.
(Issuers Former
Name)
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 is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated
filer o Accelerated
filer o Non-accelerated
filer þ
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 26,465,034 shares of its common stock
issued and 26,285,034 shares outstanding as of
July 21, 2006.
The Registrant has no shares of its preferred stock issued or
outstanding as of July 21, 2006.
Express-1
Expedited Solutions, Inc.
Form 10-Q
Three Months and Six Months Ended June 30, 2006 and 2005
(Unaudited)
Part I
Financial Information
As of June 30, 2006 and December 31, 2005
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June 30,
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December 31,
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2006
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2005
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(Unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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82,000
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$
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386,000
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Accounts receivable, net of
allowances of $504,000 and $732,000, respectively
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5,646,000
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4,434,000
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Prepaid expenses
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194,000
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326,000
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Other current assets
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42,000
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77,000
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Deferred tax asset, current
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500,000
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500,000
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Total current assets
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6,464,000
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5,723,000
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Property and equipment, net of
accumulated depreciation
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2,401,000
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2,229,000
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Goodwill
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3,567,000
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3,567,000
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Identified intangible assets
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4,411,000
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4,629,000
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Loans and advances
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166,000
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439,000
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Deferred tax asset, long term
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1,504,000
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1,504,000
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Other long term assets
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406,000
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363,000
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$
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18,919,000
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$
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18,454,000
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LIABILITIES AND
STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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1,202,000
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$
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924,000
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Accrued salaries and wages
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391,000
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397,000
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Accrued expenses, other
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1,012,000
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2,721,000
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Current maturities of long term
debt
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177,000
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242,000
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Other current liabilities
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252,000
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97,000
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Total current liabilities
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3,034,000
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4,381,000
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Line of credit
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2,805,000
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1,764,000
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Notes payable and capital leases,
net of current maturities
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140,000
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824,000
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Other long-term liabilities
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190,000
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199,000
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Total long-term liabilities
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3,135,000
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2,787,000
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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, $.001 par value;
100,000,000 shares authorized; 26,465,034 shares
issued and 26,285,034 shares outstanding
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26,000
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26,000
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Additional paid-in capital
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20,371,000
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20,312,000
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Accumulated deficit
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(7,540,000
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(8,945,000
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Treasury stock, at cost,
180,000 shares held
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(107,000
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(107,000
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Total stockholders equity
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12,750,000
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11,286,000
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$
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18,919,000
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$
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18,454,000
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The accompanying notes are an integral part of the financial
statements.
2
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Three Months Ended
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Six Months Ended
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June 30
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June 30
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June 30
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June 30
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2006
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2005
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2006
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2005
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(Unaudited)
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Revenues
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Operating revenue
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$
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11,120,000
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$
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10,290,000
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$
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20,675,000
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$
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20,639,000
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Expenses:
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Direct expenses
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8,257,000
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8,057,000
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15,386,000
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16,435,000
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Gross profit
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2,863,000
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2,233,000
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5,289,000
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4,204,000
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Sales, general and administrative
expense
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1,923,000
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2,903,000
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3,644,000
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5,912,000
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Restructuring, exit and
consolidation expense
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375,000
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3,958,000
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Total sales, general and
administrative expense
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1,923,000
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3,278,000
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3,644,000
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9,870,000
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Other expense
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29,000
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114,000
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132,000
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119,000
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Interest Expense
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63,000
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52,000
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108,000
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76,000
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Income (loss) before income tax
provision
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848,000
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(1,211,000
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)
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1,405,000
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(5,861,000
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)
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Income tax (benefit) provision
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Net income (loss)
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$
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848,000
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$
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(1,211,000
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)
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$
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1,405,000
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$
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(5,861,000
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)
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Basic income (loss) per common
share
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0.03
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(0.05
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)
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0.05
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(0.22
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)
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Basic weighted average common
shares outstanding
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26,285,034
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26,730,034
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26,285,034
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26,717,672
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Diluted income (loss) per common
share
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0.03
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(0.05
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)
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0.05
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(0.22
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)
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Diluted weighted average common
shares outstanding
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26,441,809
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26,730,034
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26,398,952
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26,717,672
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The accompanying notes are an integral part of the financial
statements.
3
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Six Months Ended June 30,
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2006
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2005
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(Unaudited)
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Operating activities
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Net Income (loss) applicable to
stockholders
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$
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1,405,000
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$
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(5,861,000
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)
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Adjustments to Reconcile Net
Income (loss) to Net Cash from Operating Activities
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Provisions for allowance for
doubtful accounts
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(228,000
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)
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138,000
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Depreciation &
amortization expense
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513,000
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861,000
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Stock compensation expense
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59,000
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Loss on forgiveness of debt
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90,000
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Non-cash impairment of intangible
assets
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3,303,000
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Unrealized gain (loss) on market
value of trading stock
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88,000
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Loss on disposal of equipment
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21,000
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12,000
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Non-cash expenses relate to the
issuance of stock and warrants
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67,000
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Changes in Assets and Liabilities
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Account receivables
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(949,000
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)
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1,899,000
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Other current assets
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35,000
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(215,000
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)
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Prepaid expenses and other current
assets
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130,000
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768,000
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Other long-term assets
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(74,000
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)
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(274,000
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)
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Accounts payable
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279,000
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(591,000
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)
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Accrued expenses
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(255,000
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)
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132,000
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Other liabilities
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154,000
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(102,000
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)
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(225,000
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)
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6,086,000
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Cash provided by Operating
Activities
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1,180,000
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225,000
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Investing activities
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Payment of acquisition earn-out
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(1,460,000
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)
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(1,519,000
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)
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Payment for purchases of property
and equipment
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(472,000
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)
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(220,000
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)
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Proceeds from sale of assets
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6,000
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481,000
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Proceeds from loans and advances
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150,000
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2,000
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|
|
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|
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Cash Flows used by Investing
Activities
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(1,776,000
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)
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(1,256,000
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)
|
Financing activities
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Credit line, net
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|
394,000
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|
|
|
1,124,000
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Payments of debt
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|
(102,000
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)
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|
(239,000
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)
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Cash Flows used by Financing
Activities
|
|
|
292,000
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|
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885,000
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|
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|
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|
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Net decrease in cash and cash
equivalents
|
|
|
(304,000
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)
|
|
|
(146,000
|
)
|
Cash and cash equivalents,
beginning of period
|
|
|
386,000
|
|
|
|
854,000
|
|
|
|
|
|
|
|
|
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Cash and cash equivalents, end
of period
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|
$
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82,000
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|
|
$
|
708,000
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|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of
cash flow information and noncash investing and financing
activities:
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|
|
|
|
|
|
|
|
Cash paid during the year for
interest
|
|
$
|
101,000
|
|
|
$
|
52,000
|
|
Cash paid during the year for
income taxes
|
|
$
|
|
|
|
$
|
|
|
Debt used to finance purchase of
building
|
|
$
|
647,000
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|
|
$
|
680,000
|
|
The accompanying notes are an integral part of the financial
statements.
4
Express-1
Expedited Solutions, Inc.
Consolidated Statement of Changes in Stockholders
Equity
Six Months Ended June 30, 2006
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Additional
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Retained
|
|
|
|
|
|
|
Common Stock
|
|
|
Treasury Stock
|
|
|
Paid In
|
|
|
Earnings
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|
|
|
|
|
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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
|
|
|
(Deficit)
|
|
|
Total
|
|
|
|
(Unaudited)
|
|
|
Balance, December 31, 2005
|
|
|
26,465,034
|
|
|
$
|
26,000
|
|
|
|
(180,000
|
)
|
|
$
|
(107,000
|
)
|
|
$
|
20,312,000
|
|
|
$
|
(8,945,000
|
)
|
|
$
|
11,286,000
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
1,405,000
|
|
|
|
1,405,000
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,000
|
|
|
|
|
|
|
|
59,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2006
|
|
|
26,465,034
|
|
|
$
|
26,000
|
|
|
|
(180,000
|
)
|
|
$
|
(107,000
|
)
|
|
$
|
20,371,000
|
|
|
$
|
(7,540,000
|
)
|
|
$
|
12,750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
The accompanying notes are an integral part of the financial
statements.
5
1. Significant
Accounting Principles
Basis
of Presentation
The accompanying unaudited condensed consolidated financial
statements of Express-1 Expedited Solutions, Inc. (formerly,
Segmentz 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
June 30, 2006 and results of operations for the three and
six months ended June 30, 2006 and 2005.
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, 2005 included in our Annual Report on
Form 10KSB 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.
In conjunction with the preparation of these statements, the
Company evaluated its historical performance, as well as its
expected performance for the remainder of 2006 as a basis for
determining whether the Company should be considered to have
operational, liquidity and other concerns that might raise
doubts about its continuance and ability to meet future
financial obligations. Among the items considered in this
analysis were the historical losses, the significance of
restructuring charges, the completeness of the restructuring,
the historical performance of the Companys expedited,
Express-1 and Evansville, operations and the availability and
adequacy of the Companys liquidity and capital resources.
In the opinion of the Companys management, based upon the
above analysis, the Company should be considered as a going
concern. Additional business risk factors have been outlined in
the Companys annual report filed on
Form 10-KSB
and in the Companys quarterly report for the first quarter
of 2006 as filed on
form 10-Q
are available on both the Companys (www.express-1.com) and
SEC websites.
Stock-Based
Compensation
The Company has in place a stock option plan initially approved
by the shareholders for 600,000 shares of stock in November
2001 and later increased by the shareholders to
5,600,000 shares in June 2005. Through the plan, the
Company offers shares to employees and to assist in the
recruitment of qualified employees and non-employee directors.
Under the plan, the Company may also grant restricted stock
awards. Restricted stock represents shares of common stock
issued to eligible participants under the stock option plan
subject to the satisfaction by the recipient of certain
conditions and enumerated in the specific restricted stock
grant. Conditions that may be imposed include, but are not
limited to, specified periods of employment, attainment of
personal performance standards or the Companys overall
financial performance.
Options generally become fully vested three to four years from
the date of grant and expire five years from the date of grant.
During the quarter ended June 30, 2006, we granted new
options to purchase 125,000 shares of common stock at an
average exercise price of $1.04 vesting over a two-year term and
containing a five year life. At June 30, 2006, the Company
had 3,026,143 shares available for future stock option
grants under existing plans.
Prior to January 1, 2006, we accounted for stock-based
compensation using the intrinsic value method in accordance with
Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees and related
interpretations. Based upon this previous guidance, compensation
expense related to stock option grants was recorded on the date
of the grant only if the current market price of the underlying
stock exceeded the exercise
6
Express-1
Expedited Solutions, Inc.
Notes to
Consolidated Financial
Statements (Continued)
price. Under APB No. 25, we recognized the cost of
restricted stock over the applicable vesting period. We had no
restricted stock awarded under our plan prior to January 1,
2006. Prior to January 1, 2006, we did not record
compensation expense related to unexercised stock options and
provided pro forma disclosure amounts in our footnotes in
accordance with Statement No. 148, Accounting for
Stock-Based Compensation Transition and
Disclosure.
Effective January 1, 2006, we adopted the provisions of
Statement of Financial Accounting Standards (SFAS)
No. 123(R), Share-Based Payment. Under the
modified prospective approach, SFAS 123(R) applies to new
awards granted subsequent to the date of adoption,
January 1, 2006. Compensation cost recognized during the
three and six months ended June 30, 2006 includes
compensation cost for all share-based payments granted prior to,
but not yet vested as of January 1, 2006, based on the
grant date fair value estimated in accordance with the original
provisions of SFAS 123, and compensation cost for all share
based payments granted subsequent to January 1, 2006, based
on the grant date fair value estimated in accordance with the
provisions of SFAS 123(R). Prior periods were not restated
to reflect the impact of adopting the new standard, and there is
no cumulative effect.
As a result of adopting SFAS 123(R), our income from
operations before taxes, net increase in net assets and basic
earnings per share for the three month period ended
June 30, 2006 were $30,000, $30,000, and $0.00 lower,
respectively, than if we had continued to account for stock
based compensation under APB Opinion No. 25 for our stock
option grants. Our income from operations before taxes, net
increase in net assets and basic earnings per share for the six
month period ended June 30, 2006 were $59,000, $59,000, and
$0.00 lower, based upon this same adoption of FAS 123R. Our
diluted earnings per share for the three and six-month periods
ended June 30, 2006 did not change.
For the three and six months ended June 30, 2005, the
following table includes the disclosures required by Statement
No. 123R, and illustrates the proforma impact on net
earnings per share as if we had applied the fair value
recognition provision of Statement No. 123R.
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2005
|
|
|
June 30, 2005
|
|
|
Net loss as reported
|
|
$
|
(1,211,000
|
)
|
|
$
|
(5,861,000
|
)
|
Total stock-based employee
compensation included in reported net income applicable to
common stockholder, net of tax
|
|
|
|
|
|
|
|
|
Total stock-based employee
compensation determined under fair value based method, net of
tax effects
|
|
|
(53,000
|
)
|
|
|
(104,000
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$
|
(1,264,000
|
)
|
|
$
|
(5,965,000
|
)
|
|
|
|
|
|
|
|
|
|
Basic loss per share
as reported
|
|
$
|
(0.05
|
)
|
|
$
|
(0.22
|
)
|
Basic pro forma loss per share
|
|
$
|
(0.05
|
)
|
|
$
|
(0.22
|
)
|
Diluted loss per share
as reported
|
|
$
|
(0.05
|
)
|
|
$
|
(0.22
|
)
|
Diluted pro forma loss per share
|
|
$
|
(0.05
|
)
|
|
$
|
(0.22
|
)
|
7
Express-1
Expedited Solutions, Inc.
Notes to
Consolidated Financial
Statements (Continued)
The weighted-average fair value of each stock option included in
the preceding pro forma amounts was estimated on the date of
grant using the Black-Scholes option pricing model and is
amortized over the vesting period of the underlying options. We
have used one grouping for the assumptions, as our 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 following assumptions were utilized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Risk-free interest rate
|
|
|
4.35
|
%
|
|
|
|
|
|
|
4.35
|
%
|
|
|
2.80
|
%
|
Expected life
|
|
|
5.0 years
|
|
|
|
|
|
|
|
5.0 years
|
|
|
|
5.0 years
|
|
Expected volatility
|
|
|
31
|
%
|
|
|
|
|
|
|
26
|
%
|
|
|
35
|
%
|
Expected dividend yield
|
|
|
none
|
|
|
|
|
|
|
|
none
|
|
|
|
none
|
|
Grant date fair value
|
|
$
|
0.37
|
|
|
|
|
|
|
$
|
0.19
|
|
|
$
|
0.18
|
|
The following table summarizes the stock option activity for the
six months ended June 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Weighted Average
|
|
|
Remaining
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Contractual Life
|
|
|
Outstanding at beginning of period
|
|
|
13,126,950
|
|
|
$
|
1.52
|
|
|
|
|
|
Warrants granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants expired/cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
750,000
|
|
|
|
1.17
|
|
|
|
|
|
Options expired/cancelled
|
|
|
455,714
|
|
|
|
1.64
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
13,421,236
|
|
|
$
|
1.49
|
|
|
|
2.55 Years
|
|
Outstanding exercisable at end of
period
|
|
|
10,996,179
|
|
|
$
|
1.52
|
|
|
|
2.24 Years
|
|
As of June 30, 2006, there was approximately $294,000 of
unrecognized compensation cost related to non-vested share-based
compensation that is anticipated to be recognized over a
weighted average period of approximately 1.4 years.
Estimated compensation expense related to existing share-based
plans is $120,000 and $125,000 for the years ended
December 31, 2006 and 2007, respectively.
At June 30, 2006, the aggregate intrinsic value of shares
outstanding was $20,018,000 and the aggregate intrinsic value of
options exercisable was $16,741,000. No options were exercised
during the six-month period ended June 30, 2006. The total
fair value of options vested during the six-month period ended
June 30, 2006 was $59,000.
Use of
Estimates
The Company prepares its consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America. These principles require management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the 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,
8
Express-1
Expedited Solutions, Inc.
Notes to
Consolidated Financial
Statements (Continued)
recoverability of long-lived assets, recoverability of prepaid
expenses, valuation of investments, allowance for doubtful
accounts and expenses associated with the exercise of stock
options 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; however, actual results could differ
from these estimates.
Income
Taxes
Taxes on income are provided in accordance with
SFAS No. 109, Accounting for Income Taxes.
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 in place a valuation allowance of approximately $1,534,000
on deferred tax assets, as of June 30, 2006. The Company
has gross federal net operating loss carry forwards of
approximately $7.6 million as of June 30, 2006.
Earnings
Per Share
Earnings per common share are computed in accordance with
SFAS No. 128, Earnings Per Share, which
requires companies to present basic earnings per share and
diluted earnings per share. 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 common 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.
For purposes of calculating earnings per share, the basic
weighted average number of shares was 26,285,034 and 26,730,034
for the three-month period ended June 30, 2006 and 2005.
The basic weighted average number of shares was 26,285,034 and
26,717,672 for the six-month period ended June 30, 2006 and
2005. The diluted weighted average number of shares outstanding
was 26,441,809 and 26,730,034 for the three-month period ended
June 30, 2006 and 2005, respectively. The diluted weighted
average number of shares outstanding was 26,398,952 and
26,727,269 for the six-month period ended June 30, 2006 and
2005, respectively.
Common stock equivalents in the three and six-month periods
ended June 30, 2005 were anti-dilutive due to the net
losses sustained by the Company during this period. As a
consequence, the diluted weighted average common shares
outstanding for the three and six-month periods ended
June 30, 2005 were the same as the basic weighted average
common shares outstanding, for purposes of calculating earning
per share.
2. Recent
Accounting Pronouncements
In March 2006, the FASB issued SFAS No. 156,
Accounting for Servicing of Financial Assets
an amendment of FASB Statement No. 140
(SFAS 156). SFAS 156 requires an entity to
recognize a servicing asset or liability each time it undertakes
an obligation to service a financial asset by entering into a
servicing contract in specified situations. Such servicing
assets or liabilities would be initially measured at fair value,
if practicable and subsequently measured at amortized value or
fair value based upon an election of the reporting entity.
SFAS 156 also specifies certain financial statement
presentations and disclosures in connection with servicing
assets and liabilities. SFAS 156 is effective for fiscal
years beginning after September 15, 2006 and may be adopted
earlier but only if the adoption is in the first quarter of the
fiscal year. The Company does not expect that the adoption of
SFAS 156 will have a material effect on its Consolidated
Financial Statements.
9
Express-1
Expedited Solutions, Inc.
Notes to
Consolidated Financial
Statements (Continued)
In July 2006, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation No. 48
(FIN 48), Accounting for Uncertainty in Income
Taxes, which is an interpretation of SFAS No. 109,
Accounting for Income Taxes. FIN 48 clarifies the
accounting for income taxes by prescribing the minimum
recognition threshold a tax position is required to meet before
being recognized in the financial statements. FIN 48 also
provides guidance on derecognition, measurement, classification,
interest and penalties, accounting in interim periods,
disclosure and transition. In addition, FIN 48 clearly
scopes out income taxes from Financial Accounting Standards
Board Statement No. 5, Accounting for Contingencies.
FIN 48 is effective for fiscal years beginning after
December 15, 2006. The Company anticipates adopting
FIN 48 in the fiscal year starting January 1, 2007 and
cannot reasonably estimate the impact of this interpretation at
this time.
|
|
3.
|
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 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 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.
Line
of Credit
In November 2005, the Company entered into an agreement with a
Michigan banking corporation (the Bank), under which
the Bank extended an asset-based line of credit to the Company,
through its wholly owned subsidiary, Express-1, Inc. with
Express-1 Expedited Solutions, Inc. (Company) acting as
guarantor. Under the terms of the agreement, Express-1 may draw
down amounts under the facility not to exceed $6.0 million
in the aggregate, at interest rates that are based upon the
Banks prime lending rate. The amount that may be drawn at
any time is limited to the lessor of $6.0 million or 80% of
eligible accounts receivable, plus $800,000, for pledged real
property. Company assets pledged as collateral for the borrowing
base include its trade accounts receivable and adjacent parcels
of real property located at 429 and 441 Post Road in Buchanan,
Michigan. As of June 30, 2006, availability under the line
of credit was approximately $2.2 million, with an
applicable rate of interest of approximately 8.00%. Rates of
interest are indexed quarterly, based upon the Companys
performance and the Banks prime lending rate. The facility
has a maturity date of November 15, 2007.
Bank
Note
In April 2005, the Company entered into a mortgage with a
Michigan Banking Corporation for approximately $680,000 related
to the purchase of real property located at 429 Post Road in
Buchanan, Michigan. The note had a ten-year amortization and
bore interest at a fixed rate of approximately 6%; with a final
balloon payment for all accrued interest and principal after
five years.
In conjunction with the credit facility entered into in November
2005, the Company repaid and retired the mortgage note during
March of 2006, as part of the financing arranged with its
current Bank. The Company paid an early termination fee of
approximately $13,000 in conjunction with the retirement of this
note.
10
Express-1
Expedited Solutions, Inc.
Notes to
Consolidated Financial
Statements (Continued)
|
|
5.
|
Restructuring,
Exit and Consolidation Expenses
|
During the fourth quarter of 2004, shortly after the Express-1,
Inc. acquisition was completed, the Company implemented a
restructuring plan aimed at optimizing performance in its call
center operations, consolidating duplicate functions from
several locations, eliminating unprofitable businesses and
focusing the Company on providing premium transportation
services. Early in 2005, the Companys Board of Directors
expanded the restructuring plan to include the elimination of
all non-expedite services and the elimination of excess overhead
costs, including the consolidation of the Companys
administrative and management functions within its Buchanan,
Michigan location. The restructuring plan was completed during
the third quarter of 2005.
As a result of the restructuring plan, the Company incurred
$375,000 and $3,958,000 of charges and accruals associated with
restructuring for the three and six-month periods ended
June 30, 2005, respectively.
Future estimated net lease obligations through July 2009 have
been accrued at approximately $168,000 for the sole remaining
closed facility.
In conjunction with its restructuring plan, the Company sold
assets in its Temple and Bullet operations in July and August of
2005, respectively. As a condition to these sales, the Company
granted working capital financing and equipment financing to the
respective buyers under the agreements.
In March 2006, the Company agreed to accept the sum of $150,000
in full settlement of the notes receivable from the purchasers
of the Bullet operations. In connection therewith, the Company
recorded a one-time loss on this settlement of $90,000. This
amount is reflected in the financial statements under the
caption Other expenses.
|
|
7.
|
Related
Party Transaction
|
In June 2006, the Company issued to the former owners of
Express-1,
Inc. the amount of $256,250 to satisfy the balance of its
contingent earn-out payments for calendar 2005. As reported in
its Form 10KSB for the year ended December 31, 2005,
the Company had previously committed to the issuance of 258,799
shares of its common stock for the satisfaction of its 2005
earn-out payments. The Companys Board of Directors, at the
recommendation of the Companys management, determined that
a cash payment was in its best interests and gained approval
from the former owners of
Express-1,
Inc. for this payment. The Companys President and CEO,
Mike Welch, is among the former owners of
Express-1,
Inc. and received approximately 41% of this distribution.
Members of Mr. Welchs extended family, who were also
former owners of
Express-1,
Inc., collectively received 32% of the distribution, exclusive
of Mr. Welchs proceeds.
11
|
|
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.
However, whether actual results or developments will conform
with the Companys expectations and predictions is subject
to a number of risks and uncertainties, general economic market
and business conditions; the business opportunities (or lack
thereof) that may be presented to and pursued by the Company;
changes in laws or regulation; and other factors, most of which
are beyond the control of the Company.
This
Form 10-Q
contains statements that constitute forward-looking
statements. These forward-looking statements can be
identified by the use of predictive, future-tense or
forward-looking terminology, such as believes,
anticipates, expects,
estimates, plans, may,
will, or similar terms. These statements appear in a
number of places in this filing and include statements regarding
the intent, belief or current expectations of the Company, its
directors or its officers with respect to, among other things:
(i) trends affecting the Companys financial condition
or results of operations for its limited history; (ii) the
Companys business and growth strategies; (iii) the
Companys ability to integrate the companies it has
acquired and, (iv) the Companys financing plans.
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 as a result of various factors. Factors that could
adversely affect actual results and performance include, among
others, the Companys limited operating history, 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.
Executive
Summary
Express-1 Expedited Solutions, Inc. (formerly, Segmentz, Inc.)
(we, us, our and the
Company) operates as an expedited transportation
company. We provide our services to over 1,000 customers,
specializing in time sensitive transportation fulfilled through
a variety of exclusive use vehicles, providing reliable same day
or high priority service between points within the United States
and parts of Canada. Our services include expedited surface
transportation, aircraft charters and dedicated expedited
delivery. Our vehicle classifications include cargo vans, both
12 foot and 24 foot straight trucks and tractor-trailers. We
offer an ISO 9001:2000 certified, twenty-four hour, seven day a
week call center allowing our customers immediate communication
and status updates on time sensitive shipments while in-transit.
Our customers are provided with electronic alerts, shipment
tracking, proof of delivery reconciliation, billing status and
performance reports. We are dedicated to providing premium
services that are customized to meet our clients
individual needs and flexible enough to cope with an
ever-changing business environment.
We refer to our primary expedite transportation services which
represent approximately 89% of our consolidated revenues as
Express-1. Our dedicated expedite operations managed from
Evansville, Indiana which represents approximately 11% of our
consolidated revenues is referred to as Evansville or Evansville
Dedicated.
Our customers are supported through two primary service
locations. Our Express-1 operations are located in Buchanan,
Michigan, while our dedicated operations are located in
Evansville, Indiana. The Express-1 operations have historically
been profitable, while the Evansville operations became
profitable during 2005, in conjunction
12
with our restructuring efforts. These two expedited operations
are complementary and provide us with a core base of focused
transportation services, on which to build.
Express-1 specializes in time critical deliveries and offers a
variety of vehicle capacities, including vans, straight trucks
and semis. Using an asset-light model, Express-1 provides its
services through a fleet of independent contractors. These
services are offered throughout the United States and certain
provinces of Canada. Express-1 has been recognized for its
excellence in customer service and acts as a Tier 1
supplier to major automotive manufacturers. Express-1 serves the
needs of a diverse client base including a number of Fortune
500 companies and third-party logistics providers.
We operate a dedicated expedite service providing order
fulfillment from our Evansville, Indiana automotive parts
distribution facility. These services are provided via a fleet
of company operated trucks and trailers. The dedicated service
contract extends through April 2007. We are currently in
discussions with our primary customer in an effort to renew the
contract for another multi-year term. We are hopeful we will be
able to complete this extension, prior to the expiration of the
current contract.
Our growth strategy centers on organic initiatives, which we
feel will continue to enhance both our top and bottom lines.
Through organic means, our management team anticipates we will
be able to increase our fleet capacity, expedited market
presence and geographic footprint. Complementing this internal
growth, we plan to entertain selective acquisitions on occasion,
to further support our expedited market focus.
Our board of directors, management team and employees are
focused on expanding our expedited operations. In support of
this strategy, we asked for and received shareholder approval to
change our company name to
Express-1
Expedited Solutions in conjunction with our annual
shareholders meeting. Express-1 has become a recognized
leader in the expedited transportation market since its
inception in 1989. We believe our Company, Express-1 Expedited
Solutions, Inc. is the only singularly focused expedited
transportation company to be publicly owned within the United
States at this time.
Restructuring
In the second half of 2004, shortly after the acquisition of
Express-1, Inc., our Board of Directors and management team
implemented a restructuring plan (the Plan) for our
Company. The Plan called for the closing of our unprofitable
companies, operations and locations. It also refocused our
Company on our profitable expedited transportation businesses.
Throughout the fall of 2004, we exited our
airport-to-airport
business and consolidated our Dasher business into our other
expediting operations. Continuing this restructuring activity in
2005, we exited our Tampa brokerage in addition to our Temple
and Bullet operations. We completed the relocation of our
executive offices from Tampa, Florida to Buchanan, Michigan. In
conjunction with this move, we appointed new executive
leadership with extensive transportation industry experience.
13
Due to the restructuring efforts, we were able to eliminate the
need for physical facilities in eighteen (18) locations,
thereby greatly reducing our overhead burden. Headcount was
reduced from a high of approximately 475 to approximately 125
employees at the conclusion of the restructuring period. The
table below outlines the restructuring charges recorded during
the three and six months ended June 30, 2005. As previously
stated, the Company completed its restructuring activities in
the third quarter of 2005, and consequently no restructuring
charges have been recorded thereafter.
Restructuring
Charges
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
Classification
|
|
June 30, 2005
|
|
|
June 30, 2005
|
|
|
Writeoff of goodwill and
intangibles
|
|
$
|
|
|
|
$
|
2,010,000
|
|
Writeoff and impairment of assets
|
|
|
|
|
|
|
968,000
|
|
Other restructuring expenses
|
|
|
|
|
|
|
295,000
|
|
Writeoff of uncollectible accounts
|
|
|
|
|
|
|
310,000
|
|
Employee related expenses
|
|
|
375,000
|
|
|
|
375,000
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
$
|
375,000
|
|
|
$
|
3,958,000
|
|
For
the three months ended June 30, 2006 compared to the three
months ended June, 2005.
All results normally expressed in dollars have been rounded to
the nearest one thousand dollars, with the exception of earnings
per share data, which is expressed in whole dollars and cents.
Comparisons of results for those line items that have been
rounded are approximate, due to rounding.
Revenue Consolidated revenue increased by
$830,000, or 8%, to $11,120,000 for the quarter ended
June 30, 2006, as compared to $10,290,000 for the quarter
ended June 30, 2005. The change was primarily attributable
to organic increases in revenue of approximately 38% and 18%
within our core business operations Express-1 and Evansville
respectively, during the second quarter of 2006 compared to the
second quarter of 2005. Mitigating the increases in revenue
within our core business was the period over period decline in
revenue associated with the cessation of unprofitable businesses
during 2005 in conjunction with our restructuring efforts.
Revenue derived from operations closed in our restructuring
totaled $2,065,000 during the second quarter of 2005. Fuel
prices also played a part in the increase in consolidated
revenue during the second quarter. Fuel surcharges were $937,000
or 8% of consolidated revenue during the current quarter
compared to $564,000 or 6% of consolidated revenue for the same
period in 2005. For purposes of this comparison, we have only
considered fuel surcharges within our core business, Express-1
and Evansville, and excluded those associated with our brokerage
business and closed operations.
Express-1 Operations Revenue increased within
our Express-1 operations by $2,708,000 or 38% in the second
quarter of 2006 as compared to the same quarter in the prior
year. The increase in Express-1 revenue was largely attributable
to a 28% increase in the average size of our fleet of
independent contractors during the second quarter of 2006
compared to the same period in 2005. Supporting this increase in
fleet capacity has been an increase in overall demand for our
Express-1 expedited services as evidenced by the increase in
fleet utilization. Our primary measure of utilization is loaded
miles per unit per week. In the current quarter, this
measurement increased by 9% at Express-1, as compared to the
second quarter of 2005. Loads hauled by third parties (brokerage
business) represented approximately 22% and 24% of revenue for
the three-month periods ended June 30, 2006 and 2005,
respectively.
Evansville Operations In Evansville our
dedicated operations experienced a revenue increase of
approximately $187,000 or 18% during the second quarter of 2006
as compared to the second quarter of 2005. The increase is
partially due to a rate increase received in mid-year 2005 from
our primary Evansville customer. To a lesser extent the
Evansville revenue increase was associated with the expansion of
local freight movements.
14
Direct Expenses Direct expenses, which
consist primarily of payments for trucking services provided by
both independent contractors and partner carriers, fuel,
insurance, equipment costs and payroll expenses increased by
$200,000 or 3%, to $8,257,000 for the three months ended
June 30, 2006, compared to $8,057,000 for the three months
ended June 30, 2005. As a percentage of revenue, direct
expenses decreased to 74% of consolidated revenue for the three
months ended June 30, 2006, compared with 78% of
consolidated revenue for the same period in the prior year. The
dollar increase in direct expense resulted primarily from
increases in the volume of purchased transportation and other
direct expenses corresponding to the rate of revenue growth in
our Express-1 operations. Improvements in operating leverage
yielded a lower overall increase in the rate of direct expenses
as a percentage of revenue for the current quarter compared to
the same period in the prior year. The elimination of expenses
associated with closed operations helped further reduce direct
expenses both overall and as a percentage of revenue during the
second quarter of 2006 compared to the second quarter of 2005.
During the second quarter of 2005, we incurred $1,605,000 of
direct expense from operations eliminated during our
restructuring efforts. Rising fuel prices also played a part in
the overall increase in direct expense, during the second
quarter of 2006 compared to the second quarter of 2005. On a
consolidated basis, we incurred $817,000 of fuel surcharge
expense in the second quarter of 2006 compared to $500,000 of
fuel surcharge expense for the same period in the prior year.
Express-1 Operations Within Express-1, while
revenue increased by 38%, direct expense only increased by 34%
for the period. Contributing to the slower rate of increase in
direct expenses for Express-1 were improvements in fuel and
equipment costs and decreases in insurance and licensing costs.
During 2006 Express-1 recognized a slight increase in its cost
of purchased transportation, due to rate adjustments put in
place to increase the rates of compensation for our independent
contractors and reward them for miles run and driver referrals.
Evansville Operations Within our Evansville
operations, direct expenses as a percentage of associated
revenue decreased during the current period to 79% of associated
revenue as compared to 97% of associated revenue during the same
period in the prior year. The decrease in expenses within
Evansville is principally the result of revenue rate increases
received during 2005, and a reduction in purchased
transportation expense due to a reduced reliance upon third
parties to provide transportation. Complementing this increase
in revenue were reductions in expenses associated with insurance
and equipment maintenance during the second quarter of 2006, as
compared to the second quarter of 2005.
Gross Margin Gross margin improved by
$630,000 or 28% during the second quarter of 2006 as compared to
the same period in the prior year. Gross margin for the quarter
ended June 30, 2006 was $2,863,000 as compared to
$2,233,000 for the quarter ended June 30, 2005. As a
percentage of revenue, gross margin improved to 26% of revenue
for the second quarter of 2006 compared to 22% of revenue in the
same quarter in 2005. The improvement in margin resulted
primarily from operating improvements within our Express-1 and
Evansville businesses due to the reductions in direct cost
coupled with a general increase in rates within our Evansville
operations as previously mentioned. Complementing the margin
improvement from these actions was the elimination of lower
margin operations due to our restructuring efforts. Fuel prices
negatively affected gross margin during the second quarter of
2006, as compared to the same quarter of 2005. Our Express-1
business effectively passes 100% of fuel surcharge revenue to
our fleet of independent drivers in the form of supplemental
fuel surcharge payments. Within our Evansville operations, fuel
surcharges help offset the cost of fuel for our company operated
fleet. During the second quarter of 2006, gross margin as a
percentage of revenue was reduced approximately
2 percentage points due to the price of fuel. This compares
unfavorably to the same period in the prior year when the effect
of fuel price was a reduction in gross margin as a percentage of
revenue of approximately 1 percentage point. While reducing
our margin expressed as a percentage of revenue, fuel surcharge
revenue and fuel expense have not historically had a material
impact on our income as we have been successful in matching fuel
surcharge payments and fuel expenses to fuel surcharge revenue.
Sales, General and Administrative Sales,
general and administrative expense (SG&A) decreased by
$1,355,000 or 41% to $1,923,000 for the quarter ended
June 30, 2006 compared to $3,278,000 for the quarter ended
June 30, 2005. Included within SG&A expenses was
approximately $375,000 of identified restructuring costs in the
second quarter of 2005. As a percentage of revenue, SG&A
expenses, exclusive of restructuring charges, represented 17% of
revenue in the quarter ended June 30, 2006 compared to 28%
of revenues for the same quarter of 2005. The decrease in
SG&A costs as a percentage of revenue for the current period
primarily resulted from our
15
successful restructuring efforts. Included within the
restructuring activities were the closing of approximately 18
locations, a reduction in headcount by approximately 350
employees, the elimination of corporate offices in Tampa
Florida, and a streamlining of our expenses associated with
ongoing activities. Included within SG&A costs is a smaller
group of expenses we classify as corporate charges, which
includes such items as the cost of our executive management,
board of directors, public company expenses, legal expenses,
professional fees and interest costs for the consolidated
company. For the second quarter of 2006, corporate charges were
$365,000 compared to $785,000 for the same quarter of 2005. The
reduction in corporate charges is associated with the
elimination of the Tampa administrative offices and a reduction
in the costs associated with executives, legal and professional
fees, outside services and other administrative expenses. We
believe SG&A, to include corporate charges, as a percentage
of revenue, has normalized at a sustainable level, barring any
unforeseen events and seasonal fluctuations. We further believe
the rate of increase in future SG&A expenses will be lower
than the rate of increase for revenue and direct operating
expenses, based upon our operational model.
Interest and Other Expense Interest charges
and other expenses decreased $74,000 to $92,000 during the
second quarter of 2006, as compared to $166,000 during the same
quarter in 2005. The decrease was primarily the result of
changes in the line item, gain and loss on sale of assets,
mitigated somewhat by a slight increase in overall interest
expense. During the second quarter of 2006 we recorded a small
gain on sale of assets of $6,000 as compared to the second
quarter of 2005 when we recognized a loss on sale of assets of
$100,000. The magnitude of the loss on sale in during 2005
resulted from the disposal of various equipment in conjunction
with our shift towards a more asset light business model, in
accordance with our restructuring plan.
Net Income Before Tax Net income before tax
was $848,000 for the quarter ended June 30, 2006 compared
to a loss from of $1,211,000 for the quarter ended June 30,
2005. The improvement is primarily associated with the
disposition of our unprofitable business operations in
conjunction with our restructuring efforts. Complementing the
cessation of unprofitable businesses were increases in revenue
within our Express-1 and Evansville operations. These same
operations also experienced some decreases in direct and
administrative costs as a percentage of revenue as we have
continued to focus on increasing our operating leverage and
controlling costs. During the three-month period ended
June 30, 2006, our operating ratio improved to 91.8% of
consolidated revenue. This compares very favorably with the same
three-month period in the prior year when our operating ratio
was 111.4% of consolidated revenue. We define operating ratio as
the ratio of all operating expenses (direct and SG&A)
compared to consolidated revenue. For purposes of calculating
operating ratio, we exclude both fuel surcharge revenue and
associated fuel surcharge payments from our calculations.
Tax Provision (Benefit) There was no tax
provision recorded for the quarter ended June 30, 2006 and
no tax benefit recorded for the quarter ended March 31,
2005. The lack of tax provision in the second quarter of 2006 is
due primarily to the magnitude of historical losses. The company
has a valuation allowance that effectively offsets current tax
provisions. During the quarter, this allowance was reduced by
approximately $316,000 to approximately $1,534,000. The lack of
tax benefit in the second quarter of 2005 was due to the
significance of net operating losses in the preceding quarters.
Based on the historical lack of profitability in periods leading
up to the second quarter of 2005, we estimated we were unlikely
to utilize tax benefits in future periods. Consequently, we
recorded an adjustment to the valuation allowance equal to the
tax benefit that otherwise would have been recorded. Along with
the return to profitability, we anticipate reducing the
valuation allowance during the fourth quarter of 2006 and
anticipate recording a small amount of tax provision later in
2006, due to limitations on the amount of net operating loss
carry-forward that can be used to offset federal Alternative
Minimum Tax.
Net Income Net Income for the quarter ended
June 30, 2006 was $848,000 as compared to a net loss of
$1,211,000 for the quarter ended June 30, 2005. As
previously mentioned, the change in net income resulted
primarily from the successful completion of our restructuring
efforts, increases in revenue within Express-1 and Evansville
and reductions in direct and SG&A costs in relationship to
associated revenue.
Earning per Share Basic and diluted income
per share for the quarter ended June 30, 2006 was $0.03,
compared with basic and diluted loss per share of $0.05 for the
three-month period ended June 30, 2005. The shares used in
the calculation of diluted loss per share were equivalent to
those used in the calculation of the basic loss per share in the
quarter ended June 30, 2005, as common stock equivalents
were anti-dilutive for the quarter then ended.
16
For
the six months ended June 30, 2006 compared to the six
months ended June, 2005.
All results normally expressed in dollars have been rounded to
the nearest one thousand dollars, with the exception of earnings
per share data which is expressed in whole dollars and cents.
Comparisons of results for those line items that have been
rounded are approximate, due to rounding.
Revenue Consolidated revenue increased by
$36,000, or less than 1%, to $20,675,000 for the six months
ended June 30, 2006, as compared to $20,639,000 for the six
months ended June 30, 2005. The change in revenue was
primarily attributable to 2006 calendar year-to-date organic
revenue increases of 30% and 14% within our Express-1 and
Evansville operations, respectively, compared to the same period
in 2005. Mitigating the increase in revenue within our core
business was the period over period decline in revenue
associated with the closing of unprofitable businesses as part
of our restructuring efforts. Revenue derived from closed
businesses totaled approximately $4,443,000 during the first six
months of 2005. Fuel prices also played a part in our change in
revenue within the period. For the first six months of 2006,
fuel surcharge revenue for our company was approximately
$1,197,000 or 7% of consolidated revenue. During the same
six-month period last year, fuel surcharge revenue was
approximately $770,000 or 5% of consolidated revenue. For
purposes of this comparison of fuel surcharges, we have only
considered those charges within our primary operations,
Express-1 and Evansville, and further excluded fuel surcharges
associated with our brokerage business and closed operations.
Express-1 Operations Revenue increased within
our Express-1 operations by approximately $4,177,000 or 30% in
the first six months of 2006 as compared to the same period in
the prior year. The increase in Express-1 revenue can be largely
attributed to a 17% increase in the average size of our fleet of
independent contractors during the first six months of 2006
compared to the same period in 2005. Complementing this increase
in fleet capacity has been an increase in overall demand for our
Express-1 expedited service offerings. Utilization for
Express-1, as measured in loaded miles per truck per week,
increased by 11% during the first six months of 2006, as
compared to the first half of 2005. Within Express-1, loads
hauled by third parties (brokerage business) represented
approximately 24% and 22% of revenue for the six-month periods
ended June 30, 2006 and 2005, respectively.
Evansville Operations In Evansville our
dedicated operations, revenue increased by $302,000 or 14%
during the first six months of 2006 as compared to the first six
months of 2005. This increase is partially due to a rate
increase received in mid-year 2005 from our primary Evansville
customer. To a lesser extent the revenue increase in Evansville
was associated with the expansion of local freight movements
from this facility.
Direct Expenses Direct expenses, which
consist primarily of payments for trucking services provided by
both independent contractors and partner carriers, fuel,
insurance, equipment costs and payroll expenses decreased by
$1,049,000 or 6%, to $15,386,000 for the six months ended
June 30, 2006, compared to $16,435,000 for the
six months ended June 30, 2005. As a percentage of
revenues, direct expenses decreased to 74% of consolidated
revenue for the first half of 2006 compared with 80% of revenue
for the same period in the prior year. The decrease in direct
expenses resulted primarily from the calendar year 2005
cessation of our unprofitable business operations. In the six
months ended June 30, 2005, direct costs associated with
businesses closed in our restructuring efforts was approximately
$3,879,000 or 87% of associated revenue. Fuel prices played a
part in the change in our consolidated direct expenses in the
period. During the first six months of 2006, we incurred
approximately $1,197,000 of fuel surcharge expense as compared
to approximately $770,000 of fuel surcharge expense for the same
period in the prior year.
Express-1 Operations Direct costs within our
Express-1 business increased by 27% for the six-month period
ended June 30, 2006 compared to the same period in 2005.
This compares favorably to an increase of 30% in revenue during
the current period compared to the same period in the prior
year. The difference between the increase in revenue and the
increase in associated direct costs reflects an improvement in
operating leverage within the period. Contributing to the
reduction in direct expenses for Express-1 were decreases in
equipment costs and decreases in insurance and
licensing costs. Express-1 recognized a slight increase in its
cost of purchased transportation, due to rate adjustments put in
place to increase the rates of compensation for our independent
contractors and reward them for miles run and driver referrals.
17
Evansville Operations Within our Evansville
operations, direct expenses as a percentage of associated
revenues decreased during the first half of 2006 to 81% of
associated revenue compared to 97% of associated revenue during
the first half of 2005. The reduction in the percentage of
revenue represented by direct expenses for Evansville is
partially due to the aforementioned increase in revenue for the
same operations. Also contributing to the decrease in direct
expenses as a percentage of revenue was a shift away from the
use of some third party carriers to provide transportation on
some of the dedicated routes. Prior to the change in executive
management completed in conjunction with the restructuring plan
in 2005, Evansville covered the transportation needs of some of
its dedicated runs through the use of brokers and other third
party sources. By shifting these transportation services to
company operated equipment through better recruiting and
equipment availability, the transportation costs have been
reduced significantly. The rate increase received in mid-year
2005, also played a part in reducing direct expenses as a
percentage of revenue. Within Evansville we also saw declines in
expenses associated with insurance and equipment maintenance
during the first six months of 2006 compared to the first six
months of 2005.
Gross Margin Gross margin improved by
$1,085,000 or 26% during the first half of 2006 compared to the
same period in the prior year. Gross margin for the six months
ended June 30, 2006 was $5,289,000 compared to $4,204,000
for the six months ended June 30, 2005. As a percentage of
revenue, gross margin improved to 26% of revenue for the first
half of 2006 compared to 20% of revenue for the same period in
2005. The improvement in margin primarily resulted from
improvements within our Express-1 and Evansville operations, due
to the reductions in direct cost and revenue rate increases
within Evansville as previously mentioned. We also experienced
an overall margin improvement due to the elimination of our
unprofitable and lower margin businesses through our
restructuring efforts. Fuel prices negatively affected gross
margin during the first six months of 2006 compared to the same
six-month period in 2005. We effectively pass 100% of fuel
surcharge revenue to our independent drivers at Express-1 in the
form of supplemental fuel surcharge payments. Within Evansville,
our fuel surcharges mitigate the increased cost of fuel for our
fleet of company trucks. During the second quarter of 2006,
gross margin as a percentage of revenue was reduced by
approximately 1 percentage point due to the impact of fuel
surcharge payments that is equivalent to a reduction of
approximately 1 percentage point during the same period in
2005. While reducing our margin expressed as a percentage of
revenue, fuel surcharge revenue and fuel expense have not
historically had a material impact on our income as we have been
successful in matching fuel surcharge payments and fuel expenses
to fuel surcharge revenue.
Sales, General and Administrative Sales,
general and administrative (SG&A) expense decreased by
$6,226,000 or 63% to $3,644,000 for the six months ended
June 30, 2006 compared to $9,870,000 for the
six months ended June 30, 2005. Included within
SG&A expense was approximately $3,958,000 of identified
restructuring costs in the first half of 2005. As a percentage
of revenue, SG&A expenses, exclusive of restructuring
charges, represented 18% of revenue in the six months ended
June 30, 2006 compared to 29% of revenues for the same
period of 2005. The decrease in SG&A costs as a percentage
of revenue resulted primarily from our successful restructuring
efforts. Included within the restructuring activities were the
closing of approximately 18 locations, a reduction in headcount
by approximately 350 employees, the elimination of corporate
offices in Tampa Florida, and a streamlining of our expenses
associated with ongoing activities. Included within SG&A
costs is a smaller group of expenses we classify as corporate
charges, which includes such items as the cost of our executive
management, board of directors, public company expenses, legal
expenses, professional fees and interest costs for the combined
company. For the first half of 2006, corporate charges were
approximately $710,000 compared to $1,369,000 for the first half
of 2005. The reduction in corporate charges is associated with
the elimination of the Tampa administrative offices and
reduction in the costs associated with executives, legal and
professional fees, outside services and other administrative
expenses. We believe SG&A, to include corporate charges, as
a percentage of revenue, has normalized at a sustainable level,
barring any unforeseen events and seasonal fluctuations. We
further believe the rate of increase in future SG&A expenses
will be lower than the rate of increase for revenue and direct
operating expenses, based upon our operational model.
Interest and Other Expense Interest charges
and other expenses increased $45,000 to $240,000 during the
first six months of 2006, as compared to $195,000 during the
same period in 2005. The increase was primarily the result of a
write-off in loans receivable associated with our former Bullet
operation. Mitigating this was a positive change of
approximately $106,000 in loss on sale of equipment and an
increase in interest expense of approximately
18
$32,000. The magnitude of the loss on sale in 2005 was due
primarily to the disposal of company operated equipment as we
shifted to a more asset light business model.
Net Income Before Tax Net income before tax
was $1,405,000 for the six months ended June 30, 2006
compared to a loss from of $5,861,000 for the six months ended
June 30, 2005. The improvement is primarily associated with
the disposition of our unprofitable business operations in
conjunction with our restructuring efforts. Complementing the
cessation of unprofitable businesses were increases in revenue
within our Express-1 and Evansville operations. These same
operations also experienced some decreases in direct and
administrative costs as a percentage of revenue as we have
continued to focus on increasing our operating leverage and
controlling costs. During the six-month period ended
June 30, 2006, our operating ratio improved to 91.3% of
consolidated revenue. This compares very favorably with the same
six-month period in the prior year when our operating ratio was
128.5% of consolidated revenue. We define operating ratio as the
ratio of all operating expenses (direct and SG&A) compared
to consolidated revenue. For purposes of calculating operating
ratio, we exclude both fuel surcharge revenue and associated
fuel surcharge payments from our calculations.
Income Tax Provision (Benefit) There was no
tax provision recorded for the six months ended June 30,
2006 and no tax benefit recorded for the six months ended
June 30, 2005. The lack of tax provision in the first half
of 2006 is due primarily to the magnitude of historical losses.
The company has a valuation allowance that effectively offsets
tax provisions in the current period. During the current
six-month period, this allowance was reduced by approximately
$539,000 to approximately $1,534,000. The lack of tax benefit in
the first half of 2005 was due to the significance of net
operating losses in the periods preceding the first six months
of 2005. It was estimated that the likelihood of future
utilization of a tax benefit would be reduced, based upon the
historical losses of the company. Consequently, we recorded an
adjustment to the valuation allowance equal to the tax benefit
that otherwise would have been recorded during the first six
months of 2005. We anticipate reducing the valuation allowance
during the fourth quarter of 2006 and expect to record a small
amount of tax provision later in 2006, due to limitations on the
amount of net operating loss carry-forwards that can be used to
offset federal Alternative Minimum Tax.
Net Income Net Income for the six months
ended June 30, 2006 was $1,405,000 as compared to a net
loss of $5,861,000 for the six months ended June 30, 2005.
As previously mentioned, the change in net income resulted
primarily from the successful completion of our restructuring
efforts, increases in revenue within Express-1 and Evansville
and reductions in direct and SG&A costs in relationship to
associated revenue.
Earnings per Share Basic and diluted income
per share for the six months ended June 30, 2006 was $0.05,
compared with basic and diluted loss per share of $0.22 for the
six-month period ended June 30, 2005. The shares used in
the calculation of diluted loss per share were equivalent to
those used in the calculation of the basic loss per share in the
six months ended June 30, 2005, as common stock equivalents
were anti-dilutive for the period then ended.
Critical
Accounting Policies
Principles
of Consolidation
The accompanying consolidated financial statements include the
accounts of Express-1 Expedited Solutions, Inc. and all of
its wholly-owned subsidiaries. All significant inter-company
balances and transactions have been eliminated in consolidation.
The Company does not have any variable interest entities whose
financial results are not included in the consolidated financial
statements.
Use of
Estimates
The Company prepares its consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America. These principles require management to
make estimates and assumptions that affect 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,
recoverability of long-lived assets, recoverability of prepaid
expenses, valuation of investments,
19
allowance for doubtful accounts, and amounts of stock
compensation expense associated with certain stock options, 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 have been discussed with the audit
committee; however, actual results could differ from these
estimates.
Concentration
of Risk
Financial instruments, which potentially subject us to
concentrations of credit risk, are cash, cash equivalents and
accounts receivables.
The majority of cash is maintained with a Michigan financial
institution. Deposits with this bank may exceed the amount of
insurance provided on such deposits. Generally, these deposits
may be redeemed upon demand, and therefore, bear minimal risk.
Concentration of credit risk with respect to trade receivables
is somewhat limited due to our large number of customers and
wide range of industries and locations served. No customer
comprised more than ten percent of the June 30, 2006 and
2005 customer accounts receivable balance.
We do receive a significant portion of our revenue from the
customers who operate within the U.S. domestic automotive
industry. Consequently, our accounts receivable are comprised of
a large aggregate concentration of accounts from within this
industry. Recently, the U.S. automotive industry has been
in decline according to reports in various media sources. In the
event of further financial erosion by any of the Big
Three domestic automotive manufacturers, the effect on our
Company could be materially adverse. Further, the weakening of
any of the domestic automotive manufacturers can have an adverse
effect on a significant portion of our customer base which is
comprised in large part by manufacturers and suppliers for the
automotive industry.
We extend credit to various customers based on an evaluation of
the customers financial condition and their ability to pay
in accordance with our payment terms. We provide for estimated
losses on accounts receivable considering a number of factors,
including the overall aging of accounts receivables, customers
payment history and the customers current ability to pay
its obligation. Based our managements review of accounts
receivable and other receivables, an allowance for doubtful
accounts of approximately $504,000 and $732,000 is considered
necessary as of June 30, 2006 and December 31, 2005,
respectively. Although we believe our account receivables are
recorded at their net realizable value, a decline in our
historical collection rate could have a materially adverse
affect on our operations and net income. We do not accrue
interest on past due receivables.
Contingent
Liabilities
The Company is party to legal actions, which are not material to
operations pursuant to Item 103 of
Regulation S-K.
EBITDA
EBITDA for the three months ended June 30, 2006 was
positive $1,165,000 compared to negative $370,000 in the
comparable period of the prior year. We define EBITDA as
earnings before interest, taxes, depreciation and amortization.
In addition, we exclude from our EBITDA calculation the
cumulative effect of a change in accounting principle,
discontinued operations, and the impact of restructuring and
certain other charges, and include in the EBITDA calculation
selected financial data related to various Company acquisitions.
A reconciliation of EBITDA to the most directly comparable GAAP
financial measure is set forth herein.
20
SELECTED
FINANCIAL DATA
For
the three months ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Express-1
|
|
|
|
Express-1
|
|
|
Evansville
|
|
|
|
|
|
Core
|
|
|
|
|
|
Expedited
|
|
|
|
Expedited
|
|
|
Dedicated
|
|
|
Corporate
|
|
|
Business
|
|
|
Other
|
|
|
Solutions, Inc.
|
|
|
Operating revenues
|
|
$
|
9,868,000
|
|
|
$
|
1,252,000
|
|
|
$
|
|
|
|
$
|
11,120,000
|
|
|
$
|
|
|
|
$
|
11,120,000
|
|
Operating expenses
|
|
|
7,268,000
|
|
|
|
989,000
|
|
|
|
|
|
|
|
8,257,000
|
|
|
|
|
|
|
|
8,257,000
|
|
Sales, general and administrative
expenses(1)
|
|
|
1,515,000
|
|
|
|
163,000
|
|
|
|
365,000
|
|
|
|
2,043,000
|
|
|
|
(28,000
|
)
|
|
|
2,015,000
|
|
Restructuring expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,085,000
|
|
|
$
|
100,000
|
|
|
$
|
(365,000
|
)
|
|
$
|
820,000
|
|
|
$
|
28,000
|
|
|
$
|
848,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring expenses
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Depreciation and amortization
|
|
|
207,000
|
|
|
|
47,000
|
|
|
|
|
|
|
|
254,000
|
|
|
|
|
|
|
|
254,000
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
63,000
|
|
|
|
63,000
|
|
|
|
|
|
|
|
63,000
|
|
Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
1,292,000
|
|
|
$
|
147,000
|
|
|
$
|
(302,000
|
)
|
|
$
|
1,137,000
|
|
|
$
|
28,000
|
|
|
$
|
1,165,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the purpose of this table, approximately $92,000 of
Interest and other income and expense has been
classified within the line item Selling, general and
administrative expenses. |
For
the three months ended June 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Express-1
|
|
|
|
|
|
|
Evansville
|
|
|
|
|
|
Core
|
|
|
|
|
|
Expedited
|
|
|
|
Express-1
|
|
|
Dedicated
|
|
|
Corporate
|
|
|
Business
|
|
|
Other
|
|
|
Solutions, Inc.
|
|
|
Operating revenues
|
|
$
|
7,160,000
|
|
|
$
|
1,065,000
|
|
|
$
|
|
|
|
$
|
8,225,000
|
|
|
$
|
2,065,000
|
|
|
$
|
10,290,000
|
|
Operating expenses
|
|
|
5,415,000
|
|
|
|
1,037,000
|
|
|
|
|
|
|
|
6,452,000
|
|
|
|
1,605,000
|
|
|
|
8,057,000
|
|
Sales, general and administrative
expenses(1)
|
|
|
1,546,000
|
|
|
|
113,000
|
|
|
|
785,000
|
|
|
|
2,444,000
|
|
|
|
625,000
|
|
|
|
3,069,000
|
|
Restructuring expenses
|
|
|
|
|
|
|
|
|
|
|
375,000
|
|
|
|
375,000
|
|
|
|
|
|
|
|
375,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
199,000
|
|
|
$
|
(85,000
|
)
|
|
$
|
(1,160,000
|
)
|
|
$
|
(1,046,000
|
)
|
|
$
|
(165,000
|
)
|
|
$
|
(1,211,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring expenses
|
|
$
|
|
|
|
$
|
|
|
|
$
|
375,000
|
|
|
$
|
375,000
|
|
|
$
|
|
|
|
$
|
375,000
|
|
Depreciation and amortization
|
|
|
194,000
|
|
|
|
103,000
|
|
|
|
83,000
|
|
|
|
380,000
|
|
|
|
34,000
|
|
|
|
414,000
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
52,000
|
|
|
|
52,000
|
|
|
|
|
|
|
|
52,000
|
|
Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
393,000
|
|
|
$
|
18,000
|
|
|
$
|
(650,000
|
)
|
|
$
|
(239,000
|
)
|
|
$
|
(131,000
|
)
|
|
$
|
(370,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the purpose of this table, approximately $166,000 of
Interest and other income and expense has been
classified within the line item Selling, general and
administrative expenses. |
21
For
the six months ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Express-1
|
|
|
|
Express-1
|
|
|
Evansville
|
|
|
|
|
|
Core
|
|
|
|
|
|
Expedited
|
|
|
|
Expedited
|
|
|
Dedicated
|
|
|
Corporate
|
|
|
Business
|
|
|
Other
|
|
|
Solutions, Inc.
|
|
|
Operating revenues
|
|
$
|
18,244,000
|
|
|
$
|
2,431,000
|
|
|
$
|
|
|
|
$
|
20,675,000
|
|
|
$
|
|
|
|
$
|
20,675,000
|
|
Operating expenses
|
|
|
13,358,000
|
|
|
|
1,980,000
|
|
|
|
|
|
|
|
15,338,000
|
|
|
|
48,000
|
|
|
|
15,386,000
|
|
Sales, general and administrative
expenses(1)
|
|
|
2,869,000
|
|
|
|
323,000
|
|
|
|
710,000
|
|
|
|
3,902,000
|
|
|
|
(18,000
|
)
|
|
|
3,884,000
|
|
Restructuring expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,017,000
|
|
|
$
|
128,000
|
|
|
$
|
(710,000
|
)
|
|
$
|
1,435,000
|
|
|
$
|
(30,000
|
)
|
|
$
|
1,405,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring expenses
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Depreciation and amortization
|
|
|
419,000
|
|
|
|
94,000
|
|
|
|
|
|
|
|
513,000
|
|
|
|
|
|
|
|
513,000
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
108,000
|
|
|
|
108,000
|
|
|
|
|
|
|
|
108,000
|
|
Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
2,436,000
|
|
|
$
|
222,000
|
|
|
$
|
(602,000
|
)
|
|
$
|
2,056,000
|
|
|
$
|
(30,000
|
)
|
|
$
|
2,026,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the purpose of this table, approximately $240,000 of
Interest and other income and expense has been
classified within the line item Selling, general and
administrative expenses. |
For
the six months ended June 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Express-1
|
|
|
|
|
|
|
Evansville
|
|
|
|
|
|
Core
|
|
|
|
|
|
Expedited
|
|
|
|
Express-1
|
|
|
Dedicated
|
|
|
Corporate
|
|
|
Business
|
|
|
Other
|
|
|
Solutions, Inc.
|
|
|
Operating revenues
|
|
$
|
14,067,000
|
|
|
$
|
2,129,000
|
|
|
$
|
|
|
|
$
|
16,196,000
|
|
|
$
|
4,443,000
|
|
|
$
|
20,639,000
|
|
Operating expenses
|
|
|
10,500,000
|
|
|
|
2,056,000
|
|
|
|
|
|
|
|
12,556,000
|
|
|
|
3,879,000
|
|
|
|
16,435,000
|
|
Sales, general and administrative
expenses(1)
|
|
|
3,186,000
|
|
|
|
237,000
|
|
|
|
1,369,000
|
|
|
|
4,792,000
|
|
|
|
1,315,000
|
|
|
|
6,107,000
|
|
Restructuring expenses
|
|
|
|
|
|
|
|
|
|
|
3,958,000
|
|
|
|
3,958,000
|
|
|
|
|
|
|
|
3,958,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
381,000
|
|
|
$
|
(164,000
|
)
|
|
$
|
(5,327,000
|
)
|
|
$
|
(5,110,000
|
)
|
|
$
|
(751,000
|
)
|
|
$
|
(5,861,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring expenses
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,958,000
|
|
|
$
|
3,958,000
|
|
|
$
|
|
|
|
$
|
3,958,000
|
|
Depreciation and amortization
|
|
|
387,000
|
|
|
|
214,000
|
|
|
|
151,000
|
|
|
|
752,000
|
|
|
|
109,000
|
|
|
|
861,000
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
76,000
|
|
|
|
76,000
|
|
|
|
|
|
|
|
76,000
|
|
Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
768,000
|
|
|
$
|
50,000
|
|
|
$
|
(1,142,000
|
)
|
|
$
|
(324,000
|
)
|
|
$
|
(642,000
|
)
|
|
$
|
(966,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the purpose of this table, approximately $195,000 of
Interest and other income and expense has been
classified within the line item Selling, general and
administrative expenses. |
The above presented selected financial data represents
reporting units within the Company and are primarily
allocated based on acquisitions, which is the basis for their
respective earn-out provisions. The subtotal entitled Core
Business represents the operations remaining after the
completion of the restructuring plan, and is intended only to
give the reader the ability to view what are now our ongoing
operations, exclusive of the closed operations. The column
entitled Other primarily represents services or
location revenue and expenses that has been eliminated based on
the restructuring plan completed in the third quarter of 2005.
Remaining income and expense items within the column
Other include recovery on previously written off
accounts receivable, real estate leases,
22
equipment termination costs and impairment charges associated
with equipment and property no-longer in use. None of our
reporting units met the quantitative criteria in 2006 or 2005
required for segment reporting. The criteria use to determine
whether the company should begin segment reporting will be
reevaluated in the fourth quarter of 2006, in conjunction with
the annual reporting process.
USE OF
GAAP AND NON-GAAP MEASURES
In addition to results presented in accordance with generally
accepted accounting principles (GAAP), we have
included in this report the measure EBITDA with
EBITDA being defined as earnings before interest, taxes,
depreciation and amortization and excluding the cumulative
effect of a change in accounting principle, discontinued
operations, and the impact of restructuring and other charges.
We have also included some selected financial data related to
the various acquisitions and operating locations. For each
non-GAAP financial measure, we have presented the most directly
comparable GAAP financial measure and reconciled the non-GAAP
financial measure with such comparable GAAP financial measure.
These non-GAAP financial measures provide useful information to
investors to assist in understanding the underlying operational
performance of our company. Specifically, EBITDA is a useful
measure of operating performance before the impact of investing
and financing transactions, making comparisons between
companies earnings power more meaningful and providing
consistent
period-over-period
comparisons of our Companys performance. In addition, we
use these non-GAAP financial measures internally to measure our
on-going business performance and in reports to bankers to
permit monitoring of our ability to pay outstanding liabilities.
The table below reconciles our non-GAAP measure EBITDA to our
most closely related GAAP financial measure.
Express-1
Expedited Solutions, Inc. EBITDA Reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Net income (loss) as reported
|
|
$
|
848,000
|
|
|
$
|
(1,211,000
|
)
|
|
$
|
1,405,000
|
|
|
$
|
(5,861,000
|
)
|
Income tax (benefit) provision
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Interest expense
|
|
|
63,000
|
|
|
|
52,000
|
|
|
|
108,000
|
|
|
|
76,000
|
|
Depreciation and amortization
|
|
|
254,000
|
|
|
|
414,000
|
|
|
|
513,000
|
|
|
|
861,000
|
|
Restructuring, exit and
consolidation expenses
|
|
|
0
|
|
|
|
375,000
|
|
|
|
0
|
|
|
|
3,958,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
1,165,000
|
|
|
$
|
(370,000
|
)
|
|
$
|
2,026,000
|
|
|
$
|
(966,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity
and Capital Resources
Cash
Flow
As of June 30, 2006 we have approximately $3,430,000 of
working capital with associated cash and cash equivalents of
approximately $82,000, compared with working capital of
approximately $1,342,000 and cash of approximately $386,000 at
December 31, 2005.
During the six-month period ended June 30, 2006 cash has
decreased by approximately $304,000. During the same period we
generated cash from operations of approximately $1,180,000 and
completed payments related to previous acquisitions of
approximately $1,460,000. Other sources and uses of cash
include: (i) a use for purchases of equipment of
approximately $466,000, net of proceeds from sales of equipment
of $6,000; and (ii) a source via the receipt of repayment
on the Bullet loans of $150,000.
Liquidity
In conjunction with the preparation of these statements and to
further analyze the ability of our operations to generate future
operating cash flow, we evaluated our historical performance, as
well as our expected performance for the remainder of 2006, as a
basis for determining whether our Company should be considered
to have
23
operational, liquidity and other concerns that might raise
doubts about our continuance and ability to meet future
financial obligations. Among the items considered in this
analysis were the historical losses, the significance of the
restructuring charges, the completeness of the restructuring,
the historical performance of our remaining expedited operations
and the availability and adequacy of our liquidity and capital
resources. In the opinion of our management, based upon the
above analysis, our Company should be considered as a going
concern.
Credit Facility To ensure that our Company
has adequate near-term liquidity, we have in place a
$6.0 million line of credit facility with a Michigan
banking corporation (the Bank). The line of credit
calls for our operating subsidiary, Express-1 to be the borrower
and Express-1 Expedited Solutions, Inc. (Company) to act as
guarantor. Under the loan documents, we may draw down on the
line of credit the lesser of $6,000,000 or 80% of the eligible
accounts receivable of Express-1, plus $800,000. The additional
$800,000 is available based upon the granting of a security
interest in our Buchanan, Michigan facilities. All obligations
of under the agreements are secured by the accounts receivable
of Express-1. All advances under the agreement are subject to
interest at the rate of the Banks prime plus an applicable
margin that ranges from negative 0.50% to positive 0.25% based
upon the Companys performance in the preceding quarter.
Interest is payable monthly. The maturity date of the loan is
November 15, 2007. The credit facility contains various
covenants pertaining to the maintenance of certain financial
ratios. As of June 30, 2006, the Company was in compliance
with all terms and conditions under the loan agreements, and had
available borrowing capacity of approximately $2.2 million
with an effective interest rate of (prime minus one-quarter
percent) 8.0%. The Bank facility retired an existing facility
with another banking corporation.
The Bank facility also permits the issuance of letters of credit
as security for the Companys obligations and contingent
obligations. As of June 30, 2006, we had outstanding
letters of credit totaling $402,000, issued primarily for
deductibles for various insurance policies. The total of these
letters of credit has reduced the above described borrowing
capacity by an equal amount.
Warrants and Options We may receive proceeds
in the future from the exercise of warrants and options
outstanding as of June 30, 2006 in accordance with the
following schedule:
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
|
|
|
Number of
|
|
|
Approximate
|
|
|
|
Shares
|
|
|
Proceeds
|
|
|
Total Outstanding as of
June 30, 2006:
|
|
|
|
|
|
|
|
|
Options granted within Stock
Compensation Plan
|
|
|
2,573,857
|
|
|
$
|
3,209,750
|
|
Options granted outside Stock
Compensation Plan(1)
|
|
|
2,935,000
|
|
|
$
|
4,963,750
|
|
Warrants issued
|
|
|
7,912,379
|
|
|
$
|
11,844,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,421,236
|
|
|
$
|
20,017,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consists of options granted to sellers of Dasher Express, Inc.
and Express-1, Inc. in conjunction with the purchase agreements
for these two acquisitions. |
Contingent Payments We anticipate making
significant payments in the future for contingent consideration
installments under our various acquisitions agreements. While we
believe that a significant portion of the required payments will
be generated by our operations, we may have to secure additional
sources of funds to make some portion of the contingent
consideration payments as they become due. This presents our
Company with certain business risks relative to the availability
and pricing of future debt and capital instruments, as well as
the potential dilution of our stockholders equity, if the fund
raising involves the sale of equity.
24
These contingent consideration amounts are tied directly to
divisional performance of the respective entities, mitigating
some of the risks that might exist for contingent payments tied
to other performance indicators. The table below reflects the
possible contingent consideration that we could pay over the
next two years if certain criteria related to the acquired
entities is obtained:
|
|
|
|
|
|
|
Possible
|
|
Year Ending December 31,
|
|
Payments
|
|
|
2007
|
|
$
|
1,960,000
|
|
2008
|
|
$
|
2,210,000
|
|
|
|
|
|
|
Total
|
|
$
|
4,170,000
|
|
|
|
|
|
|
Legal Proceedings From time to time we are
named as a defendant in legal proceedings. The potential exists
that we could incur material expenses in the defense and
resolution of legal matters. Furthermore, since we have not
established material reserves in connection with such claims,
any such liability, would be recorded as an expense in the
period incurred or estimated. This amount, even if not material
to our overall financial condition, could adversely affect our
results of operations in the period recorded.
|
|
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.
Interest
Rate Risk
We have interest rate risk, in that borrowings under our credit
facility are based on variable market interest rates. As of
June 30, 2006, we had $2.8 million of variable rate
debt outstanding under our credit facility. Presently, the
revolving credit line bears interest at a rate of between prime
minus 0.50% to prime plus 0.25%, depending on our performance,
with a maturity date of November 15, 2007. A hypothetical
10% increase in our credit facilitys weighted average
interest rate of 8.0% per annum for the twelve months ended
December 31, 2006 would correspondingly decrease our
earnings and operating cash flows by approximately $22,000 and
$22,000, respectively.
Intangible
Asset Risk
We have a substantial amount of intangible assets. We are
required to perform goodwill impairment tests 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
June 30, 2006 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.
25
|
|
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 party to any litigation that is material to ongoing
operations as defined in Item 103 of
Regulation S-K
as of the period ended June 30, 2006.
You should refer to Item 101 of our annual report
(Form 10KSB) for the year ended December 31, 2005,
under the caption RISKS PARTICULAR TO THE COMPANYS
BUSINESS for specific details on factors and events that
are not within our control and could affect our financial
results. Risks have been further defined in our quarterly report
as filed on
Form 10-Q
for the first quarter of 2006.
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds.
|
None
|
|
Item 3.
|
Defaults
upon Senior Securities.
|
The Companys line of credit contains various covenants
pertaining to the maintenance of certain financial ratios. As of
June 30, 2006, 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.
|
The following four proposals were submitted to the shareholders
at the annual meeting held May 31, 2006. All items were
approved and ratified by vote at the meeting, with the exception
of item 3, which did not receive enough votes at the
meeting to be adopted by a majority of the shareholders.
(1) To elect a board of six directors;
(2) To ratify the appointment of Pender Newkirk &
Company as independent auditors for the Company for the year
ending December 31, 2006;
26
(3) To approve and ratify an amendment to our Certificate
of Incorporation and Bylaws creating three classes of Director
(Class I, Class II and Class III) with
staggered three year terms of appointment:
(4) To approve and ratify an amendment to our Certificate
of Incorporation changing our legal name from Segmentz, Inc. to
Express-1 Expedited Solutions, Inc.
The votes to the above matters are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
|
|
|
Against
|
|
|
Abstentions
|
|
|
1. Election of Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
Mike Welch Inside
Director
|
|
|
17,858,236
|
|
|
|
4,700
|
|
|
|
96,652
|
|
Mark Patterson Inside
Director
|
|
|
17,858,236
|
|
|
|
4,700
|
|
|
|
96,652
|
|
Jim Martell
Independent Director
|
|
|
17,858,236
|
|
|
|
4,700
|
|
|
|
96,652
|
|
Jennifer Dorris
Independent Director
|
|
|
17,858,236
|
|
|
|
4,700
|
|
|
|
96,652
|
|
Pete Whitehead
Independent Director
|
|
|
17,585,236
|
|
|
|
4,700
|
|
|
|
96,652
|
|
Jay Taylor Independent
Director
|
|
|
17,858,236
|
|
|
|
4,700
|
|
|
|
96,652
|
|
2. Appointment of Auditor
|
|
|
17,651,936
|
|
|
|
271,938
|
|
|
|
35,714
|
|
3. Amendment to Certificate
of Incorporation and Bylaws Creating Three Classes
of Director with Staggered Three Year Terms of
Appointment Did not receives the required votes to
pass
|
|
|
9,086,342
|
|
|
|
311,211
|
|
|
|
41,214
|
|
4. Amendment to Certificate
of Incorporation Changing Legal Name from Segmentz,
Inc. to Express-1 Expedited Solutions, Inc.
|
|
|
17,897,411
|
|
|
|
25,628
|
|
|
|
36,549
|
|
No matters were submitted to the shareholders for voting during
the three-month period ended March 31, 2006.
|
|
Item 5.
|
Other
Information.
|
None
|
|
|
|
|
|
3
|
|
|
Certificate of amendment to
certificate of incorporation, changing our legal name to
Express-1 Expedited Solutions, Inc. from Segmentz, Inc. dated
May 31, 2006 and filed as exhibit 3 to Form 8-K
filed on June 6, 2006, and incorporated herein by reference.
|
|
|
|
|
|
|
|
|
|
|
|
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 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.)
|
27
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.
Mike Welch
Chief Executive Officer
Mark Patterson
Chief Financial Officer
Date August 1, 2006
28
Exhibit Index
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
3
|
|
|
Certificate of amendment to
certificate of incorporation, changing the legal name to
Express-1 Expedited Solutions, Inc. from Segmentz, Inc. dated
May 31, 2006 and filed as exhibit 3 to Form 8-K
filed on June 6, 2006, and incorporated herein by reference.
|
|
|
|
|
|
|
|
|
|
|
|
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 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.)
|
29