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EX-32.1 - EXHIBIT 32.1 - XPO Logistics, Inc.ex32-1.htm
EX-32.2 - EXHIBIT 32.2 - XPO Logistics, Inc.ex32-2.htm
EX-31.2 - EXHIBIT 31.2 - XPO Logistics, Inc.ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - XPO Logistics, Inc.ex31-1.htm


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q
(Mark One)
 
   
R
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the Quarterly period ended March 31, 2011
   
£
 
   
 
For the transition period from ______ to ______

Commission file number 001-32172

Express-1 Expedited Solutions, Inc.
(Exact name of small business issuer as specified in its charter)

Delaware
03-0450326
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)

3399 South Lakeshore Drive, Suite 225
Saint Joseph, MI 49085
(Address of Principal Executive Offices)(Zip Code)

(269) 429-9761
(Issuer’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). £ Yes £ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer £
Accelerated filer £
 
Non-accelerated filer £
 
Smaller reporting company R
  (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No R

The Registrant has 33,011,561 shares of its common stock outstanding as of May 13, 2011.
 
 
 
 
 

 
 
Express-1 Expedited Solutions, Inc.
Form 10-Q
Index


Part I — Financial Information
 
   
Item 1.   Financial Statements:
 
       Consolidated Balance Sheets
3
       Consolidated Statements of Operations
4
       Consolidated Statements of Cash Flows
5
       Consolidated Statement of Changes in  Stockholders’ Equity
6
       Notes to Consolidated Financial Statements
7
   
Item 2.   Management’s Discussion and Analysis of  Financial Condition and Results of Operations
14
   
Item 3.   Quantitative and Qualitative Disclosures About  Market Risk
24
   
Item 4.   Controls and Procedures
24
   
Part II — Other Information
25
   
Item 1.   Legal Proceedings
25
   
Item 1A.  Risk Factors
25
   
Item 2.   Unregistered Sales of Equity Securities and Use  of Proceeds
25
   
Item 3.   Defaults upon Senior Securities
25
   
Item 4.   Removed and Reserved
25
   
Item 5.   Other Information
26
   
Item 6.   Exhibits
 
 
 
 
 
2

 
 
Part I — Financial Information

Item 1 —  Financial Statements

Express-1 Expedited Solutions, Inc.
Consolidated Balance Sheets
             
   
(Unaudited)
       
   
March 31, 2011
   
December 31, 2010
 
ASSETS
 
Current assets:
           
  Cash
  $ 50,000     $ 561,000  
  Accounts receivable, net of allowances of $153,000 and $136,000, respectively
    24,643,000       24,272,000  
  Prepaid expenses
    610,000       257,000  
  Deferred tax asset, current
    80,000       314,000  
  Income tax receivable
    1,002,000       1,348,000  
  Other current assets
    547,000       813,000  
    Total current assets
    26,932,000       27,565,000  
                 
Property and equipment, net of $3,432,000 and $3,290,000 in accumulated depreciation, respectively
    2,871,000       2,960,000  
Goodwill
    16,959,000       16,959,000  
Identifiable intangible assets, net of  $2,960,000 and $2,827,000 in accumulated amortization, respectively
    8,413,000       8,546,000  
Loans and advances
    120,000       126,000  
Other long-term assets
    528,000       516,000  
  Total long-term assets
    28,891,000       29,107,000  
    Total assets
  $ 55,823,000     $ 56,672,000  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
               
  Accounts payable
  $ 8,714,000     $ 8,756,000  
  Accrued salaries and wages
    723,000       1,165,000  
  Accrued expenses, other
    3,741,000       2,877,000  
  Current maturities of notes payable and capital leases
    1,667,000       1,680,000  
  Other current liabilities
    527,000       773,000  
    Total current liabilities
    15,372,000       15,251,000  
                 
                 
  Line of credit
    395,000       2,749,000  
  Notes payable and capital leases, net of current maturities
    1,667,000       2,083,000  
  Deferred tax liability, long-term
    2,220,000       2,032,000  
  Other long-term liabilities
    176,000       544,000  
    Total long-term liabilities
    4,458,000       7,408,000  
                 
Stockholders' equity:
               
  Preferred stock, $.001 par value; 10,000,000 shares; no shares issued or outstanding
    -       -  
  Common stock, $.001 par value; 100,000,000 shares authorized; 33,188,980  and 32,687,522 shares issued,
  respectively; and 33,008,980 and 32,507,522 shares   outstanding, respectively
    33,000       33,000  
  Additional paid-in capital
    28,071,000       27,208,000  
  Treasury stock, at cost, 180,000 shares held
    (107,000 )     (107,000 )
  Accumulated earnings
    7,996,000       6,879,000  
    Total stockholders' equity
    35,993,000       34,013,000  
      Total liabilities and stockholders' equity
  $ 55,823,000     $ 56,672,000  
 
The accompanying notes are an integral part of the consolidated financial statements.
 
 
 
 
3

 

Express-1 Expedited Solutions, Inc.
Consolidated Statements of Operations
(Unaudited)
             
   
Three Months Ended
 
   
March 31, 2011
   
March 31, 2010
 
Revenues
           
  Operating revenue
  $ 41,508,000     $ 31,642,000  
Expenses
               
  Direct expense
    34,301,000       26,043,000  
    Gross margin
    7,207,000       5,599,000  
  Sales general and administrative expense
    5,207,000       4,075,000  
Operating income  
    2,000,000       1,524,000  
  Other expense
    29,000       20,000  
  Interest expense
    49,000       20,000  
Income before tax
    1,922,000       1,484,000  
  Income tax provision
    805,000       650,000  
Net income
  $ 1,117,000     $ 834,000  
                 
                 
                 
Basic income per share
               
  Net income
  $ 0.03     $ 0.03  
Diluted income per share
               
  Net income
  $ 0.03     $ 0.03  
Weighted average common shares outstanding
               
  Basic weighted average common shares outstanding
    32,702,724       32,035,218  
  Diluted weighted average common shares outstanding
    34,086,066       32,577,352  
 
The accompanying notes are an integral part of the consolidated financial statements.
 
 
 
 
4

 
 
Express-1 Expedited Solutions, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
   
Three Months Ended March 31,
 
   
2011
   
2010
 
Operating activities
           
Net income
  $ 1,117,000     $ 834,000  
Adjustments to reconcile net income to net cash from operating activities
               
            Provisions for allowance for doubtful accounts
    16,000       (54,000 )
            Depreciation & amortization expense
    316,000       385,000  
            Stock compensation expense
    39,000       30,000  
            (Gain) on disposal of equipment
    -       (1,000 )
Changes in assets and liabilities
               
            Account receivable
    (388,000 )     (44,000 )
            Deferred tax expense
    422,000       244,000  
            Income tax receivable
    346,000       -  
            Other current assets
    266,000       103,000  
            Prepaid expenses
    (353,000 )     (322,000 )
            Other Long-term assets and advances
    (14,000 )     (246,000 )
            Accounts payable
    (41,000 )     446,000  
            Accrued expenses
    257,000       1,459,000  
            Other liabilities
    -       (947,000 )
  Cash provided by operating activities
    1,983,000       1,887,000  
                 
Investing activities
               
            Payment of acquisition earn-out
    (450,000 )     -  
            Payment for purchases of property and equipment
    (86,000 )     (49,000 )
  Cash flows (used) by investing activities
    (536,000 )     (49,000 )
                 
Financing activities
               
            Credit line, net activity
    (2,353,000 )     (5,009,000 )
            Proceeds from credit facility renewal
    -       5,000,000  
            Payments of notes payable and capital leases
    (429,000 )     (1,404,000 )
            Excess tax benefit from stock options
    97,000       -  
            Proceeds from exercise of options
    727,000       -  
  Cash flows (used) by financing activities
    (1,958,000 )     (1,413,000 )
                 
  Net (decrease) increase in cash
    (511,000 )     425,000  
  Cash, beginning of period
    561,000       495,000  
  Cash, end of period
  $ 50,000     $ 920,000  
                 
Supplemental disclosure of noncash activities:
               
  Cash paid during the period for interest
  $ 28,000     $ 24,000  
  Cash (received) paid during the period for income taxes
    (75,000 )     173,000  
 
The accompanying notes are an integral part of the consolidated financial statements.
 
 
 
 
5

 
 
Express-1 Expedited Solutions, Inc.
Consolidated Statement of Changes in Stockholders’ Equity
Three Months Ended March 31, 2011
(Unaudited)
 
                 
Additional
         
 
Common Stock
 
Treasury Stock
 
Paid In
 
Accumulated
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Earnings
 
Total
 
Balance, December 31, 2010
          32,687,522
 
 $   33,000
 
       (180,000)
 
 $    (107,000)
 
 $    27,208,000
 
 $    6,879,000
 
 $    34,013,000
 
Issuance of common stock for
  warrant  exercise
               501,458
             
            727,000
     
            727,000
 
Stock option expense
               
              39,000
     
              39,000
 
Excess tax  benefit from stock options
             
              97,000
     
              97,000
 
Net income
                   
       1,117,000
 
         1,117,000
 
Balance, March 31, 2011
          33,188,980
 
 $   33,000
 
       (180,000)
 
 $    (107,000)
 
 $    28,071,000
 
 $    7,996,000
 
 $    35,993,000
 
 
The accompanying notes are an integral part of the consolidated financial statements.
 
 
 
 
6

 
 
Express-1 Expedited Solutions, Inc.
Notes to Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)

1. Significant Accounting Principles

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Express-1 Expedited Solutions, Inc. (“we”, “us”, “our” or the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with the instructions to Form 10-Q. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted pursuant to those rules and regulations. However, we believe that the disclosures contained herein are adequate to make the information presented not misleading.

The financial statements reflect, in our opinion, all material adjustments (which include only normal recurring adjustments) necessary to fairly present our financial position at March 31, 2011 and December 31, 2010 and results of operations for the three month periods ended March 31, 2011 and 2010. The preparation of the financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Estimates have been prepared on the basis of the most current and best available information and actual results could differ materially from those estimates.

These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes thereto for the fiscal year ended December 31, 2010 included in our Annual Report on Form 10-K as filed with the SEC and available on the SEC’s website (www.sec.gov). Results of operations in interim periods are not necessarily indicative of results to be expected for a full year.
 
Revenue Recognition

Within the Company’s Express-1 and Bounce Logistics business units, revenue is recognized primarily at the point in time delivery is completed on the freight shipments it handles; with related costs of delivery being accrued as incurred and expensed within the same period in which the associated revenue is recognized. For these business units, the Company uses the following supporting criteria to determine that revenue has been earned and should be recognized:

 
Persuasive evidence that an arrangement exists,

 
Services have been rendered,

 
The sales price is fixed and determinable, and

 
Collectability is reasonably assured.

Within its Concert Group Logistics business unit, the Company utilizes an alternative point in time to recognize revenue. Concert Group Logistics revenue and associated operating expenses are recognized on the date the freight is picked up from the shipper. This alternative method of revenue recognition is not the preferred method of revenue recognition as prescribed within generally accepted accounting principles in the United States of America (US GAAP). This method recognizes revenue and associated expenses prior to the point in time that all services are completed. The Company has evaluated the impact of this alternative method on its consolidated financial statements and concluded that the impact is not material to the financial statements.

The Company reports revenue on a gross basis in accordance with US GAAP. The following facts justify our position of reporting revenue on a gross basis:

 
The Company is the primary obligor and is responsible for providing the service desired by the customer.
 
 
 
 
7

 
 
 
The customer holds the Company responsible for fulfillment including the acceptability of the service.  (Requirements may include, for example, on-time delivery, handling freight loss and damage claims, establishing pick-up and delivery times, and tracing shipments in transit.)
 
 
The Company has discretion in setting sales prices and as a result, its earnings vary.

 
The Company has discretion to select its drivers, contractors or other transportation providers (collectively, “service providers”) from among thousands of alternatives, and

 
The Company bears credit risk for all of its receivables

Stock-Based Compensation

The Company has in place a stock option plan approved by the shareholders for 5,600,000 shares of its common stock. Through the plan, the Company offers stock options to employees and directors which assist in recruiting and retaining these individuals.

Options generally become fully vested three to five years from the date of grant and expire five to ten years from the grant date. During the three-month period ended March 31, 2011, the Company granted 50,000 options to purchase shares of its common stock while cancelling or retiring 11,000 options in the same period. As of March 31, 2011 the Company has 2,543,000 options outstanding and an additional 2,083,000 options available for future grants under the existing plan. During the life of the plan 974,000 stock options have been exercised.

The weighted-average fair value of each stock option recorded in expense for the three-month period ended March 31, 2011 was estimated on the date of grant using the Black-Scholes option pricing model and amortized over the requisite service period of the underlying options. The Company has used one grouping for the assumptions, as its option grants are primarily basic with similar characteristics. The expected term of options granted has been derived based upon the Company’s 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 Company’s 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.
 
   
Three Months Ended
 
   
March 31,
 
   
2011
   
2010
 
Risk-free interest rate
    2.3%       2.8%  
Expected life
 
5.8 Years
   
5.8 Years
 
Expected volatility
    55%       35%  
Expected dividend yield
 
none
   
none
 
Grant date fair value
  $ 1.39     $ 0.53  
 
 
 
 
8

 
 
The following table summarizes the option activity for the three-month period ended March 31, 2011:
 
         
Weighted Average
   
Weighted Average
 
   
Options
   
Exercise Price
   
Remaining Life
 
Outstanding at December 31, 2010
    3,005,000     $ 1.18       6.2  
  Granted
    50,000       2.64          
  Expired
    (11,000 )     1.52          
  Exercised
    (501,000 )     1.45          
Outstanding at March 31, 2011
    2,543,000       1.15       6.5  
                         
Outstanding Exercisable at March 31, 2011
    1,924,000     $ 1.07       5.9  
 
For the three months ended March 31, 2011 and 2010, the Company recognized $39,000 and $30,000, respectively, in stock based compensation.

As of March 31, 2011, the Company had approximately $312,000 of unrecognized compensation cost related to non-vested share-based compensation that is anticipated to be recognized over a weighted average period of approximately 1.0 years. Estimated remaining compensation expense related to existing share-based plans is $124,000, $129,000 and $59,000 for the years ended December 31, 2011, 2012 and 2013, respectively.

At March 31, 2011, the aggregate intrinsic value of options outstanding was $2.6 million and the aggregate intrinsic value of options exercisable was $2.1 million. The total fair value of options vested during the three months ended March 31, 2011 and 2010 was $45,000 and $34,000 respectively.

501,000 options were exercised during the three-month period ended March 31, 2011 and zero options were exercised during the three-month period ended March 31, 2010.  Cash proceeds received from the exercise of options for the three months ended March 31, 2011 and 2010 were $727,000 and $0, respectively.
 
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 impact the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company reviews its estimates, including but not limited to:  purchased transportation, recoverability of long-lived assets, accrual of acquisition earn-outs, recoverability of prepaid expenses, estimated legal accruals, valuation allowances for deferred taxes, valuation of investments and allowance for doubtful accounts, on a regular basis and makes adjustments based on historical experiences and existing and expected future conditions. These evaluations are performed and adjustments are made as information is available. Management believes that these estimates are reasonable and have been discussed with the audit committee; however, actual results could differ from these estimates.

Reclassifications

Certain prior year amounts shown in the accompanying consolidated financial statements have been reclassified to conform to the 2010 presentation. These reclassifications did not have any effect on total assets, total liabilities, total stockholders’ equity or net income.

Income Taxes

Taxes on income are provided in accordance with US GAAP. Deferred income tax assets and liabilities are recognized for the expected future tax consequences of events that have been reflected in the consolidated financial statements. Deferred tax assets and liabilities are determined based on the differences between the book values and the tax basis of particular assets and liabilities, and the tax effects of net operating loss and capital loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized as income or expense in the period that included the enactment date. A valuation allowance is provided to offset the net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company has evaluated its tax position and concluded no valuation allowance on its deferred tax assets is required, as of March 31, 2011. The Company had previously generated a significant net operating loss (NOL) deduction which had been utilized over the past several years.  For state tax purposes an NOL still exists and as of March 31, 2011 the NOL carryforward equals approximately $1,500,000.
 
 
 
 
9

 

Accounting for Uncertainty in Income Taxes is determined based on US GAAP, which clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements and provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. US GAAP also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. As of March 31, 2011, the Company has accrued $150,000 for certain potential state income taxes.

Goodwill

Goodwill consists of the excess of cost over the fair value of net assets acquired in business combinations. The Company follows the provisions of US GAAP in its accounting of goodwill, which requires an annual impairment test for goodwill and intangible assets with indefinite lives. The first step of the impairment test requires that the Company determine the fair value of each reporting unit, and compare the fair value to the reporting unit’s carrying amount. To the extent a reporting unit’s carrying amount exceeds its fair value, an indication exists that the reporting unit’s goodwill may be impaired and the Company must perform a second more detailed impairment assessment. The second impairment assessment involves allocating the reporting unit’s fair value to all of its recognized and unrecognized assets and liabilities in order to determine the implied fair value of the reporting unit’s goodwill as of the assessment date. The implied fair value of the reporting unit’s goodwill is then compared to the carrying amount of goodwill to quantify an impairment charge as of the assessment date. The Company performs the annual impairment testing during the third quarter unless events or circumstances indicate impairment of the goodwill may have occurred before that time.
 
Identified Intangible Assets

The Company follows the provisions of US GAAP in its accounting of identified intangible assets, which establishes accounting standards for the impairment of long-lived assets such as property, plant and equipment and intangible assets subject to amortization. The Company reviews long-lived assets to be held-and-used for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the sum of the undiscounted expected future cash flows over the remaining useful life of a long-lived asset is less than its carrying amount, the asset is considered to be impaired. Impairment losses are measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risks associated with the recovery of the asset.  During the three-month periods ended March 31, 2011 and 2010, there was no impairment of intangible assets.

Other Long-Term Assets

Other long-term assets consist primarily of balances representing various deposits and notes receivable from various CGL independent station owners. Also included within this account classification are incentive payments to independent station owners within the CGL network. These payments are made by CGL to certain station owners as an incentive to join the network. These amounts are amortized over the life of each independent station contract and the unamortized portion is recoverable in the event of default under the terms of the agreements.

Estimated Fair Value of Financial Instruments

The aggregated net fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, receivables, payables, accrued expenses and short-term borrowings. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. The fair value of the Company’s debt is estimated based upon the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of similar maturities.
 
 
 
 
10

 

Earnings per Share

Earnings per common share are computed in accordance with US GAAP which requires companies to present basic earnings per share and diluted earnings per share.

Basic earnings per share are computed by dividing net income by the weighted average number of shares of common stock outstanding during the period.

Diluted earnings per share are computed by dividing net income by the combined weighted average number of shares of common stock outstanding and dilutive options outstanding during the period.
 
   
Three Months Ended
   
March 31, 2011
   
March 31, 2010
           
Net income
  $ 1,117,000     $ 834,000
               
Basic weighted shares outstanding
    32,702,724       32,035,218
Diluted weighted shares outstanding
    34,086,066       32,577,352
               
Basic earnings per share
             
Net income
  $ 0.03     $ 0.03
               
Diluted earnings per share
             
Net income
  $ 0.03     $ 0.03
 
2. Recent Accounting Pronouncements

The Company’s management does not believe that recent codified pronouncements by the FASB will have a material impact on the Company’s current or future financial statements.

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 currently anticipate any of these matters or any matters in the aggregate to have a materially adverse effect on the Company’s business or its financial position or results of operations.
 
 
                                                                  
 
 
11

 
 
4. Debt

Notes Payable and Capital Leases

The Company enters into notes payable and capital leases with various third parties from time to time to finance certain operational equipment and other assets used in its business operations. Generally, these loans and capital leases bear interest at market rates, and are collateralized with equipment and certain assets of the Company.
 
The following table outlines the Company’s debt obligations as of March 31, 2011 and December 31, 2010.
 
 
 
Interest rates
   
Term (months)
   
As of March 31, 2011
   
As of December 31, 2010
 
Term notes payable
    2.5 %     36     $ 3,334,000     $ 3,750,000  
Capital leases payable
    5% - 18 %     12 - 36       -       13,000  
Total notes payable and capital leases
                    3,334,000       3,763,000  
Less: current maturities of notes payable and capital leases
                    1,667,000       1,680,000  
Non-current maturities of notes payable and capital leases
                  $ 1,667,000     $ 2,083,000  

The Company entered into a new $5.0 million term note on March 31, 2010.  Commencing April 30, 2010, the term note is payable in 36 consecutive monthly installments consisting of $139,000 in monthly principal payments plus the unpaid interest accrued on the note.  Interest is payable at the one-month LIBOR plus 225 basis points (2.51% at March 31, 2011).

5. Revolving Credit Facilities

Line of Credit

On March 31, 2011, the Company amended its credit facility to extend its maturity date to March 31, 2013. The credit facility continues to provide for a receivables based line of credit of up to $10.0 million. The Company may draw upon the receivables based line of credit the lesser of $10.0 million or 80% of eligible accounts receivable, less amounts outstanding under letters of credit and 50% of the above term loan balance. The proceeds of the line of credit will be used exclusively for working capital purposes.

Substantially all the assets of the Company and wholly owned subsidiaries (Express-1, Inc., Concert Group Logistics, Inc., and Bounce Logistics, Inc.) are pledged as collateral securing the Company’s performance under the credit facility and in Note 4 above. The line of credit bears interest based upon one-month LIBOR with an initial increment of 200 basis points.
 
The line of credit and the term note referenced in Note 4 above carry certain covenants related to the Company’s financial performance. Included among the covenants are a fixed charge coverage ratio and a total funded debt to earnings before interest, taxes, depreciation and amortization ratio. As of March 31, 2011, the Company was in compliance with all terms under the line of credit and the above term note and no events of default existed under the terms of the agreements.

The Company had outstanding standby letters of credit at March 31, 2011 of $410,000 related to insurance policies either continuing in force or recently canceled. Amounts outstanding for letters of credit reduce the amount available under the line of credit, dollar-for-dollar.

Available capacity in excess of outstanding borrowings under the line was approximately $9.2 million as limited by 80% of the Company’s eligible receivables as of March 31, 2011. The line of credit carries a maturity date of March 31, 2013.  As of March 31, 2011 the line of credit balance was $395,000.
 
6. Related Party Transactions
 
In January 2008, in conjunction with the Concert Group Logistics acquisition, the Company entered into a lease for approximately 6,000 square feet of office space located within an office complex at 1430 Branding Avenue, Downers Grove, Illinois 60515. The lease calls for, among other general provisions, rent payments in the amount of $101,000, $104,000 and $107,000 to be paid for 2010 and the two subsequent years thereafter. The building is owned by an Illinois Limited Liability Company, which has within its ownership group, Daniel Para, the CEO of Concert Group Logistics, LLC.
 
The above transactions are not necessarily indicative of amounts, terms and conditions that the Company may have received in transactions with unrelated third parties.
 
 
 
12

 

7. Operating Segments

The Company has four reportable segments based on the type of service provided, to its customers:

Express-1, Inc. (Express-1) — provides time critical expedited transportation to its customers. This typically involves dedicating one truck and driver to a load which has a specified time delivery requirement. Most of the services provided are completed through a fleet of exclusive use vehicles that are owned and operated by independent contract drivers. The use of non-owned resources to provide transportation services minimizes the amount of capital investment required and is often described with the terms “non-asset” or “asset-light.”

Concert Group Logistics, Inc. (CGL) — provides freight forwarding services through a chain of independently owned stations located throughout the United States. These stations are responsible for selling and operating freight forwarding transportation services within their geographic area under the authority of CGL. In October of 2009, certain assets and liabilities of LRG International (CGL International) were purchased to complement the operations of CGL. The financial reporting of this operation has been included with CGL.

Bounce Logistics, Inc. (Bounce) — provides premium truckload brokerage transportation services to its customers throughout the Unites States.
 
Corporate - The costs of the Company’s Board of Directors, executive team and certain corporate costs associated with operating as a public company are referred to as “corporate” charges. In addition to the aforementioned items, the Company also commonly records items such as its income tax provision and other charges that are reported on a consolidated basis within the corporate classification item.

The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Substantially all intercompany sales prices are market based. The Company evaluates performance based on operating income of the respective business segments.

The following schedule identifies select financial data for each of the business segments.

Express-1 Expedited Solutions, Inc
Segment Data
Three Months Ended March 31, 2011 and 2010

Three Months Ended March 31, 2011
 
Express-1
   
Concert Group
Logistics
   
Bounce
   
Corporate
   
Eliminations
   
Total
Continuing
Operations
 
Revenues
  $ 20,742,000     $ 15,739,000     $ 5,983,000     $ -     $ (956,000 )   $ 41,508,000  
  Operating income (loss)
    1,901,000       472,000       138,000       (511,000 )             2,000,000  
  Depreciation and amortization
    159,000       142,000       10,000       5,000               316,000  
  Interest expense
    -       39,000       9,000       1,000               49,000  
  Tax provision
    556,000       125,000       38,000       86,000               805,000  
  Goodwill
    7,737,000       9,222,000       -       -               16,959,000  
  Total assets
    24,729,000       24,369,000       4,235,000       23,776,000       (21,286,000 )     55,823,000  
Three Months Ended March 31, 2010
                                            -  
Revenues
  $ 16,212,000     $ 12,938,000     $ 3,123,000     $ -     $ (631,000 )   $ 31,642,000  
  Operating income (loss)
    1,649,000       256,000       97,000       (478,000 )             1,524,000  
  Depreciation and amortization
    167,000       207,000       7,000       4,000               385,000  
  Interest expense
    -       14,000       6,000       -               20,000  
  Tax provision
    688,000       102,000       39,000       (179,000 )             650,000  
  Goodwill
    7,737,000       9,222,000       -       -               16,959,000  
  Total assets
    22,796,000       23,472,000       1,826,000       22,746,000       (21,087,000 )     49,753,000  

 
 
 
13

 
 
Item 2. Management’s 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 Company’s business and operations, and other such matters are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances.

Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements. Factors that could adversely affect actual results and performance include, among others, potential fluctuations in quarterly operating results and expenses, government regulation, technology change and competition. Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations. The Company assumes no obligations to update any such forward-looking statements.

Critical Accounting Policies

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions. In certain circumstances, those estimates and assumptions can affect amounts reported in the accompanying consolidated financial statements. We have made our best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. We do not believe there is a great likelihood that materially different amounts will be reported related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. Note 1 of the “Notes to Consolidated Financial Statements” in our Annual Report on Form 10-K for the year ended December 31, 2010, includes a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. For the period ended March 31, 2011, there were no significant changes to our critical accounting policies.
 

                                                                          
 
 
14

 

New Pronouncements

The Company’s management does not believe that recent codified pronouncements by the FASB will have a material impact on the Company’s current or future financial statements.

Executive Summary

Express-1 Expedited Solutions, Inc. (the “Company,” “we,” “our” and “us”), a Delaware corporation, is a transportation services organization focused upon premium logistics solutions provided through its non-asset based or asset-light operating units. The Company’s operations are provided through three distinct but complementary operating divisions, each with its own President. Our wholly owned subsidiaries include; Express-1, Inc. (“Express-1”), Concert Group Logistics, Inc. (“Concert Group Logistics” or “CGL”) and Bounce Logistics, Inc. (“Bounce Logistics”, or “Bounce”). These operating divisions are more fully outlined in the following table.

Business Divisions
 
Primary Office Location 
 
Premium Industry Niche 
 
Initial Date 
Express-1
 
Buchanan, Michigan
 
Expedited Transportation
 
August 2004
Concert Group Logistics
 
Downers Grove, Illinois
 
Freight Forwarding
 
January 2008
Bounce Logistics
 
South Bend, Indiana
 
Premium Truckload Brokerage
 
March 2008

Express-1 and CGL were both existing companies acquired as part of two separate acquisitions. Express-1, Inc. was formed in 1989, while CGL was formed in 2001. Bounce Logistics was a start-up operation formed in March 2008.

Express-1, Inc. (Express-1) — provides time critical expedited transportation to its customers. This typically involves dedicating one truck and driver to a load which has a specified time delivery requirement. Most of the services provided are completed through a fleet of exclusive use vehicles that are owned and operated by independent contract drivers. The use of non-owned resources to provide transportation services minimizes the amount of capital investment required and is often described with the terms “non-asset” or “asset-light.”

Concert Group Logistics, Inc. (CGL) — provides freight forwarding services through a chain of independently owned stations located throughout the United States. These stations are responsible for selling and operating freight forwarding transportation services within their geographic area under the authority of CGL. In October of 2009, certain assets and liabilities of LRG International (CGL International) were purchased to complement the operations of CGL. These two branches located in Tampa and Miami are company owned and provide primarily international forwarding services. The financial reporting of this operation has been included with CGL.

Bounce Logistics, Inc. (Bounce) — provides premium truckload brokerage transportation services to its customers throughout the Unites States through a sales service center located in South Bend, Indiana. The operation is supported by an outside sales team responsible for establishing and managing customer relations.
 
Other Reporting Disclosures

Throughout our reports, we refer to the impact of fuel on our business. For purposes of these references, we have considered the impact of fuel surcharge revenues, and the related fuel surcharge expenses only as they relate to our Express-1 business unit. The expediting transportation industry commonly negotiates both fuel surcharges charged to its customers as well as fuel surcharges paid to its carriers. Therefore, we feel that this approach most readily conveys the impact of fuel revenues, costs, and the resulting gross margin within this business unit. Our fuel surcharges are determined on a negotiated customer by customer basis and are primarily based on a fuel matrix driven by the Department of Energy fuel price index. Fuel surcharge revenues are charged to our customers to provide for variable costs associated with changing fuel prices. These revenues and associated cash flows are substantially paid through to our independent contractors and brokered carriers who are responsible for the cost of fuel. Because fuel surcharge revenues are substantially passed through to independent contractors and brokered carriers, the net impact on our gross margin dollars is not material; however, rising fuel costs and the associated rising fuel surcharge will result in a reduction of the gross margin percentage since these rising revenues don’t result in a material increase in gross margin dollars. Alternatively, falling fuel costs and the associated lower fuel surcharge will have a positive impact on the gross margin percentage, but will not result in a material decrease in gross margin dollars.
 
 
 
 
15

 

Within our other two units, Concert Group Logistics and Bounce Logistics, fuel charges to our customers are not commonly negotiated and identified separately from total revenue and the associated cost of transportation. Although fuel costs are factored into overall pricing of these services, they aren’t typically separately identified between carriers and we therefore, have not included an analysis of fuel surcharges for these two operating units. We believe this is a common practice within the freight forwarding and freight brokerage business sectors.

Express-1, Inc. refers from time to time to its international operations. These operations refer to freight which originates in or is delivered to either Canada or Mexico. In all cases, these freight shipments also either originate in or are delivered to the United States, and therefore; only a portion of the freight movement actually takes place in Canada or Mexico. This freight is being carried for domestic customers who pay in U.S. dollars. We discuss this freight separately because Express-1 has developed an expertise in cross-docking freight at the border through the utilization of Canadian and Mexican carriers, and this portion of our business has seen significant growth.

Concert Group Logistics also refers from time to time to its international operations. These freight movements also originate in or are delivered to the U.S. and are paid for in U.S. dollars. We discuss this freight separately because of CGL’s investment in 2009 through the purchase of LRG International (currently CGL International), and because we believe that international freight has tremendous upside potential for the future.

We often refer to the costs of our Board of Directors, our executive team and certain operating costs associated with operating as a public company as “corporate” charges. In addition to the aforementioned items, we also record items such as our income tax provision and other charges that are reported on a consolidated basis within the corporate line items of the following tables.
 
For the three months ended March 31, 2011 compared to the three months ended March 31, 2010

The following tables are provided to allow users to visualize quarterly results within our major reporting classifications. The tables do not replace the financial statements, notes thereto, or management discussion contained within this report on Form 10-Q. We encourage users to review these items for a more complete understanding of our financial position and results of operations.
 

                                                                          
 
 
16

 

Express-1 Expedited Solutions, Inc.
Summary Financial Table
For the Three Months Ended March 31,
(Unaudited)
 
                         
Percent of
 
 
Quarter to Date
   
Quarter to Quarter Change
   
Business Unit Revenue
 
   
2011
     
2010
     
In Dollars
     
In Percentage
     
2011
     
2010
 
Revenues
                                 
Express-1
$ 20,742,000     $ 16,212,000     $ 4,530,000       27.9 %     50.0 %     51.2 %
Concert Group Logistics
  15,739,000       12,938,000       2,801,000       21.6 %     37.9 %     40.9 %
Bounce Logistics
  5,983,000       3,123,000       2,860,000       91.6 %     14.4 %     9.9 %
Intercompany eliminations
  (956,000 )     (631,000 )     (325,000 )     -51.5 %     -2.3 %     -2.0 %
  Total revenues
  41,508,000       31,642,000       9,866,000       31.2 %     100.0 %     100.0 %
                                               
Direct expenses
                                             
Express-1
  16,189,000       12,542,000       3,647,000       29.1 %     78.0 %     77.4 %
Concert Group Logistics
  14,013,000       11,528,000       2,485,000       21.6 %     89.0 %     89.1 %
Bounce Logistics
  5,055,000       2,604,000       2,451,000       94.1 %     84.5 %     83.4 %
Intercompany eliminations
  (956,000 )     (631,000 )     (325,000 )     -51.5 %     100.0 %     100.0 %
  Total direct expenses
  34,301,000       26,043,000       8,258,000       31.7 %     82.6 %     82.3 %
                                               
Gross margin
                                             
Express-1
  4,553,000       3,670,000       883,000       24.1 %     22.0 %     22.6 %
Concert Group Logistics
  1,726,000       1,410,000       316,000       22.4 %     11.0 %     10.9 %
Bounce Logistics
  928,000       519,000       409,000       78.8 %     15.5 %     16.6 %
  Total gross margin
  7,207,000       5,599,000       1,608,000       28.7 %     17.4 %     17.7 %
                                               
Selling, general & administrative
                                         
Express-1
  2,652,000       2,021,000       631,000       31.2 %     12.8 %     12.5 %
Concert Group Logistics
  1,254,000       1,154,000       100,000       8.7 %     8.0 %     8.9 %
Bounce Logistics
  790,000       422,000       368,000       87.2 %     13.2 %     13.5 %
Corporate
  511,000       478,000       33,000       6.9 %     1.2 %     1.5 %
  Total selling, general & administrative
  5,207,000       4,075,000       1,132,000       27.8 %     12.5 %     12.9 %
                                               
Operating income
                                         
Express-1
  1,901,000       1,649,000       252,000       15.3 %     9.2 %     10.2 %
Concert Group Logistics
  472,000       256,000       216,000       84.4 %     3.0 %     2.0 %
Bounce Logistics
  138,000       97,000       41,000       42.3 %     2.3 %     3.1 %
Corporate
  (511,000 )     (478,000 )     (33,000 )     -6.9 %     -1.2 %     -1.5 %
  Operating income
  2,000,000       1,524,000       476,000       31.2 %     4.8 %     4.8 %
                                               
Interest expense
  49,000       20,000       29,000       145.0 %     0.1 %     0.1 %
Other expense
  29,000       20,000       9,000       45.0 %     0.1 %     0.1 %
  Income before tax
  1,922,000       1,484,000       438,000       29.5 %     4.6 %     4.7 %
                                               
Tax provision
  805,000       650,000       155,000       23.8 %     1.9 %     2.1 %
 Net income
$ 1,117,000     $ 834,000     $ 283,000       33.9 %     2.7 %     2.6 %

 
 
 
17

 

Express-1 Expedited Solutions, Inc.
Summary of Selling, General & Administrative Expenses
For the Three Months Ended March 31,
(Unaudited)

   
Quarter to Date
   
Quarter to Quarter Change
 
   
2011
   
2010
   
In Dollars
   
In Percentage
 
Express-1, Inc.
                       
Salaries & benefits
  $ 1,807,000     $ 1,466,000     $ 341,000       23.3 %
Purchased services
    385,000       233,000       152,000       65.2 %
Depreciation & amortization
    111,000       119,000       (8,000 )     -6.7 %
Other
    349,000       203,000       146,000       71.9 %
  Total selling, general & administrative
    2,652,000       2,021,000       631,000       31.2 %
                                 
Concert Group Logistics
                               
Salaries & benefits
    723,000       560,000       163,000       29.1 %
Purchased services
    67,000       47,000       20,000       42.6 %
Depreciation & amortization
    142,000       207,000       (65,000 )     -31.4 %
Other
    322,000       340,000       (18,000 )     -5.3 %
  Total selling, general & administrative
    1,254,000       1,154,000       100,000       8.7 %
                                 
Bounce
                               
Salaries & benefits
    526,000       301,000       225,000       74.8 %
Purchased services
    43,000       9,000       34,000       377.8 %
Depreciation & amortization
    10,000       7,000       3,000       42.9 %
Other
    211,000       105,000       106,000       101.0 %
  Total selling, general & administrative
    790,000       422,000       368,000       87.2 %
                                 
Corporate
                               
Salaries & benefits
    211,000       117,000       94,000       80.3 %
Purchased services
    199,000       254,000       (55,000 )     -21.7 %
Depreciation & amortization
    5,000       -       5,000       100.0 %
Other
    96,000       107,000       (11,000 )     -10.3 %
  Total selling, general & administrative
    511,000       478,000       33,000       6.9 %
                                 
Total SG&A expenses
                               
Total salaries & benefits
    3,267,000       2,444,000       823,000       33.7 %
Total purchased services
    694,000       543,000       151,000       27.8 %
Total depreciation & amortization
    268,000       333,000       (65,000 )     -19.5 %
Total other
    978,000       755,000       223,000       29.5 %
  Total selling, general & administrative
  $ 5,207,000     $ 4,075,000     $ 1,132,000       27.8 %


 
 
18

 

Express-1 Expedited Solutions, Inc.
Summary of Direct Expenses
For the Three Months Ended March 31,
(Unaudited)
                         
   
Year to Date
   
Year to Year Change
 
   
2011
   
2010
   
In Dollars
   
In Percentage
 
Express-1, Inc.
                       
  Transportation services
  $ 15,512,000     $ 12,113,000     $ 3,399,000       28.1 %
  Insurance
    261,000       254,000       7,000       2.8 %
  Other
    416,000       175,000       241,000       137.7 %
    Total Express-1 direct expense
    16,189,000       12,542,000       3,647,000       29.1 %
                                 
Concert Group Logistics
                               
  Transportation dervices
    11,505,000       9,236,000       2,269,000       24.6 %
  Station commissions
    2,479,000       2,264,000       215,000       9.5 %
  Insurance
    29,000       28,000       1,000       3.6 %
  Other
    -       -       -       -  
    Total CGL direct expense
    14,013,000       11,528,000       2,485,000       21.6 %
                                 
Bounce
                               
  Transportation services
    5,052,000       2,601,000       2,451,000       94.2 %
  Insurance
    3,000       3,000       -       0.0 %
  Other
    -       -       -       -  
    Total Bounce direct expense
    5,055,000       2,604,000       2,451,000       94.1 %
                                 
Total Direct expenses
                               
  Transportation services
    32,069,000       23,950,000       8,119,000       33.9 %
  Station commissions
    2,479,000       2,264,000       215,000       9.5 %
  Insurance
    293,000       285,000       8,000       2.8 %
  Other
    416,000       175,000       241,000       137.7 %
  Intercompany eliminations
    (956,000 )     (631,000 )     (325,000 )     51.5 %
     Total direct expenses
  $ 34,301,000     $ 26,043,000     $ 8,258,000       31.7 %


 
 
19

 
 
Consolidated Results

The first quarter of 2011 proved to be another strong quarter for Express-1 Expedited Solutions, Inc.  Revenues for each of the business units saw significant increases for the quarter as compared to the first quarter of 2010.  In total, our revenues for the first quarter were 31% greater than the comparable quarter in 2010.  This quarter over quarter growth represented organic growth coming primarily from our international revenues at both Express-1 and Concert Group Logistics.  Although we continually search for appropriate acquisitions to complement our business model, we believe our continued focus on organic growth will result in the majority of our growth and profitability in 2011.

Direct expenses represent expenses attributable to freight transportation.  Our “asset light” operating model provides transportation capacity through variable cost transportation alternatives, and therefore enables us to control our operating costs as our volumes fluctuate. Our primary means of providing capacity are through our fleet of independent contractors at Express-1 and brokerage relationships at Concert Group Logistics and Bounce. We continue to view this operating model as a strategic advantage particularly in uncertain economic times. Our overall gross margin for the first quarter of 2011 was 17.4%, representing a slight decrease when compared to 17.7% in the first quarter of 2010.  The decrease in gross margin as a percentage of revenue is partly the result of rising fuel costs.  Rising fuel costs historically tend to have a negative impact on our gross margin percentage. For a more thorough discussion of the impact of fuel costs, see the “Other Reporting Disclosure” section of the Management Discussion and Analysis.  In addition, increased national trucking demands have resulted in a tightening of truck capacity resulting in increased trucking costs. It’s also important to note that as Bounce Logistics continues to grow at a higher rate than Express-1 and CGL its historically lower margin percentage will decrease the Company’s overall margin.

Selling, general, and administrative (SG&A) expenses as a percentage of revenue decreased from 12.9% during the first quarter of 2010 to 12.5% in the first quarter of 2011. This percentage reduction of SG&A costs as they relate to revenues continues to be an overall goal of the Company as our volumes continue to grow at a greater pace than our SG&A costs. Overall, SG&A expenses increased by $1.1 million in the first quarter of 2011 compared to the same period in 2010, resulting primarily from an increase of $823,000 in salaries and benefits which was a result of increased volumes.  Salaries and benefits continued to be the main SG&A cost representing 63% of our overall SG&A costs in the first quarter of 2011.  These changes are outlined below for each of our operating units.

Based on our growth and our ability to hold SG&A costs in line, the Company’s net income increased during the first quarter of 2011 to $1.1 million compared to $834,000 for the first quarter of 2010.  This represented a 33.9% increase in net income.  We continue to have a confident outlook for the immediate future and believe we can continue to grow our bottom line at the rate investors have been accustomed to.
 
Express-1

Express-1 generated first quarter revenue of $20.7 million as revenue grew by 28% compared to the same period in 2010. Express-1 continued to pick up momentum in its international operations as its Mexican and Canadian cross border freight movements represented 20% of the Company’s total revenue for quarter ended March 31, 2011 compared to 15% of the Company’s total revenue for the comparable 2010 quarter.  As Express-1’s growth continues, our customer base continues to diversify both geographically and by industry.  Management anticipates solid revenue growth for the remainder 2011 as the freight environment continues to improve. We believe that this growth will come from both existing customers who will increase their shipping volumes, and additionally freight moved for new customers.

Fuel prices have increased throughout the quarter resulting in a corresponding increase in fuel surcharge as a percentage of revenue.  For the quarter ended March 31, 2011, fuel surcharge revenues represented 15.6% of our revenue as compared to 11.4% in the same period in 2010. For the year ended December 31, 2010 the average fuel surcharge equaled 12.3%.  Rising fuel prices tend to have a negative impact on our gross margin percentage since these revenues are substantially passed through to our owner operators and don’t tend to add any additional gross margin dollars to the Company. More information of how fuel prices affect gross margin is located in the Other Reporting Disclosure section located on page 15.
 
 
 
 
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Express-1’s gross margin percentage was 22% for the first quarter of 2011 compared to 22.6% for the same quarter in 2010.  The primary reasons for the decrease in gross margin relate to rises in fuel cost which negatively affects Express-1’s gross margin percentage, and a higher percentage of shipments being handled through broker carriers.  Historically, the utilization of brokered carriers has enabled Express-1 to handle peak volume periods for its customers while building its fleet of owner operators. Broker carriers also are utilized to more efficiently handle freight that crosses into Canada or Mexico. This key component of Express-1’s purchased transportation costs is critical to our ongoing success; however, margins relating to this business are typically lower than margins associated with our own fleet of independent contractors. During the first quarter of 2011, 31% of Express-1’s revenue was carried by brokered carriers as compared to 26% in the same quarter in 2010. Much of the increase was due to the growth of our international business.

Selling, general, and administrative (SG&A) expenses increased by $631,000 in the first quarter of 2011 compared to the same period in 2010.   Of the increase in SG&A, $341,000 related to increased salaries & benefits.  The primary reason for the increase was due to additional staffing of 12 employees in the first quarter of 2011compared to the same period in 2010. Additionally, benefits are included in the first quarter of 2011, which hadn’t yet been re-instituted in the first quarter of 2010.  Purchased services increased by $152,000 during the quarter of which the largest component related to approximately $60,000 of temporary employment and related costs. Additional cost increases related to special projects and software expenses.

Operating income for the first quarter of 2011 was $1.9 million compared to $1.6 million in the comparable period in 2010 representing an increase of $252,000. This increase was due primarily to increased volumes and  revenues in the quarter and was tempered slightly by margin decreases and SG&A costs relating to increased staffing to prepare for anticipated growth for the remainder of 2011. Express-1 management continues to be optimistic about the remainder of 2011.
 
Concert Group Logistics (CGL)

CGL’s continued its growth trend during the first quarter of 2010.  Revenues of $15.7 compared favorably to revenues of $12.9 million in 2010, representing a 21.6% increase quarter over quarter. The vast majority of this increase related to same store sales during the quarter.

Direct expenses consist primarily of payments for purchased transportation in addition to payments to CGL’s independent offices that control the overall operation of our customer’s shipments.  As a percentage of CGL revenue, direct expenses represented 89.0% for the first quarter 2011, compared to 89.1% for the same period in 2010.  With the improved revenue and direct expenses as a percentage of revenue, the gross margin improved to $1.7 million, a 22.4% increase over 2010.  We believe that this margin will be sustainable for the remainder of the year.

Selling, general and administrative (SG&A) expenses fell nicely as a percent to revenue during the first quarter of 2011. SG&A expenses represented 8.0% of revenues in the first quarter of 2011 as compared to 8.9% of revenues in the comparable period in 2010.  Overall expenses increased in the first quarter of 2011 by $100,000 as compared to the same period in 2010 which were due primarily to increased salaries and benefits relating to additional staff employed during the period.  We anticipate the current SG&A percentage of revenue being sustained for the remainder of the year.

CGL's first quarter generated income from operations before tax of $472,000 compared to $256,000 in the comparable period in 2010. This increase of 84.4% was due primarily from increased revenues in addition to improved margins and limited SG&A growth.

Management continues to focus on the expansion of its independent office network, and is actively pursuing strategic opportunities. The Station count went down as one station's operations merged into another. As of March 31, 2011, the Company maintained a network of 22 independent offices and 2 Company owned branches as compared to 24 independent offices and 2 Company owned branches as of March 31, 2010.
 
Bounce Logistics

Bounce continues to see significant growth as its revenue for the quarter ended March 31, 2011 increased by 91.6% to 6.0 million compared to March 31, 2010 revenues of $3.1 million.  The significant increase in revenue can be contributed to an increased focus on increasing our customer base through investments in sales and marketing. We continue to be optimistic about growth potential for the remainder of fiscal year 2011.
 
 
 
 
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For the quarter ended March 31, 2011, Bounces’ direct transportation expenses increased to 84.5% as a percentage of revenue as compared to 83.4% in the comparable period in 2010.  We believe this cost increase reflects a tightening of truck capacity in the marketplace as growth in demand has outpaced the supply of capacity. We also believe the margin compression is a result of market resistance to upward pressure on pricing which we anticipate dissipating by year end. This decrease in margin has been more than offset by additional business that has generated an additional $409,000 in gross margin dollars for the first quarter of 2011 as compared to the same period in 2010. We continue to have confidence in Bounce’s ability to grow and access truck capacity in 2011.

As a percentage of revenue, SG&A costs fell to 13.2% for the first quarter of 2011, compared to 13.5% in the first quarter of 2010.  Overall SG&A expenses increased by $368,000 for the quarter ended March 31, 2011 compared to the same period in 2009.  Salaries and benefits increased by $225,000 resulting from the addition of 12 employees in the first quarter of 2011 as compared to the first quarter of 2010.  Additionally, benefits including accrued bonuses and the Company’s 401k match are included in the first quarter of 2011, but hadn’t yet been re-instituted in the first quarter of 2010.    Other expenses increased by $106,000 related to increases in advertising and employees travel during the first quarter of 2011.    Bounce is also investing resources in the area of capacity management which we believe will generate more capacity moving forward. Management believes that it can reduce SG&A costs into the 12% range for the remainder of 2011 as volumes and revenues continue to grow.

The above items have resulted in Bounce generating operating income of $138,000 for the quarter ended March 31, 2011, compared to $97,000 for the quarter ended March 31, 2010.  Management believes the near term investment being made in training, carrier development and sales will not only continue our revenue growth but will yield operating margin improvements in 2011.
 
Corporate

Corporate costs for the quarter ended March 31, 2011 increased by $33,000 as compared to the same period in 2010.  As a percentage of revenue, corporate costs decreased from 1.5% at the quarter ended March 31, 2010 to 1.2% in the same period in 2011.  We anticipate corporate costs as a percentage of revenue to remain below 2% in 2011.

Liquidity and Capital Resources

General

As of March 31, 2011, we had $11.6 million of working capital with associated cash of $50,000 compared with working capital of $12.3 million and cash of $561,000 as of December 31, 2010. This represents a decrease of $804,000 or 6.5% in working capital during the three-month period. The primary reason for the decrease in working capital for the three month period was a decrease of $570,000 related to the Company’s income tax receivable. The Company renewed its credit facility with PNC Bank on March 31, 2010. The renewal of the Company’s credit facility had a positive impact of approximately $4.9 million on its working capital by converting the classification of both its term debt and line of credit to long term obligations based on the terms of the new agreement.  The Company doesn’t have any material commitments that haven’t been disclosed elsewhere.

Cash Flow

During the three months ended March 31, 2011, $2.0 million was generated in cash from operations compared to the generation of $1.9 million for the prior year. The primary source of cash for the three month period was our trucking revenue while the primary use of cash for the same period was payment for transportation services.

Cash generated from revenue equaled $41.1 million for the three months ended March 31, 2011 as compared to $31.6 million for the same period in 2010 and correlates directly with revenue increases between the two years.  Cash flow increases related to volume increases were slightly offset by our average days outstanding in accounts receivable which have increased by 3 days between the three month periods ended March 31, 2011 and March 31, 2010, respectively.
 
 
 
 
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Cash used for payment of transportation services for the three months ended  March 31, 2011 equaled $33.0 million as compared to $25.6 million for the same period in 2010.  The increase in cash outflows between the two years also directly correlates to the increase in business between the two years. Cash outflows have lagged behind incurred transportation expenses because of increased accrued expenses totaling $864,000 related to the increased business volumes. Our average days outstanding in accounts payable and accrued expenses decreased by 5 days between 2011 and 2010.

Other operating uses of cash included Selling, General and Administrative items which equaled $6.0 million and $3.9 million for the three months ended March 31, 2011 and 2010, respectively. The major items included under this heading include payroll and purchased services.  For the three month period ended March 31, 2011, payroll expenses equaled $3.3 million as compared to $2.4 million for the same period in 2010. Included in the $3.3 million in payroll expenses is $194,000 of increased payroll incentive items being accrued during the period which will be paid in future periods.

Investing activities used approximately $536,000 during the three months ended March 31, 2011 compared to our use of $49,000 on these activities during the prior year. During this period, cash was used to purchase $86,000 in fixed assets and an acquisition earn-out payment of $450,000. During the same period in 2009 the company used $49,000 to purchase fixed assets.

Financing activities used approximately $2.0 million for the three months ended March 31, 2011 compared to $1.4 million in 2010. Payments on the line of credit of $2.4 million resulted in the primary use of cash, additionally $429,000 in payments on the company’s debt were made.  The primary source of cash for the period was $727,000 in proceeds associated with the exercise of stock options. During the same period in 2010 sources of cash for financing activities included $5.0 million of proceeds from term debt related to a new debt facility signed in March 2010 in addition to $564,000 in proceeds associated with the exercise of stock options during the period.  Uses of cash for financing activities included payments on term debt of $2.7 million and net payments on the line of credit of $3.8 million.

Term Note and Line of Credit

The Company entered into a $5.0 million term note on March 31, 2010.  Commencing April 30, 2010, the term note is payable in 36 consecutive monthly installments consisting of $139,000 in monthly principal payments plus the unpaid interest accrued on the note.  Interest is payable at the one-month LIBOR plus 225 basis points (2.51% at March 31, 2011).

On March 31, 2011, the Company amended its credit facility to extend its maturity date to March 31, 2013. The credit facility continues to provide for a receivables based line of credit of up to $10.0 million. The Company may draw upon the receivables based line of credit the lesser of $10.0 million or 80% of eligible accounts receivable, less amounts outstanding under letters of credit and 50% of the above term loan balance. The proceeds of the line of credit will be used exclusively for working capital purposes.

Substantially all the assets of our Company and wholly owned subsidiaries (Express-1, Inc., Concert Group Logistics, Inc., Bounce Logistics, Inc., and CGL International, Inc.) are pledged as collateral securing our performance under the credit facilities. The credit facility bears interest based upon LIBOR with an initial increment of 200 basis points for the line of credit and 225 basis points for the term loan. The term loan is payable over a thirty-six month period and requires monthly principal payments of $139,000 plus accrued interest.

The credit facilities carry certain covenants related to the Company’s financial performance. Included among the covenants are a fixed charge coverage ratio and a total funded debt to earnings before interest, taxes, depreciation and amortization ratio. As of March 31, 2011, the Company was in compliance with all terms under the credit facility and no events of default existed under the terms of this agreement.

We had outstanding standby letters of credit at March 31, 2011 of $410,000 related to insurance policies either continuing in force or recently canceled. Amounts outstanding for letters of credit reduce the amount available under our line of credit, dollar-for-dollar.

Available capacity in excess of outstanding borrowings under the line was approximately $9.2 million as limited by 80% of eligible accounts receivable less amounts outstanding under letters of credit and 50% of the term loan balance as of March 31, 2011. The credit facility carries a maturity date of March 31, 2013.
 
 
 
 
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Options

The following schedule represents those options that the Company has outstanding as of March 31, 2011. The schedule segregates the options by expiration date and exercise price to better identify their potential for exercise. Additionally, the total approximate potential proceeds by year have been identified.

                                 
Total
   
Approximate
 
   
----------------------------------------Options grouped by exercise price----------------------------------------
   
Outstanding
   
Potential
 
      .50-.75       .76-1.00       1.01-1.25       1.26-1.50    
1.51 >
   
Options
   
Proceeds
 
Option Expiration Dates
                                                 
2014
            50,000                             50,000       44,000  
2015
    500,000               200,000                     700,000       603,000  
2016
            50,000       125,000       100,000             275,000       313,000  
2017
                    50,000       320,000             370,000       514,000  
2018
            288,000       100,000                     388,000       382,000  
2019
    25,000       75,000       25,000                     125,000       112,000  
2020
                    75,000       235,000       275,000       585,000       821,000  
2021
                                    50,000       50,000       132,000  
  Totals
    525,000       463,000       575,000       655,000       325,000       2,543,000       2,921,000  
 
Contractual Obligations

The following table reflects all contractual obligations of our Company as of March 31, 2011.
 
     
Payments Due by Period
 
           
Less than 1
   
1 to 3
   
3 to 5
   
More than 5
 
Contractual Obligations
   
Total
   
Year
   
Years
   
Years
   
Years
 
Term notes payable
    $ 3,334,000     $ 1,667,000     $ 1,667,000     $ -     $ -  
Capital leases payable
      -       -       -       -       -  
   Total note payable and capital leases
      3,334,000       1,667,000       1,667,000       -       -  
Line of credit
      345,000       -       345,000       -       -  
Operating/real estate leases
      890,000       525,000       282,000       83,000       -  
Earnout obligation - LRG
      450,000       450,000       -       -       -  
Employment contracts
      2,108,000       1,177,000       931,000       -       -  
Total contractual cash obligations
    $ 7,127,000     $ 3,819,000     $ 3,225,000     $ 83,000     $ -  

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

     Not Required.

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures. Under the supervision and with the participation of the Company’s management, including the Company’s 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.
 
 
 
 
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Changes in internal controls. There were no changes in our internal controls over financial reporting during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.


PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

From time-to-time, the Company is involved in various civil actions as part of its normal course of business. The Company is not a party to any litigation that is material to ongoing operations as defined in Item 103 of Regulation S-K as of the period ended March 31, 2011.

Item 1A. Risk Factors.

Not required

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

No unregistered equity securities were sold in the current reporting period.

Item 3. Defaults upon Senior Securities.

The Company’s line of credit and a term note contain various covenants pertaining to the maintenance of certain financial ratios. As of March 31, 2011, the Company was in compliance with the ratios required under these agreements. No events of default exist on these agreements as of the filing date.

Item 4.  Removed and Reserved.

Item 5. Other Information.

 None.
 
 
 
 
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Item 6. Exhibits.

Exhibit No. 
 
Description 
   
 
 
10.1
 
Employment Agreement with C.F.O., dated March 21, 2011. (1)
 
     
10.2
 
Amendment to Revolving and Term Loan Agreement. (2)
 
     
10.2
 
Revolving Note. (2)
     
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 Interim Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
     
(1)   Incorporated by reference from Exhibit 10.1 of registrants’ Form 8-K/A filed with the commission on March 22, 2011.
     
     
(2)   Incorporated by reference from Exhibit 99.1 and 99.2  of registrants’ Form 8-K/A filed with the commission on March 31, 2011.
 
 
SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
    Express-1 Expedited Solutions, Inc  
       
 
 
/s/ Michael R. Welch  
    Michael R. Welch  
    Chief Executive Officer  
    (Principle Executive Officer)  
 

 
 
 
/s/ John D. Welch  
    John D. Welch  
    Chief Financial Officer  
    (Principle Financial Officer)  
Date:  May 13, 2011
 

 
                                                                          
 
 
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Exhibit Index

Exhibit No. 
 
Description 
     
31.1
 
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
     
31.2
 
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
     
32.1
 
Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
 
32.2
 
 
Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
 
 
 
 
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