**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20002**

 

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**FORM 10-Q**

 

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| **ý**                                              | **QUARTERLY REPORT PURSUANT TO SECTION 13  OR 15****(d) ****OF THE SECURITIES  EXCHANGE ACT OF 1934**  |
|---------------------------------------------------------|------------------------------------------------------------------------------------------------------------------|
|                                                    |
| **For the  quarterly period ended April 30, 2005** |
|                                                    |
| **OR**                                                  |
|                                                    |
| **o**                                                   | **TRANSITION REPORT PURSUANT TO SECTION 13  OR 15****(d) ****OF THE SECURITIES  EXCHANGE ACT OF 1934** |

 

**Commissionfile number: 000-21057**

 

**DYNAMEXINC.**

(Exact name ofregistrant as specified in its charter)

 
| **Delaware**                              | ** ** | **86-0712225**                        |
|-------------------------------------------|------------|---------------------------------------|
| (State  of incorporation)                 |       | (I.R.S.  Employer Identification No.) |
|                                      |       |                                  |
| **1870 Crown  Drive, Dallas, Texas**      | ** ** | **75234**                             |
| (Address  of principal executive offices) |       | (Zip  Code)                           |

 

Registrant’stelephone number, including area code:

**(214)561-7500**

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes  ý No  o

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes  ý  No  o

 

The number of shares of the registrant’s commonstock, $.01 par value, outstanding as of June 1, 2005 was 11,585,897shares.

 

 

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**INDEX**

 
| **PART I**           |
|---------------------------|
| **FINANCIAL INFORMATION** |
|                      |   |   |
| Item 1.                   | Financial Statements |   |
|                      |   |   |
|                      |   | Condensed  Consolidated Balance Sheets April 30, 2005 (Unaudited) and July 31,  2004 |   |
|                      |   |   |   |
|                      |   | Condensed  Statements of Consolidated Operations (Unaudited) Three and nine months ended  April 30, 2005 and 2004 |   |
|                      |   |   |   |
|                      |   | Condensed  Statements of Consolidated Cash Flows (Unaudited) Nine months ended  April 30, 2005 and 2004 |   |
|                      |   |   |   |
|                      |   | Notes  to Condensed Consolidated Financial Statements (Unaudited) |   |
|                      |   |   |
| Item 2.                   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |
|                      |   |   |
| Item 3.                   | Quantitative  and Qualitative Disclosures About Market Risk |   |
|                      |   |   |
| Item 4.                   | Controls and  Procedures |   |
|                      |   |   |
| **PART II**          |
| **OTHER  INFORMATION**    |
| Item 1.                   | Legal  Proceedings |   |
|                      |   |   |
| Item 6.                   | Exhibits |   |
|                      |   |   |
| Signatures                |   |
|                      |   |   |
| Exhibit Index        |   |

 

1

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**PART I**

**FINANCIALINFORMATION**

 

Item1.             Financial Statements

 

**DYNAMEX INC.**

CondensedConsolidated Balance Sheets

(inthousands, except per share data)

 
| ** **                                                                                            | ** ** | **April 30,** | ** ** | **July 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-------------------|------------|
| ** **                                                                                            | ** ** | **2005**           | ** ** | **2004**          | ** ** |
| ** **                                                                                            | ** ** | **(Unaudited)**    | ** ** | ** **        | ** ** |
| **ASSETS**                                                                                            | ** ** | ** **         | ** ** | ** **        | ** ** |
| CURRENT                                                                                               |       |               |       |              |       |
| Cash and  cash equivalents                                                                            |       | $                  | 8,064      |              | $          | 7,927 |   |
| Accounts  receivable (net of allowance for doubtful accounts of $701 and $751,  respectively)         |       | 32,246             |       | 27,355            |       |
| Prepaid and  other current assets                                                                     |       | 3,126              |       | 1,825             |       |
| Deferred  income taxes                                                                                |       | 1,933              |       | 2,359             |       |
| Total  current assets                                                                                 |       | 45,369             |       | 39,466            |       |
|                                                                                                  |       |               |       |              |       |
| PROPERTY AND  EQUIPMENT - net                                                                         |       | 5,103              |       | 4,731             |       |
| GOODWILL                                                                                              |       | 45,819             |       | 45,271            |       |
| INTANGIBLES  - net                                                                                    |       | 515                |       | 475               |       |
| DEFERRED  INCOME TAXES                                                                                |       | 8,259              |       | 10,910            |       |
| OTHER                                                                                                 |       | 1,506              |       | 1,219             |       |
| Total assets                                                                                          |       | $                  | 106,571    |              | $          | 102,072 |   |
|                                                                                                  |       |               |       |              |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                        | ** ** | ** **         | ** ** | ** **        | ** ** |
| CURRENT  LIABILITIES                                                                                  |       |               |       |              |       |
| Accounts  payable trade                                                                               |       | $                  | 6,857      |              | $          | 5,910 |   |
| Accrued  liabilities                                                                                  |       | 15,562             |       | 16,852            |       |
| Total  current liabilities                                                                            |       | 22,419             |       | 22,762            |       |
|                                                                                                  |       |               |       |              |       |
| LONG-TERM  DEBT                                                                                       |       | 3,809              |       | 10,000            |       |
| Total  liabilities                                                                                    |       | 26,228             |       | 32,762            |       |
|                                                                                                  |       |               |       |              |       |
| COMMITMENTS  AND CONTINGENCIES                                                                        |       |               |       |              |       |
|                                                                                                  |       |               |       |              |       |
| STOCKHOLDERS’  EQUITY                                                                            |       |               |       |              |       |
| Preferred  stock; $0.01 par value, 10,000 shares authorized; none outstanding                         |       | —             |       | —            |       |
| Common stock; $0.01 par value, 50,000  shares authorized; 11,586 and 11,435 outstanding, respectively |       | 116                |       | 114               |       |
| Additional  paid-in capital                                                                           |       | 76,854             |       | 75,309            |       |
| Retained  earnings (deficit)                                                                          |       | 1,048              |       | (7,417            | )          |
| Accumulated  other comprehensive income                                                               |       | 2,325              |       | 1,304             |       |
| Total  stockholders’ equity                                                                      |       | 80,343             |       | 69,310            |       |
| Total  liabilities and stockholders’ equity                                                      |       | $                  | 106,571    |              | $          | 102,072 |   |

 

See accompanying notes to the condensedconsolidated financial statements.

 

2

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**DYNAMEX INC.**

CondensedStatements of Consolidated Operations

(inthousands except per share data)

(Unaudited)

 
| ** **                                                   | ** ** | **Three months ended  April 30,** | ** ** | **Nine months ended  April 30,** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------------|------------|---------------------------------------|------------|
| ** **                                                   | ** ** | **2005**                               | ** ** | **2004**                              | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                         |       |                                   |       |                                  |       |   |   |   |   |
| Sales                                                        |       | $                                      | 81,778     |                                  | $          | 74,016 |   | $ | 236,986 |   | $ | 213,465 |   |
|                                                         |       |                                   |       |                                  |       |   |   |   |   |
| Cost of  sales:                                              |       |                                   |       |                                  |       |   |   |   |   |
| Purchased  transportation                                    |       | 52,649                                 |       | 46,401                                |       | 151,597 |   | 133,883 |   |
| Other direct  costs                                          |       | 6,116                                  |       | 6,846                                 |       | 18,883 |   | 19,920 |   |
| Cost of  sales                                               |       | 58,765                                 |       | 53,247                                |       | 170,480 |   | 153,803 |   |
|                                                         |       |                                   |       |                                  |       |   |   |   |   |
| Gross profit                                                 |       | 23,013                                 |       | 20,769                                |       | 66,506 |   | 59,662 |   |
|                                                         |       |                                   |       |                                  |       |   |   |   |   |
| Selling,  general and administrative expenses:               |       |                                   |       |                                  |       |   |   |   |   |
| Salaries and  employee benefits                              |       | 12,075                                 |       | 11,450                                |       | 35,668 |   | 33,530 |   |
| Other                                                        |       | 5,608                                  |       | 4,600                                 |       | 15,613 |   | 14,089 |   |
| Selling,  general and administrative expenses                |       | 17,683                                 |       | 16,050                                |       | 51,281 |   | 47,619 |   |
|                                                         |       |                                   |       |                                  |       |   |   |   |   |
| Depreciation  and amortization                               |       | 414                                    |       | 474                                   |       | 1,159 |   | 1,453 |   |
| Gain on  disposal of property and equipment                  |       | (24                                    | )          | —                                |       | (21 | ) | (20 | ) |
|                                                         |       |                                   |       |                                  |       |   |   |   |   |
| Operating  income                                            |       | 4,940                                  |       | 4,245                                 |       | 14,087 |   | 10,610 |   |
|                                                         |       |                                   |       |                                  |       |   |   |   |   |
| Interest  expense                                            |       | 90                                     |       | 614                                   |       | 363 |   | 1,268 |   |
| Other  income, net                                           |       | (46                                    | )          | (30                                   | )          | (150 | ) | (134 | ) |
|                                                         |       |                                   |       |                                  |       |   |   |   |   |
| Income  before income taxes                                  |       | 4,896                                  |       | 3,661                                 |       | 13,874 |   | 9,476 |   |
|                                                         |       |                                   |       |                                  |       |   |   |   |   |
| Income taxes                                                 |       | 2,166                                  |       | 1,361                                 |       | 5,410 |   | (294 | ) |
|                                                         |       |                                   |       |                                  |       |   |   |   |   |
| Net income                                                   |       | $                                      | 2,730      |                                  | $          | 2,300 |   | $ | 8,464 |   | $ | 9,770 |   |
|                                                         |       |                                   |       |                                  |       |   |   |   |   |
| Basic  earnings per common share:                            |       | $                                      | 0.24       |                                  | $          | 0.20 |   | $ | 0.73 |   | $ | 0.87 |   |
|                                                         |       |                                   |       |                                  |       |   |   |   |   |
| Diluted  earnings per common share:                          |       | $                                      | 0.23       |                                  | $          | 0.20 |   | $ | 0.72 |   | $ | 0.85 |   |
|                                                         |       |                                   |       |                                  |       |   |   |   |   |
| Weighted  average shares:                                    |       |                                   |       |                                  |       |   |   |   |   |
| Common  shares outstanding                                   |       | 11,586                                 |       | 11,351                                |       | 11,525 |   | 11,285 |   |
| Adjusted  common shares - assuming exercise of stock options |       | 11,832                                 |       | 11,631                                |       | 11,765 |   | 11,538 |   |

 

See accompanying notes to the condensedconsolidated financial statements.

 

3

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**DYNAMEXINC.**

CondensedStatements of Consolidated Cash Flows

(in thousands)

(Unaudited)

 
| ** **                                                                         | ** ** | **Nine months ended  April 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                         | ** ** | **2005**                              | ** ** | **2004** | ** ** |
| OPERATING  ACTIVITIES                                                              |       |                                  |       |   |   |
| Net income                                                                         |       | $                                     | 8,464      |   | $ | 9,770 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |       |                                  |       |   |   |
| Depreciation  and amortization                                                     |       | 1,159                                 |       | 1,453 |   |
| Amortization  of deferred bank financing fees                                      |       | 26                                    |       | 602 |   |
| Provision  for losses on accounts receivable                                       |       | 344                                   |       | 626 |   |
| Stock option  compensation                                                         |       | 355                                   |       | 251 |   |
| Deferred  income taxes                                                             |       | 3,076                                 |       | (2,060 | ) |
| Tax benefit  realized by exercise of stock options                                 |       | 126                                   |       | — |   |
| Gain on  disposal of property and equipment                                        |       | (21                                   | )          | (20 | ) |
| Changes in  current operating assets and liabilities:                              |       |                                  |       |   |   |
| Accounts  receivable                                                               |       | (5,235                                | )          | (4,975 | ) |
| Prepaids and  other current assets                                                 |       | (1,292                                | )          | 404 |   |
| Accounts  payable and accrued liabilities                                          |       | (340                                  | )          | (1,265 | ) |
| Net cash  provided by operating activities                                         |       | 6,662                                 |       | 4,786 |   |
|                                                                               |       |                                  |       |   |   |
| INVESTING  ACTIVITIES                                                              |       |                                  |       |   |   |
| Purchase of  property and equipment                                                |       | (1,450                                | )          | (1,516 | ) |
| Cash payment  for acquisition                                                      |       | (100                                  | )          | — |   |
| Proceeds  from sale of property and equipment                                      |       | 29                                    |       | 12 |   |
| Purchase of  investments                                                           |       | (270                                  | )          | — |   |
| Net cash used  in investing activities                                             |       | (1,791                                | )          | (1,504 | ) |
|                                                                               |       |                                  |       |   |   |
| FINANCING  ACTIVITIES                                                              |       |                                  |       |   |   |
| Principal  payments on long-term debt                                              |       | —                                |       | (2,979 | ) |
| Net payments  under line of credit                                                 |       | (6,201                                | )          | (1,100 | ) |
| Proceeds  from stock option exercise                                               |       | 1,065                                 |       | 593 |   |
| Other assets  and deferred financing fees                                          |       | (2                                    | )          | (652 | ) |
| Net cash  used in financing activities                                             |       | (5,138                                | )          | (4,138 | ) |
|                                                                               |       |                                  |       |   |   |
| EFFECT OF  EXCHANGE RATES ON CASH                                                  |       | 404                                   |       | 97 |   |
|                                                                               |       |                                  |       |   |   |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS                              |       | 137                                   |       | (759 | ) |
| CASH AND  CASH EQUIVALENTS, BEGINNING OF YEAR                                      |       | 7,927                                 |       | 4,338 |   |
| CASH AND  CASH EQUIVALENTS, END OF YEAR                                            |       | $                                     | 8,064      |   | $ | 3,579 |   |
|                                                                               |       |                                  |       |   |   |
| SUPPLEMENTAL  DISCLOSURE OF CASH FLOW INFORMATION                                  |       |                                  |       |   |   |
| Cash paid  for interest                                                            |       | $                                     | 341        |   | $ | 710 |   |
| Cash paid  for taxes                                                               |       | $                                     | 2,354      |   | $ | 1,593 |   |

 

See accompanying notes to the condensedconsolidated financial statements.

 

4

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**Notes to Condensed Consolidated Financial Statements(Unaudited)**

 

**1.****                                     ****Summary of SignificantAccounting Polices**

 

*Description of Business* - Dynamex Inc. (the “Company” or “Dynamex”)provides same-day delivery and logistics services in the United States andCanada.  The Company’s primary servicesare (i) same-day, on-demand delivery, (ii) local and regionaldistribution and (iii) fleet outsourcing and facilities management.

 

Theoperating subsidiaries of the Company, with country of incorporation, are asfollows:

 

•                                          Dynamex Operations East Inc. (U.S.)

•                                          Dynamex Operations West Inc. (U.S.)

•                                          Dynamex Dedicated Fleet Services, Inc.(U.S.)

•                                          Dynamex Fleet Services, Inc. (U.S.)

•                                          Dynamex Canada Corp. (Canada)

•                                          Alpine Enterprises Ltd. (Canada)

•                                          Roadrunner Transportation, Inc. (U.S.)

•                                          New York Document Exchange Corp. (U.S.)

 

*Basis of presentation -*The consolidated financial statements includethe accounts of Dynamex Inc. and its wholly-owned subsidiaries.  All significant inter-company accounts andtransactions have been eliminated.  Alldollar amounts in the financial statements and notes to the financialstatements, except per share data, are stated in thousands of dollars unlessotherwise indicated.  Except as otherwiseindicated, references to years mean the Company’s fiscal year ending July 31,2004 or ended July 31 of the year referenced, and comparisons are to thecorresponding period of the prior year.

 

The accompanying interimfinancial statements are unaudited. Certain information and disclosures normally included in financialstatements prepared in accordance with generally accepted accounting principleshave been condensed or omitted, although the Company believes the disclosuresincluded herein are adequate to prevent the information presented from beingmisleading.  The results of the interimperiods presented are not necessarily indicative of results to be expected forthe full fiscal year, and should be read in conjunction with the Company’saudited financial statements for the fiscal year ended July 31, 2004.

 

Theaccompanying interim financial statements contain all adjustments, consistingonly of normal recurring adjustments, necessary for a fair presentation of theCompany’s financial position at April 30, 2005, the results of itsoperations for the three and nine month periods ended April 30, 2005 and2004, and cash flows for the nine month periods ended April 30, 2005 and2004.  The tax provision for the ninemonth periods ended April 30, 2005 and 2004 are based upon management’sestimate of the Company’s annualized effective tax rate.

 

Certainreclassifications have been made to conform prior period data to the currentpresentation.

 

**2.****                                     ****Comprehensive Income**

 

Thethree components of comprehensive income are net income, foreign currencytranslation adjustments and unrealized gains (losses) on investments.  Investments consist of payroll withholdingsfrom participants in the Company’s deferred compensation plan that are investedin funds designated by the individual participants.  These investments have been classified asavailable-for-sale in accordance with Statement of Financial Accounting StandardsNo. 115, *Accounting for CertainInvestments in Debt and Equity Securities*.  Comprehensive income for the three and ninemonths ended April 30, 2005 and 2004 was as follows:

 

5

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| ** **                                | ** ** | **Three months ended  April 30,** | ** ** | **Nine months ended  April 30,** | ** ** |
|-------------------------------------------|------------|----------------------------------------|------------|---------------------------------------|------------|
| ** **                                | ** ** | **2005**                               | ** ** | **2004**                              | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                      |       |                                   |       |                                  |       |   |   |   |   |
| Net income                                |       | $                                      | 2,730      |                                  | $          | 2,300 |   | $ | 8,464 |   | $ | 9,770 |   |
|                                      |       |                                   |       |                                  |       |   |   |   |   |
| Unrealized  gain (loss) on investments    |       | (11                                    | )          | —                                |       | 26 |   | — |   |
| Foreign  currency translation gain (loss) |       | (283                                   | )          | (564                                  | )          | 994 |   | 350 |   |
|                                      |       |                                   |       |                                  |       |   |   |   |   |
| Comprehensive  income                     |       | $                                      | 2,436      |                                  | $          | 1,736 |   | $ | 9,484 |   | $ | 10,120 |   |

 

**3.****                                     ****Intangibles**

 

AtApril 30, 2005, intangibles and related amortization expense for the threeand nine months ended April 30, 2005 and 2004 consisted of the following:

 
| ** **                    | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** |
|-------------------------------|------------|------------|------------|------------------|------------|------------|------------|
| ** **                    | ** ** | **Asset**  | ** ** | **amortization** | ** ** | **Net**    | ** ** |
|                          |       |       |       |             |       |       |       |
| Deferred  bank financing fees |       | $          | 126        |             | $          | (37        | )          | $ | 89 |   |
|                          |       |       |       |             |       |       |       |
| Trademarks  and other         |       | 550        |       | (124             | )          | 426        |       |
|                          |       |       |       |             |       |       |       |
| Total                         |       | $          | 676        |             | $          | (161       | )          | $ | 515 |   |

 
| ** **                    | ** ** | **Amortization expense  Three months ended April 30,** | ** ** | **Amortization expense  Nine months ended April 30,** | ** ** |
|-------------------------------|------------|-------------------------------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                    | ** ** | **2005**                                                    | ** ** | **2004**                                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
|                          |       |                                                        |       |                                                       |       |   |   |   |   |
| Deferred  bank financing fees |       | $                                                           | 9          |                                                       | $          | 474 |   | $ | 26 |   | $ | 602 |   |
|                          |       |                                                        |       |                                                       |       |   |   |   |   |
| Trademarks  and other         |       | 5                                                           |       | 5                                                          |       | 16 |   | 16 |   |
|                          |       |                                                        |       |                                                       |       |   |   |   |   |
| Total                         |       | $                                                           | 14         |                                                       | $          | 479 |   | $ | 42 |   | $ | 618 |   |

 

Amortization of deferred financing fees isclassified as interest expense in the condensed statements of consolidatedoperations.  Estimated amortizationexpense for the succeeding five fiscal years, including deferred bank financingfees, is $62 for 2005, $81 for 2006, $79 for 2007, $50 for 2008 and $18 in2009.

 

**4.****                                     ****Computation of Earnings perShare**

 

Thefollowing is a reconciliation of the numerators and denominators of the basicand diluted earnings per share computation as required by Statement ofFinancial Accounting Standards No. 128, *Earningsper Share*.  Common stockequivalents related to stock options are excluded from diluted earnings pershare calculation if their effect would be anti-dilutive to earnings per share.

 

6

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| ** **                                   | ** ** | **Three months ended  April 30,** | ** ** | **Nine months ended  April 30,** | ** ** |
|----------------------------------------------|------------|----------------------------------------|------------|---------------------------------------|------------|
| ** **                                   | ** ** | **2005**                               | ** ** | **2004**                              | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                         |       |                                   |       |                                  |       |   |   |   |   |
| Net income                                   |       | $                                      | 2,730      |                                  | $          | 2,300 |   | $ | 8,464 |   | $ | 9,770 |   |
|                                         |       |                                   |       |                                  |       |   |   |   |   |
| Weighted  average common shares outstanding  |       | 11,586                                 |       | 11,351                                |       | 11,525 |   | 11,285 |   |
|                                         |       |                                   |       |                                  |       |   |   |   |   |
| Common share  equivalents related to options |       | 246                                    |       | 280                                   |       | 240 |   | 253 |   |
|                                         |       |                                   |       |                                  |       |   |   |   |   |
| Common  shares and common share equivalents  |       | 11,832                                 |       | 11,631                                |       | 11,765 |   | 11,538 |   |
|                                         |       |                                   |       |                                  |       |   |   |   |   |
| Net income  per common share:                |       |                                   |       |                                  |       |   |   |   |   |
| Basic                                        |       | $                                      | 0.24       |                                  | $          | 0.20 |   | $ | 0.73 |   | $ | 0.87 |   |
| Diluted                                      |       | $                                      | 0.23       |                                  | $          | 0.20 |   | $ | 0.72 |   | $ | 0.85 |   |

 

**5.****                                     ****Commitments andContingencies**

 

TheCompany has entered into an agreement with a vehicle leasing company,guaranteeing lease payments on approximately 20 vehicles sub-leased toindependent contractors.  The agreementruns through January 2007 and the maximum potential amount of futurepayments that Dynamex could be required to make is approximately $495.  The independent contractors use thesevehicles to service a specific customer contract whose terms run concurrentwith the guarantee.  Should anindependent contractor default on their lease, the Company would facilitate thetransfer of the leased vehicle to a new independent contractor to complete theservice commitment to the customer.

 

7

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**Item 2.****          ****Management’s Discussion andAnalysis of Financial Condition and Results of Operations**

 

*This discussion contains forward-looking statements,which involve assumptions regarding Company operations and futureprospects.  These forward-lookingstatements are not historical facts but are the intent, belief or currentexpectations of the Company’s management based on their knowledge andunderstanding of the business and industry. Words such as “may”, “will”, “anticipates”, “expects”, “intends”, “plans”,“believes”, “seeks”, “estimates”, “would”, “could”, “should” and variations ofthese words and similar expressions are intended to identify forward-lookingstatements.  These statements are notguarantees of future performance and are subject to risks, uncertainties andother factors, some of which are beyond the Company’s control, are difficult topredict and could cause actual results to differ materially from thoseexpressed or forecasted in the forward-looking statements.*

 

*Forward-looking statements that were true at the timemade may ultimately prove to be incorrect or false.  Investors are cautioned not to place unduereliance on forward-looking statements, which reflect management’s view only asof the date of this Report on Form 10-Q. The Company undertakes no obligation to update or revise forward-lookingstatements to reflect changed assumptions, the occurrence of unanticipatedevents or changes to future operating results. Factors that could cause actual results to differ materially from anyforward-looking statements made in this Form 10-Q include competition,foreign exchange, and risks associated with the same-day transportationindustry.  The forward-looking statementsshould be read in light of the risk factors identified in the “Risk Factors” section ofthe Company’s Form 10-K, as filed with the Securities and ExchangeCommission.*

 

**General**

 

TheCompany, through its national network of same-day delivery and logistics operations,is the leading provider of such services in the United States and Canada.

 

Asignificant portion of the Company’s revenues are generated in Canada.  For the nine month period ended April 30,2005, Canadian revenues accounted for approximately 33.5% of total consolidatedrevenue, compared to 33.4% for the same period in 2004.  The exchange rate between the Canadian dollarand the U.S. dollar increased 7.4% in the nine month period ended April 30,2005 compared to the corresponding period in the prior year.  Had the exchange rate been the same as in theprior period, Canadian sales for the nine month period ended April 30,2005 would have accounted for 31.9% of total sales.

 

Salesconsist primarily of charges to customers for delivery services and weekly ormonthly charges for recurring services, such as facilities management.  Sales are recognized when the service isperformed.  The yield (value pertransaction) for a particular service is dependent upon a number of factorsincluding size and weight of articles transported, distance transported,special handling requirements, requested delivery time and local marketconditions.  Generally, articles ofgreater weight transported over longer distances and those that require specialhandling produce higher yields.

 

Costof sales consist of costs relating directly to performance of services,including driver and messenger costs, third party delivery charges,warehousing, sorting costs, facilities management, bad debts, insurance, andworkers’ compensation costs.  As of April 30,2005, substantially all of the drivers used by the Company provided their ownvehicles and 99% of these owner-operators were independent contractors asopposed to employees of the Company. Drivers and messengers are generally compensated based on a percentageof the delivery charge.  Consequently,the Company’s driver and messenger costs are variable in nature.  To the extent that drivers and messengers areemployees of the Company, employee benefit costs related to them, such aspayroll taxes and insurance, are also included in cost of sales.

 

Selling,general and administrative expenses (“SG & A”) include salaries, wagesand benefit costs incurred at the branch level related to taking orders anddispatching drivers and messengers, as well as administrative costs related tosuch functions.  Also included in SG &A expenses are regional and corporate level marketing, administrative andmanagement costs and occupancy costs related to branch and corporate locations.

 

Generally,the Company’s on-demand services provide higher gross profit margins than dolocal and regional distribution or dedicated fleet management services becausedriver compensation for on-demand services is generally lower as a percentageof sales from such services primarily due to the size of the vehiclesrequired.  However, local and regionaldistribution and dedicated fleet management services generally have fewer 

 

8

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administrativerequirements related to order taking, dispatching drivers, billing and cashcollections.  As a result of thesevariances, the Company’s gross margin is dependent in part on the mix ofbusiness for a particular period.

 

Duringthe nine months ended April 30, 2005, sales to Office Depot, Inc. representedapproximately 9.8% of the Company’s revenue. Management believes that sales to this customer may exceed 10% ofconsolidated sales for the full fiscal year.

 

Exceptas otherwise indicated herein, all dollar amounts except per share data arestated in thousands of dollars.

 

**Critical Accounting Policies**

 

TheCompany’s discussion and analysis of its financial condition and results ofoperations are based on the Company’s financial statements, which have beenprepared in accordance with accounting policies generally accepted in theUnited States of America.  The Companybelieves certain critical accounting policies, as set forth in the Company’s Form 10-Kfor the year ended July 31, 2004, affect its more significant judgmentsand estimates used in the preparation of financial statements.  As of, and for the nine month period ended April 30,2005, there have been no material changes or updates to the Company’s criticalaccounting policies.

 

**Results of Operations**

 

Thefollowing table sets forth for the periods indicated, certain items from theCompany’s condensed statements of consolidated operations, expressed as apercentage of sales:

 
| ** **                                     | ** ** | **Three months ended  April 30,** | ** ** | **Nine months ended  April 30,** | ** ** |
|------------------------------------------------|------------|----------------------------------------|------------|---------------------------------------|------------|
| ** **                                     | ** ** | **2005**                               | ** ** | **2004**                              | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                           |       |                                   |       |                                  |       |   |   |   |   |
| Sales                                          |       | 100.0                                  | %          | 100.0                                 | %          | 100.0 | % | 100.0 | % |
|                                           |       |                                   |       |                                  |       |   |   |   |   |
| Cost of  sales:                                |       |                                   |       |                                  |       |   |   |   |   |
| Purchased  transportation                      |       | 64.4                                   | %          | 62.7                                  | %          | 64.0 | % | 62.7 | % |
| Other direct  costs                            |       | 7.5                                    | %          | 9.2                                   | %          | 8.0 | % | 9.3 | % |
| Cost of  sales                                 |       | 71.9                                   | %          | 71.9                                  | %          | 72.0 | % | 72.0 | % |
|                                           |       |                                   |       |                                  |       |   |   |   |   |
| Gross profit                                   |       | 28.1                                   | %          | 28.1                                  | %          | 28.0 | % | 28.0 | % |
|                                           |       |                                   |       |                                  |       |   |   |   |   |
| Selling,  general and administrative expenses: |       |                                   |       |                                  |       |   |   |   |   |
| Salaries and  employee benefits                |       | 14.8                                   | %          | 15.5                                  | %          | 15.0 | % | 15.7 | % |
| Other                                          |       | 6.8                                    | %          | 6.2                                   | %          | 6.6 | % | 6.6 | % |
| Selling,  general and administrative expenses  |       | 21.6                                   | %          | 21.7                                  | %          | 21.6 | % | 22.3 | % |
|                                           |       |                                   |       |                                  |       |   |   |   |   |
| Depreciation  and amortization                 |       | 0.5                                    | %          | 0.6                                   | %          | 0.5 | % | 0.7 | % |
| Gain on  disposal of property and equipment    |       | 0.0                                    | %          | 0.0                                   | %          | 0.0 | % | 0.0 | % |
|                                           |       |                                   |       |                                  |       |   |   |   |   |
| Operating  income                              |       | 6.0                                    | %          | 5.8                                   | %          | 5.9 | % | 5.0 | % |
|                                           |       |                                   |       |                                  |       |   |   |   |   |
| Interest  expense                              |       | 0.1                                    | %          | 0.8                                   | %          | 0.2 | % | 0.6 | % |
| Other  income, net                             |       | -0.1                                   | %          | 0.0                                   | %          | -0.1 | % | -0.1 | % |
|                                           |       |                                   |       |                                  |       |   |   |   |   |
| Income  before income taxes                    |       | 6.0                                    | %          | 5.0                                   | %          | 5.8 | % | 4.5 | % |
|                                           |       |                                   |       |                                  |       |   |   |   |   |
| Income taxes                                   |       | 2.7                                    | %          | 1.8                                   | %          | 2.3 | % | -0.1 | % |
|                                           |       |                                   |       |                                  |       |   |   |   |   |
| Net income                                     |       | 3.3                                    | %          | 3.2                                   | %          | 3.5 | % | 4.6 | % |

 

9

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Thefollowing tables sets forth for the periods indicated, the Company’s salesaccumulated by service type and country:

 
| ** **              | ** ** | **Three months ended  April 30,** | ** ** |
|-------------------------|------------|----------------------------------------|------------|
| ** **              | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| Sales by  service type: |       |                                   |       |   |   |   |   |   |   |
| On demand               |       | $                                      | 31,188     |   | 38.1 | % | $ | 29,458 |   | 39.8 | % |
| Scheduled/distribution  |       | 25,346                                 |       | 31.0 | % | 21,058 |   | 28.5 | % |
| Outsourcing             |       | 25,244                                 |       | 30.9 | % | 23,500 |   | 31.7 | % |
| Total sales             |       | $                                      | 81,778     |   | 100.0 | % | $ | 74,016 |   | 100.0 | % |
|                    |       |                                   |       |   |   |   |   |   |   |
| Sales by  country:      |       |                                   |       |   |   |   |   |   |   |
| United  States          |       | $                                      | 54,689     |   | 66.9 | % | $ | 50,121 |   | 67.7 | % |
| Canada                  |       | 27,089                                 |       | 33.1 | % | 23,895 |   | 32.3 | % |
| Total sales             |       | $                                      | 81,778     |   | 100.0 | % | $ | 74,016 |   | 100.0 | % |
|                    |       |                                   |       |   |   |   |   |   |   |
| ** **              | ** ** | **Nine months ended  April 30,**  | ** ** |
| ** **              | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| Sales by  service type: |       |                                   |       |   |   |   |   |   |   |
| On demand               |       | $                                      | 92,594     |   | 39.1 | % | $ | 88,014 |   | 41.2 | % |
| Scheduled/distribution  |       | 70,952                                 |       | 29.9 | % | 58,960 |   | 27.6 | % |
| Outsourcing             |       | 73,440                                 |       | 31.0 | % | 66,491 |   | 31.2 | % |
| Total sales             |       | $                                      | 236,986    |   | 100.0 | % | $ | 213,465 |   | 100.0 | % |
|                    |       |                                   |       |   |   |   |   |   |   |
| Sales by  country:      |       |                                   |       |   |   |   |   |   |   |
| United  States          |       | $                                      | 157,673    |   | 66.5 | % | $ | 142,212 |   | 66.6 | % |
| Canada                  |       | 79,313                                 |       | 33.5 | % | 71,253 |   | 33.4 | % |
| Total sales             |       | $                                      | 236,986    |   | 100.0 | % | $ | 213,465 |   | 100.0 | % |

 

**Three months ended April 30, 2005 compared to thethree months ended April 30, 2004**

 

Netincome for the three months ended April 30, 2005 was $2.7 million ($0.23per fully diluted share) compared to $2.3 million ($0.20 per fully dilutedshare) for the three months ended April 30, 2004.  The increase is attributable to increased sales,and a higher gross profit, which was offset in part by higher SG & Aexpenses and income taxes.

 

Sales for the three months ended April 30, 2005 were $82 million,a 10.5% increase over the sales in the same period in 2004 of $74 million.  U.S. sales increased 9.1% and Canadian salesincreased 13.4%.  The current yearquarter had one less business day than the prior year.  On a sales per day basis, sales increased12.2% in the current year quarter versus the prior year.  The average conversion rate between theCanadian dollar and the U.S. dollar increased 8.4% over the prior year quarter,which had the effect of increasing sales for the three months ended April 30,2005 by approximately $2.1 million had the conversion rate been the same as theprior year period.  Excluding the effectof this increase, sales per day would have been approximately 9.4% higher inthe current quarter compared to the prior year. Canadian sales per day in Canadian dollars increased approximately 6.2%this quarter compared to last year.

 

Cost of sales for the three months ended April 30, 2005 increased$5.5 million, or 10.4%, to $59 million from $53 million for the same period inthe prior year.  Cost of sales, as apercentage of sales was 71.9% for the three months ended April 30, 2005and in the same period in the prior year. The effects of helping certain clients optimize distribution routes thatthe Company manages, plus the change in the business mix away from on-demandsales has put negative pressure on the Company’s gross margin.  On-demand sales generally produce a highergross margin 

 

10

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primarily due to lower driver commissions resulting from the smallersize of delivery vehicles compared to other services; however, on-demandservices are transaction intensive, requiring higher SG & A costscompared to other services.  Whileon-demand sales will continue to be a major component of the Company’scomprehensive service menu, management expects on-demand sales will comprise asmaller portion of overall sales as local and regional distribution and outsourcingservices likely will account for the majority of future growth.

 

SG & A expenses for the three months ended April 30, 2005increased $1.6 million, or 10.2%, to $17.7 million from $16.1 million for thesame period in the prior year. Approximately 25% of this increase is due to the increase in theexchange rate between the Canadian dollar and the U.S. dollar.  Excluding the impact of the exchange rate,salaries and benefits increased $345. This increase is primarily attributable to additional personnelnecessary to operate and manage the new business and the planned increase insales personnel.  The Company alsoincurred the following incremental SG & A expenses in this quartercompared to the same quarter in the prior year: stock options expense ($32) andSarbanes-Oxley related costs ($163).  Asa percentage of sales, SG & A expenses were 21.6% for the three monthsended April 30, 2005, compared to 21.7% for the same period last year.

 

For the three months ended April 30, 2005, depreciation andamortization was $414 compared to $474 for the same period in the prioryear.  Management does not expect asignificant change in the level of depreciation and amortization expense due tolimited capital requirements associated with its non-asset based business.

 

Interestexpense was $90, a decrease of $524 or 85.3% for the current quarter.  This decrease is primarily attributable tothe write-off of approximately $450 in deferred financing fees associated withthe Company’s refinancing of its credit facility in the prior year.  Interest expense, as a percentage of sales,was 0.1% in the current quarter compared to 0.8% in the prior period.

 

Incometax expense was $2.2 million, 44% of income before taxes in the current yearquarter compared to $1.4 million, 37% of income before taxes in the prioryear.  The current year quarter includesa “true-up” of estimated FY 2004 state tax expense based on actual tax returnsplus an adjustment to the estimated tax rate for FY 2005 based on thosereturns.  The estimated effective stateincome tax rate was adjusted to account for increased net income in states thatgenerally have a higher income tax rate.

 

**Nine months ended April 30, 2005 compared to ninemonths ended April 30, 2004**

 

Net income for the nine months ended April 30, 2005 was $8.5million ($0.72 per fully diluted share) compared to $9.8 million ($0.85 perfully diluted share) for the nine months ended April 30, 2004.  The prior year period includes a $3.7 milliontax benefit realized from the recognition of a U.S. net operating losscarryforward of approximately $10.6 million that was not recognized in prioryears due to the uncertainty of realization. Net income before income taxes increased 46% to $13.9 million in thecurrent year from $9.5 in the prior year. The increase is attributable to increased sales, and higher gross, whichwas offset in part by higher SG & A expenses.

 

Sales for the nine months ended April 30, 2005 were $237 million,an 11.0% increase over the sales in the same period in 2004 of $213 million.  U.S. sales increased 10.9% and Canadian salesincreased 11.3%.  The current year periodhad the same number of business days as the prior year.  On a sales per day basis, sales increased 11%in the current year period versus the prior year.  The average conversion rate between theCanadian dollar and the U.S. dollar increased 7.4% over the prior year period,which had the effect of increasing sales for the nine months ended April 30,2005 by approximately $5.5 million had the conversion rate been the same as theprior year period.  Excluding the effectof this increase, sales per day would have been approximately 8.6% higher inthe current period compared to the prior year. Canadian sales per day in Canadian dollars increased approximately 4.2%this period compared to last year.

 

Cost of sales for the nine months ended April 30, 2005 increased$17 million, or 10.8%, to $171 million from $154 million for the same period inthe prior year.  Cost of sales, as apercentage of sales was 72% for the nine months ended April 30, 2005, andin the same period in the prior year. The current period, as well as the same period last year, was impactedby one-time costs and operating inefficiencies during the startup ofsignificant new business.  Demands fromcustomers for cost reductions and the change in the business mix away fromon-demand sales has put negative pressure on the Company’s gross margin.  On-demand sales generally produce a highergross margin primarily due to the smaller size of delivery vehicles compared toother services; however, on-demand services are transaction intensive,requiring higher SG & A costs compared to other services.  While on-demand sales will continue to be amajor component of the Company’s comprehensive service menu, management expectson-demand 

 

11

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sales will comprise a smaller portion of overall sales as local andregional distribution and outsourcing services likely will account for themajority of future growth.

 

SG & A expenses for the nine months ended April 30, 2005increased $3.7 million, or 7.7%, to $51.3 million from $47.6 million for thesame period in the prior year. Approximately 33.7% of this increase is due to the increase in theexchange rate between the Canadian dollar and the U.S. dollar.  Excluding the impact of the exchange rate,the largest increase in SG & A was salaries and benefits($1,376).  This increase is primarilyattributable to additional personnel necessary to manage the new business,commissions on new sales and the planned increase in sales personnel.  The Company also incurred the followingincremental SG & A expenses in this period compared to the same periodin the prior year: stock options expense ($105) and Sarbanes-Oxley relatedcosts ($372).  As a percentage of sales,SG & A expenses were 21.6% for the nine months ended April 30,2005, compared to 22.3% in the same period last year.

 

For the nine months ended April 30, 2005, depreciation andamortization was $1,159 compared to $1,453 for the same period in the prioryear.  Management does not expect asignificant change in the level of depreciation and amortization expense due tolimited capital requirements associated with its non-asset based business.

 

Interestexpense was $363, a decrease of $905 or 71.4% for the current period.  This decrease is primarily attributable tothe write-off of approximately $450 in deferred financing fees associated withthe Company’s refinancing of its credit facility in the prior year.  Interest expense as a percentage of sales was0.2% in the current period compared to 0.6% in the prior period.

 

Theeffective income tax rate was 39% for the current period compared to a negative3.1% effective rate in the same period last year.  The current year includes a “true-up” ofestimated FY 2004 state tax expense based on actual tax returns.  The prior year includes a $3.7 million taxbenefit realized from the recognition of a U.S. net operating loss carryforwardof approximately $10.6 million that was not recognized in prior years due tothe uncertainty of realization.

 

**Liquidity and Capital Resources**

 

Netcash provided by operating activities was $6.7 million for the nine monthsended April 30, 2005 compared to $4.8 million for the same period in2004.  The large increase in accountsreceivable in the nine months ended April 30, 2005 is due primarily to theincrease in sales during that period and is consistent with changes in theprior year.  In addition, cash wasrequired to prepay annual insurance premiums during the nine months ended April 30,2005 as opposed to the prior year, when insurance premiums were billed and paidon a monthly basis.  Net cash provided byoperations, prior to changes in current operating assets and liabilities, was$13.5 million for the nine months ended April 30, 2005 an increase of 27%compared to $10.6 million for the nine months ended April 30, 2004.

 

Capitalexpenditures for the nine months ended April 30, 2005 were approximately$1.5 million.  These expenditures relateprimarily to improvements in the Company’s technology infrastructure to supportits operations.  Management expectscapital expenditures to be in the $2 million to $3 million range for the fullfiscal year.  The Company does not havesignificant capital expenditure requirements to replace or expand the number ofvehicles used in its operations because substantially all of its driversprovide their own vehicles.

 

OnApril 22, 2005, the Company entered into the First Amendment (the “Amendment”)to the March 2, 2004 $30,000,000 Revolving Credit Facility (the “CreditFacility”) (together the “Amended Credit Facility”).  The Amendment decreased the facility from$30,000,000 to $15,000,000, and reduced the applicable margin on LIBORcontracts from a range of 1.25% - 1.75% to 1.00% - 1.50%, based on the ratio ofFunded Debt to EBITDA, as defined in the Credit Facility.  The Amendment also extended the maturity dateto November 30, 2008 from November 30, 2007 and reduced therestrictions on Permitted Acquisitions. The Amended Credit Facility has no scheduled principal payments;however, the Company is required to maintain certain financial ratios relatedto minimum amounts of stockholders’ equity, fixed charges to cash flow, fundeddebt to cash flow and funded debt to eligible receivables, as defined.  Amounts outstanding under the Amended CreditFacility are secured by all of the Company’s U.S. assets and 100% of the stockof its domestic subsidiaries.  The CreditFacility also contains restrictions on incurring additional debt and investmentsby the Company.  Amounts outstandingunder the Amended Credit Facility at April 30, 2005 included borrowings of$3.8 million and outstanding letters of credit totaling $3.2 million.

 

12

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TheCompany’s EBITDA (earnings before interest, taxes, depreciation andamortization) was approximately $5.4 million (6.6% of sales) for the threemonths ended April 30, 2005, compared to $4.7 million (6.4% of sales) inthe same period last year.  The increaseis due to higher gross profit from increased sales that was partially offset bythe increased SG & A costs mentioned above including salaries andwages, stock options expense, and Sarbanes-Oxley consultant costs.  Management has included EBITDA in itsdiscussion herein as a measure of liquidity because it believes that it is awidely accepted financial indicator of a company’s ability to service and/orincur indebtedness, maintain current operating levels of fixed assets andacquire additional operations and businesses. EBITDA should not be considered as a substitute for statement ofoperations or cash flow data from the Company’s financial statements, whichhave been prepared in accordance with generally accepted accountingprinciples.  In addition, the Company’sdefinition of EBITDA may not be identical to similarly entitled measures usedby other companies.  The following tablereconciles net income presented in accordance with generally acceptedaccounting principles (“GAAP”) to EBITDA, which is a non-GAAP financial measure:

 
| ** **                                      | ** ** | **Three months ended  April 30,** | ** ** | **Nine months ended  April 30,** | ** ** |
|-------------------------------------------------|------------|----------------------------------------|------------|---------------------------------------|------------|
| ** **                                      | ** ** | **2005**                               | ** ** | **2004**                              | ** ** | **2005** | ** ** | **2004** | ** ** |
| Reconciliation  of Non-GAAP Financial Measures: |       |                                   |       |                                  |       |   |   |   |   |
| Net income                                      |       | $                                      | 2,730      |                                  | $          | 2,300 |   | $ | 8,464 |   | $ | 9,770 |   |
| Adjustments:                                    |       |                                   |       |                                  |       |   |   |   |   |
| Income tax  expense                             |       | 2,166                                  |       | 1,361                                 |       | 5,410 |   | (294 | ) |
| Interest  expense                               |       | 90                                     |       | 614                                   |       | 363 |   | 1,268 |   |
| Depreciation                                    |       | 414                                    |       | 474                                   |       | 1,159 |   | 1,453 |   |
| EBITDA                                          |       | $                                      | 5,400      |                                  | $          | 4,749 |   | $ | 15,396 |   | $ | 12,197 |   |
| EBITDA  margin                                  |       | 6.6                                    | %          | 6.4                                   | %          | 6.5 | % | 5.7 | % |

 

Managementexpects that its future capital requirements will generally be met frominternally generated cash flow.  TheCompany’s access to other sources of capital, such as additional bankborrowings and the issuance of debt securities, is affected by, among otherthings, general market conditions affecting the availability of such capital.

 

**Inflation**

 

TheCompany does not believe that inflation has had a material effect on theCompany’s results of operations nor does it believe it will do so in theforeseeable future.  However, there canbe no assurance the Company’s business will not be affected by inflation in thefuture.

 

**Risk Factors**

 

*In addition to other information in this report, thefollowing risk factors should be considered carefully in evaluating the Companyand its business.  This report containsforward-looking statements, which involve risks and uncertainties.  The Company’s actual results could differmaterially from those anticipated in these forward-looking statements as aresult of certain factors, including those set forth in the following riskfactors and elsewhere in this report.*

 

**Certain Tax Matters Related to Drivers**

 

Substantiallyall of the Company’s drivers supply their own vehicles and as of April 30,2005, approximately 99% of these owner-operators were independent contractorsas opposed to employees of the Company. The Company does not pay or withhold any federal, state or provincialemployment tax with respect to or on behalf of independent contractors.  From time to time, taxing authorities in theU.S. and Canada have sought to assert that owner-operators in thetransportation industry, including those utilized by the Company, areemployees, rather than independent contractors. The Company believes that the owner-operators utilized by the Companyare not employees under existing interpretations of federal (U.S. andCanadian), state and provincial laws. However, there can be no assurance that federal (U.S. and Canadian),state or provincial authorities will not challenge this position, or that otherlaws or regulations, including tax laws, or interpretations thereof, will notchange.  If, as a result of any of theforegoing, the Company were required to pay withholding taxes and pay for andadminister added employee benefits 

 

13

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tothese drivers, the Company’s operating costs would increase.  Additionally, if the Company is required topay back-up withholding with respect to amounts previously paid to suchdrivers, it may also be required to pay penalties or be subject to otherliabilities as a result of incorrect classification of such drivers.  Any of the foregoing circumstances could havea material adverse impact on the Company’s financial condition and results ofoperations, and/or require the Company to restate financial information fromprior periods.

 

Inaddition to the drivers that are independent contractors, certain of theCompany’s drivers are employed by the Company and supply and operate their ownvehicles during the course of their employment. The Company reimburses these employees for all or a portion of theoperating costs of those vehicles.  TheCompany believes that these reimbursement arrangements do not representadditional compensation to those employees. However, there can be no assurance that federal (U.S. and Canadian),state or provincial taxing authorities will not seek to recharacterize some orall of such payments as additional compensation.  If such amounts were so recharacterized, theCompany would have to pay additional employment related taxes on such amounts,and may also be required to pay penalties, which could have an adverse impacton the Company’s financial condition and results of operations, and/or torestate financial information from prior periods.

 

**Claims Exposure**

 

Asof April 30, 2005, the Company utilized the services of approximately4,750 drivers and messengers.  From timeto time such persons are involved in accidents or other activities that maygive rise to liability claims.  TheCompany currently carries liability insurance with a per occurrence and anaggregate limit of $30 million. Owner-operators are required to maintain liability insurance of at leastthe minimum amounts required by applicable state or provincial law (generallysuch minimum requirements range from $35 to $75).  The Company also has insurance policiescovering property and fiduciary trust liability, which coverage includes alldrivers and messengers.  There can be noassurance that claims against the Company, whether under the liabilityinsurance or the surety bonds, will not exceed the applicable amount ofcoverage, that the Company’s insurer will be solvent at the time of settlementof an insured claim, or that the Company will be able to obtain insurance atacceptable levels and costs in the future. If the Company were to experience a material increase in the frequencyor severity of accidents, liability claims, workers’ compensation claims orunfavorable resolutions of claims, the Company’s business, financial conditionand results of operations could be materially adversely affected.  In addition, significant increases ininsurance costs could reduce the Company’s profitability.

 

**Highly Competitive Industry**

 

Themarket for same-day delivery and logistics services has been and is expected toremain highly competitive.  Competitionis often intense, particularly for basic delivery services.  High fragmentation and low barriers to entrycharacterize the industry.  Othercompanies in the industry compete with the Company not only for provision ofservices but also for acquisition candidates and qualified drivers.  Some of these companies have longer operatinghistories and greater financial and other resources than the Company.  Additionally, companies that do not currentlyoperate delivery and logistics businesses may enter the industry in the future.

 

**Foreign Exchange**

 

Significantportions of the Company’s operations are conducted in Canada.  Exchange rate fluctuations between the U.S.and Canadian dollars result in fluctuations in the amounts relating to theCanadian operations reported in the Company’s consolidated financialstatements.  The Canadian dollar is thefunctional currency for the Company’s Canadian operations; therefore, anychange in the exchange rate will affect the Company’s reported sales for suchperiod.  The Company historically has notentered into hedging transactions with respect to its foreign currencyexposure, but may do so in the future. There can be no assurance that fluctuations in foreign currency exchangerates will not have a material adverse effect on the Company’s business,financial condition or results of operations.

 

**Permits and Licensing**

 

TheCompany’s delivery operations are subject to various federal (U.S. andCanadian), state, provincial and local laws, ordinances and regulations that inmany instances require certificates, permits and licenses.  Failure by the Company to maintain requiredcertificates, permits or licenses or to comply with applicable laws, ordinancesor regulations could result in substantial fines or possible revocation of theCompany’s authority to conduct certain of its operations.

 

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**Dependence on Key Personnel**

 

TheCompany’s success is largely dependent on the skills, experience andperformance of certain key members of its management.  The loss of the services of any of these keyemployees could have a material adverse effect on the Company’s business,financial condition and results of operations. The Company’s future success and plans for growth also depend on itsability to attract and retain skilled personnel in all areas of itsbusiness.  There is strong competitionfor skilled personnel in the same-day delivery and logistics businesses.

 

**Risks Associated with the Same-day TransportationIndustry; General Economic Conditions**

 

TheCompany’s sales and earnings are especially sensitive to events that affect thesame-day transportation industry including extreme weather conditions, economicfactors affecting the Company’s customers and shortages of or disputes withlabor, any of which could result in the Company’s inability to service itsclients effectively or the inability of the Company to profitably manage itsoperations.  In addition, downturns inthe level of general economic activity and employment in the U.S. or Canada maynegatively impact demand for the Company’s services.

 

**Technological Advances**

 

Technological advances in the nature of facsimile and electronic mailhave affected the market for on-demand document delivery services.  Although the Company has shifted its focus tothe distribution of non-faxable items and logistics services, there can be noassurance that these or other technologies will not have a material adverseeffect on the Company’s business, financial condition and results of operationsin the future.

 

**Dependence on Availability of Qualified DeliveryPersonnel**

 

TheCompany is dependent upon its ability to attract and retain qualified deliverypersonnel who possess the skills and experience necessary to meet the needs ofits operations.  The Company competes inmarkets in which unemployment is relatively low and the competition forcouriers and other employees is intense. The Company must continually evaluate and upgrade its pool of availabledelivery and support personnel to keep pace with demands for deliveryservices.  There can be no assurance thatqualified delivery personnel will continue to be available in sufficientnumbers and on terms acceptable to the Company. The ability of the Company to retain owner-operators may also beimpacted by our ability to pass on fuel cost increases to customers to maintainprofit margins and the quality of driver pay. The inability to attract and retain qualified delivery personnel wouldhave a material adverse impact on the Company’s business, financial conditionand results of operations.

 

**Fuel Costs**

 

Theowner-operators utilized by the Company are responsible for all vehicle expenseincluding maintenance, insurance, fuel and all other operating costs.  The Company makes every reasonable effort toinclude fuel cost adjustments in customer billings that are paid toowner-operators to offset the impact of fuel price increases.  If future fuel cost adjustments areinsufficient to offset owner-operators’ costs, the Company may be unable toattract a sufficient number of owner-operators which may negatively impact theCompany’s business, financial condition and results of operations.

 

**“Safe Harbor” Statement Under The Private SecuritiesLitigation Reform Act**

 

Withthe exception of historical information, the matters discussed in this reportare “forward looking statements” as that term is defined in Section 21E ofthe Securities Exchange Act of 1934.

 

Severalimportant factors have been identified, which could cause actual results todiffer materially from those predicted. By way of example:

 

•                                          The competitive nature of the same-daydelivery business.

 

•                                          The ability of the Company to attract andretain qualified delivery personnel as well as retain key management personnel.

 

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•                                          A change in the current tax status ofindependent contractor drivers to employees or a change in the treatment of thereimbursement of vehicle operating costs to employee drivers.

 

•                                          A significant reduction in the exchange ratebetween the Canadian dollar and the U.S. dollar.

 

•                                          Failure of the Company to maintain requiredcertificates, permits or licenses or to comply with applicable laws, ordinancesor regulations could result in substantial fines or possible revocation of theCompany’s authority to conduct certain of its operations.

 

•                                          The ability of the Company to obtain adequatefinancing.

 

•                                          The ability of the Company to retainowner-operators may be impacted by its ability to pass on fuel cost increasesto customers to maintain profit margins and the quality of driver pay.

 

**Item 3.****                      ****Quantitative and QualitativeDisclosures About Market Risk**

 

**Foreign Exchange Exposure**

 

Significantportions of the Company’s operations are conducted in Canada.  Exchange rate fluctuations between the U.S.and Canadian dollar result in fluctuations in the amounts relating to theCanadian operations reported in the Company’s consolidated financialstatements.  The Company historically hasnot entered into hedging transactions with respect to its foreign currencyexposure, but may do so in the future.

 

Thesensitivity analysis model used by the Company for foreign exchange exposurecompares the revenue and net income figures from Canadian operations, at theactual exchange rate, to a 10% decrease in the exchange rate.  Based on this model, a 10% decrease wouldresult in a decrease in quarterly revenue of approximately $2.7 million and adecrease in quarterly net income of approximately $.1 million.  There can be no assurances that the above projectedexchange rate decrease will materialize. Fluctuations of exchange rates are beyond the control of the Company’smanagement.

 

**Interest Rate Exposure**

 

TheCompany has entered into an interest rate protection arrangement on a portionof the Credit Facility.  The interestrate has been fixed at the LIBOR margin plus 1.25% (2.74% at April 30,2005).  This hedging agreement expires onNovember 30, 2005.  The Company doesnot hold or issue derivative financial instruments for speculative or tradingpurposes.

 

Thesensitivity analysis model used by the Company for interest rate exposurecompares interest expense fluctuations over a one-year period based on currentdebt levels and current interest rates versus current debt levels at currentinterest rates with a 10% increase. Based on this model, a 10% increase would result in an increase ininterest expense of approximately $7. There can be no assurances that the above projected interest rateincrease will materialize.  Fluctuationsof interest rates are beyond the control of the Company’s management.

 

**Item 4.****          ****Controls and Procedures**

 

Anevaluation was carried out under the supervision and with the participation ofthe Company’s management, including its Chief Executive Officer and ChiefFinancial Officer, of the effectiveness of the design and operation of itsdisclosure controls and procedures (as defined in Rule 13a-15 under theSecurities Exchange Act of 1934) as of April 30, 2005 (the end of theperiod covered by this Quarterly Report on Form 10-Q).  Based upon the evaluation, the ChiefExecutive Officer and Chief Financial Officer concluded that the design andoperation of these disclosure controls and procedures were effective.

 

Therewere no significant changes in the Company’s internal controls or in otherfactors that could significantly affect these controls subsequent to the dateof their evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

 

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**PART II**

**OTHER INFORMATION**

 

**Item 1.****          ****Legal Proceedings**

 

TheCompany is a party to various legal proceedings arising in the ordinary courseof its business.  Management believesthat the ultimate resolution of these proceedings will not, in the aggregate,have a material adverse effect on the financial condition, results ofoperations, or liquidity of the Company.

 

**Item 6.****          ****Exhibits**

 
|   | 10.1   |   | First Amendment to the $30,000,000 Revolving Credit Facility by and  among the Company and Bank of America, N.A., as administrative agent and a  lender, dated April 22, 2005. |
|--------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                |
|   | 31.1   |   | Certification of Chief Executive Officer of the Registrant, pursuant  to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a)                                                          |
|   |   |   |                                                                                                                                                                                |
|   | 31.2   |   | Certification of Chief Financial Officer of the Registrant, pursuant  to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a)                                                          |
|   |   |   |                                                                                                                                                                                |
|   | 32.1   |   | Certification of Chief Executive Officer of the Registrant, pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002    |
|   |   |   |                                                                                                                                                                                |
|   | 32.2   |   | Certification of Chief Financial Officer of the Registrant, pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002    |

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|   |              |   | **DYNAMEX INC.**                              |
|--------|-------------------|--------|-----------------------------------------------|
|   |              |   |                                          |
|   |              |   |                                          |
| Dated: | June 7, 2005 | by     | /s/ Richard K. McClelland                     |
|   |              |   | Richard K. McClelland                         |
|   |              |   | President, Chief Executive Officer and        |
|   |              |   | Chairman of the Board                         |
|   |              |   | (Principal Executive Officer)                 |
|   |              |   |                                          |
|   |              |   |                                          |
| Dated: | June 7, 2005 | by     | /s/ Ray E. Schmitz                            |
|   |              |   | Ray E. Schmitz                                |
|   |              |   | Vice President – Chief Financial Officer |
|   |              |   | (Principal Financial Officer)                 |
|   |              |   |                                          |
|   |              |   |                                          |
| Dated: | June 7, 2005 | by     | /s/ David P. Fortune                          |
|   |              |   | David P. Fortune                              |
|   |              |   | Corporate Controller                          |
|   |              |   | (Principal Accounting Officer)                |

 

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**EXHIBIT INDEX**

 

**Exhibits**

 
| 10.1   |   | First Amendment to the $30,000,000 Revolving Credit Facility by and  among the Company and Bank of America, N.A., as administrative agent and a  lender, dated April 22, 2005. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                |
| 31.1   |   | Certification of Chief Executive Officer of the Registrant, pursuant  to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a)                                                          |
|   |   |                                                                                                                                                                                |
| 31.2   |   | Certification of Chief Financial Officer of the Registrant, pursuant  to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a)                                                          |
|   |   |                                                                                                                                                                                |
| 32.1   |   | Certification of Chief Executive Officer of the Registrant, pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002    |
|   |   |                                                                                                                                                                                |
| 32.2   |   | Certification of Chief Financial Officer of the Registrant, pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002    |

 

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