** **

** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

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**FORM 10-Q**

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ý                      **QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15**(d)**OF THE**

**SECURITIES EXCHANGE ACT OF1934**

 

For the quarterly period ended**January 31, 2005**

 

**OR**

 

o                            **TRANSITION REPORT PURSUANT TOSECTION 13 OR 15**(d)**OF THE**

**SECURITIES EXCHANGE ACT OF1934**

 

Commission file number:**000-21057**

 

 

 

**DYNAMEX INC.**

(Exact name of registrant as specified in itscharter)

 

 

 

| **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’s telephone number, including areacode:

**(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 the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  Yes  ý   No   o

 

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

 

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

 

 

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| **INDEX**                                                                                                                                                           |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                |   |   |
|                                                                                                                                                                | Page |
| **PART I**                                                                                                                                                          |
| **FINANCIAL  INFORMATION**                                                                                                                                          |
|                                                                                                                                                                |   |   |
| Item 1.    Financial Statements                                                                                                                 |   |   |
|                                                                                                                                                                |   |   |
| Condensed  Consolidated Balance Sheets

       January 31, 2005 (Unaudited) and July 31, 2004                                    |   | 2 |
|                                                                                                                                                                |   |   |
| Condensed  Statements of Consolidated Operations (Unaudited) 

       Three  and six months ended January 31, 2005 and 2004 |   | 3 |
|                                                                                                                                                                |   |   |
| Condensed  Statements of Consolidated Cash Flows (Unaudited)

       Six months ended January 31, 2005 and 2004                  |   | 4 |
|                                                                                                                                                                |   |   |
| Notes to  Condensed Consolidated Financial Statements (Unaudited)                                                                                                   |   | 5 |
|                                                                                                                                                                |   |   |
| Item 2.    Management’s  Discussion and Analysis of Financial Condition and  Results of Operations                                         |   | 8 |
|                                                                                                                                                                |   |   |
| Item 3.    Quantitative and  Qualitative Disclosures About Market Risk                                                                          |   | 16 |
|                                                                                                                                                                |   |   |
| Item 4.    Controls and  Procedures                                                                                                             |   | 17 |
|                                                                                                                                                                |   |   |
| **PART II**                                                                                                                                                         |
| **OTHER  INFORMATION**                                                                                                                                              |
|                                                                                                                                                                |   |   |
| Item 1.    Legal Proceedings                                                                                                                    |   | 18 |
|                                                                                                                                                                |   |   |
| Item 4.    Submission of Matters  to a Vote of Security Holders                                                                                 |   | 18 |
|                                                                                                                                                                |   |   |
| Item 6.    Exhibits and Reports  on Form 8-K                                                                                                    |   | 19 |
|                                                                                                                                                                |   |   |
| Signatures                                                                                                                                                          |   | 20 |
|                                                                                                                                                                |   |   |
| Exhibit Index                                                                                                                                                       |   | E-1 |

 

 

 

1

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**PART I**

**FINANCIALINFORMATION**

 

Item 1.    Financial Statements

 
| **DYNAMEX INC.**                       |   |   |   |   |   |   |   |
|----------------------------------------|--------|--------|--------|--------|--------|--------|--------|
| Condensed  Consolidated Balance Sheets |   |   |   |   |   |
| (in thousands,  except per share data) |   |   |   |   |   |

 
| ** **                                                                                                 | ** ** | **January 31,** | ** ** | **July 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|-----------------|------------|--------------|------------|
| ** **                                                                                                 | ** ** | **2005**        | ** ** | **2004**     | ** ** |
| ** **                                                                                                 | ** ** | **(Unaudited)** | ** ** | ** **   | ** ** |
| **ASSETS**                                                                                                 | ** ** | ** **      | ** ** | ** **   | ** ** |
| CURRENT                                                                                                    |       |            |       |         |       |
| Cash and cash equivalents                                                                                  |       | $               | 8,257      |         | $          | 7,927 |   |
| Accounts receivable (net of allowance for doubtful accounts of $733  and $751, respectively)               |       | 31,049          |       | 27,355       |       |
| Prepaid and other current assets                                                                           |       | 2,667           |       | 1,825        |       |
| Deferred income taxes                                                                                      |       | 2,088           |       | 2,359        |       |
| Total current assets                                                                                       |       | 44,061          |       | 39,466       |       |
|                                                                                                       |       |            |       |         |       |
| PROPERTY AND EQUIPMENT - net                                                                               |       | 4,943           |       | 4,731        |       |
| GOODWILL                                                                                                   |       | 45,973          |       | 45,271       |       |
| INTANGIBLES - net                                                                                          |       | 447             |       | 475          |       |
| DEFERRED INCOME TAXES                                                                                      |       | 9,210           |       | 10,910       |       |
| OTHER                                                                                                      |       | 1,474           |       | 1,219        |       |
| Total assets                                                                                               |       | $               | 106,108    |         | $          | 102,072 |   |
|                                                                                                       |       |            |       |         |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                             | ** ** | ** **      | ** ** | ** **   | ** ** |
| CURRENT LIABILITIES                                                                                        |       |            |       |         |       |
| Accounts payable trade                                                                                     |       | $               | 7,421      |         | $          | 5,910 |   |
| Accrued liabilities                                                                                        |       | 15,058          |       | 16,852       |       |
| Total current liabilities                                                                                  |       | 22,479          |       | 22,762       |       |
|                                                                                                       |       |            |       |         |       |
| LONG-TERM DEBT                                                                                             |       | 5,810           |       | 10,000       |       |
| Total liabilities                                                                                          |       | 28,289          |       | 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; 11,585 and  11,435 outstanding, respectively |       | 116             |       | 114          |       |
| Additional paid-in capital                                                                                 |       | 76,768          |       | 75,309       |       |
| Accumulated deficit                                                                                        |       | (1,684          | )          | (7,417       | )          |
| Accumulated other comprehensive income                                                                     |       | 2,619           |       | 1,304        |       |
| Total stockholders’ equity                                                                            |       | 77,819          |       | 69,310       |       |
| Total liabilities and stockholders’ equity                                                            |       | $               | 106,108    |         | $          | 102,072 |   |
|                                                                                                            |            |                 |            |              |            |  |  |  |

 
| See accompanying notes to the condensed consolidated  financial statements. |   |   |
|-----------------------------------------------------------------------------|--------|--------|

 

2

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| **DYNAMEX INC.**                                 |
|--------------------------------------------------|
| Condensed  Statements of Consolidated Operations |
| (in thousands  except per share data)            |
| (Unaudited)                                      |   |   |   |   |   |   |   |

 
| ** **                                                  | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|-------------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                                  | ** ** | **January 31,**        | ** ** | **January 31,**      | ** ** |
| ** **                                                  | ** ** | **2005**               | ** ** | **2004**             | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                        |       |                   |       |                 |       |   |   |   |   |
|                                                        |       |                   |       |                 |       |   |   |   |   |
| Sales                                                       |       | $                      | 78,756     |                 | $          | 69,375 |   | $ | 155,316 |   | $ | 139,449 |   |
|                                                        |       |                   |       |                 |       |   |   |   |   |
| Cost of sales:                                              |       |                   |       |                 |       |   |   |   |   |
| Purchased transportation                                    |       | 50,511                 |       | 43,537               |       | 98,948 |   | 87,482 |   |
| Other direct costs                                          |       | 6,461                  |       | 6,425                |       | 12,875 |   | 13,074 |   |
| Cost of sales                                               |       | 56,972                 |       | 49,962               |       | 111,823 |   | 100,556 |   |
|                                                        |       |                   |       |                 |       |   |   |   |   |
| Gross profit                                                |       | 21,784                 |       | 19,413               |       | 43,493 |   | 38,893 |   |
|                                                        |       |                   |       |                 |       |   |   |   |   |
| Selling,  general and administrative expenses:              |       |                   |       |                 |       |   |   |   |   |
| Salaries and employee benefits                              |       | 12,206                 |       | 11,213               |       | 23,593 |   | 22,080 |   |
| Other                                                       |       | 5,171                  |       | 5,016                |       | 10,005 |   | 9,489 |   |
| Selling, general and administrative expenses                |       | 17,377                 |       | 16,229               |       | 33,598 |   | 31,569 |   |
|                                                        |       |                   |       |                 |       |   |   |   |   |
| Depreciation and amortization                               |       | 369                    |       | 467                  |       | 745 |   | 979 |   |
| (Gain) loss on disposal of property and equipment           |       | (2                     | )          | (2                   | )          | 3 |   | (20 | ) |
|                                                        |       |                   |       |                 |       |   |   |   |   |
| Operating income                                            |       | 4,040                  |       | 2,719                |       | 9,147 |   | 6,365 |   |
|                                                        |       |                   |       |                 |       |   |   |   |   |
| Interest expense                                            |       | 116                    |       | 322                  |       | 273 |   | 654 |   |
| Other income, net                                           |       | (54                    | )          | (14                  | )          | (104 | ) | (103 | ) |
|                                                        |       |                   |       |                 |       |   |   |   |   |
| Income before income taxes                                  |       | 3,978                  |       | 2,411                |       | 8,978 |   | 5,814 |   |
|                                                        |       |                   |       |                 |       |   |   |   |   |
| Income taxes                                                |       | 1,417                  |       | (2,808               | )          | 3,244 |   | (1,656 | ) |
|                                                        |       |                   |       |                 |       |   |   |   |   |
|                                                        |       |                   |       |                 |       |   |   |   |   |
| Net income                                                  |       | $                      | 2,561      |                 | $          | 5,219 |   | $ | 5,734 |   | $ | 7,470 |   |
|                                                        |       |                   |       |                 |       |   |   |   |   |
|                                                        |       |                   |       |                 |       |   |   |   |   |
| Basic earnings per common share:                            |       | $                      | 0.22       |                 | $          | 0.46 |   | $ | 0.50 |   | $ | 0.66 |   |
|                                                        |       |                   |       |                 |       |   |   |   |   |
| Diluted earnings per common share:                          |       | $                      | 0.22       |                 | $          | 0.45 |   | $ | 0.49 |   | $ | 0.65 |   |
|                                                        |       |                   |       |                 |       |   |   |   |   |
| Weighted average shares:                                    |       |                   |       |                 |       |   |   |   |   |
| Common shares outstanding                                   |       | 11,547                 |       | 11,271               |       | 11,496 |   | 11,254 |   |
| Adjusted common shares - assuming exercise of stock options |       | 11,798                 |       | 11,535               |       | 11,732 |   | 11,499 |   |
|                                                             |            |                        |            |                      |            |  |  |  |  |  |  |  |  |  |

 

| See accompanying notes to the condensed consolidated  financial statements. |
|-----------------------------------------------------------------------------|

 

3

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| **DYNAMEX INC.**                                 |   |   |   |
|--------------------------------------------------|--------|--------|--------|
| Condensed  Statements of Consolidated Cash Flows |   |   |   |
| (in thousands)                                   |   |   |   |
| (Unaudited)                                      |   |   |   |

 
| ** **                                                                              | ** ** | **Six months ended** | ** ** |
|-----------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                              | ** ** | **January 31,**      | ** ** |
| ** **                                                                              | ** ** | **2005**             | ** ** | **2004** | ** ** |
| OPERATING ACTIVITIES                                                                    |       |                 |       |   |   |
| Net income                                                                              |       | $                    | 5,734      |   | $ | 7,470 |   |
| Adjustments to reconcile net income to net cash provided by  operating activities: |       |                 |       |   |   |
| Depreciation and amortization                                                           |       | 745                  |       | 979 |   |
| Amortization of deferred bank financing fees                                            |       | 17                   |       | 128 |   |
| Provision for losses on accounts receivable                                             |       | 233                  |       | 382 |   |
| Stock option compensation                                                               |       | 275                  |       | 202 |   |
| Deferred income taxes                                                                   |       | 1,971                |       | (2,840 | ) |
| Tax benefit realized by exercise of stock options                                       |       | 126                  |       | — |   |
| (Gain) loss on disposal of property and equipment                                       |       | 3                    |       | (20 | ) |
| Changes in current operating assets and liabilities:                                    |       |                 |       |   |   |
| Accounts receivable                                                                     |       | (3,927               | )          | (2,507 | ) |
| Prepaids and other current assets                                                       |       | (851                 | )          | 585 |   |
| Accounts payable and accrued liabilities                                                |       | (279                 | )          | (267 | ) |
| Net cash provided by operating activities                                               |       | 4,047                |       | 4,112 |   |
|                                                                                    |       |                 |       |   |   |
| INVESTING ACTIVITIES                                                                    |       |                 |       |   |   |
| Purchase of property and equipment                                                      |       | (888                 | )          | (1,198 | ) |
| Proceeds from sale of property and equipment                                            |       | 2                    |       | 12 |   |
| Purchase of investments                                                                 |       | (210                 | )          | — |   |
| Net cash used in investing activities                                                   |       | (1,096               | )          | (1,186 | ) |
|                                                                                    |       |                 |       |   |   |
| FINANCING ACTIVITIES                                                                    |       |                 |       |   |   |
| Principal payments on long-term debt                                                    |       | —               |       | (2,979 | ) |
| Net payments under line of credit                                                       |       | (4,201               | )          | 1,000 |   |
| Proceeds from stock option exercise                                                     |       | 1,059                |       | 555 |   |
| Other assets and deferred financing fees                                                |       | —               |       | (546 | ) |
| Net cash used in financing activities                                                   |       | (3,142               | )          | (1,970 | ) |
|                                                                                    |       |                 |       |   |   |
| EFFECT OF EXCHANGE RATES ON CASH                                                        |       | 521                  |       | 342 |   |
|                                                                                    |       |                 |       |   |   |
| NET INCREASE IN CASH AND CASH EQUIVALENTS                                               |       | 330                  |       | 1,298 |   |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                          |       | 7,927                |       | 4,338 |   |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                                                |       | $                    | 8,257      |   | $ | 5,636 |   |
|                                                                                    |       |                 |       |   |   |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                        |       |                 |       |   |   |
| Cash paid for interest                                                                  |       | $                    | 266        |   | $ | 491 |   |
| Cash paid for taxes                                                                     |       | $                    | 1,483      |   | $ | 982 |   |

 
| See accompanying notes to the condensed consolidated  financial statements. |
|-----------------------------------------------------------------------------|
|                                                                        |   |   |   |
|                                                                        |   |   |   |

 

4

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**Notes to Condensed Consolidated FinancialStatements (Unaudited)**

 

**1.             Summaryof Significant Accounting Polices**

 

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

 

The operating subsidiaries of the Company, withcountry of incorporation, are as follows:

 

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

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

·        Dynamex Dedicated FleetServices, 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 include theaccounts 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 accompanyinginterim financial 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 make the information presented notmisleading.  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.

 

The accompanying interim financial statements contain all adjustments,consisting only of normal recurring adjustments, necessary for a fairpresentation of the Company’s financial position at January 31, 2005, theresults of its operations for the three and six month periods ended January 31,2005 and 2004, and cash flows for the six month periods ended January 31, 2005and 2004.  The tax provision for the sixmonth periods ended January 31, 2005 and 2004 are based upon management’sestimate of the Company’s annualized effective tax rate.

 

Certain reclassifications have been made to conformprior period data to the current presentation.

 

**2.             ComprehensiveIncome**

 

The three components of comprehensive income are net income, foreigncurrency translation adjustments and unrealized gains (losses) oninvestments.  Investments consist ofpayroll withholdings from participants in the Company’s deferred compensationplan that are invested in funds designated by the individual participants.  These investments have been classified asavailable-for-sale in accordance with Statement of Financial AccountingStandards No. 115, *Accounting for CertainInvestments in Debt and Equity Securities*.  Comprehensive income for the three and sixmonths ended January 31, 2005 and 2004 was as follows:

 

5

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| ** **                               | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                               | ** ** | **January 31,**        | ** ** | **January 31,**      | ** ** |
| ** **                               | ** ** | **2005**               | ** ** | **2004**             | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                     |       |                   |       |                 |       |   |   |   |   |
| Net income                               |       | $                      | 2,561      |                 | $          | 5,219 |   | $ | 5,734 |   | $ | 7,470 |   |
|                                     |       |                   |       |                 |       |   |   |   |   |
| Unrealized gains on investments          |       | 31                     |       | —               |       | 37 |   | — |   |
| Foreign currency translation gain (loss) |       | (270                   | )          | (112                 | )          | 1,277 |   | 914 |   |
|                                     |       |                   |       |                 |       |   |   |   |   |
| Comprehensive income                     |       | $                      | 2,322      |                 | $          | 5,107 |   | $ | 7,048 |   | $ | 8,384 |   |

 

**3.             Intangibles**

 

At January 31, 2005,intangibles and related amortization expense for the three and six months endedJanuary 31, 2005 and 2004 consisted of the following:

 
| ** **                   | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** |
|------------------------------|------------|------------|------------|------------------|------------|------------|------------|
| ** **                   | ** ** | **Asset**  | ** ** | **amortization** | ** ** | **Net**    | ** ** |
|                         |       |       |       |             |       |       |       |
| Deferred bank financing fees |       | $          | 124        |             | $          | (28        | )          | $ | 96 |   |
|                         |       |       |       |             |       |       |       |
| Trademarks and other         |       | 470        |       | (119             | )          | 351        |       |
|                         |       |       |       |             |       |       |       |
| Total                        |       | $          | 594        |             | $          | (147       | )          | $ | 447 |   |

 
| ** **                   | ** ** | **Amortization expense**           | ** ** | **Amortization expense**         | ** ** |
|------------------------------|------------|------------------------------------|------------|----------------------------------|------------|
| ** **                   | ** ** | **Three months ended January 31,** | ** ** | **Six months ended January 31,** | ** ** |
| ** **                   | ** ** | **2005**                           | ** ** | **2004**                         | ** ** | **2005** | ** ** | **2004** | ** ** |
|                         |       |                               |       |                             |       |   |   |   |   |
| Deferred bank financing fees |       | $                                  | 9          |                             | $          | 64 |   | $ | 17 |   | $ | 128 |   |
|                         |       |                               |       |                             |       |   |   |   |   |
| Trademarks and other         |       | 6                                  |       | 5                                |       | 11 |   | 11 |   |
|                         |       |                               |       |                             |       |   |   |   |   |
| Total                        |       | $                                  | 15         |                             | $          | 69 |   | $ | 28 |   | $ | 139 |   |

 

Amortization of deferred financing fees is classifiedas interest expense in the condensed statements of consolidatedoperations.  Estimated amortizationexpense for the succeeding five fiscal years, including deferred bank financingfees, is $55 for 2005, $53 for 2006, $52 for 2007, $29 for 2008 and $18 in2009.

 

**4.             Computation ofEarnings Per Share**

 

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, *Earnings Per Share*.  Common stock equivalents related to stockoptions are excluded from diluted earnings per share calculation if theireffect would be anti-dilutive to earnings per share.

 

6

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| ** **                                  | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|---------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                  | ** ** | **January 31,**        | ** ** | **January 31,**      | ** ** |
| ** **                                  | ** ** | **2005**               | ** ** | **2004**             | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                        |       |                   |       |                 |       |   |   |   |   |
| Net income                                  |       | $                      | 2,561      |                 | $          | 5,219 |   | $ | 5,734 |   | $ | 7,470 |   |
|                                        |       |                   |       |                 |       |   |   |   |   |
| Weighted average common shares outstanding  |       | 11,547                 |       | 11,271               |       | 11,496 |   | 11,254 |   |
|                                        |       |                   |       |                 |       |   |   |   |   |
| Common share equivalents related to options |       | 251                    |       | 264                  |       | 236 |   | 245 |   |
|                                        |       |                   |       |                 |       |   |   |   |   |
| Common shares and common share equivalents  |       | 11,798                 |       | 11,535               |       | 11,732 |   | 11,499 |   |
|                                        |       |                   |       |                 |       |   |   |   |   |
| Net income per common share:                |       |                   |       |                 |       |   |   |   |   |
| Basic                                       |       | $                      | 0.22       |                 | $          | 0.46 |   | $ | 0.50 |   | $ | 0.66 |   |
| Diluted                                     |       | $                      | 0.22       |                 | $          | 0.45 |   | $ | 0.49 |   | $ | 0.65 |   |

 

**5.             Commitments andContingencies**

 

The Company has entered intoan agreement with a vehicle leasing company, guaranteeing lease payments onapproximately 20 vehicles leased to independent contractors.  The agreement runs through January 2007 andthe maximum potential amount of future payments that Dynamex could be requiredto make is approximately $600.  Theindependent contractors use these vehicles to service a specific customer contractwhose term runs concurrent with the guarantee. Should an independent contractor default on their lease, the Companywould facilitate the transfer of the leased vehicle to a new independentcontractor to complete the service commitment to the customer.  In addition, the Company currently holdssecurity deposits from these independent contracts which would be used tooffset any lease payments required to be made by Dynamex.

 

7

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**Item 2.    Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

*This discussion contains forward-lookingstatements, which involve assumptions regarding Company operations and futureprospects.  Although the Company believesits expectations are based on reasonable assumptions, such statements aresubject to risk and uncertainty, including, among other things, competition,foreign exchange, and risks associated with the same-day transportationindustry.  These and other risks arementioned from time to time in the Company’s filings with the Securities andExchange Commission.  Caution should betaken that these factors could cause the actual results to differ from thosestated or implied in this and other Company communications.*

 

**General**

 

The Company, through its national network of same-day delivery andlogistics operations, is the leading provider of such services in the UnitedStates and Canada.

 

A significant portion of the Company’s revenues are generated inCanada.  For the six month period ended January31, 2005, Canadian revenues accounted for approximately 33.6% of totalconsolidated revenue, compared to 34% for the same period in 2004.  The exchange rate between the Canadian dollarand the U.S. dollar increased 6.9% in the six month period ended January 31,2005 compared to the corresponding period in the prior year.  Had the exchange rate been the same as in theprior period, Canadian sales for the six month period ended January 31, 2005would have accounted for 32.2% 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.

 

Cost of sales consist of costs relating directly to performance ofservices, including driver and messenger costs, third party delivery charges,warehousing, sorting costs, facilities management, bad debts, insurance, andworkers’ compensation costs.  As ofJanuary 31, 2005, substantially all of the drivers used by the Company providedtheir own vehicles and 99% of these owner-operators were independentcontractors as opposed to employees of the Company.  Drivers and messengers are generallycompensated based on a percentage of the delivery charge.  Consequently, the Company’s driver andmessenger costs are variable in nature. To the extent that drivers and messengers are employees of the Company,employee benefit costs related to them, such as payroll taxes and insurance,are also included in cost of sales.

 

Selling, general and administrative expenses (“SG & A”) includesalaries, wages and benefit costs incurred at the branch level related totaking orders and dispatching drivers and messengers, as well as administrativecosts related to such functions.  Alsoincluded in SG & A expenses are regional and corporate level marketing andadministrative costs and occupancy costs related to branch and corporatelocations.

 

Generally, the Company’s on-demand services provide higher gross profitmargins than do local and regional distribution or dedicated fleet managementservices because driver compensation for on-demand services is generally loweras a percentage of sales from such services primarily due to the size of thevehicles required.  However, local andregional distribution and dedicated fleet management services generally havefewer administrative requirements related to order taking, dispatching driversand billing.  As a result of thesevariances, the Company’s gross margin is dependent in part on the mix ofbusiness for a particular period.

 

During the six months ended January 31, 2005, sales to Office Depot,Inc. represented approximately 9.7% of the Company’s revenue.  Management believes that sales to thiscustomer may exceed 10% of consolidated sales for the full fiscal year.

 

Except as otherwise indicated herein, all dollar amounts except pershare data are stated in thousands of dollars.

 

8

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**Critical Accounting Policies**

 

The Company’s discussion and analysis of its financial condition andresults of operations are based on the Company’s financial statements, whichhave been prepared in accordance with accounting policies generally accepted inthe United States of America.  TheCompany believes certain critical accounting policies, as set forth in theCompany’s Form 10-K for the year ended July 31, 2004, affect its more significantjudgments and estimates used in the preparation of financial statements.  As of, and for the six month period endedJanuary 31, 2005, there have been no material changes or updates to theCompany’s critical accounting policies.

 

**Results of Operations**

 

The following table sets forth for the periods indicated, certain itemsfrom the Company’s condensed statements of consolidated operations, expressedas a percentage of sales:

 
| ** **                                         | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|----------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                         | ** ** | **January 31,**        | ** ** | **January 31,**      | ** ** |
| ** **                                         | ** ** | **2005**               | ** ** | **2004**             | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                               |       |                   |       |                 |       |   |   |   |   |
| Sales                                              |       | 100.0                  | %          | 100.0                | %          | 100.0 | % | 100.0 | % |
|                                               |       |                   |       |                 |       |   |   |   |   |
| Cost of sales:                                     |       |                   |       |                 |       |   |   |   |   |
| Purchased transportation                           |       | 64.1                   | %          | 62.8                 | %          | 63.7 | % | 62.7 | % |
| Other direct costs                                 |       | 8.2                    | %          | 9.3                  | %          | 8.3 | % | 9.4 | % |
| Cost of sales                                      |       | 72.3                   | %          | 72.1                 | %          | 72.0 | % | 72.1 | % |
|                                               |       |                   |       |                 |       |   |   |   |   |
| Gross profit                                       |       | 27.7                   | %          | 27.9                 | %          | 28.0 | % | 27.9 | % |
|                                               |       |                   |       |                 |       |   |   |   |   |
| Selling, general and administrative expenses:      |       |                   |       |                 |       |   |   |   |   |
| Salaries and employee benefits                     |       | 15.5                   | %          | 16.2                 | %          | 15.2 | % | 15.8 | % |
| Other                                              |       | 6.6                    | %          | 7.2                  | %          | 6.4 | % | 6.8 | % |
| Selling, general and administrative expenses       |       | 22.1                   | %          | 23.4                 | %          | 21.6 | % | 22.6 | % |
|                                               |       |                   |       |                 |       |   |   |   |   |
| Depreciation and amortization                      |       | 0.5                    | %          | 0.7                  | %          | 0.5 | % | 0.7 | % |
| (Gain) loss on disposal of  property and equipment |       | 0.0                    | %          | 0.0                  | %          | 0.0 | % | 0.0 | % |
|                                               |       |                   |       |                 |       |   |   |   |   |
| Operating income                                   |       | 5.1                    | %          | 3.8                  | %          | 5.9 | % | 4.6 | % |
|                                               |       |                   |       |                 |       |   |   |   |   |
| Interest expense                                   |       | 0.1                    | %          | 0.5                  | %          | 0.2 | % | 0.5 | % |
| Other income, net                                  |       | -0.1                   | %          | 0.0                  | %          | -0.1 | % | -0.1 | % |
|                                               |       |                   |       |                 |       |   |   |   |   |
| Income before income taxes                         |       | 5.1                    | %          | 3.3                  | %          | 5.8 | % | 4.2 | % |
|                                               |       |                   |       |                 |       |   |   |   |   |
| Income taxes                                       |       | 1.8                    | %          | -4.0                 | %          | 2.1 | % | -1.2 | % |
|                                               |       |                   |       |                 |       |   |   |   |   |
|                                               |       |                   |       |                 |       |   |   |   |   |
| Net income                                         |       | 3.3                    | %          | 7.3                  | %          | 3.7 | % | 5.4 | % |

 

9

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The following tables sets forth for the periods indicated, theCompany’s sales accumulated by service type and country:

 
| ** **             | ** ** | **Three months ended** | ** ** |
|------------------------|------------|------------------------|------------|
| ** **             | ** ** | **January 31,**        | ** ** |
| ** **             | ** ** | **2005**               | ** ** | **2004** | ** ** |
| Sales by service type: |       |                   |       |   |   |   |   |   |   |
| On demand              |       | $                      | 30,794     |   | 39.1 | % | $ | 27,859 |   | 40.2 | % |
| Scheduled/distribution |       | 23,636                 |       | 30.0 | % | 19,649 |   | 28.3 | % |
| Outsourcing            |       | 24,326                 |       | 30.9 | % | 21,867 |   | 31.5 | % |
| Total sales            |       | $                      | 78,756     |   | 100.0 | % | $ | 69,375 |   | 100.0 | % |
|                   |       |                   |       |   |   |   |   |   |   |
| Sales by country:      |       |                   |       |   |   |   |   |   |   |
| United States          |       | $                      | 51,865     |   | 65.9 | % | $ | 45,925 |   | 66.2 | % |
| Canada                 |       | 26,891                 |       | 34.1 | % | 23,450 |   | 33.8 | % |
| Total sales            |       | $                      | 78,756     |   | 100.0 | % | $ | 69,375 |   | 100.0 | % |

 
|                   |   | **Six  months ended** |       |
|------------------------|--------|-----------------------|------------|
|                   |   | **January  31,**      |       |
|                   |   | **2005**              | ** ** | **2004** |   |
| Sales by service type: |   |                  |       |   |   |   |   |   |   |
| On demand              |   | $                     | 61,406     |   | 39.5 | % | $ | 58,559 |   | 42.0 | % |
| Scheduled/distribution |   | 45,606                |       | 29.4 | % | 38,136 |   | 27.3 | % |
| Outsourcing            |   | 48,304                |       | 31.1 | % | 42,754 |   | 30.7 | % |
| Total sales            |   | $                     | 155,316    |   | 100.0 | % | $ | 139,449 |   | 100.0 | % |
|                   |   |                  |       |   |   |   |   |   |   |
| Sales by country:      |   |                  |       |   |   |   |   |   |   |
| United States          |   | $                     | 103,093    |   | 66.4 | % | $ | 92,091 |   | 66.0 | % |
| Canada                 |   | 52,223                |       | 33.6 | % | 47,358 |   | 34.0 | % |
| Total sales            |   | $                     | 155,316    |   | 100.0 | % | $ | 139,449 |   | 100.0 | % |
|                        |        |                       |            |  |  |  |  |  |  |  |  |  |  |

 

**Three months ended January 31, 2005 compared tothe three months ended January 31, 2004**

 

Net income for the three months ended January 31, 2005 was $2.6 million($0.22 per fully diluted share) compared to $5.2 million ($0.45 per fullydiluted share) for the three months ended January 31, 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 65% to $4.0 million in thecurrent year from $2.4 in the prior year. The increase is attributable to increased sales, and higher grossprofit, which was offset in part by higher SG & A expenses.

 

Sales for the threemonths ended January 31, 2005 were $79 million, a 13.5% increase over the salesin the same period in 2004 of $69 million. U.S. sales increased 12.9% and Canadian sales increased 14.6%.  The current year quarter had two morebusiness days than the prior year.  On asales per day basis, sales increased 10.4% in the current year quarter versusthe prior year.  The average conversion rate between the Canadian dollar and the U.S.dollar increased 7.8% over the prior year quarter, which had the effect ofincreasing sales for the three months ended January 31, 2005 by approximately$1.9 million had the conversion rate been the same as the prior yearperiod.  Excluding the effect of thisincrease, sales per day would have been approximately 7.7% higher in thecurrent quarter compared to the prior year. Canadian sales per day in Canadian dollars increased approximately 4.5%this quarter compared to last year.

 

Cost of sales for thethree months ended January 31, 2005 increased $7.0 million, or 14.0%, to $57million from $50 million for the same period in the prior year.  Cost of sales, as a percentage of sales was72.3% for the three months ended January 31, 2005, compared to 72.1% for thesame period in the prior year.  Thecurrent quarter, as well as the 

 

10

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same quarter last year,was impacted by one-time costs and operating inefficiencies during the startupof significant new business.  In thecurrent year, the Company also accepted, for a large new contract, a reducedmargin during a two-month transition phase. Management expects to realize normal profit margins on this new businessin future quarters; however, management still expects the overall gross marginto be negatively pressured in future quarters as sales of local and regionaldistribution and outsourcing services continue to grow at a faster rate thanon-demand sales.  On-demand salesgenerally produce a higher gross margin primarily due to lower drivercommissions resulting from 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 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 three months ended January 31, 2005increased $1.2 million, or 7.1%, to $17.4 million from $16.2 million for thesame period in the prior year. Approximately one third 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 $715. 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 quarter comparedto the same quarter in the prior year: stock options expense ($42) andSarbanes-Oxley related costs ($59).  As apercentage of sales, SG & A expenses were 22.1% for the three months endedJanuary 31, 2005, compared to 23.4% in the same period last year.

 

For the three months ended January 31, 2005, depreciation and amortization was $369 compared to $467 for the same period in the prior year.  During the third quarter of FY 2005, the Company began implementation of a new Order/Entry/Dispatch system (“DECS”), an acronym for Dynamex Enterprise Computer System, which is expected to increase depreciation expense by approximately $50 per quarter.  Other than DECS, management does not expect a significant change in the level of depreciation and amortization expense due to limited capital requirements associated with its non-asset based business.

 

Interest expense was $116, a decrease of $206 or 64.0% for the currentquarter.  This decrease is primarilyattributable to lower outstanding debt. Interest expense, as a percentage of sales, was 0.1% in the currentquarter compared to 0.5% in the prior period.

 

The effective income tax rate was 35.6% for the current quarter.  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, resulting in a negative effectivetax rate of 116%.

 

**Six months ended January 31, 2005 compared to sixmonths ended January 31, 2004**

 

Net income for the six months ended January 31, 2005 was $5.7 million($0.49 per fully diluted share) compared to $7.5 million ($0.65 per fullydiluted share) for the six months ended January 31, 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 54% to $9.0 million in thecurrent year from $5.8 in the prior year. The increase is attributable to increased sales, and higher grossprofit, which was offset in part by higher SG & A expenses.

 

Sales for the six monthsended January 31, 2005 were $155 million, an 11.4% increase over the sales inthe same period in 2004 of $139 million. U.S. sales increased 11.9% and Canadian sales increased 10.2%.  The current year period had one more businessday than the prior year.  On a sales perday basis, sales increased 11.7% in the current year period versus the prioryear.  The average conversion rate between the Canadian dollar and the U.S.dollar increased 6.9% over the prior year period, which had the effect ofincreasing sales for the six months ended January 31, 2005 by approximately$3.4 million had the conversion rate been the same as the prior yearperiod.  Excluding the effect of thisincrease, sales per day would have been approximately 8.2% higher in the currentperiod compared to the prior year.  Canadian sales per day in Canadian dollarsincreased approximately 3.1% this period compared to last year.

 

Cost of sales for the sixmonths ended January 31, 2005 increased $11.3 million, or 11.2%, to $111.8million from $100.6 million for the same period in the prior year.  Cost of sales, as a percentage of sales was72.0% for the six 

 

11

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months ended January 31,2005, compared to 72.1% for the same period in the prior year.  The current period, as well as the sameperiod last year, was impacted by one-time costs and operating inefficienciesduring the startup of significant new business. In the current year, the Company also accepted, for a large newcontract, a reduced margin during a two-month transition phase.  Management expects to realize normal profitmargins on this new business in future periods; however, management stillexpects the overall gross margin to be negatively pressured in future quartersas sales of local and regional distribution and outsourcing services continueto grow at a faster rate than on-demand sales. On-demand sales generally produce a higher gross margin primarily due tothe smaller size of delivery vehicles compared to other services; however,on-demand services 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 andoutsourcing services likely will account for the majority of future growth.

 

SG & A expenses for the six months ended January 31, 2005 increased$2.0 million, or 6.4%, to $33.6 million from $31.6 million for the same periodin the prior year.  Approximately onethird of this increase is due to the increase in the exchange rate between theCanadian dollar and the U.S. dollar. Excluding the impact of the exchange rate, the largest increase in SG& A was salaries and benefits ($1,038). This increase is primarily attributable to additional personnelnecessary to manage the new business, commissions on new sales and the plannedincrease in sales personnel.  The Companyalso incurred the following incremental SG & A expenses in this periodcompared to the same period in the prior year: stock options expense ($72) andSarbanes-Oxley related costs ($109).  Asa percentage of sales, SG & A expenses were 21.6% for the six months endedJanuary 31, 2005, compared to 22.6% in the same period last year.

 

For the six months ended January 31, 2005, depreciation and amortization was $745 compared to $979 for the same period in the prior year.  During the third quarter of FY 2005, the Company began implementation of a new Order/Entry/Dispatch system (“DECS”), an acronym for Dynamex Enterprise Computer System, which is expected to increase depreciation expense by approximately $50 per quarter.  Other than DECS,management does not expect a significant change in the level of depreciation and amortization expense due to limited capital requirements associated with its non-asset based business.

 

Interest expense was $273, a decrease of $381 or 58.3% for the currentperiod.  This decrease is primarilyattributable to lower outstanding debt. Interest expense as a percentage of sales was 0.2% in the current periodcompared to 0.5% in the prior period.

 

The effective income tax rate was 36.1% for the current period comparedto a negative 28.5% effective rate in the same period last year.  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**

 

Net cash provided by operating activities was $4.0 million for the sixmonths ended January 31, 2005 compared to $4.1 million for the same period in2004.  The large increase in accountsreceivable in the six months ended January 31, 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 six months endedJanuary 31, 2005 as opposed to the prior year, when insurance premiums werebilled and paid on a monthly basis.  Netcash provided by operations, prior to changes in current operating assets andliabilities, was $9.1 million for the six months ended January 31, 2005 an increaseof 44% compared to $6.3 million for the six months ended January 31, 2004.

 

Capital expenditures forthe six months ended January 31, 2005 were approximately $0.9 million.  Theseexpenditures relate primarily to improvements in the Company’s technologyinfrastructure to support its operations. Management expects capital expenditures to be in the $2 million to $3million range for the full fiscal year. The Company does not have significant capital expenditure requirementsto replace or expand the number of vehicles used in its operations becausesubstantially all of its drivers provide their own vehicles.

 

On March 2, 2004, the Company replaced its existing bank creditagreement with a new $30,000,000 Senior Secured, Revolving Credit Facility thatmatures on November 30, 2007.  Under theterms of the new facility, interest is payable quarterly at prime, or LIBORplus a margin ranging from 1.25% to 1.75% (1.25% at January 31, 2005), 

 

12

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based on the ratio of Funded Debt to EBITDA, as defined in the CreditFacility.  There are no scheduledprincipal payments; however, the Company is required to maintain certainfinancial ratios related to minimum amounts of stockholders’ equity, fixedcharges to cash flow, funded debt to cash flow and funded debt to eligiblereceivables, as defined.  Amounts outstanding under the Credit Facility aresecured by all of the Company’s U.S. assets and 100% of the stock of itsdomestic subsidiaries.  The CreditFacility also contains restrictions on incurring additional debt andinvestments by the Company.  Amountsoutstanding under the Revolving Credit Facility at January 31, 2005 includedborrowings of $5.8 million and outstanding letters of credit totaling $4.1million.

 

The Company’s EBITDA (earnings before interest, taxes, depreciation andamortization) was approximately $4.5 million (5.7% of sales) for the threemonths ended January 31, 2005, compared to $3.2 million (4.6% of sales) in thesame period last year.  The increase isdue to higher gross profit from increased sales that was partially offset bythe increased SG & A costs mentioned above including salaries and wages,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 financialmeasure:

 
| ** **                    | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|-------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                    | ** ** | **January 31,**        | ** ** | **January 31,**      | ** ** |
| ** **                    | ** ** | **2005**               | ** ** | **2004**             | ** ** | **2005** | ** ** | **2004** | ** ** |
|                          |       |                   |       |                 |       |   |   |   |   |
| Net income                    |       | $                      | 2,561      |                 | $          | 5,219 |   | $ | 5,734 |   | $ | 7,470 |   |
| Adjustments:                  |       |                   |       |                 |       |   |   |   |   |
| Income tax expense            |       | 1,417                  |       | (2,808               | )          | 3,244 |   | (1,656 | ) |
| Interest expense              |       | 116                    |       | 322                  |       | 273 |   | 654 |   |
| Depreciation and amortization |       | 369                    |       | 467                  |       | 745 |   | 979 |   |
| EBITDA                        |       | $                      | 4,463      |                 | $          | 3,200 |   | $ | 9,996 |   | $ | 7,447 |   |

 

 

Management expects that its future capitalrequirements will generally be met from internally generated cash flow.  The Company’s access to other sources ofcapital, such as additional bank borrowings and the issuance of debtsecurities, is affected by, among other things, general market conditionsaffecting the availability of such capital.

 

**Contractual Obligations**

 

The Company recently organized a new subsidiary, Dynamex FleetServices, Inc. (“Fleet Services”), to expand capacity of larger vehicles,primarily for dedicated outsourcing applications, and increase the pool ofindependent contractor drivers available to service the Company’scustomers.  The Company leases vehiclesfrom suppliers for specific customer applications and sub-leases those vehiclesto independent contractor drivers.  TheCompany is not obligated, nor does it intend, to purchase any of the leasedvehicles.

 

The following table sets forth the Company’s contractual commitments asof January 31, 2005 for the periods indicated:
| ** **                     | ** ** | ** ** | ** **   | **Less than** | ** ** | ** **      | ** ** | ** **      | ** **  | ** **     | ** **   |
|--------------------------------|------------|------------|--------------|---------------|------------|-----------------|------------|-----------------|-------------|----------------|--------------|
| ** **                     | ** ** | **Total**  | ** **   | **1 year**    | ** ** | **1 - 3 years** | ** ** | **3 - 5 years** | ** **  | **Thereafter** | ** **   |
| Long-Term Debt                 |       | $          |  5,800  |          | $          |  —    |       | $               |  5,800 |           | $            |  — |   | $ |  — |   |
| Capital Lease                  |       | 10         |         | 4             |       | 4               |       | 2               |        |           |         |
| Operating Leases (Non-Vehicle) |       | 16,763     |         | 5,718         |       | 7,302           |       | 3,357           |        | 386            |         |
| Operating Leases (Vehicle)     |       | 2,583      |         | 671           |       | 1,211           |       | 538             |        | 163            |         |
| Total                          |       | $          |  25,156 |          | $          | 6,393           |       | $ 14,317   |        | $              |   3,897 |   | $ |  549 |   |
|                                |            |            |              |               |            |                 |            |                 |             |                |              |  |  |  |  |  |

 

The Company has entered intoan agreement with a vehicle leasing company, guaranteeing lease payments onapproximately 20 vehicles leased to independent contractors.  The agreement runs through January 2007 andthe maximum potential amount of future payments that Dynamex could be requiredto make is approximately $600.  Theindependent contractors use these vehicles to service a specific customercontract whose term runs concurrent with the guarantee.  Should an independent contractor default ontheir lease, the Company would facilitate the transfer of the leased vehicle toa new independent contractor to complete the service commitment to thecustomer.  In addition, the Companycurrently holds security deposits from these independent contracts which wouldbe used to offset any lease payments required to be made by Dynamex.

 

13

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**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 informationin this report, the following risk factors should be considered carefully in evaluatingthe Company and its business.  Thisreport contains forward-looking statements, which involve risks anduncertainties.  The Company’s actualresults could differ materially from those anticipated in these forward-lookingstatements as a result of certain factors, including those set forth in thefollowing risk factors and elsewhere in this report.*

 

**Certain Tax Matters Related to Drivers**

 

Substantially all of the Company’s drivers supplytheir own vehicles and as of January 31, 2005, approximately 99% of theseowner-operators were independent contractors as opposed to employees of theCompany.  The Company does not pay orwithhold any federal, state or provincial employment tax with respect to or onbehalf of independent contractors.  Fromtime to time, taxing authorities in the U.S. and Canada have sought to assertthat owner-operators in the transportation industry, including those utilizedby the Company, are employees, rather than independent contractors.  The Company believes that the owner-operatorsutilized by the Company are not employees under existing interpretations offederal (U.S. and Canadian), state and provincial laws.  However, there can be no assurance thatfederal (U.S. and Canadian), state or provincial authorities will not challengethis position, or that other laws or regulations, including tax laws, orinterpretations thereof, will not change.  If, as a result of any of the foregoing, theCompany were required to pay withholding taxes and pay for and administer addedemployee benefits to these drivers, the Company’s operating costs wouldincrease.  Additionally, if the Companyis required to pay back-up withholding with respect to amounts previously paidto such drivers, 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.

 

In addition to the drivers that are independentcontractors, certain of the Company’s drivers are employed by the Company andsupply and operate their own vehicles during the course of theiremployment.  The Company reimburses theseemployees for all or a portion of the operating costs of those vehicles.  The Company believes that these reimbursementarrangements do not represent additional compensation to those employees.  However, there can be no assurance thatfederal (U.S. and Canadian), state or provincial taxing authorities will notseek to recharacterize some or all of such payments as additionalcompensation.  If such amounts were sorecharacterized, the Company would have to pay additional employment relatedtaxes on such amounts, and may also be required to pay penalties, which couldhave an adverse impact on the Company’s financial condition and results ofoperations, and/or to restate financial information from prior periods.

 

**Claims Exposure**

 

As of January 31, 2005, the Company utilized theservices of approximately 4,400 drivers and messengers.  From time to time such persons are involvedin accidents or other activities that may give rise to liability claims.  The Company currently carries liabilityinsurance with a per occurrence and an aggregate limit of $30 million.  Owner-operators are required to maintainliability insurance of at least the minimum amounts required by applicablestate or provincial law (generally such minimum requirements range from $35 to$75).  The Company also has insurancepolicies covering property and fiduciary trust liability, which coverageincludes all drivers and messengers. There can be no assurance that claims against the Company, whether underthe liability insurance or the surety bonds, will not exceed the applicableamount of coverage, that the Company’s insurer will be solvent at the time ofsettlement of an insured claim, or that the Company will be able to obtaininsurance at acceptable levels and costs in the future.  If the Company were to experience a materialincrease in the frequency or severity of accidents, liability claims, workers’compensation claims or unfavorable resolutions of claims, the Company’sbusiness, financial condition and results of operations could be materiallyadversely affected.  In addition,significant increases in insurance costs could reduce the Company’sprofitability.

 

14

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**Highly Competitive Industr***y*

 

The market for same-day delivery and logisticsservices has been and is expected to remain highly competitive.  Competition is often intense, particularlyfor basic delivery services.  Highfragmentation and low barriers to entry characterize the industry.  Other companies in the industry compete withthe Company not only for provision of services but also for acquisitioncandidates and qualified drivers.  Someof these companies have longer operating histories and greater financial andother resources than the Company. Additionally, companies that do not currently operate delivery andlogistics businesses may enter the industry in the future.

 

**Foreign Exchange**

 

Significant portions of the Company’s operationsare conducted in Canada.  Exchange ratefluctuations between the U.S. and Canadian dollars result in fluctuations inthe amounts relating to the Canadian operations reported in the Company’sconsolidated financial statements.  TheCanadian dollar is the functional currency for the Company’s Canadian operations;therefore, any change in the exchange rate will affect the Company’s reportedsales for such period.  The Companyhistorically has not entered into hedging transactions with respect to itsforeign currency exposure, but may do so in the future.  There can be no assurance that fluctuationsin foreign currency exchange rates will not have a material adverse effect onthe Company’s business, financial condition or results of operations.

 

**Permits and Licensing**

 

The Company’s delivery operations are subject tovarious federal (U.S. and Canadian), state, provincial and local laws,ordinances and regulations that in many instances require certificates, permitsand licenses.  Failure by the Company tomaintain required certificates, permits or licenses or to comply withapplicable laws, ordinances or regulations could result in substantial fines orpossible revocation of the Company’s authority to conduct certain of itsoperations.

 

**Dependence on Key Personnel**

 

The Company’s success is largely dependent on the skills, experienceand performance 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 theSame-day Transportation Industry; General Economic Conditions**

 

The Company’s sales and earnings are especiallysensitive to events that affect the same-day transportation industry includingextreme weather conditions, economic factors affecting the Company’s customersand shortages of or disputes with labor, any of which could result in theCompany’s inability to service its clients effectively or the inability of theCompany to profitably manage its operations. In addition, downturns in the level of general economic activity andemployment in the U.S. or Canada may negatively impact demand for the Company’sservices.

 

**Technological Advances**

 

Technological advances in the nature of facsimileand electronic mail have affected the market for on-demand document deliveryservices.  Although the Company hasshifted its focus to the distribution of non-faxable items and logisticsservices, there can be no assurance that these or other technologies will nothave a material adverse effect on the Company’s business, financial conditionand results of operations in the future.

 

**Dependence on Availability ofQualified Delivery Personnel**

 

The Company is dependent upon its ability toattract and retain qualified delivery personnel who possess the skills andexperience necessary to meet the needs of its operations.  The Company competes in markets in whichunemployment is relatively low and the competition for couriers and otheremployees is intense.  The Company mustcontinually evaluate and upgrade its pool of available delivery and supportpersonnel to keep pace with 

 

15

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demands for delivery services.  There can be no assurance that qualifieddelivery personnel will continue to be available in sufficient numbers and onterms acceptable to the Company.  Theability of the Company to retain owner-operators may also be impacted by ourability to pass on fuel cost increases to customers to maintain profit marginsand the quality of driver pay.  Theinability to attract and retain qualified delivery personnel would have amaterial adverse impact on the Company’s business, financial condition andresults of operations.

 

**Fuel Costs**

 

The owner-operators utilized by the Company areresponsible for all vehicle expense including maintenance, insurance, fuel andall other operating costs.  The Companymakes every reasonable effort to include fuel cost adjustments in customerbillings that are paid to owner-operators to offset the impact of fuel priceincreases.  If future fuel costadjustments are insufficient to offset owner-operators’ costs, the Company maybe unable to attract a sufficient number of owner-operators which maynegatively impact the Company’s business, financial condition and results ofoperations.

 

**“Safe Harbor” Statement Under ThePrivate Securities Litigation Reform Act**

 

With the exception of historical information, thematters discussed in this report are “forward looking statements” as that termis defined in Section 21E of the Securities Exchange Act of 1934.

 

Several important factors have been identified,which could cause actual results to differ materially from thosepredicted.  By way of example:

 
    - The competitive nature of the same-day delivery business.

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

 
    - A change in the current tax status of independent contractor drivers     to employees or a change in the treatment of the reimbursement of vehicle     operating costs to employee drivers.

 
    - A significant reduction in the exchange rate between the Canadian     dollar and the U.S. dollar.

 
    - Failure of the Company to maintain required certificates, permits or     licenses or to comply with applicable laws, ordinances or regulations     could result in substantial fines or possible revocation of the Company’s     authority to conduct certain of its operations.

 
    - The ability of the Company to obtain adequate financing.

 
    - The ability of the Company to retain owner-operators may be impacted     by our ability to pass on fuel cost increases to customers to maintain profit     margins and the quality of driver pay.

 

**Item 3.        Quantitative and Qualitative DisclosuresAbout Market Risk**

 

**Foreign Exchange Exposure**

 

Significant portions of the Company’s operations are conducted inCanada.  Exchange rate fluctuationsbetween the U.S. and Canadian dollar result in fluctuations in the amountsrelating to the Canadian operations reported in the Company’s consolidatedfinancial statements.  The Companyhistorically has not entered into hedging transactions with respect to itsforeign currency exposure, but may do so in the future.

 

The sensitivity analysis model used by the Company for foreign exchangeexposure compares the revenue and net income figures from Canadian operations,at the actual 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 $2.5 million and adecrease in quarterly net income of approximately $.1 million.  There can be no assurances that the aboveprojected exchange rate decrease will materialize.  Fluctuations of exchange rates are beyond thecontrol of the Company’s management.

 

16

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**Interest Rate Exposure**

 

The Company has entered into an interest rate protection arrangement ona portion of the Credit Facility.  Theinterest rate has been fixed at the LIBOR margin plus 1.49% (2.74% at January31, 2005).  This hedging agreementexpires on November 30, 2005.  TheCompany does not hold or issue derivative financial instruments for speculativeor trading purposes.

 

The sensitivity analysis model used by the Company for interest rateexposure compares interest expense fluctuations over a one-year period based oncurrent debt levels and current interest rates versus current debt levels atcurrent interest rates with a 10% increase. Based on this model, a 10% increase would result in an increase ininterest expense of approximately $10. 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**

 

An evaluation was carried out under thesupervision and with the participation of the Company’s management, includingits Chief Executive Officer and Chief Financial Officer, of the effectivenessof the design and operation of its disclosure controls and procedures (asdefined in Rule 13a-14(c) under the Securities Exchange Act of 1934) as ofJanuary 31, 2005 (the end of the period covered by this Quarterly Report onForm 10-Q).  Based upon the evaluation,the Chief Executive Officer and Chief Financial Officer concluded that thedesign and operation of these disclosure controls and procedures wereeffective.

 

There were no significant changes in theCompany’s internal controls or in other factors that could significantly affectthese controls subsequent to the date of their evaluation, including anycorrective actions with regard to significant deficiencies and materialweaknesses.

 

17

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**PART II**

**OTHER INFORMATION**

 

 

**Item 1.    LegalProceedings**

 

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 4.    Submission of Matters to a Vote of SecurityHolders**

 

TheCompany held its annual shareholder meeting on January 11, 2005.  At that meeting, the shareholders voted onthe following three proposals:

 
| Proposal #1 |   | To elect six (6)  directors of the Company                                                                                                                             |                           |                                                                       |   |                                                                       |
|-------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------|----------------------------------------------------------------------------|--------|----------------------------------------------------------------------------|
|        |   |                                                                                                                                                                   |                           |                                                                       |   |                                                                       |   |   |
|        |   | Nominee                                                                                                                                                                |                           | For                                                                        |   | Withheld                                                                   |   |   |
|        |   |                                                                                                                                                                   |                           |                                                                       |   |                                                                       |   |   |
|        |   | Richard K.  McClelland                                                                                                                                                 |                           |         8,908,443                            |   |         1,855,071                            |   |   |
|        |   | Kenneth H.  Bishop                                                                                                                                                     |                           |         8,907,302                            |   |         1,856,212                            |   |   |
|        |   | Brian J. Hughes                                                                                                                                                        |                           |         8,907,688                            |   |         1,855,826                            |   |   |
|        |   | Wayne Kern                                                                                                                                                             |                           |         8,906,097                            |   |         1,857,417                            |   |   |
|        |   | Bruce E. Ranck                                                                                                                                                         |       |         8,908,748                            |   |         1,854,766                            |   |   |
|        |   | Stephen P.  Smiley                                                                                                                                                     |                           |         8,514,548                            |   |         2,248,966                            |   |   |
|        |   |                                                                                                                                                                   |                           |                                                                       |   |                                                                       |   |   |
| Proposal #2 |   | To ratify the  appointment of BDO Seidman, LLP as independent auditors of the                                                                                          |
|        |   | Company for the  year ending July 31, 2005                                                                                                                             |                           |                                                                       |   |                                                                       |
|        |   |                                                                                                                                                                   |                           |                                                                       |   |                                                                       |   |   |
|        |   | For                                                                                                                                                                    |                           | Against                                                                    |   | Abstain                                                                    |   |   |
|        |   |                                                                                                                                                                   |                           |                                                                       |   |                                                                       |   |   |
|        |   |                          10,724,793            |                           |              28,535 |   |              10,186 |   |   |
|        |   |                                                                                                                                                                   |                           |                                                                       |   |                                                                       |   |   |
| Proposal #3 |   | Approval of the  Second Amendment to the Company’s Amended and Restated                                                                                           |
|        |   | 1996 Stock  Option Plan                                                                                                                                                |                           |                                                                       |   |                                                                       |   |   |
|        |   |                                                                                                                                                                   |                           |                                                                       |   |                                                                       |   |   |
|        |   | For                                                                                                                                                                    |                           | Against                                                                    |   | Abstain                                                                    |   | Not Voted |
|        |   |                                                                                                                                                                   |                           |                                                                       |   |                                                                       |   |   |
|        |   |                            5,671,133 |                           |         1,097,245                            |   |              26,032 |   |         3,969,104 |

 

18

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**Item 6.    Exhibitsand Reports on Form 8-K**

 

(a)                                  Exhibits:

 

31.1                           Certification of Chief Executive Officerof the Registrant, pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a)

 

31.2                           Certification of Chief Financial Officerof the Registrant, pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a)

 

32.1                           Certification of Chief Executive Officerof the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002

 

32.2                           Certification of Chief Financial Officerof the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002

 

(b)                                 Reports on Form 8-K:

 

Report on Form 8-K filed on December 3, 2004concerning the December 1, 2004 press release announcing first quarter fiscalyear 2005 results.

 

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**SIGNATURES**

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the Registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 

 
|                              |   |   | **DYNAMEX INC.**                              |
|-----------------------------------|--------|--------|-----------------------------------------------|
|                              |   |   |                                          |
|                              |   |   |                                          |
|                              |   |   |                                          |
| Dated:   March  9, 2005 |   | by     | /s/ Richard K. McClelland                     |
|                              |   |   | Richard K. McClelland                         |
|                              |   |   | President, Chief Executive Officer and        |
|                              |   |   | Chairman of the Board                         |
|                              |   |   | (Principal Executive Officer)                 |
|                              |   |   |                                          |
|                              |   |   |                                          |
|                              |   |   |                                          |
| Dated:   March  9, 2005 |   | by     | /s/ Ray E. Schmitz                            |
|                              |   |   | Ray E. Schmitz                                |
|                              |   |   | Vice President — Chief Financial Officer |
|                              |   |   | (Principal Financial Officer)                 |
|                              |   |   |                                          |
|                              |   |   |                                          |
|                              |   |   |                                          |
| Dated:   March  9, 2005 |   | by     | /s/ David P. Fortune                          |
|                              |   |   | David P. Fortune                              |
|                              |   |   | Corporate Controller                          |
|                              |   |   | (Principal Accounting Officer)                |

 

20

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**EXHIBIT INDEX**

 

 

**Exhibits**

 

31.1                           Certification of Chief Executive Officerof the Registrant, pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a)

 

31.2                           Certification of Chief Financial Officerof the Registrant, pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a)

 

32.1                           Certification of Chief Executive Officerof the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002

 

32.2                           Certification of Chief Financial Officerof the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002

 

E-1

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