Edgar Filing: DYNAMEX INC

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

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 2001

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission file number: 000-21057

DYNAMEX INC.
(Exact name of registrant as specified in its charter)

Delaware 86-0712225
(State of incorporation) (I.R.S. Employer Identification No.)

1431 Greenway Drive 75038
Suite 345 (Zip Code)
Irving, Texas
(Address of principal executive offices)

Registrant's telephone number, including area code:
(972) 756-8180

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

The number of shares of the registrant's common stock, $.01 par value,
outstanding as of March 8, 2001 was 10,206,817 shares.

DYNAMEX INC.

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INDEX

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Condensed Consolidated Balance Sheets 2
January 31, 2001 (Unaudited) and July 31, 2000

Condensed Statements of Consolidated Operations (Unaudited) 3
Three and Six Months ended January 31, 2001 and 2000

Condensed Statements of Consolidated Cash Flows (Unaudited) 4
Six Months ended January 31, 2001 and 2000

Notes to Condensed Consolidated Financial Statements (Unaudited) 5

Item 2. Management's Discussion and Analysis of Financial Condition 8
and Results of Operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk. 15

PART II. OTHER INFORMATION

Item 1. Legal Proceedings. 16
Item 6. Exhibits and Reports on Form 8-K. 17

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DYNAMEX INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except per share data)
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January 31, July 31,
2001 2000
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(Unaudited)

ASSETS

CURRENT
Cash and cash equivalents $ 6,639 $ 5,600
Accounts receivable (net of allowance for doubtful accounts
of $870 and $940, respectively) 26,686 26,887
Prepaid and other current assets 1,985 2,890
Deferred income tax 1,246 1,518
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TOTAL CURRENT ASSETS 36,556 36,895

Property and equipment - net 6,201 7,225
Intangibles - net 76,057 78,230
Deferred income taxes 2,939 3,273
Other assets 752 901
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TOTAL ASSETS $ 122,505 $ 126,524
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
CURRENT
Accounts payable trade $ 4,708 $ 5,517
Accrued liabilities 13,745 16,627
Current portion of long-term debt 4,924 3,729
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TOTAL CURRENT LIABILITIES 23,377 25,873

Long-term debt 38,971 40,928
Provision for lawsuit settlement 1,313 1,313
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TOTAL LIABILITIES 63,661 68,114
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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;
10,207 and 10,207 outstanding, respectively 102 102
Additional paid-in capital 72,759 72,759
Retained deficit (13,044) (13,601)
Unrealized foreign currency translation adjustment (973) (850)
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TOTAL STOCKHOLDERS' EQUITY 58,844 58,410
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 122,505 $ 126,524
========= =========

See accompanying notes to condensed consolidated financial statements.

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DYNAMEX INC.
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(in thousands except per share data)
(Unaudited)
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Three months ended Six months ended
January 31, January 31,
------------------------ ------------------------
2001 2000 2001 2000
--------- --------- --------- ---------

Sales $ 62,531 $ 61,778 $ 127,355 $ 124,501

Cost of sales 43,224 41,919 88,044 84,216
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Gross profit 19,307 19,859 39,311 40,285

Selling, general and administrative expenses 15,263 16,403 30,852 32,436
Depreciation and amortization 1,957 2,301 3,986 4,619
(Gain) loss on disposal of property and equipment (6) 1 (8) 55
--------- --------- --------- ---------

Operating income 2,093 1,154 4,481 3,175

Interest expense 1,364 1,233 2,708 2,406
Other (income) expense (56) 9 (101) (7)
--------- --------- --------- ---------

Income (loss) before taxes 785 (88) 1,874 776

Income tax expense 726 264 1,317 723
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Net income (loss) $ 59 $ (352) $ 557 $ 53
========= ========= ========= =========

Earnings (loss) per common share - basic: $ 0.01 $ (0.03) $ 0.05 $ 0.01
========= ========= ========= =========

Earnings (loss) per common share - assuming dilution: $ 0.01 $ (0.03) $ 0.05 $ 0.01
========= ========= ========= =========

Weighted average shares:
Common shares outstanding 10,207 10,207 10,207 10,207
Adjusted common shares - assuming
exercise of stock options 10,207 10,207 10,207 10,207

See accompanying notes to condensed consolidated financial statements.

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DYNAMEX INC.
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(in thousands)
(Unaudited)
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Six months ended
January 31,
--------------------
2001 2000
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OPERATING ACTIVITIES
Net income $ 557 $ 53
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 1,617 1,886
Amortization of intangible assets 2,369 2,733
Provision for losses on accounts receivable 534 493
Deferred income taxes 607 112
Loss on disposal of property and equipment (8) 55
Changes in current operating assets and liabilities:
Accounts receivable (333) (3,328)
Prepaids and other assets 906 787
Accounts payable and accrued liabilities (2,720) (1,252)
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Net cash provided by operating activities 3,529 1,539
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INVESTING ACTIVITIES
Payments for acquisitions (681) (240)
Purchase of property and equipment (667) (2,138)
Net proceeds from disposal of property and equipment 12 --
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Net cash used in investing activities (1,336) (2,378)
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FINANCING ACTIVITIES
Principal payments on long-term debt (1,854) (168)
Net borrowings under line of credit 600 3,200
Proceeds from shareholder's note -- 51
Other assets and deferred offering costs 149 73
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Net cash (used in) provided by financing activities (1,105) 3,156
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------- -------
EFFECT OF EXCHANGE RATES ON CASH FLOW INFORMATION (49) 163
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NET INCREASE IN CASH AND CASH EQUIVALENTS 1,039 2,480
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,600 2,933
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,639 $ 5,413
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 3,710 $ 1,861
======= =======
Cash paid for taxes $ 692 $ 902
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SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Assets acquired, liabilities paid and consideration paid
for acquisitions were as follows:
Fair value of net assets acquired $ 201 $ 240
Payable to former owners 480 (240)
------- -------
Consideration paid $ 681 $ --
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See accompanying notes to condensed consolidated financial statements.

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DYNAMEX INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
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1. BASIS OF PRESENTATION

Dynamex Inc. (the "Company" and "Dynamex") provides same-day delivery and
logistics services in the United States and Canada. The Company's primary
services are (i) same-day, on-demand delivery, (ii) scheduled distribution and
(iii) fleet management.

The consolidated financial statements include the accounts of Dynamex Inc. and
its wholly owned subsidiaries. All significant inter-company accounts and
transactions have been eliminated. All dollar amounts in the financial
statements and notes to the financial statements are stated in thousands of
dollars unless otherwise indicated.

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

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

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

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

o Dynamex Canada Inc (Canada)

o Alpine Enterprises Ltd. (Canada)

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

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

The accompanying interim financial statements are unaudited. Certain information
and disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted,
although the Company believes the disclosures included herein are adequate to
make the information presented not misleading. The results of the interim
periods presented are not necessarily indicative of results to be expected for
the full fiscal year, and should be read in conjunction with the Company's
audited financial statements for the fiscal year ended July 31, 2000.

The accompanying interim financial statements contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the Company's financial position at January 31, 2001, the
results of its operations for the three and six month periods ended January 31,
2001 and 2000 and its cash flows for the three and six month periods ended
January 31, 2001 and 2000.

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

2. COMPREHENSIVE INCOME (LOSS)

Comprehensive income for the three and six months ended January 31, 2001 was
$352 and $434, respectively, compared to a loss of $105 and a gain of $651 for
the same periods ended January 31, 2000. The two components of comprehensive
income are net income (loss) and foreign currency translation adjustments. The
changes in the exchange rate between the U.S. dollar and the Canadian dollar
resulted in a foreign currency translation gain of $293 and a loss of $123 in
the three and six month periods ended January 31, 2001, respectively, compared
to gains of $247 and $598 for the same periods in the prior year.

3. ACQUISITIONS

In connection with certain acquisitions, the Company agreed to pay the sellers
additional consideration if the acquired operations meet certain performance
goals. In the six months ended January 31, 2001, the Company incurred an
additional liability to former owners of $201, the Company converted $554 of its
liability to former owners to notes payable and paid $681 to former owners. The
notes are payable over two years and bear interest of 10%. The Company intends
to convert the remaining liability to a two-year note payable with interest at
10%.

4. CONTINGENCIES

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DYNAMEX INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
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which had been previously announced on September 16, 1998 and (ii) restating its
results of operations for the third quarter of fiscal 1998 from that which had
been previously reported. On February 5, 1999, the Court entered an Order
consolidating the actions and approved the selection of three law firms as
co-lead counsel. A consolidated and amended complaint was filed on March 22,
1999. In addition to the defendants named in the original complaints, the
amended complaint also named as defendants the underwriters of the Company's May
1998 secondary offering of common stock, Schroder & Co., Inc., William Blair &
Company, and Hoak Breedlove Wesneski & Co. (the "Underwriter Defendants"). On
May 6, 1999, defendants filed a motion to dismiss the consolidated and amended
complaint in its entirety.

On June 14, 1999, the Company issued a press release announcing that the Audit
Committee of the Board of Directors had formed a Special Committee of outside
directors to review potentially unsupportable accounting entries for the third
and fourth quarters of fiscal 1998. On September 17, 1999, the Company issued a
press release announcing that the Special Committee had completed its review of
the Company's financial reporting and that the Company would restate its
previously reported financial results for the fiscal years 1997 and 1998 and the
first three quarters of the fiscal year 1999.

On October 14, 1999, pursuant to a stipulation of the parties, plaintiffs filed
a second amended class action complaint that added allegations relating to the
information disclosed in the Company's June 14 and September 17, 1999 press
releases. In addition to the defendants named in the amended complaint, the
Second Amended Class Action Complaint named Deloitte & Touche and Deloitte &
Touche LLP (the Court subsequently dismissed Deloitte & Touche LLP without
prejudice pursuant to the stipulation of the parties). The Second Amended Class
Action Complaint alleges that the defendants issued a series of materially false
and misleading statements and omitted material facts concerning the Company's
financial condition and business operations. The lawsuit alleges violations of
Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934. The plaintiffs seek
unspecified damages on behalf of all other purchasers of the Company's common
stock during the period of September 18, 1997 through and including September
17, 1999.

On September 20, 2000, the Company, Richard McClelland, Robert Capps and the
Underwriter Defendants signed a memorandum of understanding setting forth the
terms of a proposed settlement of this action. Deloitte & Touche is not a party
to the memorandum of understanding. On December 13, 2000, the Settling Parties
signed a Stipulation of Agreement of Settlement. The proposed settlement
provides that the Company's primary directors and officers liability insurer,
American Home Insurance Company, will pay $2 million towards the settlement. In
addition, the Company will pay $1 million and contribute one million shares of
common stock, or the cash equivalent towards the proposed settlement. The
Company has also agreed to pay to the class 75% of any recoveries, after legal
expenses and costs, from the Company's excess insurer, Reliance Insurance
Company, and former auditors, Deloitte & Touche LLP and Deloitte & Touche. An
agreement in principle has also been reached to settle all claims by the Company
and by plaintiffs in the class action against Deloitte & Touche LLP and Deloitte
& Touche. These settlements are conditioned upon, among other things, the
provision of notice of the settlement to the Company's shareholders, and
approval of the settlement by the United States District Court for the Northern
District of Texas and the settlement with Deloitte & Touche LLP and Deloitte &
Touche is also subject to the preparation of documentation memorializing the
terms of the agreement in principle.

On April 10, 2000, Reliance Insurance Company filed a notice of action in the
Superior Court of Justice in Ontario, Canada, seeking a declaratory judgment
that defendants in the shareholder class action are not entitled to
reimbursement under the Reliance insurance policy for losses incurred in
connection with that action. The Reliance policy provides $3 million in excess
coverage to supplement the $2 million in coverage provided to the Company
pursuant to the underlying policy issued by American Home Assurance Company.

Dynamex, Richard McClelland, and Robert Capps have filed a complaint in the
United States District court for the Northern District of Texas that names
Reliance Insurance Company as a defendant. The complaint alleges claims for
breach of contract and breach of the duty of good faith and fair dealing arising
from the failure of Reliance to contribute to the settlement of the
above-referenced shareholder litigation. The plaintiffs seek unspecified
damages.

Reliance Insurance Company and Dynamex, Richard McClelland and Robert Capps have
reached an agreement in principle to settle their respective claims. The
settlement is subject to the preparation of documentation memorializing the
terms of the agreement in principle.

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DYNAMEX INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
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Company from Reliance Insurance Company, Deloitte & Touche LLP and Deloitte &
Touche will be contributed to the proposed settlement of the shareholder class
action.

The Special Committee of the Board of Directors has kept the Securities and
Exchange Commission apprised of its inquiry and the restatement process. The
Company has received informal requests for information from the Staff of the
Commission for documents concerning the circumstances of the restatement of the
Company's prior period financial statements. The Company has cooperated with the
Commission and produced documents responsive to its requests.

The Company is also a party to various legal proceedings arising in the ordinary
course of its business. Management believes that the ultimate resolution of
these proceedings will not, in the aggregate, have a material adverse effect on
the financial condition, results of operations, or liquidity of the Company.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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This discussion contains forward-looking statements, which involve
assumptions regarding Company operations and future prospects. Although the
Company believes its expectations are based on reasonable assumptions, such
statements are subject to risk and uncertainty, including, among other things,
statements with respect to the outcome of the Special Committee's review,
acquisition strategy, competition, foreign exchange, and risks associated with
the local delivery industry. These and other risks are mentioned from time to
time in the Company's filings with the Securities and Exchange Commission.
Caution should be taken that these factors could cause the actual results to
differ from those stated or implied in this and other Company communications.

GENERAL

The Company is a leading provider of same-day delivery and logistics services in
the United States and Canada. Through internal growth and acquisitions, the
Company has built a national network of same-day delivery and logistics systems
in Canada and has established operations in 21 U.S. metropolitan areas. The
Company completed its initial public offering ("IPO") in August 1996 and
concurrently completed the acquisition of five same-day transportation
companies. Subsequent to the IPO and through August 1998, the Company completed
22 acquisitions at various dates. All of these acquisitions have been accounted
for using the purchase method of accounting. Accordingly, the results of the
acquired operations are included in the Company's consolidated results of
operations from the date of acquisition. As a result of the effect of these
various acquisitions, the historical operating results of the Company for a
given period are not necessarily comparable to prior or subsequent periods.

A significant portion of the Company's revenues is generated in Canada. For the
three and six month periods ended January 31, 2001, Canadian revenues accounted
for approximately 34.5% and 33.8%, respectively, of total consolidated revenue,
compared to 33.3% and 32.9% for the same periods in 2000.

RESULTS OF OPERATIONS

Three months ended Six months ended
January 31, January 31,
------------------- -------------------
2001 2000 2001 2000
------ ------ ------ ------

Sales 100.0% 100.0% 100.0% 100.0%

Cost of sales 69.1% 67.9% 69.1% 67.6%
------ ------ ------ ------

Gross profit 30.9% 32.1% 30.9% 32.4%

Selling, general and administrative expenses 24.4% 26.6% 24.2% 26.1%
Depreciation and amortization 3.1% 3.7% 3.1% 3.7%
(Gain) loss on disposal of property and equipment 0.0% 0.0% 0.0% 0.0%
------ ------ ------ ------

Operating income 3.4% 1.9% 3.6% 2.6%

Interest expense 2.2% 2.0% 2.2% 2.0%
Other (income) expense (0.1)% 0.0% (0.1)% 0.0%
------ ------ ------ ------

Income (loss) before taxes 1.3% (0.1)% 1.5% 0.6%
====== ====== ====== ======

THREE MONTHS ENDED JANUARY 31, 2001 COMPARED TO THREE MONTHS ENDED JANUARY 31,
2000.

Net income for the three months ended January 31, 2001 was $59,000 ($0.01 per
share) compared to a net loss of $352,000 ($0.03 per share) in the same period
last year. For the three months ended January 31, 2001, lower selling, general
and administrative and depreciation and amortization expenses more than offset
higher interest, lower gross profit and higher income taxes compared to the
prior year period.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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Sales for the three months ended January 31, 2001 increased $753,000, or 1.2%,
to $63 million from $62 million for the same period in 2000. There was a
decrease in the conversion rate between the U.S. dollar and the Canadian dollar
for the three months ended January 31, 2001 versus 2000 that had the effect of
decreasing sales for the three months ended January 31, 2001 by approximately
$0.5 million had the conversion rate been the same as the period ended in 2000.
The three months ended January 31, 2001 had 61.9 revenue days compared to 62.2
revenue days in the same period last year. On a revenue per day basis, sales
increased 1.8% in 2001 compared to 2000 with Canadian sales increasing 4.9% and
U.S. sales increasing 0.3%. In Canadian dollars, Canadian sales increased 9.2%
on a revenue per day basis in 2001 versus 2000.

Cost of sales for the three months ended January 31, 2001 increased $1.3
million, or 3.1%, to $43 million from $42 million for the same period in 2000.
Cost of sales, as a percentage of sales, increased to 69.1% for the three months
ended January 31, 2001 from 67.9% for the same period ended in 2000. This
increase in cost of sales primarily results from a change in the overall
business mix of the Company. Scheduled and distribution and other specialized
services revenues are increasing as a percentage of total sales while on demand
revenues have declined both as a percentage of sales and in absolute dollars.
Scheduled and distribution and other specialized services generally have a
higher cost of sales and lower selling, general and administrative costs than on
demand revenues.

Selling, general and administrative ("SG & A") expenses for the three months
ended January 31, 2001 decreased $1.1 million, or 6.9%, to $15.3 million from
$16.4 million for the same period in 2000. As a percentage of sales, SG & A
expenses decreased to 24.4% for the three months ended January 31, 2001 compared
to 26.6% in 2000. This decrease in the three months ended January 31, 2001 is
attributable to a number of factors. Sales commissions in 2001 were lower,
primarily in the Eastern U.S. where the Company experienced a net decline in
revenues, and the Dallas and Chicago branch operations reduced administrative
costs and improved profitability. Also in the prior year period, the Company
incurred contract accounting labor costs associated with the audit of fiscal
year 1999 and the re-audit of fiscal years 1998 and 1997 and the Company
invested more heavily in technology in building its infrastructure. The Company
converted a number of locations to a common operating platform for customer
order processing and dispatching with a web-based transportation management
solution and upgraded its financial accounting and reporting capabilities
through conversion to Oracle based financials in the United States. In addition,
employee and driver recruiting costs and legal costs were lower in the three
months ended January 31, 2001 compared to the same period in 2000.

For the three months ended January 31, 2001, depreciation and amortization was
$2.0 million compared to $2.3 million for the same period in 2000. This decrease
is attributable to the reduction in amortization of covenants not-to-compete
that are fully amortized after three years and to a reduction in depreciation of
property and equipment. Since most of the Company's acquisitions occurred in
fiscal years 1996 through 1998, all covenants not-to-compete will be fully
amortized in fiscal year 2001. In addition certain property and equipment
acquired through acquisitions has been fully depreciated and has not been
replaced with new equipment because the old equipment is still in service. As a
percentage of sales, depreciation and amortization decreased to 3.1% from 3.7%.

Interest expense for the three months ended January 31, 2001 increased $131,000
or 10.6% to $1.4 million from $1.2 million for the same period in 2000 and as a
percentage of sales, to 2.2% from 2.0%. This increase primarily results from the
increase in the prime rate during the last year due to the actions of the
Federal Reserve Board that more than offset the decrease in debt in 2001.

SIX MONTHS ENDED JANUARY 31, 2001 COMPARED TO SIX MONTHS ENDED JANUARY 31, 2000.

Net income for the six months ended January 31, 2001 was $557,000 compared to
$53,000 for the same period in 2000. A reduction in gross profit, an increase in
interest expense and an increase in taxes in the six months ended January 31,
2001 was more than offset by the reduction in selling, general and
administrative expenses and depreciation and amortization.

Sales for the six months ended January 31, 2001 increased $2.9 million, or 2.3%,
to $127 million from $125 million for the same period in 2000. The decrease in
the conversion rate between the U.S. dollar and the Canadian dollar had the
effect of decreasing sales for the six months ended January 31, 2001 by some
$1.2 million had the conversion rate been the same as in 2000. Excluding the
impact of the change in the exchange rate between the U.S. and Canadian dollar,
the increase in sales was 3.3%. On a revenue per day basis, sales increased 1.8%
in 2001 compared to 2000 with Canadian sales increasing 4.3% and U.S. sales
increasing 0.6%. In Canadian dollars, Canadian sales increased 6.8% on a revenue
per day basis in 2001 versus 2000.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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Cost of sales for the six months ended January 31, 2001 increased $3.8 million,
or 4.5%, to $88 million from $84 million for the same period in 2000. Cost of
sales, as a percentage of sales for the six months ended January 31,2001
increased to 69.1% from 67.6% for the same period ended in 2000. This increase
in cost of sales primarily results from a change in the overall business mix of
the Company. Scheduled and distribution and other specialized services revenues
are increasing as a percentage of total sales while on demand revenues have
declined both as a percentage of sales and in absolute dollars. Scheduled and
distribution and other specialized services generally have a higher cost of
sales and lower selling, general and administrative costs than on demand
revenues.

SG & A expenses for the six months ended January 31, 2001 decreased $1.6
million, or 4.9%, to $31 million from $32 million for the same period in 2000.
As a percentage of sales, SG & A expenses decreased to 24.2% for the six months
ended January 31, 2001 compared to 26.1% in 2000. This decrease in the six
months ended January 31, 2001 is attributable to a number of factors. Sales
commissions in 2001 were lower, primarily in the Eastern U.S. where the Company
experienced a net decline in revenues, the Dallas and Chicago branch operations
restructured resulting in a reduction in administrative costs and improved
profitability, the Company incurred contract accounting labor costs associated
with the audit of fiscal year 1999 and the re-audit of fiscal years 1998 and
1997, and the Company invested more heavily in technology in fiscal year 2000 in
building its infrastructure. The Company converted a number of locations to a
common operating platform for customer order processing and dispatching with a
web-based transportation management solution and upgraded its financial
accounting and reporting capabilities through conversion to Oracle based
financials in the United States. The Company anticipates increased spending over
the next 12 months related to enhancements to the Oracle financial package,
converting the Canadian operation to Oracle financials and implementing the
Oracle Human Resource and Payroll modules in the U.S.

Depreciation and amortization for the six months ended January 31, 2001 was $4.0
million compared to $4.6 million for the same period in 2000. This decrease is
attributable to the reduction in amortization of covenants not-to-compete that
are fully amortized after three years and to a reduction in depreciation of
property and equipment. Since most of the Company's acquisitions occurred in
fiscal years 1996 through 1998, all covenants not-to-compete will be fully
amortized in fiscal year 2001. In addition certain property and equipment
acquired through acquisitions has been fully depreciated and has not been
replaced with new equipment because the old equipment is still in service. As a
percentage of sales, depreciation and amortization decreased to 3.1% from 3.7%.

Interest expense increased $302,000 or 12.6% for the six months ended January
31, 2001 compared to same period ended in 2000 and as a percentage of sales, to
2.2% from 2.0%. This increase primarily results from the increase in the prime
rate during the last year due to the actions of the Federal Reserve Board that
more than offset the decrease in debt in 2001.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $3.5 million for the six months
ended January 31, 2001 compared to $1.5 million for the same period in 2000. Net
cash provided by operations, prior to changes in current operating assets and
liabilities and deferred income taxes, was $5.7 million for the six months ended
January 31, 2001 compared to $5.3 million for the same period in the prior year.
A portion of the reduction in accounts payable and accrued liabilities is
attributable to the change in the timing of interest payments to banks from a
quarterly basis to a monthly basis. Cash interest paid in the six months ended
January 31, 2001 was $3.7 million compared to $1.9 million for the six months
ended January 31, 2000.

The Company's capital needs arise primarily from capital expenditures and the
payment of contingent consideration for past acquisitions, as well as, working
capital needs. At July 31, 2000, earned but unpaid contingent consideration
totaled $1,219,000. In the six months ended January 31, 2001, the Company
incurred an additional liability to former owners of $201,000, the Company
converted $554,000 to notes payable and made cash payments of $681,000. The
notes are payable over two years and bear interest of 10%. The Company intends
to convert the remaining liability to a two-year note payable with interest at
10%.

At January 31, 2001, the maximum amount of additional consideration payable, if
all performance goals are met, is approximately $3.6 million. The Company
intends to negotiate payment of additional consideration payable over a two-year
period. Management intends to fund the cash portion of this additional
consideration with internally generated cash flow and, to the extent necessary,
with borrowings under the credit facility.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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Capital expenditures for the six months ended January 31, 2001 were
approximately $667,000. The Company anticipates increased spending over the next
12 months related to enhancements to the Oracle financial package, converting
the Canadian operation to Oracle financials and implementing the Oracle Human
Resource and Payroll modules in the U.S. Management expects annual capital
expenditures to be in the $2.5 to $3.5 million range for the full fiscal year.
The Company does not have significant capital expenditure requirements to
replace or expand the number of vehicles used in its operations because
substantially all of its drivers are owner-operators who provide their own
vehicles.

The Company has entered into interest rate protection arrangements on a portion
of the borrowings under the Credit Facility. The interest rate on $24 million of
outstanding debt has been fixed at 9.79%, plus the applicable margin. This
hedging arrangement matures on July 31, 2001. Amounts outstanding under the
Credit Facility are secured by all of the Company's U.S. assets and 65% of the
stock of its Canadian subsidiary. The Credit Facility also contains restrictions
on the payment of dividends, incurring additional debt, capital expenditures and
investments by the Company as well as requiring the Company to maintain certain
financial ratios. Generally, the Company must obtain the lenders' consent to
consummate any acquisition.

The Company's EBITDA (Earnings before interest, taxes, depreciation and
amortization) was approximately $8.5 million for the six months ended January
31, 2001, $0.7 million (8.6%) above the same period in the prior year.
Management has included EBITDA in its discussion herein as a measure of
liquidity because it believes that it is a widely accepted financial indicator
of a company's ability to service and/or incur indebtedness, maintain current
operating levels of fixed assets and acquire additional operations and
businesses. EBITDA should not be considered as a substitute for statement of
operations or cash flow data from the Company's financial statements, which have
been prepared in accordance with generally accepted accounting principles.

The Company's cash flows from operations for the six months ended January 31,
2001 were approximately $3.5 million. Consequently, increases in working capital
and purchases of property and equipment and payments of contingent consideration
to former owners were financed entirely by internally generated cash flow.

Management expects that its future capital requirements will generally be met
from internally generated cash flow. The Company's access to other sources of
capital, such as additional bank borrowings and the issuance of debt securities,
is affected by, among other things, general market conditions affecting the
availability of such capital. The Company completed its last acquisition in
August 1998. Currently there are no pending nor are there any contemplated
acquisitions. Should the Company pursue acquisitions in the future, the Company
may be required to incur additional debt. There can be no assurance that the
Company's primary lenders will consent to such acquisitions or that if
additional financing is necessary, it can be obtained on terms the Company deems
acceptable. As a result, the Company may be unable to implement successfully its
acquisition strategy.

The Company is a defendant in a class action lawsuit. On September 20, 2000, the
Company announced that it has reached an agreement in principle setting forth
the essential terms of a settlement of the pending litigation (See Note 4 of
Notes to Condensed Consolidated Financial Statements (Unaudited)). Among other
things, the Company agreed to pay $1 million in cash, $350,000 was paid on
September 25, 2000 and $650,000 is to be paid ten days prior to the date
scheduled for the settlement hearing. The Company intends to fund its portion of
the cash settlement from internally generated funds, and to the extent
necessary, borrowings under the bank credit agreement.

INCOME TAXES

The Company's acquisition program was targeted primarily to U.S. entities and as
a result, the bulk of the company's goodwill and debt is associated with U.S.
operations. In addition, the allocation of corporate expenses to Canada is
limited by Canadian tax law. The income from U.S. operations has been
insufficient to cover corporate costs and goodwill amortization and interest
expense associated with acquisitions, resulting in taxable net operating losses
("NOLs") in the U.S. while Canada generates taxable income. Because the Company
has a history of NOLs, it provides a 100% valuation allowance to offset the tax
benefits of U.S. NOLs that it cannot use currently.

The Company incurred taxable NOLs for U. S. income tax purposes for the three
and six months ended January 31, 2001 and 2000 while generating taxable income
in Canada. For the periods presented, U.S. NOLs exceeded U.S. book losses,
resulting in an increase in income tax expense. Consequently, the Company's
effective income tax rate for the three and six months periods ended January 31,
2001 and 2000 is substantially higher than current U.S. or Canadian statutory
tax rates. If the

11
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------

Company generates positive U.S. taxable income in future periods, the effective
tax rate will be substantially less than the current rate.

The Company has established an 100% valuation allowance in accordance with the
provisions of SFAS No. 109 for U.S. operating losses not currently deductible.
The Company continually reviews the adequacy of the valuation allowance and
releases the allowance, when it is determined that it is more likely than not
that the benefits will be realized. The remaining deferred tax assets represent
deductions for financial statement purposes that will reduce future taxable
income.

INFLATION

The Company does not believe that inflation has had a material effect on the
Company's results of operations nor does it believe it will do so in the
foreseeable future. However, there can be no assurance the Company's business
will not be affected by inflation in the future.

RISK FACTORS

In addition to other information in this report, the following risk factors
should be considered carefully in evaluating the Company and its business. This
report contains forward-looking statements, which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
report.

ACQUISITION STRATEGY; POSSIBLE NEED FOR ADDITIONAL FINANCING

The Company completed its last acquisition in August 1998. Currently, there are
no pending nor are there any contemplated acquisitions. Should the Company
pursue acquisitions in the future, the Company may be required to incur
additional debt, issue additional securities that may potentially result in
dilution to current holders and also may result in increased goodwill,
intangible assets and amortization expense. Additionally, the Company must
obtain the consent of its primary lenders to consummate any acquisition. There
can be no assurance that the Company's primary lenders will consent to such
acquisitions or that if additional financing is necessary, it can be obtained on
terms the Company deems acceptable.

HIGHLY COMPETITIVE INDUSTRY

The market for same-day delivery and logistics services has been and is expected
to remain highly competitive. Competition is often intense, particularly for
basic delivery services. High fragmentation and low barriers to entry
characterize the industry and there is a recent trend toward consolidation.
Other companies in the industry compete with the Company not only for provision
of services but also for acquisition candidates and qualified drivers. Some of
these companies have longer operating histories and greater financial and other
resources than the Company. Additionally, companies that do not currently
operate delivery and logistics businesses may enter the industry in the future
to capitalize on the consolidation trend.

CLAIMS EXPOSURE

As of February 1, 2001 the Company utilized the services of approximately 5,000
drivers and messengers. From time to time such persons are involved in accidents
or other activities that may give rise to liability claims. The Company
currently carries liability insurance with a per claim and an aggregate limit of
$15 million. Owner-operators are required to maintain liability insurance of at
least the minimum amounts required by applicable state or provincial law
(generally such minimum requirements range from $35,000 to $75,000). The Company
also has insurance policies covering property and fiduciary trust liability,
which coverage includes all drivers and messengers. There can be no assurance
that claims against the Company, whether under the liability insurance or the
surety bonds, will not exceed the applicable amount of coverage, that the
Company's insurer will be solvent at the time of settlement of an insured claim,
or that the Company will be able to obtain insurance at acceptable levels and
costs in the future. If the Company were to experience a material increase in
the frequency or severity of accidents, liability claims, workers' compensation
claims or unfavorable resolutions of claims, the Company's business, financial
condition and results of operations could be materially adversely affected. In
addition, significant increases in insurance costs could reduce the Company's
profitability.

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14

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------

CERTAIN TAX MATTERS RELATED TO DRIVERS

Substantially all of the Company's drivers own their own vehicles and as of
March 1, 2001, approximately 80% of these owner-operators were independent
contractors as opposed to employees of the Company. The Company does not pay or
withhold any federal, state or provincial employment tax with respect to or on
behalf of independent contractors. From time to time, taxing authorities in the
U.S. and Canada have sought to assert that independent owner-operators in the
transportation industry, including those utilized by the Company, are employees,
rather than independent contractors. The Company believes that the independent
owner-operators utilized by the Company are not employees under existing
interpretations of federal (U.S. and Canadian), state and provincial laws.
However, there can be no assurance that federal (U.S. and Canadian), state or
provincial authorities will not challenge this position, or that other laws or
regulations, including tax laws, or interpretations thereof, will not change.
If, as a result of any of the foregoing, the Company were required to pay
withholding taxes and pay for and administer added employee benefits to these
drivers, the Company's operating costs would increase. Additionally, if the
Company is required to pay back-up withholding with respect to amounts
previously paid to such drivers, it may also be required to pay penalties or be
subject to other liabilities as a result of incorrect classification of such
drivers. If the drivers are deemed to be employees rather than independent
contractors, then the Company may be required to increase their compensation
since they will no longer be receiving commission-based compensation. Any of the
foregoing circumstances could have a material adverse impact on the Company's
financial condition and results of operations, and/or to restate financial
information from prior periods.

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

FOREIGN EXCHANGE

Significant portions of the Company's operations are conducted in Canada.
Exchange rate fluctuations between the U.S. and Canadian dollar result in
fluctuations in the amounts relating to the Canadian operations reported in the
Company's consolidated financial statements. The Canadian dollar is the
functional currency for the Company's Canadian operations; therefore, any change
in the exchange rate will effect the Company's reported revenues for such
period. The Company historically has not entered into hedging transactions with
respect to its foreign currency exposure, but may do so in the future. There can
be no assurance that fluctuations in foreign currency exchange rates will not
have a material adverse effect on the Company's business, financial condition or
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".

PERMITS AND LICENSING

Although recent legislation has significantly deregulated certain aspects of the
transportation industry, the Company's delivery operations are still subject to
various federal (U.S. and Canadian), state, provincial and local laws,
ordinances and regulations that in many instances require certificates, permits
and licenses. Failure by 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. Furthermore, delays in obtaining approvals
for the transfer or grant of certificates, permits or licenses, or failure to
obtain such approvals, could impede the implementation of the Company's
acquisition program.

DEPENDENCE ON KEY PERSONNEL

The Company's success is largely dependent on the skills, experience and
performance of certain key members of its management. The loss of the services
of any of these key employees 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 its ability to attract, train
and retain skilled personnel in all areas of its business. There is strong
competition for skilled personnel in the same-day delivery and logistics
businesses.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------

RISKS ASSOCIATED WITH THE LOCAL DELIVERY INDUSTRY; GENERAL ECONOMIC CONDITIONS

The Company's revenues and earnings are especially sensitive to events that
affect the delivery services industry including extreme weather conditions,
economic factors affecting the Company's significant customers and shortages of
or disputes with labor, any of which could result in the Company's inability to
service its clients effectively or the inability of the Company to profitably
manage its operations. In addition, downturns in the level of general economic
activity and employment in the U.S. or Canada may negatively impact demand for
the Company's services.

Technological advances in the nature of facsimile and electronic mail have
affected the market for on-demand document delivery services. Although the
Company has shifted its focus to the distribution of non-faxable items and
logistics services, there can be no assurance that these or other technologies
will not have a material adverse effect on the Company's business, financial
condition and results of operations in the future.

DEPENDENCE ON AVAILABILITY OF QUALIFIED COURIER PERSONNEL

The Company is dependent upon its ability to attract, train and retain, as
employees or through independent contractor or other arrangements, qualified
courier personnel who possess the skills and experience necessary to meet the
needs of its operations. The Company competes in markets in which unemployment
is relatively low and the competition for couriers and other employees is
intense. The Company must continually evaluate, train and upgrade its pool of
available couriers to keep pace with demands for delivery services. There can be
no assurance that qualified courier personnel will continue to be available in
sufficient numbers and on terms acceptable to the Company. The inability to
attract and retain qualified courier personnel would have a material adverse
impact on the Company's business, financial condition and results of operations.

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT:

With the exception of historical information, the matters discussed in this
report are "forward looking statements" as that term is 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 those predicted. By way of example:

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

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

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

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

o 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.

o The ability of the Company to obtain adequate financing.

o The ability of the Company to pass on fuel cost increases to customers to
maintain profit margins and the quality of driver pay.

o The loss of quality drivers to e-commerce companies.

o The outcome of the Shareholder class action lawsuit.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--------------------------------------------------------------------------------

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN EXCHANGE EXPOSURE

The sensitivity analysis model used by the Company for foreign exchange exposure
compares the revenue and net income figures from Canadian operations, over the
previous four quarters at the actual exchange rate, to a 10% decrease in the
exchange rate. Based on this model, a 10% decrease would result in a decrease in
revenue of approximately $8.5 million and a decrease in net income of
approximately $0.2 million over this period. There can be no assurances that the
above projected exchange rate decrease will materialize. Fluctuations of
exchange rates are beyond the control of the Company's management.

INTEREST RATE EXPOSURE

The Company has entered into an interest rate protection agreement on a portion
of the borrowings under its bank credit facility. Through an interest rate swap,
the interest rate on $24 million of outstanding debt has been fixed at 9.79%,
plus the applicable margin. This hedging agreement expires on July 31, 2001. The
Company does not hold or issue derivative financial instruments for speculative
or trading purposes.

The sensitivity analysis model used by the Company for interest rate exposure
compares interest expense fluctuations over a one-year period based on current
debt levels and current interest rates versus current debt levels at current
interest rates with a 10% increase. Based on this model, a 10% increase would
result in an increase in interest expense of approximately $0.2 million. There
can be no assurances that the above projected interest rate increase will
materialize. Fluctuations of interest rates are beyond the control of the
Company's management

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PART II. OTHER INFORMATION
--------------------------------------------------------------------------------

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

In November and December 1998, two class action lawsuits were filed in the
United States District Court for the Northern District of Texas, naming the
Company, Richard K. McClelland, the Company's Chief Executive Officer, and
Robert P. Capps, the Company's former Chief Financial Officer, as defendants.
The lawsuits arise from the Company's November 2, 1998 announcement that the
Company was (i) revising its results of operations for the year ended July 31,
1998 from that which had been previously announced on September 16, 1998 and
(ii) restating its results of operations for the third quarter of fiscal 1998
from that which had been previously reported. On February 5, 1999, the Court
entered an Order consolidating the actions and approved the selection of three
law firms as co-lead counsel. A consolidated and amended complaint was filed on
March 22, 1999. In addition to the defendants named in the original complaints,
the amended complaint also named as defendants the underwriters of the Company's
May 1998 secondary offering of common stock, Schroder & Co., Inc., William Blair
& Company, and Hoak Breedlove Wesneski & Co. (the "Underwriter Defendants"). On
May 6, 1999, defendants filed a motion to dismiss the consolidated and amended
complaint in its entirety.

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PART II. OTHER INFORMATION
--------------------------------------------------------------------------------

contract and breach of the duty of good faith and fair dealing arising from the
failure of Reliance to contribute to the settlement of the above-referenced
shareholder litigation. The plaintiffs seek unspecified damages.

If these settlements are finalized and approved by the Court, Dynamex
anticipates the recovery of approximately $700,000 from Reliance Insurance
Company, Deloitte & Touche LLP and Deloitte & Touche plus legal fees and costs
incurred in connection with the Company's claims against these entities. As
explained above, additional amounts recovered by the Company from Reliance
Insurance Company, Deloitte & Touche LLP and Deloitte & Touche will be
contributed to the proposed settlement of the shareholder class action.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits:

4.1 Amendment No. 1 to Rights Agreement between Dynamex Inc. and
ComputerShare Investor Services, LLC (formerly Harris Trust
and Savings Bank), dated January 11, 2001

11.1 Calculation of Net Income Per Common Share

(b) Reports on Form 8-K:

None

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19

SIGNATURE

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 the
undersigned thereunto duly authorized.

DYNAMEX INC.

Dated: March 19, 2001 by /s/ Richard K. McClelland
--------------------------------------
Richard K. McClelland
President, Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)

Dated: March 19, 2001 by /s/ Ray E. Schmitz
--------------------------------------
Ray E. Schmitz
Vice President - Controller
(Principal Accounting Officer)

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INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
------- -----------

4.1 Amendment No. 1 to Rights Agreement between Dynamex Inc. and
ComputerShare Investor Services, LLC (formerly Harris Trust
and Savings Bank), dated January 11, 2001

11.1 Calculation of Net Income Per Common Share