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EX-32.1 - CERTIFICATION OF CEO AND CFO PURSUANT TO SECTION 906 - RADIANT LOGISTICS, INCv174479_ex32-1.htm
EX-31.1 - CERTIFICATION OF CEO AND CFO PURSUANT TO SECTION 302 - RADIANT LOGISTICS, INCv174479_ex31-1.htm


SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
x QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: December 31, 2009
 
¨ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ___________ to _____________
 
Commission File Number: 000-50283

RADIANT LOGISTICS, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
  
04-3625550
(State or Other Jurisdiction of
Incorporation or Organization)
  
(IRS Employer Identification No.)

 1227 120th Avenue N.E., Bellevue, WA 98005

 (Address of Principal Executive Offices)

(425) 943-4599

 (Issuer’s Telephone Number, including Area Code)
 
N/A

(Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report)

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

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

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

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

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

There were 32,397,810 issued and outstanding shares of the registrant’s common stock, par value $.001 per share, as of February 16, 2010.
 
 


 
RADIANT LOGISTICS, INC.
TABLE OF CONTENTS
 
PART I. FINANCIAL INFORMATION
 
Item 1.
 
Condensed Consolidated Financial Statements - Unaudited
       
             
   
Condensed Consolidated Balance Sheets at December 31, 2009 and June 30, 2009
    
 
3
 
             
   
Condensed Consolidated Statements of Operations for the three months and six months ended December 31, 2009 and 2008
    
 
4
 
             
   
Condensed Consolidated Statement of Stockholders’ Equity for the six months ended December 31, 2009
    
 
5
 
             
   
Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2009 and 2008
    
 
6
 
             
   
Notes to Condensed Consolidated Financial Statements
    
 
7
 
             
Item 2.
 
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
    
 
20
 
             
Item 4T.
 
Controls and Procedures
   
34
 
             
PART II OTHER INFORMATION
             
Item 1.
 
Legal Proceedings
   
35
 
             
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
   
35
 
             
Item 6.
 
Exhibits
    
 
36
 
 
 
 
2

 

RADIANT LOGISTICS, INC.
Condensed Consolidated Balance Sheets
(unaudited)

   
December 31,
   
June 30,
 
   
2009
   
2009
 
ASSETS 
           
Current assets:
           
Cash and cash equivalents
  $ 478,132     $ 890,572  
Accounts receivable, net of allowance of $824,997 and $754,578, respectively
    21,641,624       17,275,387  
Current portion of employee loan receivable and other receivables
    396,478       613,288  
Income tax deposit
    31,518       535,074  
Prepaid expenses and other current assets
    542,503       305,643  
Deferred tax asset
    454,054       427,713  
Total current assets
    23,544,309       20,047,677  
                 
Furniture and equipment, net
    567,778       760,507  
                 
Acquired intangibles, net
    2,587,065       3,179,043  
Goodwill
    494,291       337,000  
Employee loan receivable, net of current portion
    49,900       40,000  
Investment in real estate
    40,000       40,000  
Deposits and other assets
    100,499       359,606  
Total long term assets
    3,271,755       3,955,649  
Total assets
  $ 27,383,842     $ 24,763,833  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
               
Current liabilities:
               
Accounts payable and accrued transportation costs
  $ 15,637,117     $ 13,249,628  
Commissions payable
    1,143,059       1,323,004  
Other accrued costs
    579,021       472,202  
Due to former Adcom shareholder
    1,515,324       2,153,721  
Total current liabilities
    18,874,521       17,198,555  
                 
Long term debt
    8,707,239       7,869,110  
Deferred tax liability
    117,196       352,387  
Total long term liabilities
    8,824,435       8,221,497  
Total liabilities
    27,698,956       25,420,052  
                 
Stockholders' equity (deficit):
               
Radiant Logistics, Inc. stockholders' equity (deficit):
               
Preferred stock, $0.001 par value, 5,000,000 shares authorized; no shares issued or outstanding
           
Common stock, $0.001 par value, 50,000,000 shares authorized,  32,397,810 and 34,106,960 shares issued and outstanding, respectively
    16,157       16,157  
Additional paid-in capital
    7,998,362       7,889,458  
Treasury stock, at cost, 2,304,150 and 595,000 shares, respectively
    (629,886 )     (138,250 )
Retained deficit
    (7,760,332 )     (8,425,491 )
Total Radiant Logistics, Inc. stockholders’ equity (deficit)
    (375,699 )     (658,126 )
Non-controlling interest
    60,585       1,907 )
Total stockholders’ equity (deficit)
    (315,114 )     (656,219 )
Total liabilities and stockholders’ equity (deficit)
  $ 27,383,842     $ 24,763,833  

The accompanying notes form an integral part of these condensed consolidated financial statements.

 
3

 

RADIANT LOGISTICS, INC.
Condensed Consolidated Statements of Operations
(unaudited)

   
THREE MONTHS ENDED
DECEMBER 31,
   
SIX MONTHS ENDED
DECEMBER 31,
 
   
2009
   
2008
   
2009
   
2008
 
                         
Revenue
  $ 39,115,845     $ 42,513,263     $ 73,144,179     $ 74,907,962  
Cost of transportation
    27,611,567       29,023,751       51,091,017       50,235,011  
Net revenues
    11,504,278       13,489,512       22,053,162       24,672,951  
                                 
                                 
Agent commissions
    7,838,360       9,000,585       15,293,565       16,553,457  
Personnel costs
    1,531,465       2,110,217       2,953,862       3,723,841  
Selling, general and administrative expenses
    1,153,161       1,026,362       2,249,433       2,125,384  
Depreciation and amortization
    385,937       472,709       795,717       788,066  
Goodwill impairment
          11,403,342             11,403,342  
Restructuring charges
                      220,000  
Total operating expenses
    10,908,923       24,013,215       21,292,577       34,814,090  
                                 
Income (loss) from operations
    595,355       (10,523,703 )     760,585       (10,141,139 )
                                 
Other income (expense):
                               
Interest income
    9,563       5,429       3,273       6,417  
Interest expense
    (36,756 )     (72,381 )     (85,791 )     (98,077 )
Other
    454       108       98,765       35,104  
Gain on litigation settlement
    354,670             354,670        
Total other income (expense)
    327,931       (66,844 )     370,917       (56,556 )
                                 
Income (loss) before income tax (expense) benefit
    923,286       (10,590,547 )     1,131,502       (10,197,695 )
                                 
Income tax (expense) benefit
    (336,539 )     382,690       (407,665 )     230,031  
                                 
Net income (loss)
    586,747       (10,207,857 )     723,837       (9,967,664 )
                                 
Less: Net (income) loss attributable to non-controlling interest
    (37,638 )     (7,843 )     (58,678 )     2,147  
                                 
Net income (loss) attributable to Radiant Logistics, Inc.
  $ 549,109     $ (10,215,700 )   $ 665,159     $ (9,965,517 )
                                 
Net income (loss) per common share – basic
  $ .02     $ (.29 )   $ .02     $ (.29 )
Net income (loss) per common share – diluted
  $ .02     $ (.29 )   $ .02     $ (.29 )
                                 
Weighted average shares outstanding:
                               
Basic shares
    32,533,680       34,701,960       32,950,810       34,698,563  
Diluted shares
    32,723,181       34,701,960       33,135,684       34,698,563  

The accompanying notes form an integral part of these condensed consolidated financial statements.

 
4

 
 
RADIANT LOGISTICS, INC.
Condensed Consolidated Statement of Stockholders’ Equity (Deficit)
(unaudited)
 
   
RADIANT LOGISTICS, INC. STOCKHOLDERS
             
    
COMMON STOCK
   
ADDITIONAL
PAID-IN
CAPITAL
   
TREASURY
STOCK
   
RETAINED
EARNINGS
(DEFICIT)
   
NONCONTROLLING
INTEREST
   
TOTAL
STOCKHOLDERS’
EQUITY (DEFICIT)
 
    
SHARES
   
AMOUNT
 
Balance at June 30, 2009
    34,106,960     $ 16,157     $ 7,889,458     $ (138,250 )   $ (8,425,491 )   $ 1,907     $ (656,219 )
Repurchase of common stock
    (1,709,150 )                 (491,636 )                 (491,636 )
Share-based compensation
                108,904                         108,904  
Net income for the six months ended December 31, 2009
                            665,159       58,678       723,837  
                                                         
Balance at December 31, 2009
    32,397,810     $ 16,157     $ 7,998,362     $ (629,886 )   $ (7,760,332 )   $ 60,585     $ (315,114 )
 
The accompanying notes form an integral part of these condensed consolidated financial statements.

 
5

 

RADIANT LOGISTICS, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)

   
SIX MONTHS ENDED
DECEMBER 31, 2009
   
SIX MONTHS ENDED
DECEMBER 31, 2008
 
CASH FLOWS USED FOR OPERATING ACTIVITIES:
           
Net income (loss)
  $ 665,159     $ (9,965,517 )
                 
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH  USED FOR OPERATING ACTIVITIES:
               
non-cash compensation expense (stock options)
    108,904       80,692  
non-cash issuance of common stock (services)
          12,084  
amortization of intangibles
    591,978       565,060  
deferred income tax expense (benefit)
    (261,532 )     566,866  
depreciation and leasehold amortization
    203,739       223,005  
gain on litigation settlement
    (354,670 )      
goodwill impairment
          11,403,342  
amortization of bank fees
    18,980       7,979  
change in non-controlling interest of subsidiaries
    58,678       (2,147 )
provision for doubtful accounts
    143,608       149,095  
CHANGE IN OPERATING ASSETS AND LIABILITIES:
               
accounts receivable
    (4,436,656 )     3,657,072  
employee loan receivable and other receivables
    218,741       (36,813 )
prepaid expenses and other assets
    (99,071 )     161,670  
accounts payable and accrued transportation costs
    2,383,214       (6,518,887 )
commissions payable
    (179,945 )     224,201  
other accrued costs
    (172,669 )     130,571  
income tax deposit
    503,556       (2,450,756 )
Net cash used for operating activities
    (607,986 )     (1,792,483 )
                 
CASH FLOWS USED FOR INVESTING ACTIVITIES:
               
Acquisition of Adcom Express, Inc., net of acquired cash, including an additional $62,246 of costs incurred post-closing
          (4,839,040 )
Purchase of furniture and equipment
    (11,010 )     (191,096 )
Issuance of notes receivable, net of payments made
          (210,244 )
Payments to former shareholders of Airgroup
          (113,306 )
Payments made to former Adcom shareholder
    (139,937 )      
Net cash used for investing activities
    (150,947 )     (5,353,686 )
                 
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
               
Proceeds from credit facility, net of credit fees
    838,129       7,777,758  
Purchases of treasury stock
    (491,636 )      
Net cash provided by financing activities
    346,493       7,777,758  
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    (412,440 )     631,589  
CASH AND CASH EQUIVALENTS, BEGINNING OF  PERIOD
    890,572       392,223  
                 
CASH AND CASH EQUIVALENTS, END OF PERIOD
  $ 478,132     $ 1,023,812  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
               
Income taxes paid
  $ 177,642     $ 1,695,150  
Interest paid
  $ 82,855     $ 98,077  

The accompanying notes form an integral part of these condensed consolidated financial statements.

 
6

 

RADIANT LOGISTICS, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)

Supplemental disclosure of non-cash investing and financing activities:
 
In November 2008, the Company recorded $633,333 as an accrued payable and an increase to goodwill for the final annual earn-out payment due to the former Airgroup shareholders for the Company’s acquisition of Airgroup.
 
In November 2008, the Company finalized its purchase price allocation resulting in a decrease of net assets acquired by $62,694 due to unutilized transaction costs.  The effect of this transaction was a decrease to goodwill and a decrease to accrued payables.
 
In December 2008, the Company completed its quarterly analysis of allowance for doubtful accounts.  Included in the analysis of doubtful accounts was $205,462 relating to receivables acquired in the Adcom transaction.  Pursuant to the purchase agreement for the acquisition of Adcom, the $205,462 was offset against amounts otherwise due to the former Adcom shareholder.
 
In December 2008, the Company paid $333,277 to the former Airgroup shareholders for the earn-out payment recorded on the books for the year ended June 30, 2008.  The earn-out payment was recorded at June 30, 2008 in the amount of $416,596, and payable in shares of Company common stock.  The payment was discounted by $83,319 as the former Airgroup shareholders agreed to receive cash rather than Company shares.    The effect of this transaction was a decrease to goodwill and the amount owed to the former Airgroup shareholders.
 
In September 2009, the Company finalized its purchase price allocation relating to the acquisition of Adcom, resulting in an increase of net assets acquired by $151,550 due to increased transaction costs and other adjustments to the fair value of the acquired assets. The effect of this transaction was an increase to goodwill of $157,291 with offsetting changes to other balance sheet amounts as follows: a decrease to the allowance for doubtful accounts of $72,280, an increase in other receivables of $11,831, an increase in accounts payable of $4,275, an increase of other accrued costs of $279,488, and a decrease in the amount due to the former Adcom shareholder of $42,361.

 
7

 

RADIANT LOGISTICS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

NOTE 1 – THE COMPANY AND BASIS OF PRESENTATION
 
The Company
 
Radiant Logistics, Inc. (the “Company”) was incorporated in the State of Delaware on March 15, 2001. Currently, the Company is executing a strategy to build a global transportation and supply chain management company through organic growth and the strategic acquisition of best-of-breed non-asset based transportation and logistics providers to offer its customers domestic and international freight forwarding and an expanding array of value added supply chain management services, including order fulfillment, inventory management and warehousing.
 
The Company completed the first step in its business strategy through the acquisition of Airgroup Corporation ("Airgroup") effective as of January 1, 2006. Airgroup is a Bellevue, Washington based non-asset based logistics company providing domestic and international freight forwarding services through a network which includes a combination of company-owned and exclusive agent offices across North America.
 
The Company continues to identify a number of additional companies as suitable acquisition candidates and has completed two material acquisitions over the past twenty four months. In November 2007, the Company acquired Automotive Services Group in Detroit, Michigan to service the automotive industry. In September 2008, the Company acquired Adcom Express, Inc. d/b/a Adcom Worldwide ("Adcom") adding an additional 30 locations across North America and augmenting the Company’s overall domestic and international freight forwarding capabilities.
 
In connection with the acquisition of Adcom, the Company changed the name of Airgroup Corporation to Radiant Global Logistics, Inc. ("RGL") in order to better position its centralized back-office operations to service both the Airgroup and Adcom network brands.
 
RGL, through the Airgroup and Adcom network brands, has a diversified account base including manufacturers, distributors and retailers using a network of independent carriers and international agents positioned strategically around the world.
 
By implementing a growth strategy supported by the RGL platform, the Company is building a leading global transportation and supply-chain management company offering a full range of domestic and international freight forwarding and other value added supply chain management services, including order fulfillment, inventory management and warehousing.
 
The Company’s growth strategy will continue to focus on both organic growth and acquisitions. From an organic perspective the Company will focus on strengthening existing and expanding new customer relationships. One of the drivers of the Company’s organic growth will be retaining existing, and securing new exclusive agency locations. Since the Company’s acquisition of Airgroup in January 2006, the Company has focused its efforts on the build-out of its network of exclusive agency offices, as well as enhancing its back-office infrastructure and transportation and accounting systems.
 
As the Company continues to build out its network of exclusive agent locations to achieve a level of critical mass and scale, it is executing an acquisition strategy to develop additional growth opportunities. The Company’s acquisition strategy relies upon two primary factors: first, the Company’s ability to identify and acquire target businesses that fit within its general acquisition criteria; and second, the continued availability of capital and financing resources sufficient to complete these acquisitions.
 
Successful implementation of the Company’s growth strategy depends upon a number of factors, including its ability to: (i) continue developing new agency locations; (ii) locate acquisition opportunities; (iii) secure adequate funding to finance identified acquisition opportunities; (iv) efficiently integrate the businesses of the companies acquired; (v) generate the anticipated economies of scale from the integration; and (vi) maintain the historic sales growth of the acquired businesses in order to generate continued organic growth. There are a variety of risks associated with the Company’s ability to achieve its strategic objectives, including the ability to acquire and profitably manage additional businesses and the intense competition in the industry for customers and for acquisition candidates.

 
8

 
 
The Company will continue to search for targets that fit within its acquisition criteria. The Company’s ability to secure additional financing depends in part upon the sale of debt or equity securities, and the development of an active trading market for its securities.
 
Interim Disclosure
 
The condensed consolidated financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC").  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. The Company’s management believes that the disclosures are adequate to make the information presented not misleading.  These condensed financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2009.
 
The interim period information included in this Quarterly Report on Form 10-Q reflects all adjustments, consisting of normal recurring adjustments, that are, in the opinion of the Company’s management, necessary for a fair statement of the results of the respective interim periods.  Results of operations for interim periods are not necessarily indicative of results to be expected for an entire year.
 
Basis of Presentation
 
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries as well as a single variable interest entity, Radiant Logistics Partners LLC ("RLP"), which is 40% owned by Radiant Global Logistics (f/k/a Airgroup Corporation), a wholly-owned subsidiary of the Company, and whose accounts are included in the consolidated financial statements. All significant intercompany balances and transactions have been eliminated.
 
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
a)           Use of Estimates
 
The preparation of financial statements and related disclosures in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates include revenue recognition, accruals for the cost of purchased transportation, the fair value of acquired assets and liabilities, accounting for the issuance of shares and share based compensation, the assessment of the recoverability of long-lived assets (specifically goodwill and acquired intangibles), the establishment of an allowance for doubtful accounts and the valuation allowance for deferred tax assets. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period that they are determined to be necessary. Actual results could differ from those estimates.
 
b)           Fair Value Measurements
 
In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

 
9

 

c)           Fair Value of Financial Instruments
 
The fair values of the Company’s receivables, income tax deposit, accounts payable and accrued transportation costs, commissions’ payable, other accrued costs and amounts due to former Adcom shareholder approximate the carrying values dues to the relatively short maturities of these instruments. The fair value of the Company’s long-term debt, if recalculated based on current interest rates, would not differ significantly from the recorded amount.
 
d)           Cash and Cash Equivalents
 
For purposes of the statements of cash flows, cash equivalents include all highly liquid investments with original maturities of three months or less which are not securing any corporate obligations.
 
e)           Concentrations
 
The Company maintains its cash in bank deposit accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts.
 
f)           Accounts Receivable
 
The Company’s receivables are recorded when billed and represent claims against third parties that will be settled in cash. The carrying value of the Company’s receivables, net of the allowance for doubtful accounts, represents their estimated net realizable value. The Company evaluates the collectability of accounts receivable on a customer-by-customer basis. The Company records a reserve for bad debts against amounts due to reduce the net recognized receivable to an amount the Company believes will be reasonably collected. The reserve is a discretionary amount determined from the analysis of the aging of the accounts receivable, historical experience and knowledge of specific customers.
 
g)           Furniture & Equipment
 
Technology (computer software, hardware, and communications), furniture, and equipment are stated at cost, less accumulated depreciation over the estimated useful lives of the respective assets. Depreciation is computed using five to seven year lives for vehicles, communication, office, furniture, and computer equipment and the double declining balance method. Computer software is depreciated over a three year life using the straight line method of depreciation. For leasehold improvements, the cost is depreciated over the shorter of the lease term or useful life on a straight line basis. Upon retirement or other disposition of these assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss, if any, is reflected in other income or expense. Expenditures for maintenance, repairs and renewals of minor items are charged to expense as incurred. Major renewals and improvements are capitalized.
 
h)           Goodwill
 
The Company performs an annual impairment test for goodwill. The first step of the impairment test requires that the Company determine the fair value of its reporting unit, and compare the fair value to the reporting unit's carrying amount. The Company has only one reporting unit.  To the extent the reporting unit's carrying amount exceeds its fair value, an indication exists that the reporting unit's goodwill may be impaired and the Company must perform a second more detailed impairment assessment. The second impairment assessment involves allocating the reporting unit’s fair value to all of its recognized and unrecognized assets and liabilities in order to determine the implied fair value of the reporting unit’s goodwill as of the assessment date. The implied fair value of the reporting unit’s goodwill is then compared to the carrying amount of goodwill to quantify an impairment charge as of the assessment date. The Company performs its annual impairment test effective as of April 1 of each year, unless events or circumstances indicate an impairment may have occurred before that time.

 
10

 

During the second quarter of fiscal 2009, in connection with the preparation of the condensed consolidated financial statements included herein, the Company concluded that indicators of potential impairment were present due to the sustained decline in the Company’s share price which resulted in the market capitalization of the Company being less than its book value.  The Company conducted an impairment test during the second quarter of fiscal 2009 based on the facts and circumstances at that time and its business strategy in light of existing industry and economic conditions, as well as taking into consideration future expectations. As the Company had significantly grown the business since its initial acquisition of Airgroup, it had also grown its customer relationship intangibles as the Company added additional stations.  Through its impairment testing and review, the Company concluded that its discounted cashflow analysis supported a valuation of its identifiable intangible assets well in excess of their carrying value.  Factoring this with management’s assessment of the fair value of other assets and liabilities resulted in no residual implied fair value remaining to be allocated to goodwill.  However, generally accepted accounting principles ("GAAP") do not allow the Company to recognize the previously unrecognized intangible assets in connection with these new stations.  As a result, at December 31, 2008, the Company recorded a non-cash goodwill impairment charge of $11.4 million. The Company does not expect this non-cash charge to have any impact on the Company’s compliance with the financial covenants in its credit agreement.
 
i)           Long-Lived Assets
 
Acquired intangibles consist of customer related intangibles and non-compete agreements arising from the Company’s acquisitions. Customer related intangibles are amortized using accelerated methods over approximately 5 years and non-compete agreements are amortized using the straight line method over the term of the underlying agreements. See Notes 4 and 5.
 
The Company reviews long-lived assets to be held-and-used for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. If the sum of the undiscounted expected future cash flows over the remaining useful life of a long-lived asset is less than its carrying amount, the asset is considered to be impaired. Impairment losses are measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risks associated with the recovery of the asset. Assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. Management has performed a review of all long-lived assets and has determined no impairment of the respective carrying value has occurred as of December 31, 2009.
 
j)           Commitments
 
The Company has operating lease commitments for office space, warehouse space and equipment rentals under non-cancelable operating leases expiring at various dates through December 2012. Future annual commitments for years ending June 30, 2010 through 2012 are $482,440, $241,957, and $14,167 respectively.

k)           Income Taxes
 
Deferred income tax assets and liabilities are recognized for the expected future tax consequences of events that have been reflected in the consolidated financial statements. Deferred tax assets and liabilities are determined based on the differences between the book values and the tax bases of particular assets and liabilities. Deferred tax assets and liabilities are measured using tax rates in effect for the years in which the differences are expected to reverse. A valuation allowance is provided to offset the net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
 
The Company reports a liability for unrecognized tax benefits resulting from uncertain income tax positions taken or expected to be taken in an income tax return.  Estimated interest and penalties are recorded as a component of interest expense or other expense, respectively.

 
11

 

l)           Revenue Recognition and Purchased Transportation Costs
 
The Company is the primary obligor responsible for providing the service desired by the customer and is responsible for fulfillment, including the acceptability of the service(s) ordered or purchased by the customer. At the Company’s sole discretion, it sets the prices charged to its customers, and is not required to obtain approval or consent from any other party in establishing its prices. The Company has multiple suppliers for the services it sells to its customers, and has the absolute and complete discretion and right to select the supplier that will provide the product(s) or service(s) ordered by a customer, including changing the supplier on a shipment-by-shipment basis. In most cases, the Company determines the nature, type, characteristics, and specifications of the service(s) ordered by the customer. The Company also assumes credit risk for the amount billed to the customer.
 
As a non-asset based carrier, the Company does not own transportation assets. The Company generates the major portion of its air and ocean freight revenues by purchasing transportation services from direct (asset-based) carriers and reselling those services to its customers. Based upon the terms in the contract of carriage, revenues related to shipments where the Company issues a House Airway Bill ("HAWB") or a House Ocean Bill of Lading ("HOBL") are recognized at the time the freight is tendered to the direct carrier at origin. Costs related to the shipments are also recognized at this same time based upon anticipated margins, contractual arrangements with direct carriers, and other known factors. The estimates are routinely monitored and compared to actual invoiced costs. The estimates are adjusted as deemed necessary by the Company to reflect differences between the original accruals and actual costs of purchased transportation.
 
This method generally results in recognition of revenues and purchased transportation costs earlier than the preferred methods under GAAP which do not recognize revenue until a proof of delivery is received or which recognize revenue as progress on the transit is made. The Company’s method of revenue and cost recognition does not result in a material difference from amounts that would be reported under such other methods.
 
m)           Share-Based Compensation
 
The Company accounts for share-based compensation under the fair value recognition provisions such that compensation cost is measured at the grant date based on the value of the award and is expensed ratably over the vesting period. Determining the fair value of share-based awards at the grant date requires judgment, including estimating the percentage of awards which will be forfeited, stock volatility, the expected life of the award, and other inputs. If actual forfeitures differ significantly from the estimates, share-based compensation expense and the Company's results of operations could be materially impacted.
 
For the three months ended December 31, 2009, the Company recorded share based compensation expense of $54,696, which, net of income taxes, resulted in a $33,912 reduction of net income. For the three months ended December 31, 2008, the Company recorded share based compensation expense of $32,779, which, net of income taxes, resulted in a $20,323 reduction of net income.
 
For the six months ended December 31, 2009, the Company recorded share based compensation expense of $108,904 which, net of income taxes, resulted in a $67,520 reduction of net income. For the six months ended December 31, 2008, the Company recorded share based compensation expense of $80,692, which, net of income taxes, resulted in a $50,029 reduction of net income.
 
n)           Basic and Diluted Income per Share
 
Basic income per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding. Diluted income per share is computed similar to basic income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares, such as stock options, had been issued and if the additional common shares were dilutive.
 
For the three months ended December 31, 2009, the weighted average outstanding number of potentially dilutive common shares totaled 32,723,181 shares of common stock, including options to purchase 3,620,000 shares of common stock at December 31, 2009, of which 3,060,000 were excluded as their effect would have been antidilutive. For the three months ended December 31, 2008, the weighted average outstanding number of potentially dilutive common shares totaled 34,701,960 shares of common stock.  Options to purchase 3,360,000 shares of common stock were not included in the diluted EPS computation for the three months ended December 31, 2008 as there was a loss in the period and they are thus anti-dilutive.

 
12

 

For the six months ended December 31, 2009, the weighted average outstanding number of potentially dilutive common shares totaled 33,135,684 shares of common stock, including options to purchase 3,620,000 shares of common stock at December 31, 2009, of which 3,060,000 were excluded as their effect would have been antidilutive. For the six months ended December 31, 2008, the weighted average outstanding number of potentially dilutive common shares totaled 34,698,563 shares of common stock.  Options to purchase 3,360,000 shares of common stock were not included in the diluted EPS computation for the six months ended December 31, 2008 as there was a loss in the period and they are thus anti-dilutive.
 
The following table reconciles the numerator and denominator of the basic and diluted per share computations for earnings per share as follows:

   
Three months 
ended 
December 31,
2009
   
Three months
ended
December 31,
2008
   
Six months
ended
December 31,
2009
   
Six months
ended
December 31,
2008
 
                                 
Weighted average basic shares outstanding
    32,533,680       34,701,960       32,950,810       34,698,563  
                                 
Options
    189,501             184,874        
                                 
Weighted average dilutive shares outstanding
    32,723,181       34,701,960       33,135,684       34,698,563  

o)           Comprehensive Income
 
The Company has no components of Comprehensive Income and, accordingly, no Statement of Comprehensive Income has been included in the accompanying consolidated financial statements.
 
p)           Reclassifications
 
Certain amounts for prior periods have been reclassified in the consolidated financial statements to conform to the classification used in fiscal 2009.
 
q)           Subsequent Events
 
The Company has evaluated subsequent events and any related required disclosures through February 16, 2010, which is the date this quarterly report on Form 10-Q was submitted for filing with the Securities and Exchange Commission.
 
Robert Friedman, the former shareholder of Adcom, filed an arbitration claim against the Company regarding, among other things, the final purchase price based upon the closing date working capital, as adjusted, of Adcom (the “2009 Arbitration”).  On January 22, 2010, the arbitrator issued his ruling which reduced Mr. Friedman’s closing date working capital calculation from positive $1,086,626 to negative $357,255.  After giving effect for other ancillary issues addressed in the 2009 Arbitration and the reserves otherwise maintained in connection with the Friedman liability, the Company reported a gain of approximately $355,000.
 
On or about January 22, 2010, Mr. Friedman filed a second arbitration claim against the Company alleging that the Company breached the purchase agreement in connection with the calculation and payment of post closing integration and earn-out payments.  The Company has asserted its rights set-off against such payments, including those amounts awarded to the Company in the 2009 Arbitration described above, and approximately $200,000 in settlement of a claim incurred as result of Mr. Friedman's breach of certain representations and warranties contained in the securities purchase agreement.

 
13

 

NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS
 
In June 2009, the Financial Accounting Standards Board ("FASB") issued guidance now codified in FASB Accounting Standards Codification ("ASC") Topic 105, Generally Accepted Accounting Principles, as the single source of authoritative nongovernmental GAAP. FASB ASC Topic 105 does not change current GAAP, but is intended to simplify user access to all authoritative GAAP by providing all authoritative literature related to a particular topic in one place. All existing accounting standard documents have been superseded and all other accounting literature not included in the FASB Codification is now considered non-authoritative. These provisions of FASB ASC Topic 105 are effective for interim and annual periods ending after September 15, 2009 and, accordingly, are effective for the Company for the current fiscal reporting period. The adoption of this guidance did not have an impact on the Company’s financial condition or results of operations, but will impact its financial reporting process by eliminating all references to pre-codification standards. On the effective date of this guidance, the Codification superseded all then-existing non-SEC accounting and reporting standards, and all other non-grandfathered, non-SEC accounting literature not included in the Codification became non-authoritative.
 
In August 2009, the FASB issued Accounting Standards Update ("ASU") No. 2009-05, Fair Value Measurements and Disclosures. The guidance in ASU 2009-05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, an entity is required to measure fair value using certain prescribed valuation techniques. The amendments in ASU 2009-05 were effective for the Company’s first quarter of fiscal 2010. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operations.
 
In August 2009, the FASB issued ASU No. 2009-06, Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendment for Nonpublic Entities. The guidance in ASU 2009-06 improves current accounting by helping achieve consistent application of accounting for uncertainty in income taxes and is not intended to change existing practice.   ASU 2009-06 also eliminates disclosures previously required for nonpublic entities. ASU 2009-06 is effective for interim and annual periods ending after September 15, 2009. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operations.
 
In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements. The guidance in ASU 2010-06 provides amendments to literature on fair value measurements and disclosures currently within the ASC by clarifying certain existing disclosures and requiring new disclosures for the various classes of fair value measurements.   ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  The adoption of this guidance is not expected to have a material impact on the Company’s financial position or results of operations.
 
NOTE 4 – ACQUISITION OF ADCOM EXPRESS, INC.
 
On September 5, 2008, the Company entered into and closed a Stock Purchase Agreement (the "Agreement") pursuant to which it acquired 100% of the issued and outstanding stock of Adcom Express, Inc., d/b/a Adcom Worldwide ("Adcom"), a privately-held Minnesota corporation. For financial accounting purposes, the transaction was deemed to be effective as of September 1, 2008. The stock was acquired from Robert F. Friedman, the sole shareholder of Adcom. The total value of the transaction was $11,050,000, consisting of: (i) $4,750,000 in cash paid at the closing; (ii) $250,000 in cash payable shortly after the closing, subject to adjustment, based upon the working capital of Adcom as of August 31, 2008; (iii) up to $2,800,000 in four "Tier-1 Earn-Out Payments" of up to $700,000 each, covering the four year earn-out period through June 30, 2012, based upon Adcom achieving certain levels of "Gross Profit Contribution" (as defined in the Agreement), payable 50% in cash and 50% in shares of Company common stock (valued at delivery date); (iv) a "Tier-2 Earn-Out Payment" of up to $2,000,000, equal to 20% of the amount by which the Adcom cumulative Gross Profit Contribution exceeds $16,560,000 during the four year earn-out period; and (v) an "Integration Payment" of $1,250,000 payable on the earlier of the date certain integration targets are achieved or 18 months after the closing, payable 50% in cash and 50% in shares of Company common stock (valued at delivery date). The Integration Payment, the Tier-1 Earn-Out Payments and certain amounts of the Tier-2 Payments may be subject to acceleration upon occurrence of a "Corporate Transaction" (as defined in the Agreement), which includes a sale of Adcom or the Company, or certain changes in corporate control. The cash component of the transaction was financed through a combination of existing funds and the proceeds from the Company’s revolving credit facility.

 
14

 

Founded in 1978, Adcom provides a full range of domestic and international freight forwarding solutions to a diversified account base including manufacturers, distributors and retailers through a combination of three company-owned and twenty-seven independent agency locations across North America.
 
The total purchase price consisted of an initial payment of $4,750,000, acquisition expenses of $288,346 and $220,000 in restructuring charges.  Also included in the acquisition is $1,250,000 in future integration payments and $319,845 in working capital and other adjustments.  The total net assets acquired were $6.61 million.  The following table summarizes the final allocation of the purchase price based on the estimated fair value of the acquired assets at September 5, 2008.

Current assets
  $ 11,948,619  
Furniture & equipment
    291,862  
Notes receivable
    343,602  
Intangibles
    3,200,000  
Goodwill
    3,248,660  
Other assets
    325,296  
         
Total assets acquired
    19,358,039  
         
Current liabilities assumed
    11,533,848  
Long-term deferred tax liability
    1,216,000  
         
Total liabilities acquired
    12,749,848  
         
Net assets acquired
  $ 6,608,191  
 
None of the goodwill is expected to be deductible for income tax purposes.
 
The results of operations related to this acquisition are included in the Company's statement of income from the date of acquisition in September 2008.
 
NOTE 5 – ACQUIRED INTANGIBLE ASSETS
 
The table below reflects acquired intangible assets related to the acquisitions of Airgroup, Automotive Services Group and Adcom:

 
15

 
 
   
As of
 December 31, 2009
   
As of
June 30, 2009
 
   
Gross 
Carrying
Amount
   
Accumulated
Amortization
   
Gross
Carrying
Amount
   
Accumulated
Amortization
 
Amortizable intangible assets:
                       
Customer related
  $ 5,752,000     $ 3,250,278     $ 5,752,000     $ 2,679,547  
Covenants not to compete
    190,000       104,657       190,000       83,410  
Total
  $ 5,942,000     $ 3,354,935     $ 5,942,000     $ 2,762,957  
                                 
Aggregate amortization expense:
                               
For six months ended
December 31, 2009
          $ 591,978                  
For six months ended
December 31, 2008
          $ 565,060                  
                                 
Aggregate amortization expense for the year ended June 30:
                               
2010 – For the remainder of the year
          $ 567,307                  
2011
            827,762                  
2012
            769,772                  
2013
            374,344                  
2014
            47,880                  
Total
          $ 2,587,065                  
 
NOTE 6 – VARIABLE INTEREST ENTITY
 
Certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have the sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties are considered "variable interest entities". RLP is 40% owned by Radiant Global Logistics ("RGL"), qualifies as a variable interest entity and is included in the Company’s consolidated financial statements (see Note 7). RLP commenced operations in February 2007. Non-controlling interest recorded on the income statement for the three months ended December 31, 2009 was an expense of $37,638 and for the three months ended December 31, 2008 was an expense of $7,843.  Non-controlling interest recorded on the income statement for the six months ended December 31, 2009 was an expense of $58,678 and for the six months ended December 31, 2008 was a benefit of $2,147.
 
The following table summarizes the balance sheets of RLP:
 
   
December 31,
   
June 30,
 
   
2009
   
2009
 
ASSETS
           
Cash and cash equivalents
  $ 15,040     $  
Accounts receivable – Radiant Logistics
    90,427       6,656  
Prepaid expenses and other current assets
    180       2,165  
Total assets
  $ 105,647     $ 8,821  
                 
LIABILITIES AND PARTNERS' CAPITAL
               
Checks issued in excess of bank balance
  $     $ 212  
Other accrued costs
    4,672       5,431  
Total liabilities
    4,672       5,643  
                 
Partners' capital
    100,975       3,178  
Total liabilities and partners' capital
  $ 105,647     $ 8,821  

 
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NOTE 7 – RELATED PARTY
 
RLP is owned 40% by RGL and 60% by Radiant Capital Partners, LLC ("RCP"), a company for which the Chief Executive Officer of the Company is the sole member. RLP is a certified minority business enterprise which was formed for the purpose of providing the Company with a national accounts strategy to pursue corporate and government accounts with diversity initiatives. As currently structured, RCP’s ownership interest entitles it to a majority of the profits and distributable cash, if any, generated by RLP. The operations of RLP are intended to provide certain benefits to the Company, including expanding the scope of services offered by the Company and participating in supplier diversity programs not otherwise available to the Company. RGL currently provides administrative services necessary to operate RLP while RLP continues to develop. As the RLP operations mature, the Company will evaluate and approve all related service agreements between the Company and RLP, including the scope of the services to be provided by the Company to RLP and the fees payable to the Company by RLP, in accordance with the Company’s corporate governance principles and applicable Delaware corporation law. This process may include seeking the opinion of a qualified third party concerning the fairness of any such agreement or the approval of the Company’s shareholders. RLP is consolidated in the financial statements of the Company (see Note 6).
 
NOTE 8 – FURNITURE AND EQUIPMENT
 
Furniture and equipment consists of the following:
 
   
December 31,
   
June 30,
 
   
2009
   
2009
 
Vehicles
  $ 33,788     $ 33,788  
Communication equipment
    4,043       1,353  
Office equipment
    311,191       309,156  
Furniture and fixtures
    66,590       66,036  
Computer equipment
    374,155       554,337  
Computer software
    1,075,513       884,384  
Leasehold improvements
    44,002       44,002  
      1,909,282       1,893,056  
Less:  Accumulated depreciation and amortization
    (1,341,504 )     (1,132,549 )
Furniture and equipment – net
  $ 567,778     $ 760,507  
 
Depreciation and amortization expense related to furniture and equipment was $203,739 and $223,005 for the six months ended December 31, 2009 and 2008, respectively.
 
NOTE 9 – LONG TERM DEBT
 
In September 2008, the Company’s $10.0 million revolving credit facility, including a $0.5 million sublimit to support letters of credit (collectively, the "Facility"), was increased to $15.0 million with a maturity date of February 1, 2011. The Facility is collateralized by accounts receivable and other assets of the Company and its subsidiaries. Advances under the Facility are available to fund future acquisitions, capital expenditures or for other corporate purposes. Borrowings under the facility bear interest, at the Company’s option, at the bank’s prime rate minus 0.15% to 1.00% or LIBOR plus 1.55% to 2.25%, and can be adjusted up or down during the term of the Facility based on the Company’s performance relative to certain financial covenants. The Facility provides for advances of up to 80% of the Company’s eligible domestic accounts receivable and for advances of up to 60% of eligible foreign accounts receivable.
 
The terms of the Facility are subject to certain financial and operational covenants which may limit the amount otherwise available under the Facility. The first covenant limits funded debt to a multiple of 3.00 times the Company’s consolidated EBITDA (as adjusted) measured on a rolling four quarter basis (or a multiple of 3.25 at a reduced advance rate of 75.0%). The second financial covenant requires the Company to maintain a basic fixed charge coverage ratio of at least 1.1 to 1.0. The third financial covenant is a minimum profitability standard that requires the Company not to incur a net loss before taxes, amortization of acquired intangibles and extraordinary items in any two consecutive quarterly accounting periods.

 
17

 

Under the terms of the Facility, the Company is permitted to make additional acquisitions without the lender's consent only if certain conditions are satisfied. The conditions imposed by the Facility include the following: (i) the absence of an event of default under the Facility; (ii) the company to be acquired must be in the transportation and logistics industry; (iii) the purchase price to be paid must be consistent with the Company’s historical business and acquisition model; (iv) after giving effect for the funding of the acquisition, the Company must have undrawn availability of at least $1.0 million under the Facility; (v) the lender must be reasonably satisfied with projected financial statements the Company provides covering a 12 month period following the acquisition; (vi) the acquisition documents must be provided to the lender and must be consistent with the description of the transaction provided to the lender; and (vii) the number of permitted acquisitions is limited to three per calendar year and shall not exceed $7.5 million in aggregate purchase price financed by funded debt. In the event that the Company is not able to satisfy the conditions of the Facility in connection with a proposed acquisition, it must either forego the acquisition, obtain the lender's consent, or retire the Facility. This may limit or slow the Company’s ability to achieve the critical mass it may need to achieve its strategic objectives.
 
The co-borrowers of the Facility include Radiant Logistics, Inc., RGL (f/k/a Airgroup Corporation), Radiant Logistics Global Services Inc. ("RLGS"), RLP, and Adcom Express, Inc. (d/b/a Adcom Worldwide). RLP is owned 40% by RGL and 60% by RCP, an affiliate of the Company’s Chief Executive Officer. RLP has been certified as a minority business enterprise, and focuses on corporate and government accounts with diversity initiatives. As a co-borrower under the Facility, the accounts receivable of RLP are eligible for inclusion within the overall borrowing base of the Company and all borrowers will be responsible for repayment of the debt associated with advances under the Facility, including those advanced to RLP. At December 31, 2009, the Company was in compliance with all of its covenants.
 
As of December 31, 2009, the Company had $6,120,709 advances under the Facility and $2,586,530 in outstanding checks, which had not yet been presented to the bank for payment. The outstanding checks have been reclassified from our cash accounts, as they will be advanced from, or against, our Facility when presented for payment to the bank.  The forgoing results in total long term debt of $8,707,239.
 
At December 31, 2009, based on available collateral and $205,000 in outstanding letter of credit commitments, there was $6,700,327 available for borrowing under the Facility based on advances outstanding.
 
NOTE 10 – PROVISION FOR INCOME TAXES
 
Deferred income taxes are reported using the liability method. Deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
 
The acquisitions of Airgroup and Adcom resulted in $2,148,280 of long term deferred tax liability resulting from certain amortizable intangibles identified during the Company’s purchase price allocation which are not deductible for tax purposes. The long term deferred tax liability will be reduced as the non-deductible amortization of the intangibles is recognized. See Note 5.
 
For the three months ended December 31, 2009, the Company recognized net income tax expense of $336,539 consisting of current income tax expense of $538,008, and deferred income tax benefit of $201,469.
 
For the three months ended December 31, 2008, the Company recognized net income tax benefit of $382,690 consisting of current income tax benefit of $901,616, and deferred income tax expense of $518,926.

 
18

 

For the six months ended December 31, 2009, the Company recognized net income tax expense of $407,665 consisting of current income tax expense of $669,197, and deferred income tax benefit of $261,532.
 
For the six months ended December 31, 2008, the Company recognized net income tax benefit of $230,031 consisting of current income tax benefit of $796,897, and deferred income tax expense of $566,866.
 
The Company’s consolidated effective tax rate during the three and six month periods ended December 31, 2009 and December 31, 2008 was 38.0%.
 
Tax years which remain subject to examination by federal and state authorities are the years ended June 30, 2006, through June 30, 2009.
 
NOTE 11 – STOCKHOLDERS’ EQUITY
 
Preferred Stock
 
The Company is authorized to issue 5,000,000 shares of preferred stock, par value at $.001 per share. As of December 31, 2009 and 2008, none of the shares were issued or outstanding.
 
Common Stock Repurchase Program
 
During 2009, the Company's Board of Directors approved a stock repurchase program, pursuant to which up to 5,000,000 shares of its common stock could be repurchased under the program through December 31, 2010.  During the six months ended December 31, 2009, the Company purchased 1,709,150 shares of its common stock under this repurchase program at a cost of $491,636.
 
NOTE 12 – SHARE-BASED COMPENSATION
 
During the six months ended December 31, 2009, the Company issued employee options to purchase 250,000 stock options at $0.28 per share in August 2009. The options vest 20% per year over a five year period.
 
Share based compensation costs recognized during the six months ended December 31, 2009, include compensation costs based on the fair value estimated on the grant-date for all share based payments granted to date. No options have been exercised as of December 31, 2009.
 
During the six months ended December 31, 2009, the weighted average fair value per share of employee options granted in August 2009 was $0.15.  The fair value of options granted were estimated on the date of grant using the Black-Scholes option pricing model, with the following assumptions for each issuance of options:
 
Risk-Free Interest Rate
 
1.57%
Expected Term
 
6.5 years
Expected Volatility
 
64.3%
Expected Dividend Yield
 
0.00%
Forfeiture Rate
  
0.00%
 
During the six months ended December 31, 2009 and 2008 the Company recognized stock option compensation expense of $108,904 and $80,692, respectively.  The following table summarizes activity under the plan for the six months ended December 31, 2009.

 
19

 
 
   
Number of
Shares
   
Weighted
Average
Exercise Price
   
Weighted
Average
Remaining
Contractual
Life - Years
   
Aggregate
Intrinsic
Value
 
Outstanding at June 30, 2009
    3,370,000     $ 0.520    
7.08 years
    $ 67,200  
Granted
    250,000       0.280              
Exercised
                       
Forfeited
                       
Expired
                       
Outstanding at December 31, 2009
    3,620,000     $ 0.504    
6.78 years
    $ 39,200  
Exercisable at December 31, 2009
    2,075,000     $ 0.583    
6.08 years
    $ 6,040  
 
NOTE 13 – OPERATING AND GEOGRAPHIC SEGMENT INFORMATION
 
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in making decisions regarding allocation of resources and assessing performance. The Company's chief decision-maker is the Chief Executive Officer. The Company continues to operate in a single operating segment.
 
The Company’s geographic operations outside the United States include shipments to and from Canada, Central America, Europe, Africa, Asia and Australia. The following data presents the Company’s revenue generated from shipments to and from these locations for the United States and all other countries, which is determined based upon the geographic location of a shipment's initiation and destination points (in thousands):
 
   
United States
   
Other Countries
   
Total
 
   
2009
   
2008
   
2009
   
2008
   
2009
   
2008
 
Three months ended December 31,
                                               
Revenue
 
$
19,385
   
$
21,991
   
$
19,731
   
$
20,522
   
$
39,116
   
$
42,513
 
Cost of transportation
   
11,554
     
13,074
     
16,058
     
15,950
     
27,612
     
29,024
 
Net revenue
 
$
7,831
   
$
8,917
   
$
3,673
   
$
4,572
   
$
11,504
   
$
13,489
 

 
   
United States
   
Other Countries
   
Total
 
   
2009
   
2008
   
2009
   
2008
   
2009
   
2008
 
Six months ended December 31,
                                               
Revenue
 
$
37,496
   
$
39,743
   
$
35,648
   
$
35,165
   
$
73,144
   
$
74,908
 
Cost of transportation
   
22,443
     
23,033
     
28,648
     
27,202
     
51,091
     
50,235
 
Net revenue
 
$
15,053
   
$
16,710
   
$
7,000
   
$
7,963
   
$
22,053
   
$
24,673
 

ITEM 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion and analysis of our financial condition and result of operations should be read in conjunction with the financial statements and the related notes and other information included elsewhere in this report.

 
20

 
 
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding future operating performance, events, trends and plans. All statements other than statements of historical fact contained herein, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected revenues and costs, and plans and objectives of management for future operations, are forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expects," "intends," "plans," "projects," "estimates," "anticipates," or "believes" or the negative thereof or any variation thereon or similar terminology or expressions. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are not guarantees and are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. While it is impossible to identify all of the factors that may cause our actual operating performance, events, trends or plans to differ materially from those set forth in such forward-looking statements, such factors include the inherent risks associated with our ability to: (i) to use Airgroup as a "platform" upon which we can build a profitable global transportation and supply chain management company; (ii) retain and build upon the relationships we have with our exclusive agency offices; (iii) continue the development of our back office infrastructure and transportation and accounting systems in a manner sufficient to service our expanding revenues and base of exclusive agency locations; (iv) maintain the future operations of Adcom in a manner consistent with its past practices; (v) integrate the operations of Adcom with our existing operations, (vi) continue growing our business and maintain historical or increased gross profit margins; (vii) locate suitable acquisition opportunities; (viii) secure the financing necessary to complete any acquisition opportunities we locate; (ix) assess and respond to competitive practices in the industries in which we compete; (x) mitigate, to the best extent possible, our dependence on current management and certain of our larger exclusive agency locations; (xi) assess and respond to the impact of current and future laws and governmental regulations affecting the transportation industry in general and our operations in particular; and (xii) assess and respond to such other factors which may be identified from time to time in our Securities and Exchange Commission ("SEC") filings and other public announcements including those set forth in Part 1 Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2009. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the foregoing.  Readers are cautioned not to place undue reliance on our forward-looking statements, as they speak only as of the date made. Except as required by law, we assume no duty to update or revise our forward-looking statements.
 
Overview
 
We are a Bellevue, Washington based non-asset based logistics company providing domestic and international freight forwarding services through a network of exclusive agent offices across North America. Operating under the Airgroup, Adcom and RLP brands, we service a diversified account base including manufacturers, distributors and retailers using a network of independent carriers and international agents positioned strategically around the world.
 
By implementing a growth strategy, we intend to build a leading global transportation and supply-chain management company offering a full range of domestic and international freight forwarding and other value added supply chain management services, including order fulfillment, inventory management and warehousing.
 
As a non-asset based provider of third-party logistics services, we seek to limit our investment in equipment, facilities and working capital through contracts and preferred provider arrangements with various transportation providers who generally provide us with favorable rates, minimum service levels, capacity assurances and priority handling status. Our non-asset based approach allows us to maintain a high level of operating flexibility and leverage a cost structure that is highly variable in nature while the volume of our flow of freight enables us to negotiate attractive pricing with our transportation providers.
 
Our growth strategy continues to focus on both organic growth and acquisitions. From an organic perspective, we are focused on strengthening existing and expanding new customer relationships. One of the drivers of our organic growth will be retaining existing, and securing new exclusive agency locations as well as enhancing our back-office infrastructure and transportation and accounting systems.
 
As we continue to build out our network of exclusive agent locations to achieve a level of critical mass and scale, we are executing an acquisition strategy to develop additional growth opportunities. We continue to identify a number of additional companies as suitable acquisition candidates and completed our second material acquisition in September 2008, when we acquired Adcom Express, Inc. d/b/a Adcom Worldwide ("Adcom") which contributed an additional 30 locations across North America and augmented our overall domestic and international freight forwarding capabilities.

 
21

 
 
We will continue to search for targets that fit within our acquisition criteria. Successful implementation of our growth strategy depends upon a number of factors, including our ability to: (i) continue developing new agency locations; (ii) locate acquisition opportunities; (iii) secure adequate funding to finance identified acquisition opportunities; (iv) efficiently integrate the businesses of the companies acquired; (v) generate the anticipated economies of scale from the integration; and (vi) maintain the historic sales growth of the acquired businesses in order to generate continued organic growth. There are a variety of risks associated with our ability to achieve our strategic objectives, including the ability to acquire and profitably manage additional businesses and the intense competition in the industry for customers and for acquisition candidates.
 
Performance Metrics
 
Our principal source of income is derived from freight forwarding services. As a freight forwarder, we arrange for the shipment of our customers’ freight from point of origin to point of destination. Generally, we quote our customers a turn-key cost for the movement of their freight. Our price quote will often depend upon the customer’s time-definite needs (first day through fifth day delivery), special handling needs (heavy equipment, delicate items, environmentally sensitive goods, electronic components, etc.) and the means of transport (truck, air, ocean or rail). In turn, we assume the responsibility for arranging and paying for the underlying means of transportation.
 
Our transportation revenue represents the total dollar value of services we sell to our customers. Our cost of transportation includes direct costs of transportation, including motor carrier, air, ocean and rail services. We act principally as the service provider to add value in the execution and procurement of these services to our customers. Our net transportation revenue (gross transportation revenue less the direct cost of transportation) is the primary indicator of our ability to source, add value to, and resell services provided by third parties, and is considered by management to be a key performance measure. In addition, management believes that measuring its operating costs as a function of net transportation revenue provides a useful metric, as our ability to control costs as a function of net transportation revenue directly impacts operating earnings.
 
Our operating results will be affected as acquisitions occur. Since all acquisitions are made using the purchase method of accounting for business combinations, our financial statements will only include the results of operations and cash flows of acquired companies for periods subsequent to the date of acquisition.
 
Our GAAP-based net income will be affected by non-cash charges relating to the amortization of customer related intangible assets and other intangible assets arising from completed acquisitions. Under applicable accounting standards, purchasers are required to allocate the total consideration in a business combination to the identified assets acquired and liabilities assumed based on their fair values at the time of acquisition. The excess of the consideration paid over the fair value of the identifiable net assets acquired is to be allocated to goodwill, which is tested at least annually for impairment. Applicable accounting standards require that we separately account for and value certain identifiable intangible assets based on the unique facts and circumstances of each acquisition. As a result of our acquisition strategy, our net income will include material non-cash charges relating to the amortization of customer related intangible assets and other intangible assets acquired in our acquisitions. Although these charges may increase as we complete more acquisitions, we believe we will actually be growing the value of our intangible assets (e.g., customer relationships). Thus, we believe that earnings before interest, taxes, depreciation and amortization ("EBITDA") is a useful financial measure for investors because it eliminates the effect of these non-cash costs and provides an important metric for our business.  Further, the financial covenants of our credit facility adjust EBITDA to exclude costs related to share based compensation expense and other non-cash charges.

 
22

 

Our compliance with the financial covenants of our credit facility is particularly important given the materiality of the credit facility to our day-to-day operations and overall acquisition strategy. Our debt capacity, subject to the requisite collateral at an advance rate of 80%, is limited to a multiple of 3.00 times our consolidated EBITDA (as adjusted) as measured on a rolling four quarter basis (or a multiple of 3.25 times our consolidated EBITDA (as adjusted) at a reduced advance rate of 75.0%). If we fail to comply with the covenants in our credit facility and are unable to secure a waiver or other relief, our financial condition would be materially weakened and our ability to fund day-to-day operations would be materially and adversely affected. Accordingly, we intend to employ EBITDA and adjusted EBITDA as management tools to measure our historical financial performance and as a benchmark for future financial flexibility.
 
Our operating results are also subject to seasonal trends when measured on a quarterly basis. The impact of seasonality on our business will depend on numerous factors, including the markets in which we operate, holiday seasons, consumer demand and economic conditions.
 
Since our revenue is largely derived from customers whose shipments are dependent upon consumer demand and just-in-time production schedules, the timing of our revenue is often beyond our control. Factors such as shifting demand for retail goods and/or manufacturing production delays could unexpectedly affect the timing of our revenue. As we increase the scale of our operations, seasonal trends in one area of our business may be offset to an extent by opposite trends in another area. We cannot accurately predict the timing of these factors, nor can we accurately estimate the impact of any particular factor, and thus we can give no assurance any historical seasonal patterns will continue in future periods.
 
Results of Operations
 
Basis of Presentation
 
The results of operations discussion that appears below has been presented utilizing a combination of historical and, where relevant, pro forma information to include the effects on our consolidated financial statements of our acquisition of Adcom.  The pro forma results are developed to reflect a consolidation of the historical results of operations of the Company and adjusted to include the historical results of Adcom as if we had acquired Adcom as of July 1, 2008.

The pro forma financial data is not necessarily indicative of results of operations which would have occurred had this acquisition been consummated at the beginning of the periods presented or which might be attained in the future.

For the three months ended December 31, 2009 (actual and unaudited) and December 31, 2008 (actual and unaudited)
 
We generated transportation revenue of $39.1 million and $42.5 million and net transportation revenue of $11.5 million and $13.5 million for the three months ended December 31, 2009 and 2008, respectively.  Net income was $0.5 million for the three months ended December 31, 2009, compared to net loss of $10.2 million for the three months ended December 31, 2008.
 
We had adjusted EBITDA of $1.0 million and $1.4 million for three months ended December 31, 2009 and 2008, respectively. EBITDA is a non-GAAP measure of income and does not include the effects of interest and taxes and excludes the "non-cash" effects of depreciation and amortization on current assets. Companies have some discretion as to which elements of depreciation and amortization are excluded in the EBITDA calculation. We exclude all depreciation charges related to property, plant and equipment, and all amortization charges, including amortization of leasehold improvements and other intangible assets. We then further adjust EBITDA to exclude extraordinary items and costs related to share based compensation expense, goodwill impairment charges and other non-cash charges consistent with the financial covenants of our credit facility. As explained above, we believe that EBITDA is useful to us and to our investors in evaluating and measuring our financial performance.  While management considers EBITDA and adjusted EBITDA useful in analyzing our results, it is not intended to replace any presentation included in our consolidated financial statements.  Set forth below is a reconciliation of EBITDA and adjusted EBITDA to net income (loss), the most directly comparable GAAP measure for the three months ended December 31, 2009 and 2008.

 
23

 

The following table provides a reconciliation of adjusted EBITDA to net income (loss), the most directly comparable GAAP measure in accordance with SEC Regulation G (in thousands), for the three months ended December 31, 2009 and 2008:
 
   
Three months ended December 31,
   
Change
 
   
2009
   
2008
   
Amount
   
Percent
 
                         
Net income (loss)
  $ 549     $ (10,216 )   $ 10,765       105.4 %
Income tax expense (benefit)
    337       (383 )     720       188.0 %
Net interest expense
    27       67       (40 )     (59.7 )%
Depreciation and amortization
    386       473       (87 )     (18.4 )%
                                 
EBITDA
  $ 1,299     $ (10,059 )   $ 11,358       112.9 %
                                 
Share based compensation and other non-cash costs
    82       38       44       115.8 %
Gain on litigation settlement
    (355 )           (355 )  
NM
 
Goodwill impairment
          11,403       (11,403 )     (100.0 )%
Adjusted EBITDA
  $ 1,026     $ 1,382     $ (356 )     (25.8 )%
 
The following table summarizes transportation revenue, cost of transportation and net transportation revenue (in thousands) for the three months ended December 31, 2009 and 2008 (actual and unaudited):
 
 
Three months ended December 31,
 
Change
 
 
2009
 
2008
 
Amount
 
Percent
 
                 
Transportation revenue
  $ 39,116     $ 42,513     $ (3,397 )     (8.0 )%
Cost of transportation
    27,612       29,024       (1,412 )     (4.9 )%
                                 
 Net transportation revenue
  $ 11,504     $ 13,489     $ (1,985 )     (14.7 )%
Net transportation margins
    29.4 %     31.7 %                
 
Transportation revenue was $39.1 million for the three months ended December 31, 2009, a decrease of 8.0% over transportation revenue of $42.5 million for the three months ended December 31, 2008.  Domestic transportation revenue decreased by 11.9% to $19.4 million for the three months ended December 31, 2009, from $22.0 million for the three months ended December 31, 2008.  The decrease was primarily attributed to the effects from the slowing global economy.  International transportation revenue decreased by 3.8% to $19.7 million for the three months ended December 31, 2009, from $20.5 million for the comparable prior year period, which was also mainly attributed to the effects from the slowing global economy.
 
Cost of transportation decreased to $27.6 million for the three months ended December 31, 2009, compared to $29.0 million for the three months ended December 31, 2008 as a result of reduced revenues associated with a slower global economy.
 
Net transportation margins decreased to 29.4% of transportation revenue for the three months ended December 31, 2009, as compared to 31.7% of transportation revenue for the three months ended December 31, 2008.  The margin regression was attributed to proportionately higher international sales, which typically yield lower margins, coupled with pricing pressures from competitors.
 
The following table compares certain condensed consolidated statement of income data as a percentage of our net transportation revenue (in thousands) for the three months ended December 31, 2009 and 2008 (actual and unaudited):
 
   
Three months ended December 31,
       
   
2009
   
2008
   
Change
 
   
Amount
 
Percent
   
Amount
 
Percent
   
Amount
 
Percent
 
                               
Net transportation revenue
 
$
11,504
 
100.0
%
 
$
13,489
 
100.0
%
 
$
(1,985
)
(14.7
)%
                                     
Agent commissions
   
7,838
 
68.1
%
   
9,001
 
66.7
%
   
(1,163
)
(12.9
)%
Personnel costs
   
1,532
 
13.3
%
   
2,110
 
15.6
%
   
(578
)
(27.4
)%
Selling, general and administrative
   
1,153
 
10.0
%
   
1,026
 
7.6
%
   
127
 
12.4
%
Depreciation and amortization
   
386
 
3.4
%
   
473
 
3.5
%
   
(87
)
(18.4
)%
Goodwill impairment
   
 
0.0
%
   
11,403
 
84.5
%
   
(11,403
)
(100.0
)%
                                     
Total operating expenses
   
10,909
 
94.8
%
   
24,013
 
178.0
%
   
(13,104
)
(54.6
)%
                                     
Income (loss) from operations
   
595
 
5.2
%
   
(10,524
)
(78.0
)%
   
11,119
 
NM
 
Other income (expense)
   
328
 
2.8
%
   
(67
)
(0.5
)%
   
395
 
589.6
%
                                     
Income (loss) before income taxes and noncontrolling interest
   
923
 
8.0
%
   
(10,591
)
(78.5
)%
   
11,514
 
NM
 
Income tax (expense) benefit
   
(337
)
(2.9
)%
   
383
 
2.8
%
   
(720
)
(188.0
)%
                                     
Income (loss) before noncontrolling interest
   
586
 
5.1
%
   
(10,208
)
(75.7
)%
   
10,794
 
NM
 
Noncontrolling interest
   
(37
)
(0.3
)%
   
(8
)
(0.0
)%
   
(29
)
(362.5
)%
                                     
Net income (loss)
 
$
549
 
4.8
%
 
$
(10,216
)
(75.7
)%
 
$
10,765
 
NM
 

 
24

 

Agent commissions were $7.8 million for the three months ended December 31, 2009, a decrease of 12.9% from $9.0 million for the three months ended December 31, 2008.  Agent commissions as a percentage of net transportation revenue increased to 68.1% for the three months ended December 31, 2009, from 66.7% for the comparable prior year period as a result of the proportional increase in international revenues which typically yield lower margins than our domestic revenues and a corresponding reduction in commission expense.
 
Personnel costs were $1.5 million for the three months ended December 31, 2009, a decrease of 27.4% from $2.1 million for the three months ended December 31, 2008.  Personnel costs as a percentage of net transportation revenue decreased to 13.3% for the three months ended December 31, 2009, from 15.6% for the comparable prior year period primarily as a result of reduced personnel costs associated with the integration of the back-office operations of Adcom into the operations of RGL.
 
Other selling, general and administrative costs were $1.2 million for the three months ended December 31, 2009, an increase of 12.4% from $1.0 million for the three months ended December 31, 2008.  The increase resulted primarily from the increased legal costs associated with defending the arbitration proceeding with the former owner of Adcom and an increase in bad debt expense.   As a percentage of net transportation revenue, other selling, general and administrative costs increased to 10.0% for the three months ended December 31, 2009, from 7.6% for the comparable prior year period.
 
Depreciation and amortization costs were approximately $0.4 million and $0.5 million for the three months ended December 31, 2009 and 2008, respectively.  Depreciation and amortization as a percentage of net transportation revenue decreased to 3.4% for the three months ended December 31, 2009, from 3.5% for the comparable prior year period, primarily due to lower amortization costs associated with the Airgroup & Adcom transactions.
 
In the three months ended December 31, 2008, the Company recorded an impairment charge to goodwill in the amount of $11.4 million.  There was no similar charge for the comparable current period.
 
Income from operations was $0.6 million for the three months ended December 31, 2009, compared to loss from operations of $10.5 million for the three months ended December 31, 2008.  The increase was primarily due to the $11.4 million impairment charge to goodwill.
 
Other income was $0.3 million for the three months ended December 31, 2009, compared to other expense of less than $0.1 million for the three months ended December 31, 2008.  The change was primarily due to the favorable litigation settlement with Adcom.
 
Net income was $0.5 million for the three months ended December 31, 2009, compared to net loss of $10.2 million for the three months ended December 31, 2008.  The difference was primarily due to the $11.4 million impairment charge to goodwill.

 
25

 

For the six months ended December 31, 2009 (actual and unaudited) and December 31, 2008 (actual and unaudited)
 
We generated transportation revenue of $73.1 million and $74.9 million, and net transportation revenue of $22.1 million and $24.7 million for the six months ended December 31, 2009 and 2008, respectively.  Net income was $0.7 million for the six months ended December 31, 2009, compared to net loss of $10.0 million for the six months ended December 31, 2008.
 
We had adjusted EBITDA of $1.8 million and $2.2 million for the six months ended December 31, 2009 and 2008, respectively. EBITDA is a non-GAAP measure of income and does not include the effects of interest and taxes and excludes the "non-cash" effects of depreciation and amortization on current assets. Companies have some discretion as to which elements of depreciation and amortization are excluded in the EBITDA calculation. We exclude all depreciation charges related to property, plant and equipment, and all amortization charges, including amortization of leasehold improvements and other intangible assets. We then further adjust EBITDA to exclude extraordinary items and costs related to share based compensation expense, goodwill impairment charges and other non-cash charges consistent with the financial covenants of our credit facility. As explained above, we believe that EBITDA is useful to us and to our investors in evaluating and measuring our financial performance.  While management considers EBITDA and adjusted EBITDA useful in analyzing our results, it is not intended to replace any presentation included in our consolidated financial statements.  Set forth below is a reconciliation of EBITDA and adjusted EBITDA to net income (loss), the most directly comparable GAAP measure for the six months ended December 31, 2009 and 2008.
 
The following table provides a reconciliation of adjusted EBITDA to net income (loss), the most directly comparable GAAP measure in accordance with SEC Regulation G (in thousands), for the six months ended December 31, 2009 and 2008:
 
   
Six months ended December 31,
   
Change
 
   
2009
   
2008
   
Amount
   
Percent
 
                         
Net income (loss)
  $ 665     $ (9,966 )   $ 10,631       106.7 %
Income tax expense (benefit)
    408       (230 )     638       277.4 %
Net interest expense
    82       92       (10 )     (10.9 )%
Depreciation and amortization
    796       788       8       1.0 %
                                 
EBITDA
  $ 1,951     $ (9,316 )   $ 11,267       120.9 %
                                 
Share based compensation and other non-cash costs
    154       89       65       73.0 %
Gain on litigation settlement
    (355 )           (355 )  
NM
 
Goodwill impairment
          11,403       (11,403 )     (100.0 )%
Adjusted EBITDA
  $ 1,750     $ 2,176     $ (426 )     (19.6 )%
 
The following table summarizes transportation revenue, cost of transportation and net transportation revenue (in thousands) for the six months ended December 31, 2009 and 2008 (actual and unaudited):
 
 
Six months ended December 31,
 
Change
 
 
2009
 
2008
 
Amount
 
Percent
 
                 
Transportation revenue
  $ 73,144     $ 74,908     $ (1,764 )     (2.4 )%
Cost of transportation
    51,091       50,235       856       1.7 %
                                 
Net transportation revenue
  $ 22,053     $ 24,673     $ (2,620 )     (10.6 )%
Net transportation margins
    30.2 %     32.9 %                
 
Transportation revenue was $73.1 million for the six months ended December 31, 2009, a decrease of 2.4% over transportation revenue of $74.9 million for the six months ended December 31, 2008.  Domestic transportation revenue decreased by 5.6% to $37.5 million for the six months ended December 31, 2009, from $39.7 million for the six months ended December 31, 2008. The decrease was primarily attributed to the effects from the slowing global economy.  International transportation revenue increased by 1.3% to $35.6 million for the six months ended December 31, 2009, from $35.2 million for the comparable prior year period, mainly attributed to the inclusion of international revenues associated with the Adcom acquisition for the full six months ended December 31, 2009.

 
26

 

Cost of transportation increased 1.7% to $51.1 million for the six months ended December 31, 2009, compared to $50.2 million for the six months ended December 31, 2008.  Cost of transportation as a percentage of transportation revenues increased as a result of pricing pressures from competitors due to current economic conditions.

Net transportation margins decreased to 30.2% of transportation revenue for the six months ended December 31, 2009, as compared to 32.9% of transportation revenue for the six months ended December 31, 2008.  The margin regression was attributed to proportionately higher international sales, which typically yield lower margins, coupled with pricing pressures from competitors.
 
The following table compares certain condensed consolidated statement of income data as a percentage of our net transportation revenue (in thousands) for the six months ended December 31, 2009 and 2008 (actual and unaudited):
 
   
Six months ended December 31,
       
   
2009
   
2008
   
Change
 
   
Amount
 
Percent
   
Amount
 
Percent
   
Amount
 
Percent
 
                               
Net transportation revenue
 
$
22,053
 
100.0
%
 
$
24,673
 
100.0
%
 
$
(2,620