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EX-32.1 - CERTIFICATION OF CEO AND CFO PURSUANT TO SECTION 906 - RADIANT LOGISTICS, INC | v174479_ex32-1.htm |
EX-31.1 - CERTIFICATION OF CEO AND CFO PURSUANT TO SECTION 302 - RADIANT LOGISTICS, INC | v174479_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 |
16
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
|