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EX-32 - EX-32.1 - RADIANT LOGISTICS, INCrlgt-ex321_201412316.htm

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 2014

¨

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                      

Commission File Number 001-35392

 

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.)

 

 

 

405 114th Ave S.E., Bellevue, WA 98004

 

 

(Address of principal executive offices)

 

 

 

 

 

(425) 943-4599

 

 

(Registrant’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 Securities Exchange Act of 1934 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  x    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

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 34,712,244 shares issued and outstanding of the registrant’s common stock, par value $.001 per share, as of February 9, 2015.

 

 

 

 

 


RADIANT LOGISTICS, INC.

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

Item 1.

 

 

Condensed Consolidated Financial Statements - Unaudited

  

 

 

 

 

Condensed Consolidated Balance Sheets as of December 31, 2014 and June 30, 2014

  

3

 

 

 

Condensed Consolidated Statements of Operations for the Three and Six months ended December 31, 2014 and 2013

  

4

 

 

 

Condensed Consolidated Statement of Stockholders’ Equity for the Six months ended December 31, 2014

  

5

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six months ended December 31, 2014 and 2013

  

6

 

 

 

Notes to Condensed Consolidated Financial Statements

  

8

 

Item 2.

 

 

Management’s Discussion and Analysis of Financial Conditions and Results of Operations

  

21

 

Item 4.

 

 

Controls and Procedures

  

32

 

PART II. OTHER INFORMATION

  

 

 

Item 1.

 

 

Legal Proceedings

  

33

 

Item 1A.

 

 

Risk Factors

  

33

 

Item 2.

 

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

34

 

Item 6.

 

 

Exhibits

  

35

 

 

 

2


 

RADIANT LOGISTICS, INC.

Condensed Consolidated Balance Sheets

(unaudited)

 

 

December 31,

 

 

June 30,

 

 

2014

 

 

2014

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

1,717,569

 

 

$

2,880,205

 

Accounts receivable, net of allowance of $892,591 and $1,034,934,

   respectively

 

63,415,609

 

 

 

65,066,555

 

Current portion of employee and other receivables

 

301,898

 

 

 

232,791

 

Income tax deposit

 

648,975

 

 

 

 

Prepaid expenses and other current assets

 

5,423,527

 

 

 

2,926,431

 

Deferred tax asset

 

389,178

 

 

 

925,208

 

Total current assets

 

71,896,756

 

 

 

72,031,190

 

 

 

 

 

 

 

 

 

Furniture and equipment, net

 

2,457,627

 

 

 

1,265,107

 

 

 

 

 

 

 

 

 

Acquired intangibles, net

 

16,784,243

 

 

 

15,041,988

 

Goodwill

 

29,466,537

 

 

 

28,247,003

 

Employee and other receivables, net of current portion

 

6,924

 

 

 

22,070

 

Deposits and other assets

 

595,838

 

 

 

617,093

 

Total long-term assets

 

46,853,542

 

 

 

43,928,154

 

Total assets

$

121,207,925

 

 

$

117,224,451

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable and accrued transportation costs

$

46,449,015

 

 

$

45,510,140

 

Commissions payable

 

6,616,239

 

 

 

5,569,671

 

Other accrued costs

 

2,479,798

 

 

 

2,517,415

 

Income taxes payable

 

 

 

 

436,328

 

Current portion of notes payable

 

123,269

 

 

 

 

Current portion of contingent consideration

 

2,425,000

 

 

 

1,541,000

 

Current portion of lease termination liability

 

328,226

 

 

 

319,826

 

Other current liabilities

 

20,631

 

 

 

 

Total current liabilities

 

58,442,178

 

 

 

55,894,380

 

 

 

 

 

 

 

 

 

Notes payable, net of current portion

 

8,753,773

 

 

 

7,243,371

 

Contingent consideration, net of current portion

 

8,015,000

 

 

 

9,626,000

 

Lease termination liability, net of current portion

 

65,581

 

 

 

198,502

 

Deferred rent liability

 

702,234

 

 

 

560,248

 

Deferred tax liability

 

1,998,517

 

 

 

2,774,506

 

Other long-term liabilities

 

22,257

 

 

 

2,610

 

Total long-term liabilities

 

19,557,362

 

 

 

20,405,237

 

Total liabilities

 

77,999,540

 

 

 

76,299,617

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 5,000,000 shares authorized;

   839,200 shares issued and outstanding, liquidation

   preference of $20,980,000

 

839

 

 

 

839

 

Common stock, $0.001 par value, 100,000,000 shares authorized;

  34,704,864 and 34,326,308 shares issued and outstanding, respectively

 

16,160

 

 

 

15,781

 

Additional paid-in capital

 

35,477,236

 

 

 

34,558,785

 

Deferred compensation

 

(6,687

)

 

 

(9,209

)

Retained earnings

 

7,654,080

 

 

 

6,317,473

 

Total Radiant Logistics, Inc. stockholders’ equity

 

43,141,628

 

 

 

40,883,669

 

Non-controlling interest

 

66,757

 

 

 

41,165

 

Total stockholders’ equity

 

43,208,385

 

 

 

40,924,834

 

Total liabilities and stockholders’ equity

$

121,207,925

 

 

$

117,224,451

 

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,

 

 

 

 

2014

 

 

 

2013

 

 

 

2014

 

 

 

2013

 

Revenues

 

$

105,948,104

 

 

$

84,143,519

 

 

$

204,179,492

 

 

$

160,845,380

 

Cost of transportation

 

 

78,355,731

 

 

 

59,836,432

 

 

 

150,262,336

 

 

 

113,317,792

 

Net revenues

 

 

27,592,373

 

 

 

24,307,087

 

 

 

53,917,156

 

 

 

47,527,588

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating partner commissions

 

 

14,897,910

 

 

 

12,906,080

 

 

 

28,877,261

 

 

 

26,540,852

 

Personnel costs

 

 

6,976,480

 

 

 

5,396,200

 

 

 

13,536,426

 

 

 

9,887,803

 

Selling, general and administrative expenses

 

 

2,882,218

 

 

 

2,627,915

 

 

 

5,530,284

 

 

 

4,892,249

 

Depreciation and amortization

 

 

1,099,713

 

 

 

1,241,656

 

 

 

2,378,794

 

 

 

2,071,754

 

Lease termination costs

 

 

395,086

 

 

 

 

 

 

395,086

 

 

 

 

Change in contingent consideration

 

 

(170,796

)

 

 

(17,567

)

 

 

(720,796

)

 

 

(212,567

)

Total operating expenses

 

 

26,080,611

 

 

 

22,154,284

 

 

 

49,997,055

 

 

 

43,180,091

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

 

1,511,762

 

 

 

2,152,803

 

 

 

3,920,101

 

 

 

4,347,497

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

732

 

 

 

2,128

 

 

 

1,657

 

 

 

4,628

 

Interest expense

 

 

(96,442

)

 

 

(495,293

)

 

 

(187,901

)

 

 

(1,016,456

)

Loss on write-off of debt discount

 

 

 

 

 

(1,238,409

)

 

 

 

 

 

(1,238,409

)

Other

 

 

60,733

 

 

 

8,563

 

 

 

187,555

 

 

 

92,746

 

Total other income (expense)

 

 

(34,977

)

 

 

(1,723,011

)

 

 

1,311

 

 

 

(2,157,491

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income tax expense

 

 

1,476,785

 

 

 

429,792

 

 

 

3,921,412

 

 

 

2,190,006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

(616,491

)

 

 

(150,081

)

 

 

(1,518,417

)

 

 

(801,916

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

860,294

 

 

 

279,711

 

 

 

2,402,995

 

 

 

1,388,090

 

Less: Net income attributable to non-controlling interest

 

 

(21,555

)

 

 

(16,138

)

 

 

(43,592

)

 

 

(32,780

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Radiant Logistics, Inc.

 

 

838,739

 

 

 

263,573

 

 

 

2,359,403

 

 

 

1,355,310

 

Less: Preferred stock dividends

 

 

(511,388

)

 

 

(68,499

)

 

 

(1,022,776

)

 

 

(68,499

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders

 

$

327,351

 

 

$

195,074

 

 

$

1,336,627

 

 

$

1,286,811

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share - basic and diluted

 

$

0.01

 

 

$

0.01

 

 

$

0.04

 

 

$

0.04

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic shares

 

 

34,627,645

 

 

 

33,601,956

 

 

 

34,488,616

 

 

 

33,469,659

 

Diluted shares

 

 

36,184,653

 

 

 

35,379,494

 

 

 

36,005,995

 

 

 

35,262,202

 

 

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

 

 

4


 

RADIANT LOGISTICS, INC.

Condensed Consolidated Statement of Stockholders’ Equity

(unaudited)

 

 

RADIANT LOGISTICS, INC. STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Deferred

 

 

Retained

 

 

Non-

Controlling

 

 

Total

Stockholders’

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Compensation

 

 

Earnings

 

 

Interest

 

 

Equity

 

Balance as of June 30, 2014

 

839,200

 

 

$

839

 

 

 

34,326,308

 

 

$

15,781

 

 

$

34,558,785

 

 

$

(9,209

)

 

$

6,317,473

 

 

$

41,165

 

 

$

40,924,834

 

Issuance of common stock to former

   TNI shareholders at $3.08 per share

 

 

 

 

 

 

 

16,218

 

 

 

16

 

 

 

49,984

 

 

 

 

 

 

 

 

 

 

 

 

50,000

 

Issuance of common stock to former

   On Time shareholders at $3.84 per

   share

 

 

 

 

 

 

 

52,452

 

 

 

52

 

 

 

201,110

 

 

 

 

 

 

 

 

 

 

 

 

201,162

 

Issuance of common stock to former

   DCA shareholders at $3.90 per share

 

 

 

 

 

 

 

43,221

 

 

 

43

 

 

 

168,707

 

 

 

 

 

 

 

 

 

 

 

 

168,750

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

449,046

 

 

 

 

 

 

 

 

 

 

 

 

449,046

 

Amortization of deferred

   compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,522

 

 

 

 

 

 

 

 

 

2,522

 

Cashless exercise of stock options

 

 

 

 

 

 

 

266,665

 

 

 

268

 

 

 

(388,474

)

 

 

 

 

 

 

 

 

 

 

 

(388,206

)

Tax benefit from exercise of stock

   options

 

 

 

 

 

 

 

 

 

 

 

 

 

438,078

 

 

 

 

 

 

 

 

 

 

 

 

438,078

 

Preferred dividends paid

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,022,796

)

 

 

 

 

 

(1,022,796

)

Distribution to non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,000

)

 

 

(18,000

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,359,403

 

 

 

43,592

 

 

 

2,402,995

 

Balance as of December 31, 2014

 

839,200

 

 

$

839

 

 

 

34,704,864

 

 

$

16,160

 

 

$

35,477,236

 

 

$

(6,687

)

 

$

7,654,080

 

 

$

66,757

 

 

$

43,208,385

 

 

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,

 

 

 

 

2014

 

 

 

2013

 

CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

2,402,995

 

 

$

1,388,090

 

ADJUSTMENTS TO RECONCILE NET INCOME TO NET

   CASH PROVIDED BY OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

share-based compensation expense

 

 

451,568

 

 

 

277,187

 

amortization of intangibles

 

 

2,111,745

 

 

 

1,807,817

 

depreciation and leasehold amortization

 

 

267,049

 

 

 

263,937

 

deferred income tax benefit

 

 

(239,959

)

 

 

(204,234

)

amortization of loan fees and original issue discount

 

 

30,590

 

 

 

172,412

 

change in contingent consideration

 

 

(720,796

)

 

 

(212,567

)

loss on write-off of debt discount

 

 

 

 

 

1,238,409

 

lease termination costs

 

 

395,086

 

 

 

 

change in (recovery of) provision for doubtful accounts

 

 

(142,343

)

 

 

(418,463

)

CHANGE IN OPERATING ASSETS AND LIABILITIES:

 

 

 

 

 

 

 

 

accounts receivable

 

 

1,793,289

 

 

 

5,318,516

 

employee and other receivables

 

 

(53,961

)

 

 

(81,336

)

income tax deposit and income taxes payable

 

 

(1,085,303

)

 

 

510,372

 

prepaid expenses, deposits and other assets

 

 

(2,506,431

)

 

 

323,161

 

accounts payable and accrued transportation costs

 

 

938,875

 

 

 

(434,082

)

commissions payable

 

 

1,046,568

 

 

 

(778,274

)

other accrued costs

 

 

(74,535

)

 

 

(83,128

)

other liabilities

 

 

13,662

 

 

 

(857

)

deferred rent liability

 

 

9,184

 

 

 

(11,304

)

lease termination liability

 

 

(504,494

)

 

 

(142,119

)

Net cash provided by operating activities

 

 

4,132,789

 

 

 

8,933,537

 

 

 

 

 

 

 

 

 

 

CASH FLOWS USED FOR INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Acquisitions during fiscal year 2015

 

 

(3,506,250

)

 

 

 

Acquisition of On Time Express, Inc., net of acquired cash

 

 

 

 

 

(6,952,056

)

Purchase of furniture and equipment

 

 

(1,226,880

)

 

 

(69,665

)

Net cash used for investing activities

 

 

(4,733,130

)

 

 

(7,021,721

)

 

 

 

 

 

 

 

 

 

CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from (repayments to) credit facility, net of credit fees

 

 

1,085,941

 

 

 

(163,353

)

Proceeds from notes payable

 

 

547,730

 

 

 

 

Repayment of notes payable

 

 

 

 

 

(10,000,000

)

Proceeds from preferred stock, net of offering costs

 

 

 

 

 

19,320,659

 

Payments of contingent consideration

 

 

(1,205,042

)

 

 

(259,596

)

Payment of preferred stock dividends

 

 

(1,022,796

)

 

 

 

Distributions to non-controlling interest

 

 

(18,000

)

 

 

(60,000

)

Payment of employee tax withholdings related to cashless stock

   option exercises

 

 

(388,206

)

 

 

 

Tax benefit from exercise of stock options

 

 

438,078

 

 

 

65,066

 

Net cash provided by (used for) financing activities

 

 

(562,295

)

 

 

8,902,776

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

(1,162,636

)

 

 

10,814,592

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

 

2,880,205

 

 

 

1,024,192

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

1,717,569

 

 

$

11,838,784

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW

   INFORMATION:

 

 

 

 

 

 

 

 

Income taxes paid

 

$

2,416,933

 

 

$

430,502

 

Interest paid

 

$

153,936

 

 

$

1,091,266

 

(continued)

6


 

RADIANT LOGISTICS, INC.

Condensed Consolidated Statements of Cash Flows (continued)

(unaudited)

Supplemental disclosure of non-cash investing and financing activities:

In October 2013, the Company issued 237,320 shares of common stock at a fair value of $2.11 per share in satisfaction of $500,000 of the On Time Express, Inc. purchase price, resulting in an increase to common stock of $237 and an increase to additional paid-in capital of $499,763.

In September 2014, the Company issued 16,218 shares of common stock at a fair value of $3.08 per share in satisfaction of $50,000 of the Trans-Net, Inc. purchase price, resulting in an increase to common stock of $16 and an increase to additional paid-in capital of $49,984.

In November 2014, the Company issued 52,452 shares of common stock at a fair value of $3.84 per share in satisfaction of $201,162 of the On Time Express, Inc. earn-out payment for the year ended June 30, 2014, resulting in a decrease to the current portion of contingent consideration, an increase to common stock of $52 and an increase to additional paid-in capital of $201,110.

In December 2014, the Company issued 43,221 shares of common stock at a fair value of $3.90 per share in satisfaction of $168,750 of the Don Cameron & Associates, Inc. purchase price, resulting in an increase to common stock of $43 and an increase to additional paid-in capital of $168,707.

 

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

 

 

 

7


 

RADIANT LOGISTICS, INC.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

 

NOTE 1 – THE COMPANY AND BASIS OF PRESENTATION

The Company

Radiant Logistics, Inc. (the “Company”) is a non-asset based transportation and logistics services company providing domestic and international freight forwarding and truck brokerage services through a network of Company-owned and strategic operating partner locations operating under the Radiant, Airgroup, Adcom, DBA and On Time network brands located throughout North America and an integrated service partner network serving other markets around the globe. The Company also offers an expanding array of value-added supply chain management services, including customs brokerage, order fulfillment, inventory management and warehousing.

Through operating locations across North America, the Company offers domestic and international air, ocean and ground freight forwarding to a large and diversified account base consisting of manufacturers, distributors and retailers. The Company’s primary business operations involve arranging the shipment, on behalf of their customers, of materials, products, equipment and other goods that are generally larger than shipments handled by integrated carriers of primarily small parcels, such as FedEx, DHL and UPS. The Company provides a wide range of value-added logistics solutions to meet customers’ specific requirements for transportation and related services, including arranging and monitoring all aspects of material flow activity utilizing advanced information technology systems.

The Company’s value-added logistics solutions are provided through their multi-brand network of Company-owned and strategic operating partner locations, using a network of independent air, ground and ocean carriers and international operating partners strategically positioned around the world. The Company creates value for its customers and operating partners through, among other things, customized logistics solutions, global reach, brand awareness, purchasing power, and infrastructure benefits, such as centralized back-office operations, and advanced transportation and accounting systems.

The Company’s growth strategy will continue to focus on a combination of both organic and acquisition initiatives. For organic growth, the Company will focus on strengthening and retaining existing, and expanding new customer and operating partner relationships. In addition to its focus on organic growth, the Company will continue to search for acquisition candidates that bring critical mass from a geographic standpoint, purchasing power and/or complementary service offerings to the current platform. As the Company continues to grow and scale the business, the Company remains focused on leveraging its back-office infrastructure to drive productivity improvement across the organization. In addition, the Company is also developing density within certain trade lanes which creates opportunities to more efficiently source and manage transportation capacity for existing freight volumes.

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, 2014.

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 condensed 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, Inc. (“RGL”), and 60% owned by Radiant Capital Partners, LLC (“RCP”, see Note 8), an affiliate of Bohn H. Crain, the Company’s Chief Executive Officer, whose accounts are included in the condensed consolidated financial statements. All significant intercompany balances and transactions have been eliminated.

 

 

8


 

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 (“GAAP”) 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, changes in contingent consideration, accounting for the issuance of shares and share-based compensation, the assessment of the recoverability of long-lived assets and goodwill, and the establishment of an allowance for doubtful accounts. 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.

c)

Fair Value of Financial Instruments

The carrying values of the Company’s receivables, income tax deposit, accounts payable and accrued transportation costs, commissions payable, other accrued costs, and income taxes payable approximate the fair values due to the relatively short maturities of these instruments. The carrying value of the Company’s credit facility and other long-term liabilities would not differ significantly from fair value (based on Level 2 inputs) if recalculated based on current interest rates. Contingent consideration attributable to the Company’s acquisitions are reported at fair value using Level 3 inputs.

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 that are not securing any corporate obligations. Checks issued by the Company that have not yet been presented to the bank for payment are reported as accounts payable and commissions payable in the accompanying consolidated balance sheets. Accounts payable and commissions payable includes outstanding payments which had not yet been presented to the bank for payment in the amounts of $5,776,557 and $3,837,619 as of December 31, 2014 and June 30, 2014, respectively.

e)

Concentrations

The Company maintains its cash in bank deposit accounts that, 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 receivables, historical experience and knowledge of specific customers.

The Company derives a substantial portion of its revenue through independently-owned operating partner locations operating under the various Company brands. Each individual operating partner is responsible for some or all of the bad debt expense related to the underlying customers being serviced by the office. To facilitate this arrangement, each operating partner is required to maintain a security deposit with the Company that is recognized as a liability in the Company’s financial statements. The Company charges each individual operating partner’s bad debt reserve account for any accounts receivable aged beyond 90 days. The bad debt reserve account is continually replenished with a portion (typically 5% – 10%) of the operating partner’s weekly commission check being directed to fund this account. However, the bad debt reserve account may carry a deficit balance when amounts charged to this reserve exceed amounts otherwise available in the bad debt reserve account. In these circumstances, deficit bad debt reserve accounts are

9


 

recognized as a receivable in the Company’s financial statements. Further, the operating agreements provide that the Company may withhold all or a portion of future commission checks payable to the individual operating partner in satisfaction of any deficit balance. Currently, a number of the Company’s operating partners have a deficit balance in their bad debt reserve account. The Company expects to replenish these funds through the future business operations of these operating partners. However, to the extent any of these operating partners were to cease operations or otherwise be unable to replenish these deficit accounts, the Company would be at risk of loss for any such amount.

g)

Furniture and 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 using the straight line method of depreciation. 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

Goodwill represents the excess of purchase price over the value assigned to the net tangible and identifiable intangible assets of a business acquired. The Company typically performs its annual goodwill impairment test effective as of April 1 of each year, unless events or circumstances indicate impairment may have occurred before that time. The Company assesses qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. After assessing qualitative factors, the Company determined that no further testing was necessary. If further testing was necessary, the Company would have performed a two-step impairment test for goodwill. The first step requires the Company to determine the fair value of each reporting unit, and compare the fair value to the reporting unit’s carrying amount. The Company has only one reporting unit. To the extent a 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. As of December 31, 2014, management believes there are no indications of impairment.

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 five years and non-compete agreements are amortized using the straight line method over the term of the underlying agreements.

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, 2014.

j)

Business Combinations

The Company accounts for business combinations using the purchase method of accounting and allocates the purchase price to the tangible and intangible assets acquired and the liabilities assumed based upon their estimated fair values at the acquisition date. The difference between the purchase price and the fair value of the net assets acquired is recorded as goodwill. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, the estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in the condensed consolidated statements of operations.

10


 

The fair values of intangible assets acquired are estimated using a discounted cash flow approach with Level 3 inputs. Under this method, an intangible asset’s fair value is equal to the present value of the incremental after-tax cash flows (excess earnings) attributable solely to the intangible asset over its remaining useful life. To calculate fair value, the Company uses risk-adjusted cash flows discounted at rates considered appropriate given the inherent risks associated with each type of asset. The Company believes the level and timing of cash flows appropriately reflects market participant assumptions.

The Company determines the acquisition date fair value of the contingent consideration payable based on the likelihood of paying the contingent consideration as part of the consideration transferred. The fair value is estimated using projected future operating results and the corresponding future earn-out payments that can be earned upon the achievement of specified operating objectives and financial results by our acquired companies using Level 3 inputs and the amounts are then discounted to present value. These liabilities are measured quarterly at fair value, and any change in the contingent liability is included in the condensed consolidated statements of operations.

k)

Commitments

The Company has operating lease commitments for equipment rentals, office space, and warehouse space under non-cancelable operating leases expiring at various dates through May 2021. Rent expense is recognized straight line over the term of the lease. Minimum future lease payments (excluding the lease payments included in the lease termination liability) under these non-cancelable operating leases for the next five fiscal years ending June 30 and thereafter are as follows:

 

2015 (remaining portion)

$

945,257

 

2016

 

1,569,688

 

2017

 

1,089,852

 

2018

 

901,544

 

2019

 

556,506

 

Thereafter

 

713,941

 

 

 

 

 

Total minimum lease payments

$

5,776,788

 

 

Rent expense amounted to $451,662 and $975,278 for the three and six months ended December 31, 2014, respectively, and $486,616 and $845,960 for the three and six months ended December 31, 2013, respectively.

l)

Lease Termination Costs

Lease termination costs consist of expenses related to future rent payments for which we no longer intend to receive any economic benefit. A liability is recorded when we cease to use leased space. Lease termination costs are calculated as the present value of lease payments, net of expected sublease income, and the loss on disposition of assets. During the six months ended December 31, 2014 and 2013, the Company paid $504,494 and $142,119 of the liability, respectively. During the three months ended December 31, 2014, the company recorded and paid a lease termination liability incurred with the exit and downsizing of its New Jersey warehouse.

m)

401(k) Savings Plan

The Company has an employee savings plan under which the Company provides safe harbor matching contributions. The Company’s contributions under the plan were $119,576 and $223,097 for the three and six months ended December 31, 2014, respectively, and $86,689 and $153,407 for the three and six months ended December 31, 2013, respectively.

n)

Income Taxes

Deferred income taxes are reported using the asset and 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 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


 

o)

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 freight forwarding 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 or a House Ocean Bill of Lading are recognized at the time the freight is tendered to the direct carrier at origin net of duties and taxes. 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 does not recognize revenue until a proof of delivery is received or which recognizes 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.

All other revenue, including revenue from other value-added services including brokerage services, warehousing and fulfillment services, is recognized upon completion of the service.

p)

Share-Based Compensation

The Company has issued restricted stock awards and stock options to certain directors, officers and employees. 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 that 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. The Company issues new shares of common stock to satisfy exercises and vesting of awards granted under our stock plan.

The Company recorded share-based compensation expense of $246,839 and $451,568 for the three and six months ended December 31, 2014, respectively, and $143,998 and $277,187 for the three and six months ended December 31, 2013, respectively.

q)

Basic and Diluted Income per Share

Basic income per share is computed by dividing net income 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 awards and stock options, had been issued and if the additional common shares were dilutive. Net income attributable to common stockholders is calculated after earned preferred stock dividends, whether or not declared.

For the three months ended December 31, 2014, the weighted average outstanding number of potentially dilutive common shares totaled 36,184,653 shares of common stock, including unvested restricted stock awards and options to purchase 5,356,821 shares of common stock as of December 31, 2014, of which 946,536 were excluded as their effect would have been antidilutive. For the three months ended December 31, 2013, the weighted average outstanding number of potentially dilutive common shares totaled 35,379,494 shares of common stock, including unvested restricted stock awards and options to purchase 5,973,401 shares of common stock as of December 31, 2013, of which 2,297,643 were excluded as their effect would have been antidilutive.

For the six months ended December 31, 2014, the weighted average outstanding number of potentially dilutive common shares totaled 36,005,995 shares of common stock, including unvested restricted stock awards and options to purchase 5,356,821 shares of common stock as of December 31, 2014, of which 980,627 were excluded as their effect would have been antidilutive. For the six months ended December 31, 2013, the weighted average outstanding number of potentially dilutive common shares totaled 35,262,202 shares

12


 

of common stock, including unvested restricted stock awards and options to purchase 5,973,401 shares of common stock as of December 31, 2013, of which 2,116,992 were excluded as their effect would have been antidilutive.

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,

 

 

Six Months Ended December 31,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Weighted average basic shares outstanding

 

34,627,645

 

 

 

33,601,956

 

 

 

34,488,616

 

 

 

33,469,659

 

Dilutive effect of share-based awards

 

1,557,008

 

 

 

1,777,538

 

 

 

1,517,379

 

 

 

1,792,543

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average dilutive shares outstanding

 

36,184,653

 

 

 

35,379,494

 

 

 

36,005,995

 

 

 

35,262,202

 

 

r)

Other Comprehensive Income

The Company has no components of Other Comprehensive Income and, accordingly, no Statement of Comprehensive Income has been included in the accompanying condensed consolidated financial statements.

s)

Reclassifications

Certain amounts for prior periods have been reclassified in the condensed consolidated financial statements to conform to the classification used in fiscal year 2015.

t)

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers, to clarify the principles used to recognize revenue for all entities. The guidance is effective for annual and interim periods beginning after December 15, 2016, and early adoption is not permitted. The Company is currently evaluating the impact, if any, that the adoption of this guidance will have on the Company’s consolidated financial statements and related disclosures.

 

 

NOTE 3 – BUSINESS ACQUISITIONS

Fiscal Year 2015 Acquisitions

On September 1, 2014, through a wholly-owned subsidiary, the Company acquired the assets and operations of Trans-Net, Inc. (“TNI”), a privately-held company based in Issaquah, Washington. TNI has extensive experience providing integrated project logistics solutions in key Russian oil, gas, mining and infrastructure development markets. On December 15, 2014, through a wholly-owned subsidiary, the Company acquired the assets and operations of Don Cameron & Associates, Inc. (“DCA”), a privately-held company based in Minneapolis, Minnesota. DCA has extensive experience providing a full range of domestic and international transportation and logistics services across North America to the med-tech, advertising/marketing, pharmaceutical, and trade show industries.

Each of the TNI and DCA acquisitions were financed with proceeds from the Company’s Credit Facility (as defined in Note 6), and the transactions were structured as asset purchases using cash, stock, and earn-out payments. The goodwill recorded is expected to be deductible for income tax purposes over a period of 15 years. The consideration paid, purchase price, and pro forma results of operations have not been presented because the effect of these acquisitions was not material to the condensed consolidated financial statements.

The results of operations for the businesses acquired are included in our financial statements as of the date of purchase. The preliminary fair value estimates for the assets acquired and liabilities assumed are based upon preliminary calculations and valuations and our estimates and assumptions are subject to change as we obtain additional information for our estimates during the respective measurement periods (up to one year from the acquisition date). The primary areas of the preliminary estimates not yet finalized relates to certain tangible assets and liabilities acquired, goodwill and identifiable intangible assets.

 

 

13


 

NOTE 4 – FURNITURE AND EQUIPMENT

 

 

December 31,

2014

 

 

June 30,

2014

 

Vehicles

$

117,791

 

 

$

45,893

 

Communication equipment

 

60,990

 

 

 

45,499

 

Office and warehouse equipment

 

324,974

 

 

 

321,223

 

Furniture and fixtures

 

381,166

 

 

 

250,596

 

Computer equipment

 

985,123

 

 

 

767,381

 

Computer software

 

2,591,223

 

 

 

1,801,998

 

Leasehold improvements

 

1,040,207

 

 

 

930,946

 

 

 

 

 

 

 

 

 

 

 

5,501,474

 

 

 

4,163,536

 

Less: Accumulated depreciation and amortization

 

(3,043,847

)

 

 

(2,898,429

)

 

 

 

 

 

 

 

 

 

$

2,457,627

 

 

$

1,265,107

 

 

Depreciation and amortization expense related to furniture and equipment was $139,451 and $267,049 for the three and six months ended December 31, 2014, respectively, and $134,319 and $263,937 for the three and six months ended December 31, 2013, respectively.

 

 

NOTE 5 – ACQUIRED INTANGIBLE ASSETS

The table below reflects acquired intangible assets related to all acquisitions:

 

 

December 31, 2014

 

 

June 30, 2014

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

Customer related

$

32,933,640

 

 

$

16,487,396

 

 

$

29,119,640

 

 

$

14,429,985

 

Covenant not to compete

 

700,000