RADIANT LOGISTICS, INC - Annual Report: 2008 (Form 10-K)
U.S.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
x
Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the
fiscal year ended June 30, 2008
¨
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 000-50283
RADIANT
LOGISTICS, INC.
(Name
of
Registrant as Specified in Its Charter)
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Delaware
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04-3625550
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(State
or other jurisdiction of
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(IRS
Employer Identification Number)
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|
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incorporation
or organization)
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1227
120th
Avenue
N.E
Bellevue,
WA 98005
(Address of Principal Executive Offices) (Zip Code)
(425)
943-4599
Registrant’s
Telephone Number, Including Area Code)
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Title
of Each Class
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Name
of Exchange on which Registered
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Common
Stock , $.001 Par Value
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None
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Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, $.001 Par Value per Share
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
rule 405 of the Securities Act. Yes ¨
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. ¨
Indicate
by check mark whether the issuer (1) 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 if the disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
form 10-K. ¨
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):
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Large
accelerated filer ¨
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Accelerated
filer ¨
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|
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Non-accelerated
filer ¨
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Smaller
Reporting Company x
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant based on the closing share price of the
registrant's common stock on December 31, 2007 as reported on the OTC Bulletin
Board was $7,196.24. Shares of common stock held by each current executive
officer and director and by each person who is known by the registrant to own
5%
or more of the outstanding common stock have been excluded from this computation
in that such persons may be deemed to be affiliates of the registrant. This
determination of affiliate status is not a conclusive determination for other
purposes.
As
of
September 24, 2008, 34,701,960 shares
of
the registrant's common stock were outstanding.
Documents
Incorporated by Reference: None
TABLE
OF
CONTENTS
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PART
I
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ITEM
1.
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BUSINESS
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2
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ITEM
1A.
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RISK
FACTORS
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9
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ITEM
2.
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PROPERTIES
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16
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ITEM
3.
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LEGAL
PROCEEDINGS
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17
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ITEM
4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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18
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PART
II
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ITEM
5.
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MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
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18
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ITEM
7.
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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19
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ITEM
8.
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FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
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30
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ITEM
9.
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
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30
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| ITEM 9A(T) |
CONTROLS
AND PROCEDURES
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30
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ITEM
9B
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OTHER
INFORMATION
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31
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PART
III
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ITEM
10.
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DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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31
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ITEM
11.
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EXECUTIVE
COMPENSATION
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33
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ITEM
12.
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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37 | |
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ITEM
13.
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
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38 | |
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ITEM
14.
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PRINCIPAL
ACCOUNTANT FEES AND SERVICES
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39
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ITEM
15.
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EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
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40
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Signatures
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42
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Financial
Statements
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F-1
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i
CAUTIONARY
STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
Cautionary
Statement for 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
the
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 below in Part 1 Item 1A. 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.
1
PART
I
The
Company
Radiant
Logistics, Inc. (the “Company,” “we” or “us”) was incorporated in the State of
Delaware on March 15, 2001. We are 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.
We
completed the first step in this 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. Airgroup 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 based on the operations of Airgroup as a
platform, we are 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.
Our
growth strategy will focus on both organic growth and acquisitions. From an
organic perspective, we will focus 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. Since our
acquisition of Airgroup in January 2006, we have focused our efforts on the
build-out of our network of exclusive agency offices, as well as enhancing
its
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. Our acquisition strategy relies upon
two primary factors: first, our ability to identify and acquire target
businesses that fit within our general acquisition criteria; and second, the
continued availability of capital and financing resources sufficient to complete
these acquisitions.
We
continue to identify a number of additional companies as suitable acquisition
candidates and have completed two material acquisitions over the past twelve
months. In November 2007, we purchased certain assets in Detroit, Michigan
to
service the automotive industry. In September 2008, we acquired Adcom Express,
Inc. d/b/a Adcom Worldwide (“Adcom”). Adcom is a Minneapolis, Minnesota based
logistics company contributing an additional 30 locations across North America
and augmenting our overall domestic and international freight forwarding
capabilities.
We
will
continue to search for targets that fit within our acquisition criteria. Our
ability to secure additional financing will rely upon the sale of debt or equity
securities, and the development of an active trading market for our securities.
Although we can make no assurance as to our long term access to debt or equity
securities or our ability to develop an active trading market, in connection
with our acquisition of Adcom we were successful in increasing our credit
facility from $10.0 million to $15.0 million.
Our
growth strategy has been designed to take advantage of shifting market dynamics.
The third party logistics industry continues to grow as an increasing number
of
businesses outsource their logistics functions to more cost effectively manage
and extract value from their supply chains. The industry is positioned for
further consolidation as it remains highly fragmented, and as customers are
demanding the types of sophisticated and broad reaching service offerings that
can more effectively be handled by larger more diverse organizations. In
addition, we believe that there are a number of participants within agent-based
forwarding community that will be seeking liquidity within the next several
years as these owners approach retirement age. We believe there is significant
growth opportunity in supporting these logistics entrepreneurs in
transition.
2
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.. Certain of these business risks are identified or referred to
below
in Item 1A of this Report.
Industry
Overview
As
business requirements for efficient and cost-effective logistics services have
increased, so has the importance and complexity of effectively managing freight
transportation. Businesses increasingly strive to minimize inventory levels,
perform manufacturing and assembly operations in the lowest cost locations,
and
distribute their products in numerous global markets. As a result, companies
are
increasingly looking to third-party logistics providers to help them execute
their supply chain strategies.
Customers
have two principal third-party alternatives: a freight forwarder or a
fully-integrated carrier. A freight forwarder, such as Airgroup and Adcom,
procures shipments from customers and arranges the transportation of cargo
on a
carrier. A freight forwarder may also arrange pick-up from the shipper to the
carrier and delivery of the shipment from the carrier to the recipient. Freight
forwarders often tailor shipment routing to meet the customer’s price and
service requirements. Fully-integrated carriers, such as FedEx Corporation,
DHL
Worldwide Express, Inc. and United Parcel Service (“UPS”), provide pick up and
delivery service, primarily through their own captive fleets of trucks and
aircraft. Because freight forwarders select from various transportation
options in routing customer shipments, they are often able to serve customers
less expensively and with greater flexibility than integrated carriers.
Freight forwarders, generally handle shipments of any size and can offer a
variety of customized shipping options.
Most
freight forwarders, like Airgroup and Adcom, focus on heavier cargo and do
not
generally compete with integrated shippers of primarily smaller parcels. In
addition to the high fixed expenses associated with owning, operating and
maintaining fleets of aircraft, trucks and related equipment, integrated
carriers often impose significant restrictions on delivery schedules and
shipment weight, size and type. On occasion, integrated shippers serve as
a source of cargo space to forwarders. Additionally, most freight forwarders
do
not generally compete with the major commercial airlines, which, to some extent,
depend on forwarders to procure shipments and supply freight to fill cargo
space
on their scheduled flights.
We
believe there are several factors that are increasing demand for global
logistics solutions. These factors include:
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·
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Outsourcing
of non-core activities.
Companies increasingly outsource freight forwarding, warehousing
and other
supply chain activities to allow them to focus on their respective
core
competencies. From managing purchase orders to the timely delivery
of
products, companies turn to third party logistics providers to manage
these functions at a lower cost and greater efficiency.
|
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·
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Globalization
of trade.
As barriers to international trade are reduced or substantially
eliminated, international trade is increasing. In addition, companies
increasingly are sourcing their parts, supplies and raw materials
from the
most cost competitive suppliers throughout the world. Outsourcing
of
manufacturing functions to, or locating company-owned manufacturing
facilities in, low cost areas of the world also results in increased
volumes of world trade.
|
3
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·
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Increased
need for time-definite delivery.
The need for just-in-time and other time-definite delivery has increased
as a result of the globalization of manufacturing, greater implementation
of demand-driven supply chains, the shortening of product cycles
and the
increasing value of individual shipments. Many businesses recognize
that
increased spending on time-definite supply chain management services
can
decrease overall manufacturing and distribution costs, reduce capital
requirements and allow them to manage their working capital more
efficiently by reducing inventory levels and inventory
loss.
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·
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Consolidation
of global logistics providers.
Companies are decreasing the number of freight forwarders and supply
chain
management providers with which they interact. We believe companies
want
to transact business with a limited number of providers that are
familiar
with their requirements, processes and procedures, and can function
as
long-term partners. In addition, there is strong pressure on national
and
regional freight forwarders and supply chain management providers
to
become aligned with a global network. Larger freight forwarders and
supply
chain management providers benefit from economies of scale which
enable
them to negotiate reduced transportation rates and to allocate their
overhead over a larger volume of transactions. Globally integrated
freight
forwarders and supply chain management providers are better situated
to
provide a full complement of services, including pick-up and delivery,
shipment via air, sea and/or road transport, warehousing and distribution,
and customs brokerage.
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·
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Increasing
influence of e-business and the internet.
Technology advances have allowed businesses to connect electronically
through the Internet to obtain relevant information and make purchase
and
sale decisions on a real-time basis, resulting in decreased transaction
times and increased business-to-business activity. In response to
their
customers' expectations, companies have recognized the benefits of
being
able to transact business electronically. As such, businesses increasingly
are seeking the assistance of supply chain service providers with
sophisticated information technology systems which can facilitate
real-time transaction processing and web-based shipment
monitoring.
|
Our
Growth Strategy
Our
objective is to provide customers with comprehensive value-added logistics
solutions. We plan to achieve this goal through domestic and international
freight forwarding services offered by Airgroup and Adcom. We expect to grow
our
business organically and by completing acquisitions of other companies with
complementary geographical and logistics service offerings. Our organic growth
strategy involves strengthening existing and expanding new customer
relationships. One of the drivers of this strategy is our ability to retain
existing, and secure new exclusive agency locations. Since our acquisition
of
Airgroup, we have focused our efforts on the organic build-out of our network
of
exclusive agency locations, as well as the enhancement of our back office
infrastructure and transportation and accounting systems. Through our recent
acquisition of Adcom we have made further progress in our acquisition strategy
and intend to pursue further acquisition opportunities to consolidate and
enhance our position in current markets and acquire operations in new markets.
We
believe there are many attractive acquisition candidates in our industry because
of the highly fragmented composition of the marketplace, the industry
participants' need for capital and their owners' desire for liquidity. Our
target acquisition candidates are generally expected to have earnings of $1.0
to
$5.0 million. Companies in this range of earnings may be receptive to our
acquisition program since they are often too small to be identified as
acquisition targets by larger public companies or to independently attempt
their
own public offerings.
4
On
a
longer-term basis, we believe we can successfully implement our acquisition
strategy due to the following factors:
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·
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the
highly fragmented composition of our
market;
|
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·
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our
strategy for creating an organization with global reach should enhance
an
acquired target company’s ability to compete in its local and regional
markets through an expansion of offered services and lower operating
costs;
|
|
·
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the
potential for increased profitability as a result of our centralization
of
certain administrative functions, greater purchasing power and economies
of scale;
|
|
·
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our
centralized management capabilities should enable us to effectively
manage
our growth and the integration of acquired
companies;
|
|
·
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our
status as a public corporation may ultimately provide us with a liquid
trading currency for acquisitions;
and
|
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·
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the
ability to utilize our experienced management to identify, acquire
and
integrate acquisition
opportunities.
|
We
will
be opportunistic in executing our acquisition strategy with a bias towards
completing transactions in key gateway locations such as Los Angeles, New York,
Chicago, Seattle, Miami, Dallas, and Houston to expand our international base
of
operations. We believe that our domestic and expanded international
capabilities, when taken together, will provide significant competitive
advantage in the marketplace.
Our
Operating Strategy
Leverage
the People, Process and Technology Available through a Central
Platform.
A key
element of our operating strategy is to maximize our operational efficiencies
by
integrating general and administrative functions into the back-office of our
platform acquisition and reducing or eliminating redundant functions and
facilities at acquired companies. This is designed to enable us to quickly
realize potential savings and synergies, efficiently control and monitor
operations of acquired companies, and allow acquired companies to focus on
growing their sales and operations.
Develop
and Maintain Strong Customer Relationships.
We seek
to develop and maintain strong interactive customer relationships by
anticipating and focusing on our customers' needs. We emphasize a
relationship-oriented approach to business, rather than the transaction or
assignment-oriented approach used by many of our competitors. To develop close
customer relationships, we and our network of exclusive agents regularly meet
with both existing and prospective clients to help design solutions for, and
identify the resources needed to execute, their supply chain strategies. We
believe that this relationship-oriented approach results in greater customer
satisfaction and reduced business development expense.
Operations
Through
our Airgroup and Adcom stations, we offer domestic and international air, ocean
and ground freight forwarding for shipments that are generally larger than
shipments handled by integrated carriers of primarily small parcels such as
Federal Express Corporation and United Parcel Service. Our revenues are
generated from a number of diverse services, including air freight forwarding,
ocean freight forwarding, customs brokerage, logistics and other value-added
services.
Our
primary business operations involve obtaining shipment or material orders from
customers, creating and delivering a wide range of logistics solutions to meet
customers' specific requirements for transportation and related services, and
arranging and monitoring all aspects of material flow activity utilizing
advanced information technology systems. These logistics solutions include
domestic and international freight forwarding and door-to-door delivery services
using a wide range of transportation modes, including air, ocean and truck.
As a
non-asset based provider we do not own the transportation equipment used to
transport the freight. We expect to neither own nor operate any aircraft and,
consequently, place no restrictions on delivery schedules or shipment size.
We arrange for transportation of our customers’ shipments via commercial
airlines, air cargo carriers, and other assets and non-asset based third-party
providers. We select the carrier for a shipment based on route, departure time,
available cargo capacity and cost. We charter cargo aircraft from time to
time depending upon seasonality, freight volumes and other factors. We make
a
profit or margin on the difference between what we charge to our customers
for
the totality of services provided to them, and what we pay to the transportation
provider to transport the freight.
5
Information
Services
The
regular enhancement of our information systems and ultimate migration of
acquired companies and additional exclusive agency locations to a common set
of
back-office and customer facing applications is a key component of our growth
strategy. We believe that the ability to provide accurate real-time information
on the status of shipments will become increasingly important and that our
efforts in this area will result in competitive service advantages. In addition,
we believe that centralizing our transportation management system (rating,
routing, tender and financial settlement processes) will drive significant
productivity improvement across our network.
We
utilize a web-enabled third-party freight forwarding software (Cargowise) which
is currently integrated to our third-party accounting system (SAP) that combine
to form the foundation of our supply-chain technologies which we call
“Globalvision”. Globalvision provides us with a common set of back-office
operating, accounting and customer facing applications used across the network.
We have and will continue to assess technologies obtained through our
acquisition strategy and expect to develop a “best-of-breed” solution set using
a combination of owned and licensed technologies. This strategy will require
the
investment of significant management and financial resources to deliver these
enabling technologies. Adcom also relies on the Cargowise platform for its
transportation system which is facilitating the integration process. However,
Cargowise uses an alternative third-party accounting system, Great Plains,
for
its operations. As part of our overall integration plan, we will be benchmarking
the SAP and Great Plains systems to determine which accounting package best
meets our on-going financial reporting requirements.
Our
Competitive Advantages
As
a
non-asset based third-party logistics provider, we believe that we will be
well-positioned to provide cost-effective and efficient solutions to address
the
demand in the marketplace for transportation and logistics services. We
believe that the most important competitive factors in our industry are quality
of service, including reliability, responsiveness, expertise and convenience,
scope of operations, geographic coverage, information technology and price.
We believe our primary competitive advantages are: (i) our low cost;
non-asset based business model; (ii) our information technology resources;
and
(iii) our diverse customer base.
|
·
|
Non-asset
based business model.
With relatively no dedicated or fixed operating costs, we are able
to leverage our network of exclusive agency offices and offer competitive
pricing and flexible solutions to our customers. Moreover, our
balanced product offering provides us with revenue streams from multiple
sources and enables us to retain customers even as they shift from
priority to deferred shipments of their products. We believe our
model allows us to provide low-cost solutions to our customers while
also
generating revenues from multiple modes of transportation and logistics
services.
|
6
|
·
|
Intention
to develop a global network.
We intend to focus on expanding our network on a global basis. Once
accomplished, this will enable us to provide a closed-loop logistics
chain
to our customers worldwide. Within North America, our capabilities
consist of our pick up and delivery network, ground and air networks,
and
logistics capabilities. Our ground and pick up and delivery networks
enable us to service the growing deferred forwarding market while
providing the domestic connectivity for international shipments once
they
reach North America. In addition, our heavyweight air network
provides for competitive costs on shipments, as we have no dedicated
charters or leases and can capitalize on available capacity in the
market
to move our customers’ goods.
|
|
·
|
Information
technology resources.
A primary component of our business strategy is the continued
development of advanced information systems to continually provide
accurate and timely information to our management and customers.
Our
customer delivery tools enable connectivity with our customers’ and
trading partners’ systems, which leads to more accurate and up-to-date
information on the status of shipments.
|
|
·
|
Diverse
customer base.
We have a well diversified base of customers that includes
manufacturers, distributors and retailers. As of the date of this
Report,
no single customer represented more than 5% of our business reducing
risks
associated with any particular industry or customer concentration.
|
Sales
and Marketing
We
principally market our services through the senior management teams in place
at
each of our 65 company owned and exclusive independent agent offices located
across North America. Each office is staffed with operational employees to
provide support for the sales team, develop frequent contact with the customer’s
traffic department, and maintain customer service. Our current network is
predominantly represented by exclusive agent operations that rely on us for
operating authority, technology, sales and marketing support, access to working
capital and our carrier network and collective purchasing power. Through the
agency relationship, the agent has the ability to focus on the operational
and
sales support aspects of the business without diverting costs or expertise
to
the structural aspect of its operations and provides the agent with the
regional, national and global brand recognition that they would not otherwise
be
able to achieve by serving their local markets.
Although
we have exclusive and long-term relationships with these agents, the Airgroup
agency agreements are generally terminable by either party subject to requisite
notice provisions that generally range from ten to thirty days. The Adcom agency
agreements carry a fixed term and can range from one to 25 years and generally
include a first-right-of refusal to acquire the location. Although we have
no
customers that account for more than 5% of our revenues, there are three agency
locations that each account for more than 5% of our total gross revenues.
As
we
continue to grow, we expect to implement a national accounts program which
is
intended to increase our emphasis on obtaining high-revenue national accounts
with multiple shipping locations. These accounts typically impose numerous
requirements on those competing for their freight business, including electronic
data interchange and proof of delivery capabilities, the ability to generate
customized shipping reports and a nationwide network of terminals. These
requirements often limit the competition for these accounts to a very small
number of logistics providers. We believe that our anticipated future growth
and
development will enable us to more effectively compete for and obtain these
accounts.
7
Competition
and Business Conditions
The
logistics business is directly impacted by the volume of domestic and
international trade. The volume of such trade is influenced by many factors,
including economic and political conditions in the United States and abroad,
major work stoppages, exchange controls, currency fluctuations, acts of war,
terrorism and other armed conflicts, United States and international laws
relating to tariffs, trade restrictions, foreign investments and taxation.
The
global logistics services and transportation industries are intensively
competitive and are expected to remain so for the foreseeable future. We will
compete against other integrated logistics companies, as well as transportation
services companies, consultants, information technology vendors and shippers'
transportation departments. This competition is based primarily on rates,
quality of service (such as damage-free shipments, on-time delivery and
consistent transit times), reliable pickup and delivery and scope of operations.
Most of our competitors will have substantially greater financial resources
than
we do.
Regulation
There
are
numerous transportation related regulations. Failure to comply with the
applicable regulations or to maintain required permits or licenses could result
in substantial fines or revocation of operating permits or authorities. We
cannot give assurance as to the degree or cost of future regulations on our
business. Some of the regulations affecting our current and prospective
operations are described below.
Air
freight forwarding businesses are subject to regulation, as an indirect air
cargo carrier, under the Federal Aviation Act by the U.S. Department of
Transportation and by the Department of Homeland Security and the Transportation
Security Administration. However,
air freight forwarders are exempted from most of the Federal Aviation Act's
requirements by the Economic Aviation Regulations. The air freight forwarding
industry is subject to regulatory and legislative changes that can affect the
economics of the industry by requiring changes in operating practices or
influencing the demand for, and the costs of providing, services to customers.
Surface
freight forwarding operations are subject to various federal statutes and are
regulated by the Surface Transportation Board. This federal agency has broad
investigatory and regulatory powers, including the power to issue a certificate
of authority or license to engage in the business, to approve specified mergers,
consolidations and acquisitions, and to regulate the delivery of some types
of
domestic shipments and operations within particular geographic
areas.
The
Surface Transportation Board and U.S. Department of Transportation also have
the
authority to regulate interstate motor carrier operations, including the
regulation of certain rates, charges and accounting systems, to require periodic
financial reporting, and to regulate insurance, driver qualifications, operation
of motor vehicles, parts and accessories for motor vehicle equipment, hours
of
service of drivers, inspection, repair, maintenance standards and other safety
related matters. The federal laws governing interstate motor carriers have
both
direct and indirect application to the Company. The breadth and scope of the
federal regulations may affect our operations and the motor carriers which
are
used in the provisioning of the transportation services. In certain locations,
state or local permits or registrations may also be required to provide or
obtain intrastate motor carrier services.
The
Federal Maritime Commission, or FMC, regulates and licenses ocean forwarding
operations. Indirect ocean carriers (non-vessel operating common carriers)
are
subject to FMC regulation, under the FMC tariff filing and surety bond
requirements, and under the Shipping Act of 1984, particularly those terms
proscribing rebating practices.
United
States customs brokerage operations are subject to the licensing requirements
of
the U.S. Treasury and are regulated by the U.S. Customs Service. As we broaden
our capabilities to include customs brokerage operations, we will be subject
to
regulation by the U.S. Customs Service. Likewise, any customs brokerage
operations would also be licensed in and subject to the regulations of their
respective countries.
8
In
the
United States, we are subject to federal, state and local provisions relating
to
the discharge of materials into the environment or otherwise for the protection
of the environment. Similar laws apply in many foreign jurisdictions in which
we
may operate in the future. Although current operations have not been
significantly affected by compliance with these environmental laws, governments
are becoming increasingly sensitive to environmental issues, and we cannot
predict what impact future environmental regulations may have on our business.
We do not anticipate making any material capital expenditures for environmental
control purposes.
Personnel
As
of the
date of this report, we have approximately 120 employees, of which 117 are
full
time. None of these employees are currently covered by a collective bargaining
agreement. We have experienced no work stoppages and consider our relations
with
our employees to be good.
ITEM
1A. RISK FACTORS
RISKS
PARTICULAR TO OUR BUSINESS
We
are largely dependent on the efforts of our exclusive agents to generate our
revenue and service our customers.
We
currently sell our services through a network predominantly represented by
exclusive agent stations located throughout North America. Although we have
exclusive and long-term relationships with these agents, our Airgroup agency
agreements are terminable by either party subject to requisite notice provisions
that generally range from 10-30 days. The Adcom agency agreements carry a fixed
term and can range from 1 to 25 years and generally include a first-right-of
refusal to acquire the location. Although we have no customers that account for
more than 5% of our revenues, there are three agency locations that each account
for more than 5% of our total gross revenues. The loss of one or more of these
exclusive agents could negatively impact our ability to retain and service
our
customers. We will need to expand our existing relationships and enter into
new
relationships in order to increase our current and future market share and
revenue. We cannot be certain that we will be able to maintain and expand our
existing relationships or enter into new relationships, or that any new
relationships will be available on commercially reasonable terms. If we are
unable to maintain and expand our existing relationships or enter into new
relationships, we may lose customers, customer introductions and co-marketing
benefits and our operating results may suffer.
If
we fail to develop and integrate information technology systems or we fail
to
upgrade or replace our information technology systems to handle increased
volumes and levels of complexity, meet the demands of our agents and customers
and protect against disruptions of our operations, we may suffer a loss in
our
business.
Increasingly,
we compete for business based upon the flexibility, sophistication and security
of the information technology systems supporting our services. The failure
of
the hardware or software that supports our information technology systems,
the
loss of data contained in the systems, or the inability to access or interact
with our web site or connect electronically, could significantly disrupt our
operations, prevent clients from placing orders, or cause us to lose inventory
items, orders or clients. If our information technology systems are unable
to
handle additional volume for our operations as our business and scope of
services grow, our service levels, operating efficiency and future transaction
volumes will decline. In addition, we expect our agents to continue to demand
more sophisticated, fully integrated information technology systems from us
as
customers demand the same from their supply chain services providers. If we
fail
to hire qualified persons to implement, maintain and protect our information
technology systems or we fail to upgrade or replace our information technology
systems to handle increased volumes and levels of complexity, meet the demands
of our agents and customers and protect against disruptions of our operations,
we may lose suffer a loss in our business.
9
Because
our freight forwarding and domestic ground transportation operations are
dependent on commercial airfreight carriers and air charter operators, ocean
freight carriers, major U.S. railroads, other transportation companies,
draymen and longshoremen, changes in available cargo capacity and other changes
affecting such carriers, as well as interruptions in service or work stoppages,
may negatively impact our business.
We
rely
on commercial airfreight carriers and air charter operators, ocean freight
carriers, trucking companies, major U.S. railroads, other transportation
companies, draymen and longshoremen for the movement of our clients’ cargo.
Consequently, our ability to provide services for our clients could be adversely
impacted by shortages in available cargo capacity; changes by carriers and
transportation companies in policies and practices such as scheduling, pricing,
payment terms and frequency of service or increases in the cost of fuel, taxes
and labor; and other factors not within our control. Reductions in airfreight
or
ocean freight capacity could negatively impact our yields. Material
interruptions in service or stoppages in transportation, whether caused by
strike, work stoppage, lock-out, slowdown or otherwise, could adversely impact
our business, results of operations and financial condition.
Our
profitability depends on our ability to effectively manage our cost structure
as
we grow the business.
As
we
continue to expand our revenues through the expansion of our network of
exclusive agency locations, we must maintain an appropriate cost structure
to
maintain and expand our profitability. While we intend to continue to work
on
growing revenue by increasing the number of our exclusive agency locations,
by
strategic acquisitions, and by continuing to work on maintaining and expanding
our gross profit margins by reducing transportation costs, our ultimate
profitability will be driven by our ability to manage our agent commissions,
personnel and general and administrative costs as a function of our net
revenues. There can be no assurances that we will be able to increase revenues
or maintain profitability.
We
face intense competition in the freight forwarding, logistics and supply chain
management industry.
The
freight forwarding, logistics and supply chain management industry is intensely
competitive and is expected to remain so for the foreseeable future. We face
competition from a number of companies, including many that have significantly
greater financial, technical and marketing resources. There are a large number
of companies competing in one or more segments of the industry, although the
number of firms with a global network that offer a full complement of freight
forwarding and supply chain management services is more limited. Depending
on
the location of the customer and the scope of services requested, we must
compete against both the niche players and larger entities. In addition,
customers increasingly are turning to competitive bidding situations soliciting
bids from a number of competitors, including competitors that are larger than
us.
Our
business is subject to seasonal trends.
Historically,
our operating results have been subject to seasonal trends when measured on
a
quarterly basis. Our first and fourth fiscal quarters are traditionally weaker
compared with our second and third fiscal quarters. This trend is dependent
on
numerous factors, including the markets in which we operate, holiday seasons,
climate, economic conditions and numerous other factors. A substantial portion
of our revenue is derived from clients in industries whose shipping patterns
are
tied closely to consumer demand which can sometimes be difficult to predict
or
are based on just-in-time production schedules. Therefore, our revenue is,
to a
larger degree, affected by factors that are outside of our control. There can
be
no assurance that our historic operating patterns will continue in future
periods as we cannot influence or forecast many of these factors.
Our
industry is consolidating and if we cannot gain sufficient market presence
in
our industry, we may not be able to compete successfully against larger, global
companies in our industry.
There
currently is a marked trend within our industry toward consolidation of the
niche players into larger companies that are attempting to increase global
operations through the acquisition of regional and local freight forwarders.
If
we cannot gain sufficient market presence or otherwise establish a successful
strategy in our industry, we may not be able to compete successfully against
larger companies in our industry with global operations.
10
Our
information technology systems are subject to risks which we cannot
control.
Our
information technology systems are dependent upon third party communications
providers, web browsers, telephone systems and other aspects of the Internet
infrastructure which have experienced significant system failures and electrical
outages in the past. Our systems are susceptible to outages due to fire, floods,
power loss, telecommunications failures, break-ins and similar events. Despite
our implementation of network security measures, our servers are vulnerable
to
computer viruses, break-ins and similar disruptions from unauthorized tampering
with our computer systems. The occurrence of any of these events could disrupt
or damage our information technology systems and inhibit our internal
operations, our ability to provide services to our customers.
If
we are not able to limit our liability for customers’ claims through contract
terms and limit our exposure through the purchase of insurance, we could be
required to pay large amounts to our clients as compensation for their claims
and our results of operations could be materially adversely
affected.
In
general, we seek to limit by contract and/or International Conventions and
laws
our liability to our clients for loss or damage to their goods to $20 per
kilogram (approximately $9.07 per pound) and $500 per carton or
customary unit, for ocean freight shipments, again depending on the
International Convention. For truck/land based risks there are a variety of
limits ranging from a nominal amount to full value. However, because a freight
forwarder’s relationship to an airline or ocean carrier is that of a shipper to
a carrier, the airline or ocean carrier generally assumes the same
responsibility to us as we assume to our clients. When we act in the capacity
of
an authorized agent for an air or ocean carrier, the carrier, rather than us,
assumes liability for the safe delivery of the client’s cargo to its ultimate
destination, unless due to our own errors and omissions.
We
have,
from time to time, made payments to our clients for claims related to our
services and may make such payments in the future. Should we experience an
increase in the number or size of such claims or an increase in liability
pursuant to claims or unfavorable resolutions of claims, our results could
be
adversely affected. There can be no assurance that our insurance coverage will
provide us with adequate coverage for such claims or that the maximum amounts
for which we are liable in connection with our services will not change in
the
future or exceed our insurance levels. As with every insurance policy, there
are
limits, exclusions and deductibles that apply and we could be subject to claims
for which insurance coverage may be inadequate or even disputed and which claims
could adversely impact our financial condition and results of operations. In
addition, significant increases in insurance costs could reduce our
profitability.
Our
failure to comply with, or the costs of complying with, government regulation
could negatively affect our results of operation.
Our
freight forwarding business as an indirect air cargo carrier is subject to
regulation by the United States Department of Transportation (DOT) under the
Federal Aviation Act, and by the Department of Homeland Security and the
Transportation Security Administration (TSA). Our overseas independent agents’
air freight forwarding operations are subject to regulation by the regulatory
authorities of the respective foreign jurisdictions. The air freight forwarding
industry is subject to regulatory and legislative changes which can affect
the
economics of the industry by requiring changes in operating practices or
influencing the demand for, and the costs of providing, services to customers.
We do not believe that costs of regulatory compliance have had a material
adverse impact on our operations to date. However, our failure to comply with
any applicable regulations could have an adverse effect. There can be no
assurance that the adoption of future regulations would not have a material
adverse effect on our business.
11
Our
present levels of capital may limit the implementation of our business
strategy.
The
objective of our business strategy is to build a global logistics services
organization. One element of this strategy is an acquisition program which
contemplates the acquisition of a number of diverse companies within the
logistics industry covering a variety of geographic regions and specialized
service offerings. We have a limited amount of cash resources and our ability
to
make additional acquisitions without securing additional financing from outside
sources is limited. This may limit or slow our ability to achieve the critical
mass we need to achieve our strategic objectives.
Our
credit facility contains financial covenants that may limit its current
availability.
The
terms
of our credit facility are subject to certain financial covenants which may
limit the amount otherwise available under that facility. Principal among these
are financial covenants that limit funded debt to a multiple of our consolidated
earnings before interest, taxes, depreciation and amortization, or “EBITDA”.
Under this covenant, our funded debt is limited to a multiple of 3.25 of our
EBITDA measured on a rolling four quarter basis. Our ability to generate EBITDA
will be critical to our ability to use the full amount of the credit
facility.
Dependence
on key personnel.
For
the
foreseeable future our success will depend largely on the continued services
of
our Chief Executive Officer, Bohn H. Crain, as well as certain of the other
key
executives of Airgroup and Adcom, because of their collective industry
knowledge, marketing skills and relationships with major vendors and owners
of
our exclusive agent stations. We have secured employment arrangements with
each
of these individuals, which contain non-competition covenants which survive
their actual term of employment. Nevertheless, should any of these individuals
leave the Company, it could have a material adverse effect on our future results
of operations.
Terrorist
attacks and other acts of violence or war may affect any market on which our
shares trade, the markets in which we operate, our operations and our
profitability.
Terrorist
acts or acts of war or armed conflict could negatively affect our operations
in
a number of ways. Primarily, any of these acts could result in increased
volatility in or damage to the U.S. and worldwide financial markets and economy
and could lead to increased regulatory requirements with respect to the security
and safety of freight shipments and transportation. They could also result
in a
continuation of the current economic uncertainty in the United States and
abroad. Acts of terrorism or armed conflict, and the uncertainty caused by
such
conflicts, could cause an overall reduction in worldwide sales of goods and
corresponding shipments of goods. This would have a corresponding negative
effect on our operations. Also, terrorist activities similar to the type
experienced on September 11, 2001 could result in another halt of trading of
securities, which could also have an adverse affect on the trading price of
our
shares and overall market capitalization.
RISKS
RELATED TO OUR ACQUISITION STRATEGY
There
is a scarcity of and competition for acquisition
opportunities.
There
are
a limited number of operating companies available for acquisition which we
deem
to be desirable targets. In addition, there is a very high level of competition
among companies seeking to acquire these operating companies. We are and will
continue to be a very minor participant in the business of seeking acquisitions
of these types of companies. A large number of established and well-financed
entities are active in acquiring interests in companies which we may find to
be
desirable acquisition candidates. Many of these entities have significantly
greater financial resources, technical expertise and managerial capabilities
than us. Consequently, we will be at a competitive disadvantage in negotiating
and executing possible acquisitions of these businesses. Even if we are able
to
successfully compete with these entities, this competition may affect the terms
of completed transactions and, as a result, we may pay more than we expected
for
potential acquisitions. We may not be able to identify operating companies
that
complement our strategy, and even if we identify a company that complements
our
strategy, we may be unable to complete an acquisition of such a company for
many
reasons, including:
12
|
·
|
failure
to agree on the terms necessary for a transaction, such as the purchase
price;
|
|
·
|
incompatibility
between our operational strategies and management philosophies and
those
of the potential acquiree;
|
|
·
|
competition
from other acquirers of operating
companies;
|
|
·
|
a
lack of sufficient capital to acquire a profitable logistics company;
and
|
|
·
|
the
unwillingness of a potential acquiree to work with our
management.
|
Risks
related to acquisition financing.
In
order
to continue to pursue our acquisition strategy in the longer term, we may be
required to obtain additional financing. We intend to obtain such financing
through a combination of traditional debt financing or the placement of debt
and
equity securities. We may finance some portion of our future acquisitions by
either issuing equity or by using shares of our common stock for all or a
portion of the purchase price for such businesses. In the event that our common
stock does not attain or maintain a sufficient market value, or potential
acquisition candidates are otherwise unwilling to accept common stock as part
of
the purchase price for the sale of their businesses, we may be required to
utilize more of our cash resources, if available, in order to maintain our
acquisition program. If we do not have sufficient cash resources, we will not
be
able to complete acquisitions and our growth could be limited unless we are
able
to obtain additional capital through debt or equity financings.
Our
credit facility places certain limits on the type and number of acquisitions
we
may make.
In
September of 2008, we increased our credit facility with Bank of America, N.A.
from $10.0 million to $15.0 million to facilitate our acquisition of Adcom
and
to provide additional funding for further acquisitions and our on-going working
capital requirements. Under the terms of the credit facility, we are subject
to
a number of financial and operational covenants which may limit the number
of
additional acquisitions we make without the lender’s consent. In the event that
we are not able to satisfy the conditions of the credit facility in connection
with a proposed acquisition, we would have to forego the acquisition unless
we
either obtained the lender’s consent or retired the credit facility. This may
prevent us from completing acquisitions which we determine are desirable from
a
business perspective and limit or slow our ability to achieve the critical
mass
we need to achieve our strategic objectives.
To
the extent we make any material acquisitions, our earnings will be adversely
affected by non-cash charges relating to the amortization of intangibles which
may cause our stock price to decline.
Under
applicable accounting standards, purchasers are required to allocate the total
consideration paid in a business combination to the identified acquired assets
and liabilities based on their fair values at the time of acquisition. The
excess of the consideration paid to acquire a business over the fair value
of
the identifiable tangible assets acquired must be allocated among identifiable
intangible assets and goodwill. The amount allocated to goodwill is not subject
to amortization. However, it is tested at least annually for impairment. The
amount allocated to identifiable intangibles, such as customer relationships
and
the like, is amortized over the life of these intangible assets. We expect
that
this will subject us to periodic charges against our earnings to the extent
of
the amortization incurred for that period. Because our business strategy focuses
on growth through acquisitions, our future earnings will be subject to greater
non-cash amortization charges than a company whose earnings are derived
organically. As a result, we will experience an increase in non-cash charges
related to the amortization of intangible assets acquired in our acquisitions.
Our financial statements will show that our intangible assets are diminishing
in
value, when, in fact, we believe they may be increasing because we are growing
the value of our intangible assets (e.g. customer relationships). Because of
this discrepancy, we believe our earnings before interest, taxes, depreciation
and amortization, otherwise known as “EBITDA”, a non GAAP measure of financial
performance, provides a meaningful measure of our financial performance.
However, the investment community generally measures a public company’s
performance by its net income. Further, the financial covenants of our credit
facility adjust EBITDA to exclude costs related to share based compensation
and
other non-cash charges. Thus, we believe EBITDA, and adjusted EBITDA, provide
a
meaningful measure of our financial performance. If the investment community
elects to place more emphasis on net income, the future price of our common
stock could be adversely affected.
13
We
are not obligated to follow any particular criteria or standards for identifying
acquisition candidates.
Even
though we have developed general acquisition guidelines, we are not obligated
to
follow any particular operating, financial, geographic or other criteria in
evaluating candidates for potential acquisitions or business combinations.
We
will target companies which we believe will provide the best potential long-term
financial return for our stockholders and we will determine the purchase price
and other terms and conditions of acquisitions. Our stockholders will not have
the opportunity to evaluate the relevant economic, financial and other
information that our management team will use and consider in deciding whether
or not to enter into a particular transaction.
We
may be required to incur a significant amount of indebtedness in order to
successfully implement our acquisition strategy.
We
may be
required to incur a significant amount of indebtedness in order to complete
future acquisitions. If we are not able to generate sufficient cash flow from
the operations of acquired companies to make scheduled payments of principal
and
interest on the indebtedness, then we will be required to use our capital for
such payments. This will restrict our ability to make additional acquisitions.
We may also be forced to sell an acquired company in order to satisfy
indebtedness. We cannot be certain that we will be able to operate profitably
once we incur this indebtedness or that we will be able to generate a sufficient
amount of proceeds from the ultimate disposition of such acquired companies
to
repay the indebtedness incurred to make these acquisitions.
Risks
related to our acquisition strategy.
We
intend
to continue to build our business through a combination of organic growth,
and
if possible, through additional acquisitions. Growth by acquisition involves
a
number of risks, including possible adverse effects on our operating results,
diversion of management resources, failure to retain key personnel, failure
to
effectively integrate acquired businesses, and risks associated with
unanticipated liabilities, some or all of which could have a material adverse
effect on our business, financial condition and results of
operations.
We
may experience difficulties in integrating the operations, personnel and assets
of companies that we acquire which may disrupt our business, dilute stockholder
value and adversely affect our operating results.
A
core
component of our business plan is to acquire businesses and assets in the
transportation and logistics industry. We have only made a limited number of
acquisitions and, therefore, our ability to complete such acquisitions and
integrate any acquired businesses into our operations is unproven. Increased
competition for acquisition candidates may develop, in which event there may
be
fewer acquisition opportunities available to us as well as higher acquisition
prices. There can be no assurance that we will be able to identify, acquire
or
profitably manage businesses or successfully integrate acquired businesses
into
the Company without substantial costs, delays or other operational or financial
problems. Such acquisitions also involve numerous operational risks,
including:
| · |
difficulties
in integrating operations, technologies, services and
personnel;
|
| · |
the
diversion of financial and management resources from existing
operations;
|
| · |
the
risk of entering new markets;
|
| · |
the
potential loss of key employees;
and
|
| · |
the
inability to generate sufficient revenue to offset acquisition
or
investment costs.
|
As
a
result, if we fail to properly evaluate and execute any acquisitions or
investments, our business and prospects may be seriously
harmed.
14
RISKS
RELATED TO OUR COMMON STOCK
Provisions
of our certificate of incorporation, bylaws and Delaware law may make a
contested takeover of our Company more difficult.
Certain
provisions of our certificate of incorporation, bylaws and the General
Corporation Law of the State of Delaware (the “DGCL”) could deter a change in
our management or render more difficult an attempt to obtain control of us,
even
if such a proposal is favored by a majority of our stockholders. For example,
we
are subject to the provisions of the DGCL that prohibit a public Delaware
corporation from engaging in a broad range of business combinations with a
person who, together with affiliates and associates, owns 15% or more of the
corporation’s outstanding voting shares (an “interested stockholder”) for three
years after the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. Our certificate of incorporation
provides that directors may only be removed for cause by the affirmative vote
of
75% of our outstanding shares and that amendments to our bylaws require the
affirmative vote of holders of two-thirds of our outstanding shares. Our
certificate of incorporation also includes undesignated preferred stock, which
may enable our Board of Directors to discourage an attempt to obtain control
of
us by means of a tender offer, proxy contest, merger or otherwise. Finally,
our
bylaws include an advance notice procedure for stockholders to nominate
directors or submit proposals at a stockholders meeting.
Trading
in our common stock has been limited and there is no significant trading market
for our common stock.
Our
common stock is currently eligible to be quoted on the OTC Bulletin Board,
however, trading to date has been limited. Trading on the OTC Bulletin Board
is
often characterized by low trading volume and significant price fluctuations.
Because of this limited liquidity, stockholders may be unable to sell their
shares. The trading price of our shares may from time to time fluctuate widely.
The trading price may be affected by a number of factors including events
described in the risk factors set forth in this report as well as our operating
results, financial condition, announcements, general conditions in the industry,
and other events or factors. In recent years, broad stock market indices, in
general, and smaller capitalization companies, in particular, have experienced
substantial price fluctuations. In a volatile market, we may experience wide
fluctuations in the market price of our common stock. These fluctuations may
have a negative effect on the market price of our common stock.
The
influx of additional shares of our common stock onto the market may create
downward pressure on the trading price of our common
stock.
We
completed private placements of approximately 15.4 million shares of our common
stock between October 2005 and February 2006. The availability of those shares
for sale to the public under Rule 144 of the Securities Act of 1933, as amended,
and sale of such shares in public markets could have an adverse effect on the
market price of our common stock. Such an adverse effect on the market price
would make it more difficult for us to sell our equity securities in the future
at prices which we deem appropriate or to use our shares as currency for future
acquisitions which will make it more difficult to execute our acquisition
strategy.
The
issuance of additional shares in connection with potential acquisitions may
result in additional dilution to our existing
stockholders.
We
have
issued, and may be required to issue, additional shares of common stock or
common stock equivalents in payment of the purchase price of companies we have
acquired. This will have the effect of further increasing the number of shares
outstanding. In connection with future acquisitions, we may undertake the
issuance of more shares of common stock without notice to our then existing
stockholders. We may also issue additional shares in order to, among other
things, compensate employees or consultants or for other valid business reasons
in the discretion of our Board of Directors, and could result in diluting the
interests of our existing stockholders.
15
We
may issue shares of preferred stock with greater rights than our common
stock.
Although
we have no current plans or agreements to issue any preferred stock, our
certificate of incorporation authorizes our board of directors to issue shares
of preferred stock and to determine the price and other terms for those shares
without the approval of our shareholders. Any such preferred stock we may issue
in the future could rank ahead of our common stock, in terms of dividends,
liquidation rights, and voting rights.
As
we do not anticipate paying dividends, investors in our shares will not receive
any dividend income.
We
have
not paid any cash dividends on our common stock since our inception and we
do
not anticipate paying cash dividends in the foreseeable future. Any dividends
that we may pay in the future will be at the discretion of our Board of
Directors and will depend on our future earnings, any applicable regulatory
considerations, covenants of our debt facility, our financial requirements
and
other similarly unpredictable factors. Our ability to pay dividends is further
limited by the terms of our credit facility with Bank of America, N.A. For
the
foreseeable future, we anticipate that we will retain any earnings which we
may
generate from our operations to finance and develop our growth and that we
will
not pay cash dividends to our stockholders. Accordingly, investors seeking
dividend income should not purchase our stock.
We
are not subject to certain of the corporate governance provisions of the
Sarbanes-Oxley Act of 2002
Since
our
common stock is not listed for trading on a national securities exchange, we
are
not subject to certain of the corporate governance requirements established
by
the national securities exchanges pursuant to the Sarbanes-Oxley Act of 2002.
These include rules relating to independent directors, and independent director
nomination, audit and compensation committees. Unless we voluntarily elect
to
comply with those obligations, investors in our shares will not have the
protections offered by those corporate governance provisions. As of the date
of
this report, we have not elected to comply with any regulations that do not
apply to us. While we may make an application to have our securities listed
for
trading on a national securities exchange, which would require us to comply
with
those obligations, we can not assure that we will do so or that such application
will be approved.
We
are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and
if
we fail to comply in a timely manner, our business could be harmed and our
stock
price could decline.
Rules
adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
require annual assessment of our internal controls over financial reporting,
and
attestation of this assessment by our independent registered public accountants.
Starting with our fiscal year ended June 30, 2008, we became subject to the
requirements of Section 404 of the Sarbanes-Oxley Act which requires us to
make
annual assessments of our internal control over financial reporting. The first
attestation report of our assessment that our independent registered public
accounting firm will need to complete will be required in connection with the
preparation of our annual report for our fiscal year ending June 30, 2010.
Any
failure to maintain adequate controls could result in delays or inaccuracies
in
reporting financial information or non-compliance with SEC reporting and other
regulatory requirements, any of which could adversely affect our business and
stock price.
ITEM
2. PROPERTIES
Principal
Executive Offices
Our
offices are located at 1227 120th
Avenue
N.E., Bellevue, Washington 98005 and consist of approximately 14,500 feet of
office space which we lease for approximately $16,300 per month pursuant to
the
lease expiring April 30, 2009. We also maintain approximately 8,125 feet of
office space at 19320 Des Moines Memorial Drive South, SeaTac, Washington which
we lease for approximately $5,650 per month pursuant to lease that expires
December 31, 2010. In addition, we own a small parcel of undeveloped acreage
located at Grays Harbor, Washington, which is not material to our business.
We
believe our current offices are adequately covered by insurance and are
sufficient to support our operations for the foreseeable future.
16
ITEM
3. LEGAL PROCEEDINGS
Team
Air Express Proceeding
On
or
about February 21, 2007, Team Air Express, Inc. d/b/a Team Worldwide ("Team")
commenced an action against the Company, as well as Texas Time Express, Inc.,
Douglas K. Tabor, and Michael E. Staten, in the District Court of the State
of
Texas, Tarrant County (the “Court”) captioned Cause No. 017 222706 07; Team Air
Express, Inc. d/b/a Team Worldwide v. Airgroup Corporation, Texas Time Express,
Inc., Douglas K. Tabor, individually and as officer of Texas Time Express,
Inc.,
and Michael E. Staten, individually and as officer of Texas Time Express, Inc.
In
its
complaint, Team alleges that we, in conjunction with the other named defendants,
tortiously interfered with an existing contract Team had in place with VRC
Express, Inc. ("VRC"), its then existing Chicago, Illinois station location.
In
their petition, Team alleges that we and other defendants caused VRC to leave
the Team network of companies, and become a branch office of Airgroup
Corporation. The suit seeks damages for the loss of business opportunity and
profits as a result of VRC leaving the Team system. We have tentatively
concluded that no interference of the VRC contract occurred, and we intend
to
vigorously defend the matter.
Automotive
Garnishment Proceeding
On
June
15, 2007, writs of garnishment issued by Douglas Burke (“Burke”), a judgment
creditor of Stonepath Logistics, Domestic Services, Inc. (“Stonepath”), were
directed to, among others, the automotive customers being serviced by our
Radiant Logistics Global Services, Inc. (“RLGS”) subsidiary pursuant to the
Management Services Agreement between RLGS and Mass Financial Corp. (“Mass”).
Together with Mass, we intervened in the matter and objected to the writs of
garnishment for the reason that Mass’s interest in the former Stonepath assets
originated as the result of a prior perfected security interest that was
properly foreclosed upon by Mass. The matter is pending in the Circuit Court
for
the County of Wayne, State of Michigan, Case No. 04-433025-CA. On August 14,
2007, a Stipulated Order Regarding Writs of Garnishment was entered whereby
Mass
posted a letter of credit in the amount of $2,750,000 for the benefit of the
Stonepath judgment creditor. Upon posting of that letter of credit, the
garnished customers were released from the writs of garnishment and directed
to
release all garnished funds and make all future payments as directed to Mass
and
our RLGS subsidiary. Further, the Stonepath judgment creditor was ordered to
refrain from further garnishments and enforcement action against the former
assets of Stonepath. Discovery is proceeding regarding the superiority of Mass’s
security interest in the former Stonepath assets.
Burke
Proceeding
On
or
about January 18, 2007, Burke filed a separate against RLGS in the 3rd Circuit
Court, Wayne County, Michigan. In the complaint, Burke sought to enforce
against RLGS a $2.2 million judgment Burke obtained against the former owners
of
the assets RLGS purchased from Mass under legal theories sounding in successor
liability, alter-ego, piercing the corporate veil, and implied or express
agreement. The amount at issue is currently secured by a $2.75 million letter
of
credit provided by Mass in connection with the acquisition of the purchased
assets. RLGS removed the matter to the Federal District Court sitting in the
Eastern District of Michigan and filed a motion to dismiss or stay the
proceedings pending the outcome of the related Automotive Garnishment Proceeding
described above. The court issued a stay of proceedings pending the outcome
of
the related Automotive Garnishment Proceeding. If Burke is successful in the
Automotive Garnishment Proceeding, we expect that this related action will
be
deemed moot and dismissed. If Burke is unsuccessful in the related Automotive
Garnishment Proceeding, we expect that the stay will be lifted and this action
will resume.
17
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Market
Information
Our
common stock currently trades on the OTC Bulletin Board under the symbol
“RLGT.OB.” The following table states the range of the high and low bid-prices
per share of our common stock for each of the calendar quarters during our
past
two fiscal years, as reported by the OTC Bulletin Board. These quotations
represent inter-dealer prices, without retail mark-up, markdown, or commission,
and may not represent actual transactions. The last price of our common stock
as
reported on the OTC Bulletin Board on September 24, 2008, was $0.249 per
share.
|
|
High
|
Low
|
|||||
|
Year
Ended June 30, 2008:
|
|||||||
|
Quarter
ended June 30, 2008
|
$
|
.38
|
$
|
.16
|
|||
|
Quarter
ended March 31, 2008
|
.55
|
.28
|
|||||
|
Quarter
ended December 31, 2007
|
.64
|
.35
|
|||||
|
Quarter
ended September 30, 2007
|
.83
|
.49
|
|||||
|
Year
Ended June 30, 2007:
|
|||||||
|
Quarter
ended June 30, 2007
|
$
|
.66
|
$
|
.47
|
|||
|
Quarter
ended March 31, 2007
|
.80
|
.51
|
|||||
|
Quarter
ended December 31, 2006
|
.70
|
.55
|
|||||
|
Quarter
ended September 30, 2006
|
1.05
|
.85
|
|||||
Holders
As
of
September 24, 2008, the number of stockholders of record of our common stock
was
113.
We
believe there are additional beneficial owners of our common stock who hold
their shares in street name.
Dividend
Policy
We
have
not paid any cash dividends on our common stock to date, and we have no
intention of paying cash dividends in the foreseeable future. Whether we declare
and pay dividends will be determined by our board of directors at their
discretion, subject to certain limitations imposed under Delaware law. The
timing, amount and form of dividends, if any, will depend on, among other
things, our results of operations, financial condition, cash requirements and
other factors deemed relevant by our Board of Directors. Our ability to pay
dividends is limited by the terms of our Bank of America, N.A. credit
facility.
Pacific
Stock Transfer Company, 500 East Warm Springs, Suite 240, Las Vegas, Nevada
89119, serves as our transfer agent.
18
The
following discussion and analysis of our financial condition and result of
operations should be read in conjunction with the consolidated financial
statements and the related notes and other information included elsewhere in
this report.
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. Our operations are conducted primarily
through Airgroup, our wholly-owned subsidiary. Airgroup services a diversified
account base including manufacturers, distributors and retailers using a network
of independent carriers and international agents positioned strategically around
the world. As a result of our recent acquisition of Adcom, operations in future
periods will also be conducted through Adcom, another wholly-owned
subsidiary.
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.
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 and resell services
provided by third parties, and is considered by management to be a key
performance measure. In addition, management believes 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.
19
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, or 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. Accordingly, we intend
to
employ EBITDA and adjusted EBITDA as a 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
that historical seasonal patterns will continue in future periods.
Recent
Developments
In
September of 2008, we completed the acquisition of Adcom, a Minneapolis,
Minnesota-based, privately held company that provides a full range of domestic
and international transportation and logistics services across North America.
The transaction is valued at up to $11.1 million, consisting of cash of $5.0
million paid at closing with an additional $6.1 million payable over the
next
four years in a combination of cash and Company stock based on the future
performance of the acquired operation.
Founded
in 1978, Adcom services a diversified account base including manufacturers,
distributors and retailers through a combination of three company owned and
twenty seven exclusive agent offices across North America. Based on unaudited
financial statements provided from management, Adcom generated approximately
$58.0 Million in revenues for the twelve months ended June 30, 2008. Adcom
will
operate as a wholly owned subsidiary of the Company.
Financial
Outlook
Our
revenues increased approximately $24.7 million, or 33%, in the year ended June
30, 2008. We expect to continue growing our revenues both organically and
as the result of strategic acquisitions. Our primary operating objective in
fiscal 2009 is to continue to expand both our Adcom and Airgroup brands while
leveraging the substantial purchasing power of the combined group. We expect
this will translate into improved profitability and strategic advantage for
all
of our stations. We expect the combined group to generate approximately $4.0
million in adjusted EBITDA on $160 million in revenues on an annualized basis.
This does not account for an additional $1.0 million in estimated cost synergies
which we believe can be achieved over the next 12-18 months.
Our
estimate of future revenues and profits is based on the assumption that the
cumulative historical financial results of operations of the Company and Adcom
for the most recent 12 months ended June 30, 2008 are indicative of the future
financial performance of the combined group.
A
reconciliation of annualized adjusted EBITDA amounts to net income, the
most directly comparable GAAP measure, projected for the combined group is
as
follows:
(Amounts
in 000’s)
|
|
Projected
|
|||
|
Net income
|
$
|
1,100
|
||
|
|
||||
|
Interest
expense - net
|
400
|
|||
|
Income
tax expense
|
750
|
|||
|
Depreciation
and amortization
|
1,500
|
|||
|
|
||||
|
EBITDA
|
3,750
|
|||
|
Stock-based
compensation and other non-cash charges
|
250
|
|||
|
|
||||
|
Adjusted
EBITDA
|
$
|
4,000
|
||
20
Critical
Accounting Policies
Accounting
policies, methods and estimates are an integral part of the consolidated
financial statements prepared by management and are based upon management’s
current judgments. Those judgments are normally based on knowledge and
experience with regard to past and current events and assumptions about future
events. Certain accounting policies, methods and estimates are particularly
sensitive because of their significance to the financial statements and because
of the possibility that future events affecting them may differ from
management’s current judgments. While there are a number of accounting policies,
methods and estimates that affect our financial statements, the areas that
are
particularly significant include the assessment of the recoverability of
long-lived assets, specifically goodwill, acquired intangibles, and revenue
recognition.
We
follow
the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142,
Goodwill and Other Intangible Assets. SFAS No. 142 requires an annual impairment
test for goodwill and intangible assets with indefinite lives. Under the
provisions of SFAS No. 142, the first step of the impairment test requires
that
we determine the fair value of each reporting unit, and compare the fair value
to the reporting unit’s carrying amount. 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 we 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. We perform our annual impairment
test during our fiscal fourth quarter unless events or circumstances indicate
an
impairment may have occurred before that time, and we have found no
impairment.
Acquired
intangibles consist of customer related intangibles and non-compete agreements
arising from our acquisition. Customer related intangibles will be amortized
using accelerated methods over approximately 5 years and non-compete agreements
will be amortized using the straight line method over a 5 year
period.
As
a
non-asset based carrier, we do not own transportation assets. We generate the
major portion of our air and ocean freight revenues by purchasing transportation
services from direct (asset-based) carriers and reselling those services to
our
customers. In accordance with Emerging Issues Task Force (“EITF”) 91-9 “Revenue
and Expense Recognition for Freight Services in Process”, revenue from freight
forwarding and export services is recognized at the time the freight is tendered
to the direct carrier at origin, and direct expenses associated with the cost
of
transportation are accrued concurrently. These accrued purchased transportation
costs are estimates 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 to reflect differences between the original accruals and actual
costs of purchased transportation.
21
We
recognize revenue on a gross basis, in accordance with EITF 99-19, “Reporting
Revenue Gross versus Net”, as a result of the following: We are the primary
obligor responsible for providing the service desired by the customer and are
responsible for fulfillment, including the acceptability of the service(s)
ordered or purchased by the customer. We, at our sole discretion, set the prices
charged to our customers, and are not required to obtain approval or consent
from any other party in establishing our prices. We have multiple suppliers
for
the services we sell to our customers, and have 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, we determine the nature, type,
characteristics, and specifications of the service(s) ordered by the customer.
We also assume credit risk for the amount billed to the customer.
Results
of Operations
Overview
We
generated transportation revenue of $100.2 million and net transportation
revenue of $35.8 million for the year ended June 30, 2008 as compared to
transportation revenue of $75.5 million and net transportation revenue of $26.7
million for the year ended June 30, 2007. Net income was $1,413,000 for the
year
ended June 30, 2008 compared to net income of $163,000 for the year ended June
30, 2007.
We
had
adjusted earnings before interest, taxes, depreciation and amortization (EBITDA)
of $1,808,000 and $1,412,000 for years ended June 30, 2008 and 2007,
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 goodwill,
leasehold improvements and other intangible assets. We then further adjust
EBITDA to exclude costs related to share based compensation expense and other
non-cash charges consistent with the financial covenants of our credit facility.
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.
The
following table provides a reconciliation of adjusted EBITDA to net income
for
the fiscal years ended June 30, 2008 and June 30, 2007:
|
|
Years ended June 30,
|
Change
|
|||||||||||
|
|
2008
|
2007
|
Amount
|
Percent
|
|||||||||
|
|
|
|
|
|
|||||||||
|
Net
income
|
$
|
1,413
|
$
|
163
|
$
|
1,250
|
766.9
|
%
|
|||||
|
Income
tax expense
|
908
|
156
|
752
|
481.1
|
%
|
||||||||
|
Net
interest expense
|
117
|
6
|
111
|
1,850.0
|
%
|
||||||||
|
Depreciation
and amortization
|
964
|
830
|
134
|
16.2
|
%
|
||||||||
|
|
|||||||||||||
|
EBITDA
(Earnings before interest, taxes, depreciation and
amortization)
|
$
|
3,402
|
$
|
1,155
|
$
|
2,247
|
194.6
|
%
|
|||||
|
|
|||||||||||||
|
Share
based compensation and other non-cash costs
|
330
|
257
|
73
|
28.4
|
%
|
||||||||
|
Change
in estimate of liabilities assumed in Airgroup acquisition
|
(1,431
|
)
|
-
|
(1,431
|
)
|
NM
|
|||||||
|
Tax
Indemnity
|
(487
|
)
|
-
|
(487
|
)
|
NM
|
|||||||
|
Adjusted
EBITDA
|
$
|
1,814
|
$
|
1,412
|
$
|
402
|
28.5
|
%
|
|||||
22
The
following table summarizes transportation revenue, cost of transportation and
net transportation revenue (in thousands) for the fiscal years ended June 30,
2008 and June 30, 2007:
|
|
Years ended June 30,
|
Change
|
|||||||||||
|
|
2008
|
2007
|
Amount
|
Percent
|
|||||||||
|
|
|
|
|
|
|||||||||
|
Transportation
revenue
|
$
|
100,202
|
$
|
75,527
|
$
|
24,675
|
32.7
|
%
|
|||||
|
Cost
of transportation
|
64,374
|
48,813
|
15,561
|
31.9
|
%
|
||||||||
|
|
|||||||||||||
|
Net
transportation revenue
|
$
|
35,828
|
$
|
26,714
|
$
|
9,114
|
34.1
|
%
|
|||||
|
Net
transportation margins
|
35.8
|
%
|
35.4
|
%
|
36.9
|
%
|
|||||||
We
generated transportation revenue of $100.2 million and net transportation
revenue of $35.8 million for the year ended June 30, 2008 as compared to
transportation revenue of $75.5 million and net transportation revenue of $26.7
million for the year ended June 30, 2007. Domestic and international
transportation revenue was $62.2 million and $40.0 million, respectively, for
the year ended June 30, 2008 compared with $49.1 million and $26.4 million,
respectively, for the year ended June 30, 2007. Transportation revenues and
costs of transportation increased in fiscal year 2008 primarily due to several
agent based stations that joined the network in fiscal 2007 were included in
the
network for all of fiscal 2008.
Net
transportation margins were 35.8% and 35.4% of transportation revenue for the
years ended June 30, 2008 and 2007, respectively.
The
following table compares condensed consolidated statement of income data as
a
percentage of our net transportation revenue (in thousands) for the fiscal
years
ended June 30, 2008 and June 30, 2007:
|
|
Years ended June 30,
|
|
|||||||||||||||||
|
|
2008
|
2007
|
Change
|
||||||||||||||||
|
|
Amount
|
Percent
|
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
|
Net
transportation revenue
|
$
|
35,828
|
100.0
|
%
|
$
|
26,714
|
100.0
|
%
|
$
|
9,114
|
34.1
|
%
|
|||||||
|
|
|||||||||||||||||||
|
Agent
commissions
|
25,210
|
70.4
|
%
|
20,048
|
75.1
|
%
|
5,162
|
25.7
|
%
|
||||||||||
|
Personnel
costs
|
5,304
|
14.8
|
%
|
2,916
|
10.9
|
%
|
2,388
|
81.9
|
%
|
||||||||||
|
Other
selling, general and administrative
|
3,801
|
10.6
|
%
|
2,507
|
9.4
|
%
|
1,294
|
51.6
|
%
|
||||||||||
|
Depreciation
and amortization
|
964
|
2.7
|
%
|
830
|
3.1
|
%
|
134
|
16.1
|
%
|
||||||||||
|
|
|||||||||||||||||||
|
Total
operating costs
|
35,279
|
98.5
|
%
|
26,301
|
98.5
|
%
|
8,978
|
34.1
|
%
|
||||||||||
|
|
|||||||||||||||||||
|
Income
from operations
|
549
|
1.5
|
%
|
413
|
1.5
|
%
|
136
|
32.9
|
%
|
||||||||||
|
Other
(expense) income
|
1,703
|
4.8
|
%
|
(49
|
)
|
-0.1
|
1,752
|
N/M
|
|||||||||||
|
|
|||||||||||||||||||
|
Income
before income taxes and minority interest
|
2,252
|
6.3
|
%
|
364
|
1.4
|
%
|
1,888
|
518.7
|
%
|
||||||||||
|
Income
tax expense (benefit)
|
908
|
2.5
|
%
|
156
|
0.6
|
%
|
752
|
482.1
|
%
|
||||||||||
|
|
|||||||||||||||||||
|
Income
before minority interest
|
1,344
|
3.7
|
%
|
208
|
.8
|
%
|
1,136
|
546.2
|
%
|
||||||||||
|
Minority
interest
|
(69
|
)
|
.2
|
%
|
45
|
.2
|
114
|
253.3
|
%
|
||||||||||
|
Net
income
|
$
|
1,413
|
3.9
|
%
|
$
|
163
|
.6
|
%
|
$
|
1,250
|
766.9
|
%
|
|||||||
23
Agent
commissions were
$25.2 million for the year ended June 30, 2008, an increase of 25.7% from $20.0
million for the year ended June 30, 2007 as a direct result of our revenue
growth. As a percentage of net revenues, agent commissions decreased to 70.4%
for the year ended June 30, 2008 from 75.1% for the year ended June 30, 2007,
due to an increase in the number of Company owned stations where commissions
are
not paid.
Personnel
costs consist of payroll, payroll taxes, benefits and stock compensation
expense. Personnel
costs were
$5.3
million for the year ended June 30, 2008, an increase of 81.9% from $2.9 million
for the year ended June 30, 2007 as a result of the general growth in our
business and the addition of two Company owned stations. As a percentage of
net
revenues, personnel costs increased to 14.8% for the year ended June 30, 2008
from 10.9% for the year ended June 30, 2007.
Selling,
general and administrative costs consists primarily of marketing, rent,
professional services, insurance and travel expenses. Selling, general and
administrative costs were $3.8 million for the year ended June 30, 2008, an
increase of 51.8% from $2.5 million for the year ended June 30, 2007 as a result
of the general growth in our business and the inclusion of costs associated
with
the increased number of Company owned stations. As a percentage of net
revenues, other selling, general and administrative costs increased to 10.6%
for
the year ended June 30, 2008 from 9.4% for the year ended June 30, 2007,
primarily due to the addition of two Company owned stations.
Depreciation
and amortization costs were approximately $964,000 for the year ended June
30,
2008, an increase of 16.2% from $830,000 for the year ended June 30, 2007 as
a
result of increased amortization and depreciation costs associated with the
addition of two Company owned stations. As a percentage of net revenues,
depreciation and amortization decreased to 2.7% for the year ended June 30,
2008
from 3.1% for the year ended June 30, 2007, due to an increase in our net
transportation revenue.
Income
from operations was $544,000 for the year ended June 30, 2008, an increase
of
31.7% from income from operations of $413,000 for the year ended June 30, 2007
as a direct result of our revenue growth. As a percentage of net revenues,
income from operations remained constant at 1.5% for the years ended June 30,
2008 and June 30, 2007.
Net
income for the year ended June 30, 2008 was $1,413,000 as compared to $163,000
for the year ended June 30, 2007.
Liquidity
and Capital Resources
Net
cash
used by operating activities for the year ended June 30, 2008 was $680,000
compared to net cash provided by operating activities for the year ended June
30, 2007 of $1,260,000. The change was principally driven by growth resulting
in
a reduction in working capital.
24
Net
cash
used for investing was $1,731,000 for the year ended June 30, 2008 compared
to
$767,000 for the year ended June 30, 2007. Use of cash in 2008 consisted
primarily of $1.5 million for the acquisition of the assets of United American
in Detroit, Michigan and an additional $245,000 for technology and equipment.
During 2007, we spent $524,000 for upgrades to our SAP software and computer
systems and $242,000 towards the acquisition of the United American Assets
in
Detroit, Michigan.
Net
cash
provided by financing activities for year ended June 30, 2008 was $2,084,000
compared to net cash of $283,000 used in financing activities for the year
ended
June 30, 2007. The $2,084,000 of cash used in 2008 consisted primarily of
borrowings from our credit facility which was offset by a payment to former
Airgroup shareholders of $500,000. The $284,000 for 2007 primarily reflects
payments to our credit facility.
Acquisitions
Below
are
descriptions of material acquisitions made since 2006 including a breakdown
of
consideration paid at closing and future potential earn-out payments. We define
“material acquisitions” as those with aggregate potential consideration of $1.0
million or more.
Effective
January 1, 2006, we acquired all of the outstanding stock of Airgroup. The
transaction was valued at up to $14.0
million. This consisted of: (i) $9.5 million payable in cash at closing; (ii)
a
subsequent cash payment of $0.5 million in cash which was paid on December
31,
2007; (iii) as amended, an additional base payment of $0.6 million payable
in
cash, $300,000 of which was paid on June 30, 2008 and $300,000 is payable on
January 1, 2009; (iv) a base earn-out payment of $1.9 million payable in Company
common stock over a three-year earn-out period based upon Airgroup achieving
income from continuing operations of not less than $2.5 million per year and
(v)
as additional incentive to achieve future earnings growth, an opportunity to
earn up to an additional $1.5 million payable in Company common stock at the
end
of a five-year earn-out period (the “Tier-2 Earn-Out”). Under Airgroup’s Tier-2
Earn-Out, the former shareholders of Airgroup are entitled to receive 50% of
the
cumulative income from continuing operations in excess of $15,000,000 generated
during the five-year earn-out period up to a maximum of $1,500,000. With respect
to the base earn-out payment of $1.9 million, in
the
event there is a shortfall in income from continuing operations, the earn-out
payment will be reduced on a dollar-for-dollar basis to the extent of the
shortfall. Shortfalls may be carried over or carried back to the extent that
income
from continuing operations in
any
other payout year exceeds the $2.5 million level. For the year ending June
30,
2007, the former shareholders of Airgroup earned $214,000 in base earn-out
payments. For the year ended June 30, 2008, the former shareholders of Airgroup
earned and additional $417,000 in base earn-out payments.
During
the quarter ended December 31, 2007, we
adjusted the estimate of accrued transportation costs assumed in the acquisition
of Airgroup which resulted in the recognition of approximately $1.4 million
in
non-recurring income. Pursuant to the acquisition agreement, the former
shareholders of Airgroup have indemnified us for taxes of $487,000 associated
the income recognized in connection with this change in estimate which has
been
reflected as a reduction of the additional base payment otherwise payable to
the
former shareholders of Airgroup.
Assuming
minimum targeted earnings levels are achieved, the following table summarizes
our contingent base earn-out payments related to the acquisition of Airgroup
for
the fiscal years indicated based on results of the prior year (in thousands)
(1) :
|
|
2010
|
|||
|
Estimated payment for the year ended
6/30/2009
|
||||
|
Earn-out payments:
|
||||
|
Cash
|
$
|
—
|
||
|
Equity
|
634
|
|||
|
Total
potential earn-out payments
|
$
|
634
|
||
|
|
||||
|
Prior
year earnings targets (income from continuing operations) (2)
|
||||
|
|
||||
|
Total
earnings actual and targets
|
$
|
2,500
|
||
|
|
||||
|
Earn-outs
as a percentage of prior year earnings targets:
|
||||
|
|
||||
|
Total
|
25.3
|
|||
|
(1)
|
During
the fiscal year 2007-2011 earn-out period, there is an additional
contingent obligation related to tier-two earn-outs that could
be as much
as $1.5 million if Airgroup generates at least $18.0 million
in income
from continuing operations during the period.
|
|
|
|
|
(2)
|
Income
from continuing operations as presented refers to the uniquely
defined
earnings targets of Airgroup and should not be interpreted to
be the
consolidated income from continuing operations of the Company
which would
give effect to, among other things, amortization or impairment
of
intangible assets or various other expenses which may not be
charged to
Airgroup for purposes of calculating
earn-outs.
|
25
In
May,
2007, we launched a new logistics service offering focused on the automotive
industry through our wholly owned subsidiary, Radiant Logistics Global Services,
Inc. (“RLGS”). We entered into an Asset Purchase Agreement (the “APA”) with Mass
Financial Corporation (“Mass”) to acquire certain assets formerly used in the
operations of the automotive division of Stonepath Group, Inc. (the “Purchased
Assets”). The original agreement of the
transaction was valued at up to $2.75 million, and was later reduced due
to
indemnity claims asserted against Mass.
In
November 2007,the
purchase price was reduced to $1.56 million, consisting of cash of $560,000
and
a $1.0 million credit in satisfaction of indemnity claims asserted by us
arising
from our interim operation of the Purchased Assets since May 22, 2007. Of
the
cash component $100,000 was paid in May of 2007, $265,000 was paid at closing,
and a final payment of $195,000 was to be paid in November of 2008, subject
to
off-set of up to $75,000 for certain qualifying expenses incurred by us.
Net of
qualifying expenses and a discount for accelerated payment, the final payment
was reduced to $95,000 and paid in June of 2008. For more information, see
Note
6 to our consolidated financial statement included elsewhere herein.
Effective
September 1, 2008, we acquired all of the outstanding stock of Adcom Express,
Inc. The transaction was valued at up to $11,050,000, consisting of: (i)
$4,750,000.00 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
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 our
common stock (valued at delivery date); (iv) a “Tier-2 Earn-Out Payment” of up
to a maximum of $2,000,000, equal to 20% of the amount by which the Adcom
cumulative Gross Profit Contribution exceeds $16,580,000 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 our shares of our common stock
(valued at delivery date).
Assuming
minimum targeted earnings levels are
achieved, the following table summarizes our contingent base earn-out payments
related to the acquisition of Adcom for the fiscal years indicated based on
results of the prior year (in thousands). (1)
26
|
Estimated
payment anticipated for fiscal year:
|
2010
|
2011
|
2012
|
2013
|
|||||||||
|
Earn-out period:
|
9/1/2008 -
6/30/2009
|
7/1/2009 -
6/30/2010
|
7/1/2010 -
6/30/2011
|
7/1/2011 -
6/30/2012
|
|||||||||
|
Earn-out
payments:
|
|
|
|
|
|||||||||
|
Cash
|
$
|
350
|
$
|
350
|
$
|
350
|
$
|
350
|
|||||
|
Equity
|
350
|
350
|
350
|
350
|
|||||||||
|
Total
potential earn-out payments
|
$
|
700
|
$
|
700
|
$
|
700
|
$
|
700
|
|||||
|
|
|||||||||||||
|
Gross
margin targets
|
$
|
3,600
|
$
|
4,320
|
$
|
4,320
|
$
|
4,320
|
|||||
|
(1)
|
Earn
out payments are paid Oct 1 following each fiscal year
end.
|
Credit
Facility
We
currently have a $15 million revolving credit facility (“Facility”) with Bank of
America, NA that expires in 2011. The
Facility is collateralized by accounts receivable and other assets of the
Company and our 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 our option, at the Bank’s prime
rate minus .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 our performance relative to
certain financial covenants. The Facility provides for advances of up to 80%
of
our eligible 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 our consolidated EBITDA 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 that we 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 that we not incur a net loss before
taxes, amortization of acquired intangibles and extraordinary items in any
two
consecutive quarterly accounting periods.
Under
the
terms of the Facility, we are 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 our historical business and acquisition model, (iv)
after
giving effect for the funding of the acquisition, we must have undrawn
availability of at least $1.0 million under the Facility, (v) the lender must
be
reasonably satisfied with projected financial statements that we provide
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 we are not able to satisfy the conditions of the Facility in
connection with a proposed acquisition, we must either forego the acquisition,
obtain the lender's consent, or retire the Facility. This may limit or slow
our
ability to achieve the critical mass it may need to achieve our strategic
objectives.
27
Given
our
continued focus on the build-out of our network of exclusive agency locations,
we believe that our current working capital and anticipated cash flow from
operations are adequate to fund existing operations. However, continued growth
through strategic acquisitions, will require additional sources of financing
as
our existing working capital is not sufficient to finance our operations and
an
acquisition program. Thus, our ability to finance future acquisitions will
be
limited by the availability of additional capital. We may, however, finance
acquisitions using our common stock as all or some portion of the consideration.
In the event that our common stock does not attain or maintain a sufficient
market value or potential acquisition candidates are otherwise unwilling to
accept our securities as part of the purchase price for the sale of their
businesses, we may be required to utilize more of our cash resources, if
available, in order to continue our acquisition program. If we do not have
sufficient cash resources through either operations or from debt facilities,
our
growth could be limited unless we are able to obtain such additional capital.
In
this regard and in the course of executing our acquisition strategy, we expect
to pursue an additional equity offering within the next twelve
months.
We
have
used a significant amount of our available capital to finance the acquisition
of
Adcom. We currently have approximately $7.0 million in remaining availability
under the Facility to support future acquisitions and our on-going working
capital requirements. We expect to structure acquisitions with certain amounts
paid at closing, and the balance paid over a number of years in the form of
earn-out installments which are payable based upon the future earnings of the
acquired businesses payable in cash, stock or some combination thereof. As
we
continue to execute our acquisition strategy, we will be required to make
significant payments in the future if the earn-out installments under our
various acquisitions become due. While we believe that a portion of any required
cash payments will be generated by the acquired businesses, we may have to
secure additional sources of capital to fund the remainder of any cash-based
earn-out payments as they become due. This presents us with certain business
risks relative to the availability of capacity under our Facility, the
availability and pricing of future fund raising, as well as the potential
dilution to our stockholders to the extent the earn-outs are satisfied directly,
or indirectly, from the sale of equity.
Contractual
Obligations
We
have
entered into contracts with various third parties in the normal course of
business that will require future payments. The following table illustrates
our
contractual obligations as of June 30, 2008 (including those relating to Adcom
acquisition):
|
|
Payments due by period
|
|||||||||||||||
|
|
Total
|
Less than 1
year
|
1-3 years
|
3-5 years
|
More than 5
years
|
|||||||||||
|
Contractual
Obligations
|
|
|
|
|
|
|||||||||||
|
Long-Term
Debt
|
$
|
5,689
|
$
|
1,417
|
$
|
4,272
|
$
|
-
|
$
|
-
|
||||||
|
Capital
Leases
|
39
|
32
|
7
|
-
|
-
|
|||||||||||
|
Operating
Leases
|
1,176
|
682
|
438
|
56
|
-
|
|||||||||||
|
Purchase
Obligations
|
-
|
-
|
-
|
-
|
-
|
|||||||||||
|
Other
Long-Term Liabilities
|
-
|
-
|
-
|
-
|
-
|
|||||||||||
|
Total
Contractual Obligations
|
$
|
6,904
|
$
|
2,131
|
$
|
4,717
|
$
|
56
|
$
|
-
|
||||||
As
of
June 30, 2008, we did not have any relationships with unconsolidated entities
or
financial partners, such as entities often referred to as structured finance
or
special purpose entities, which had been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. As such, we are not materially exposed to any financing,
liquidity, market or credit risk that could arise if we had engaged in such
relationships.
28
Recent
Accounting Pronouncements
In September
2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 157
“Fair Value Measurements” which relate to the definition of fair value, the
methods used to estimate fair value, and the requirement of expanded disclosures
about estimates of fair value. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. The
adoption of SFAS
No.
157 is not expected to
have any
impact on our financial position, results of operations or cash
flows.
In
February 2007 the Financial Accounting Standards Board ("FASB") issued SFAS
159
“The Fair Value Option for Financial Assets and Financial Liabilities.” The
statement permits entities to choose to measure many financial instruments
and
certain other items at fair value. The objective is to improve financial
reporting by providing entities with the opportunity to mitigate volatility
in
reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. This Statement
is
expected to expand the use of fair value measurement, which is consistent with
the Board’s long-term measurement objectives for accounting for financial
instruments. This
Statement is effective as of the beginning of an entity’s first fiscal year that
begins after November 15, 2007. We do not believe SFAS 159 will have a material
impact on the Company’s financial statements.
In
December 2007, the FASB issued SFAS No. 141R, Business Combinations , which
replaces SFAS No. 141. The statement retains the purchase method of
accounting for acquisitions, but requires a number of changes, including changes
in the way assets and liabilities are recognized in the purchase accounting.
It
also changes the recognition of assets acquired and liabilities assumed arising
from contingencies, requires the capitalization of in-process research and
development at fair value, and requires the expensing of acquisition-related
costs as incurred. SFAS No. 141R is effective for us beginning July 1,
2009 and will apply prospectively to business combinations completed on or
after
that date.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51, which
changes the accounting and reporting for minority interests. Minority interests
will be recharacterized as noncontrolling interests and will be reported as
a
component of equity separate from the parent’s equity, and purchases or sales of
equity interests that do not result in a change in control will be accounted
for
as equity transactions. In addition, net income attributable to the
noncontrolling interest will be included in consolidated net income on the
face
of the income statement and, upon a loss of control, the interest sold, as
well
as any interest retained, will be recorded at fair value with any gain or loss
recognized in earnings. SFAS No. 160 is effective for the Company beginning
July 1, 2009 and will apply prospectively, except for the presentation and
disclosure requirements, which will apply retrospectively. The Company is
currently assessing the potential impact that adoption of SFAS No. 160 may
have on our financial statements.
In
March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement
No. 133, which
requires additional disclosures about the objectives of the derivative
instruments and hedging activities, the method of accounting for such
instruments under SFAS No. 133 and its related interpretations, and a
tabular disclosure of the effects of such instruments and related hedged items
on our financial position, financial performance, and cash flows. SFAS
No. 161 is effective for us beginning January 1, 2009. We are
currently assessing the potential impact that adoption of SFAS No. 161 may
have on our financial statements.
In
May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles. This statement identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP)
in
the United States. The Company does not expect that this Statement will
resulting in a change in any of its current accounting practices.
29
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
consolidated financial statements of Radiant Logistics, Inc. including the
notes
thereto and the report of our independent accountants are included in this
report, commencing at page F-1.
None.
ITEM
9A(T). CONTROLS AND PROCEDURES
Disclosure
Controls and Procedures.
An
evaluation of the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of
1934) was carried out by us under the supervision and with the participation
of
our Chief Executive Officer (“CEO”), who also serves as our Chief Financial
Officer. Based upon that evaluation, our CEO concluded that as of June 30,
2008,
our disclosure controls and procedures were effective to ensure (i) that
information we are required to disclose in reports that we file or submit under
the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms and (ii)
that such information is accumulated and communicated to management, including
our CEO, in order to allow timely decisions regarding required
disclosure.
Management’s
Report on Internal Control over Financial Reporting.
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) of the Securities
Exchange Act of 1934. Our internal control system was designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial reporting and the preparation of financial
statements for external purposes, in accordance with generally accepted
accounting principals. Because of its inherent limitations, internal
control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Our
management, including our Chief Executive Officer who also serves as our Chief
Financial Officer, conducted an evaluation of the effectiveness of internal
control over financial reporting using the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission in Internal Control
–
Integrated Framework. Based on its evaluation, our management
concluded that our internal control over financial reporting was effective
as of
June 30, 2008.
This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only management’s report in
this annual report.
Changes
in Internal Control Over Financial Reporting.
There
have not been any changes in our internal control over financial reporting
(as
defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act
of 1934) that occurred during the fiscal quarter ended June 30, 2008 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
30
ITEM
9B. OTHER INFORMATION
On
June
28, 2008, we entered into a second amendment to our secured credit facility
with
Bank of America, N.A. (the “Facility”). The
purpose of this amendment was to accommodate a change in Bank of America’s
operating platform that required us to “stipulate” what portion of our line was
to be apportioned for the letters of credit.
The
foregoing information is intended as a summary of the reported transaction
and
is qualified in its entirety by reference to the complete text of
the second Amendment to Loan Documents dated as of June 28, 2008, by
and among Bank of America, N.A. and Radiant Logistics, Inc., Airgroup
Corporation, Radiant Logistics Global Services, Inc., and Radiant Logistics
Partners, LLC, which is filed as Exhibit 10.11 to this Report.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
following table sets forth information concerning our executive officers and
directors. Each of the executive officers will serve until his or her successor
is appointed by our Board of Directors or such executive officer’s earlier
resignation or removal. Each of the directors will serve until the next annual
meeting of stockholders or such director’s earlier resignation or
removal.
|
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
|
|
Bohn
H. Crain
|
|
44
|
|
Chief
Executive Officer, Chief Financial Officer and Chairman of the Board
of
Directors
|
|
|
|
|
|
|
|
Stephen
P. Harrington
|
|
50
|
|
Director
|
|
Daniel
Stegemoller
|
53
|
Vice
President and Chief Operating Officer of Airgroup
|
||
|
|
|
|
|
|
|
Robert
F. Friedman
|
64
|
President
– Adcom Express, Inc.
|
Bohn
H. Crain. Mr.
Crain
has served as our Chief Executive Officer, Chief Financial Officer and Chairman
of our Board of Directors since October 10, 2005. Mr. Crain brings nearly 20
years of industry and capital markets experience in transportation and
logistics. Since January 2005, Mr. Crain has served as the Chief Executive
Officer of Radiant Capital Partners, LLC, an entity he formed to execute a
consolidation strategy in the transportation/logistics sector. Prior to founding
Radiant, Mr. Crain served as the executive vice president and the chief
financial officer of Stonepath Group, Inc. from January 2002 until December
2004. In 2001, Mr. Crain served as the executive vice president and chief
financial officer of Schneider Logistics, Inc., a third-party logistics company,
and from 2000 to 2001, he served as the vice president and treasurer of Florida
East Coast Industries, Inc., a public company engaged in railroad and real
estate businesses listed on the New York Stock Exchange. Between 1989 and 2000,
Mr. Crain held various vice president and treasury positions for CSX Corp.,
and
several of its subsidiaries, a Fortune 500 transportation company listed on
the
New York Stock Exchange. Mr. Crain earned a Bachelor of Science in Accounting
from the University of Texas.
31
Stephen
P. Harrington.
Mr.
Harrington was appointed as a director on October 26, 2007. Mr. Harrington
served as the Chairman, Chief Executive Officer, Chief Financial Officer,
Treasurer and Secretary of Zone Mining Limited, a Nevada corporation, from
August 2006 until January 2007 and as Chairman, Chief Executive Officer,
Treasurer and Secretary of Touchstone Resources USA, Inc., a Delaware
corporation from March 2004 to August 2005. From October 2001 to February 2004,
Mr. Harrington served as the Chairman and Chief Executive Officer of Endeavour
International Corporation (f/k/a Continental Southern Resources, Inc.), a
publicly-traded oil and gas exploration company that merged with NSNV Inc.,
a
Texas corporation. Mr. Harrington has served as the President of SPH
Investments, Inc. and SPH Equities, Inc., each a private investment company,
since 1992. Mr. Harrington has served as an officer and director of several
publicly-held corporations, including BPK Resources, Inc., an oil and gas
exploration company, and Astralis Ltd. (f/k/a Hercules Development Group).
Mr.
Harrington graduated with a B.S. from Yale University in 1980.
Dan
Stegemoller. Mr.
Stegemoller is the Chief Operating Officer of Airgroup and previously held
the
position of Vice President since November 2004. He has over 35 years
experience in the Transportation Industry. Prior to joining Airgroup, from
1993 until 2004, Mr. Stegemoller served as Senior Vice President Sales and
Marketing at Forward Air, a high-service-level contractor to the air cargo
industry. From 1983 to 1992, Mr. Stegemoller served as Vice President of
Customer Service managing Centralized Call Center for Puralator/Emery Air/CF
Airfreight. From 1973 through 1983, he served in numerous positions at
Federal Express where his last position was Director of Operations in
Minneapolis, Minnesota. Mr. Stegemoller has an Associated Degree in Business
from IUPUI in Indianapolis.
Robert
F. Friedman. Mr.
Freidman has served as President
of Adcom Express, Inc. since its formation in 1978. Mr. Friedman founded Adcom
in 1978 and over the past 30 years, has overseen the evolution of Adcom from
a
provider of small package courier services to a full-service third party
logistics company that derives over 50% of its revenues from international
transportation services. Mr. Friedman has served as a Board Member of the XLA
Express Delivery and Logistics Association for the past 10 years and is a
15-year member of the Airforwarders Association. He received a Bachelor of
Arts
degree from the University of Minnesota.
Directors
hold office until the next annual meeting of shareholders and the election
and
qualification of their successors. Officers are elected annually by our board
of
directors and serve at the discretion of the board of directors.
Audit
Committee Financial Expert
Our
board
of directors has not created a separately-designated standing audit committee
or
a committee performing similar functions. Accordingly, our full board of
directors acts as our audit committee. Although
Bohn H. Crain, our Chief Executive Officer, has the requisite background and
professional experience to qualify as an audit committee financial expert,
he
has not been designated as such by our Board of Directors since he does not
satisfy the “independence” standards adopted by the American Stock
Exchange.
We
currently have a small number of employees and centralized operations. In
light of the foregoing, our board of directors concluded that the benefits
of
retaining an individual who qualifies as an “audit committee financial expert,”
as that term is defined in Item 407(d)(5)(ii) of Regulation S-K promulgated
under the Securities Act, would be outweighed by the costs of retaining such
a
person. As a result, no member of our board of directors is an “audit committee
financial expert.”
Code
of Ethics
We
have
adopted a Code of Ethics that applies to all employees including our principal
executive officer, principal financial officer, principal accounting officer
or
controller, or persons performing similar functions. Our Code of Ethics is
designed to deter wrongdoing and promote: (i) honest and ethical conduct,
including the ethical handling of actual or apparent conflicts of interest
between personal and professional relationships; (ii) full, fair, accurate,
timely and understandable disclosure in reports and documents that we file
with,
or submit to, the SEC and in our other public communications; (iii) compliance
with applicable governmental laws, rules and regulations; (iv) the prompt
internal reporting of violations of the code to an appropriate person or persons
identified in the code; and (v) accountability for adherence to the code. Our
Code of Ethics has been filed as an exhibit hereto or may be obtained without
charge upon written request directed to Attn: Human Resources, Radiant
Logistics, Inc., 1227 120th
Avenue,
Bellevue, Washington 98005.
32
Section
16 Beneficial Ownership Reporting Compliance
Section
16(a) of the U.S. Securities and Exchange Act of 1934, as amended (the "Exchange
Act"), requires our officers and directors and persons who own more than ten
percent (10%) of our common stock to file with the SEC initial reports of
ownership and reports of changes in ownership of our common stock. Such
officers, directors and ten percent (10%) stockholders are also required by
applicable SEC rules to furnish copies of all forms filed with the SEC pursuant
to Section 16(a) of the Exchange Act. Based solely on our review of copies
of
forms filed pursuant to Section 16(a) of the Securities Exchange Act of 1934
as
amended and written representations from certain reporting persons, we believe
that during fiscal 2008, all reporting persons timely complied with all filing
requirements applicable to them, except that Daniel Stegemoller failed to file
a
Form 3 upon his appointment as an executive officer and a Form 4 for options
granted in 2008.
Summary
Compensation Table
The
following summary compensation table reflects total compensation for our chief
executive officer/chief financial officer, and our two most highly compensated
executive officers (each a “named executive officer”) whose compensation
exceeded $100,000 during the fiscal year ended June 30, 2008 and June 30,
2007.
|
Name and Principal
Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
($)(1)
|
|
Option
Awards
($)(2)
|
|
All other
compensation
($)
|
|
Total
($)
|
||||||||
|
Bohn H.
Crain, Chief Executive Officer and Chief Financial Officer
|
2008
2007
|
250,000
250,000
|
-
-
|
-
-
|
-
-
|
16,418
54,401
|
(3)
(4)
|
266,418
304,401
|
||||||||||||||
|
Dan
Stegemoller, Vice President, Chief Operating Officer of Airgroup
Corporation
|
2008
2007
|
180,000
180,000
|
-
-
|
-
30,300
|
(7)
|
9,924
-
|
(5) |
71,133
60,010
|
(6)
(8)
|
261,057
270,310
|
||||||||||||
(1)
The
assumptions used in calculating the value of the stock awards are located in
note 14 of our consolidated financial statements.
(2)
The
assumptions used in calculating the value of the option awards are located
in
note 14 of our consolidated financial statements.
(3)
For
the year ended June 30, 2008, Mr. Crain had other compensation consisting of
$12,000 for automobile allowance, $1,501 for company provided life &
disability insurance premiums, and $2,917 for Company 401k match.
(4)
For
the year ended June 30, 2007, Mr. Crain had other compensation consisting of
$12,000 for automobile allowance, $2,085 for company provided life insurance
premiums, and $40,316 for relocation expenses.
(5)
Mr.
Stegemoller was granted options to purchase 100,000 shares on June 24, 2008
at
an exercise price $.18 per
share.
(6)
For
the year ended June 30, 2008, Mr. Stegemoller had other compensation consisting
of $6,000 for automobile allowance, $1,501 for company provided life &
disability insurance premiums, $1,200 for Company 401k match, and $62,432
relating to amortization of moving expenses, per his December 2005 relocation
agreement, comprised of $40,000 for the principal, and $22,432 for gross up
for
tax & interest payments.
(7)
Mr.
Stegemoller received 30,000 shares of restricted stock on October 16, 2006
as
incentive compensation, at a market value of $1.01 a share.
33
(8)
For
the year ended June 30, 2007, Mr. Stegemoller had other compensation consisting
of $2,010 for company provided life insurance premiums and $58,000 relating
to
amortization of moving expenses, per his December 2005 relocation agreement,
comprised of $40,000 for the principal and $18,000 for gross up for tax
purposes.
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth for each named executive officer information
regarding outstanding unexercised options that had not vested as of June
30,
2008.
|
Option
Awards
|
|||||||||||||
|
Name
|
Number of
securities
underlying
unexercised
options
exercisable(#)
|
Number of
securities
underlying
unexercised
options
Unexercisable (#)
|
Option exercise
price
($)
|
Option
expiration date
|
|||||||||
|
Bohn
H. Crain
|
400,000
400,000
|
600,000
600,000
|
0.50
0.75
|
10/20/2015(1
10/20/2015(1
|
)
)
|
||||||||
|
Dan
Stegemoller
|
120,000
0
|
180,000
100,000
|
0.44
0.18
|
1/11/2016(2
6/24/2018(3
|
)
)
|
||||||||
(1)
The
stock options were granted on October 20, 2005 and vest in equal annual
installments over a five year period commencing on the date of
grant.
(2)
The
stock options were granted on January 11, 2006 and vest in equal annual
installments over a five year period commencing on the date of grant.
(3)
The
stock options were granted on June 24, 2008 and vest in equal annual
installments over a five year period commencing on the date of grant.
Director
Compensation
The
following table sets forth compensation paid to our directors during the
fiscal
year ended June 30, 2008.
|
Name(1)
|
All
other
compensation
($)
|
Total
($)
|
|||||
|
Stephen
M. Cohen
|
25,000(2
|
)
|
25,000
|
||||
(1)
Bohn
Crain and Stephen Harrington are not listed in the above table because neither
receives any additional compensation for serving on our board of directors.
(2)
Mr.
Cohen served as our General Counsel, Secretary and member of our Board of
Directors from October 10, 2005 until his resignation on December 4, 2007.
Mr.
Cohen’s compensation consisted entirely of payment for legal and consulting
services provided to the Company.
Narrative
Disclosure of Executive Compensation
Employment
and Option Agreements
Bohn
H. Crain. On
January 13, 2006, we entered into an employment agreement with Bohn H. Crain
to
serve as our Chief Executive Officer. The agreement has an initial employment
term of five years and automatically renews for consecutive one-year terms
thereafter, subject to certain notice provision. The agreement provides for
an
annual base salary of $250,000, a performance bonus of up to 50% of the base
salary based upon the achievement of certain target objectives, and
discretionary merit bonus that can be awarded at the discretion of our board
of
directors. We may terminate the agreement at any time for cause. If we terminate
the agreement due to Mr. Crain’s disability, Mr. Crain’s options shall
immediately vest and we must continue to pay Mr. Crain his base salary and
bonuses as well as fringe benefits including participation in pension, profit
sharing and bonus plans as applicable, and life insurance, hospitalization,
major medical, paid vacation and expense reimbursement for an additional
one
year period. If Mr. Crain terminates the agreement for good reason or we
terminate for any reason other than for cause, Mr. Crain’s options shall
immediately vest and we must continue to pay Mr. Crain his base salary and
bonuses as well as fringe benefits for the remaining term of the agreement.
The
employment agreement contains standard and customary non-solicitation,
non-competition, work made for hire, and confidentiality provisions.
34
On
October 20, 2005, we issued an option to Mr. Crain to purchase 2,000,000
shares
of common stock, 1,000,000 of which are exercisable at $0.50 per share and
the
balance of which are exercisable at $0.75 per share. The options have a term
of
10 years and vest in equal annual installments over the five year period
commencing on the date of grant.
Robert
F. Friedman.
On
September 5, 2008, we entered into an employment agreement with Robert F.
Friedman to serve as President of Adcom Express, Inc., our wholly-owned
subsidiary. The agreement expires on June 30, 2011 or until the employment
relationship is terminated, unless extended upon the mutual agreement of
us and
Mr. Friedman. The agreement provides for an annual base salary of $125,000
and
automatically terminates upon Mr. Friedman’s death or disability. We may
terminate the agreement at any time for cause. If Mr. Friedman terminates
the
agreement for “Good Reason”, we must continue to pay Mr. Friedman his base
salary and bonuses as well as fringe benefits including participation in
pension, profit sharing and bonus plans as applicable, and life insurance,
hospitalization, major medical, paid vacation and expense reimbursement for
an
additional one year period only upon receiving a written release of liability
from Mr. Friedman. The employment agreement contains standard and customary
non-solicitation, non-competition, work made for hire, and confidentiality
provisions.
Change
in Control Arrangements
The
options granted to Mr. Crain contain a change in control provision which
is
triggered in the event that we are acquired by merger, share exchange or
otherwise, sell all or substantially all of our assets, or all of the stock
of
the Company is acquired by a third party (each, a “Fundamental Transaction”). In
the event of a Fundamental Transaction, all of the options will vest and
Mr.
Crain shall have the full term of such Options in which to exercise any or
all
of them, notwithstanding any accelerated exercise period contained in any
such
Option.
The
employment agreement with Mr. Crain contains a change in control provision.
If
his employment is terminated following a change in control (other than for
cause), then we must pay him a termination payment equal to 2.99 times his
base
salary in effect on the date of termination of his employment, any bonus
to
which he would have been entitled for a period of three years following the
date
of termination, any unpaid expenses and benefits, and for a period of three
years provide him with all fringe benefits he was receiving on the date of
termination of his employment or the economic equivalent. In addition, all
of
his unvested stock options shall immediately vest as of the termination date
of
his employment due to a change in control. A change in control is generally
defined as the occurrence of any one of the following:
|
·
|
any
“Person” (as the term “Person” is used in Section 13(d) and Section 14(d)
of the Securities Exchange Act of 1934), except for our chief executive
officer, becoming the beneficial owner, directly or indirectly,
of our
securities representing 50% or more of the combined voting power
of our
then outstanding securities;
|
|
·
|
a
contested proxy solicitation of our stockholders that results in
the contesting party obtaining the ability to vote securities
representing 50% or more of the combined voting power of our
then-outstanding securities;
|
|
·
|
a
sale, exchange, transfer or other disposition of 50% or more in
value of
our assets to another Person or entity, except to an entity controlled
directly or indirectly by us;
|
35
|
·
|
a
merger, consolidation or other reorganization involving us in which
we are
not the surviving entity and in which our stockholders prior to
the
transaction continue to own less than 50% of the outstanding securities
of
the acquirer immediately following the transaction, or a plan involving
our liquidation or dissolution other than pursuant to bankruptcy
or
insolvency laws is adopted; or
|
|
·
|
during
any period of twelve consecutive months, individuals who at the
beginning
of such period constituted the board cease for any reason to constitute
at
least the majority thereof unless the election, or the nomination
for
election by our stockholders, of each new director was approved
by a vote
of at least a majority of the directors then still in office who were
directors at the beginning of the
period.
|
Notwithstanding
the foregoing, a “change in control” is not deemed to have occurred (i) in the
event of a sale, exchange, transfer or other disposition of substantially
all of
our assets to, or a merger, consolidation or other reorganization involving,
us
and any entity in which our chief executive officer has, directly or indirectly,
at least a 25% equity or ownership interest; or (ii) in a transaction otherwise
commonly referred to as a “management leveraged buy-out.”
Directors’
Compensation
We
do not
have any standard arrangements regarding payment of any cash or other
compensation to our current directors for their services as directors, as
members of any committee of our board of directors or for any special
assignments, other than to reimburse them for their cost of travel and other
out-of-pocket costs incurred to attend board or committee meetings or to
perform
any special assignment on behalf of the Company.
Stock
Incentive Plan
On
October 20, 2005, we adopted the Radiant Logistics, Inc. 2005 Stock Incentive
Plan (the "Plan"). Awards may be made under the Plan for up to 5,000,000
shares
of our common stock in the form of stock options or restricted stock awards.
Awards may be made to our employees, officers or directors as well as our
consultants or advisors. The Plan is administered by our Board of Directors
which has full and final authority to interpret the Plan, select the persons
to
whom awards may be granted, and determine the amount, vesting and all other
terms of any awards. To the extent permitted by applicable law, our Board
may
delegate any or all of its powers under the Plan to one or more committees
or
subcommittees of the Board. The Plan is not subject to the provisions of
the
Employee Retirement Income Security Act of 1974, as amended, and is not a
"qualified plan" under Section 401(a) of the Internal Revenue Code of 1986,
as
amended. The Plan has not been approved by our shareholders. As a result,
"incentive stock options" as defined under Section 422 of the Internal Revenue
Code may not be granted under the Plan until our shareholders approve the
Plan.
All
stock
options granted under the Plan are exercisable for a period of up to ten
years
from the date of grant, are subject to vesting as determined by the Board
upon
grant, and have an exercise price equal to not less than the fair market
value
of our common stock on the date of grant. Unless otherwise determined by
the
Board, awards may not be transferred except by will or the laws of descent
and
distribution. The Board has discretion to determine the effect on any award
granted under the Plan of the death, disability, retirement, resignation,
termination or other change in employment or other status of any participant
in
the Plan. The maximum number of shares of common stock for which awards may
be
granted to a participant under the Plan in any calendar year is
2,500,000.
The
Plan
states that a "Change of Control" occurs when (i) any "person" (as such term
is
used in Section 13(d) and 14(d) of the Exchange Act) acquires "beneficial
ownership" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing fifty percent (50%)
or
more of the voting power of the then outstanding securities of the Company
except where the acquisition is approved by the Board; or (ii) if the Company
is
to be consolidated with or acquired by another entity in a merger or other
reorganization in which the holders of the outstanding voting stock of the
Company immediately preceding the consummation of such event, shall, immediately
following such event, hold, as a group, less than a majority of the voting
securities of the surviving or successor entity or in the event of a sale
of all
or substantially all of the Company's assets or otherwise.
36
Unless
otherwise provided in option or employment agreements, if the Plan is terminated
as a result of or following a “Change of Control”, all vested awards may be
exercised for 30 days from the date of notice of the termination. All
participants will be credited with an additional six months of service for
the
purpose of unvested awards. If the Plan is assumed or not terminated upon
the
occurrence of a “Change of Control”, all participants will be credited with an
additional six months of service if, during the remaining term of such
participant’s awards, any participant is terminated without cause.
As
of
September 15, 2008, there were outstanding options to purchase 3,410,000
shares
of common stock, 1,000,000 of which are exercisable at $0.50 per share,
1,000,000 of which are exercisable at $0.75 per share, 375,000 of which are
exercisable at $0.44 per share, 45,000 of which are exercisable at $1.01
per
share, 150,000 of which are exercisable at $0.55 per share, 190,000 of which
are
exercisable at $.062 per share, 175,000 of which are exercisable at $.48
per
share, 50,000 of which are exercisable at $.35 per share, and 425,000 of
which
are exercisable at $.18 per share.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The
following table indicates how many shares of our common stock were beneficially
owned as of September 24, 2008, by (1) each person known by us to be the
owner of more than 5% of our outstanding shares of common stock, (2) our
directors, (3) our executive officers, and (4) all of our directors
and executive officers as a group. Unless otherwise indicated, each person
named
below has sole voting and investment power with respect to all common stock
beneficially owned by that person or entity, subject to the matters set forth
in
the footnotes to the table below. Unless otherwise provided, the address
of each
of the persons listed below is c/o Airgroup, 1227 120th Avenue N.E., Bellevue,
Washington 98005.
|
Name
of Beneficial Owner
|
Amount(1)
|
Percent
of
Class
|
|||||
|
Bohn
H. Crain
|
8,550,000
|
(2)
|
24.1
|
%
|
|||
|
Stephen
P. Harrington
|
1,734,849
|
(3)
|
5.0
|
%
|
|||
|
Dan
Stegemoller
|
218,182
|
(4)
|
*
|
||||
|
Robert
F. Friedman
|
—
|
—
|
|||||
|
Stephen
M. Cohen
c/o
Fox Rothschild LLP
2000
Market Street, 10th
Floor
Philadelphia,
PA 19103
|
2,500,000
|
(5)
|
7.2
|
%
|
|||
|
All
officers and directors as a group (4 persons)
|
10,503,031
|
29.9
|
%
|
||||
|
(*)
|
Less
than one percent
|
|
(1)
|
The
securities “beneficially owned” by a person are determined in accordance
with the definition of “beneficial ownership” set forth in the rules and
regulations promulgated under the Securities Exchange Act of 1934,
and
accordingly, may include securities owned by and for, among others,
the
spouse and/or minor children of an individual and any other relative
who
has the same home as such individual, as well as other securities
as to
which the individual has or shares voting or investment power or
which
such person has the right to acquire within 60 days of September
24, 2008
pursuant to the exercise of options, or otherwise. Beneficial ownership
may be disclaimed as to certain of the securities. This table has
been
prepared based on 34,701,960 shares of
common stock outstanding as of September 24, 2008.
|
37
|
(2)
|
Consists
of 7,750,000 shares held by Radiant Capital Partners, LLC over
which Mr.
Crain has sole voting and dispositive power and 800,000 shares
issuable
upon exercise of options. Does not include 1,200,000 shares issuable
upon
exercise of options which are subject to vesting.
|
|
(3)
|
Consists
of shares held by SPH Investments, Inc. over which Mr. Harrington
has sole
voting and dispositive power.
|
|
(4)
|
Includes
120,000 shares issuable upon exercise of options. Does not include
280,000
shares issuable upon exercise of options which are subject to vesting.
|
|
(5)
|
Consists
of shares held of record by Mr. Cohen’s wife over which he shares voting
and dispositive power.
|
Equity
Compensation Plan Information
The
following table sets forth certain information regarding compensation plans
under which our equity securities are authorized for issuance as of June
30,
2008.
|
Plan Category
|
Number of securities to
be issued upon exercise
of outstanding warrants
and rights
(a)
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
|
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
|
|||||||
|
Equity
Compensation Plans approved by security holders
|
0
|
—
|
0
|
|||||||
|
Equity
compensation plans not approved by security holders
|
3,410,000
|
$
|
0.539
|
1,590,000
|
||||||
|
Total
|
3,410,000
|
$
|
0.539
|
1,590,000
|
||||||
A
description of the material terms of The Radiant Logistics, Inc. 2005 Stock
Incentive Plan is set forth in
Item
11.
EXECUTIVE COMPENSATION- Stock Incentive Plan.
Review,
Approval or Ratification of Transactions with Related
Persons
Our
board
is responsible for reviewing and approving all related party transactions.
Before approving such a transaction, the board takes into account all relevant
factors that it deems appropriate, including whether the related party
transaction is on terms no less favorable to us than terms generally available
from an unaffiliated third party. Any
request for us to enter into a transaction with an executive officer, director,
principal stockholder or any of such persons' immediate family members or
affiliates in which the amount involved exceeds $120,000 must first be presented
to our board for review, consideration and approval. All of our directors,
executive officers and employees are required to report to our board any
such
related party transaction. In approving or rejecting the proposed
agreement, our board considers the facts and circumstances available and
deemed
relevant to the board, including, but not limited to the risks, costs and
benefits to us, the terms of the transaction, the availability of other sources
for comparable services or products and, if applicable, the impact on a
director's independence. Our board approves only those agreements that, in
light of known circumstances, are in, or are not inconsistent with, our best
interests, as our board determines in the good faith exercise of its
discretion. Although the policies and procedures described above are not
written, the board applies the foregoing criteria in evaluating and approving
all such transactions. Each of the transactions described below were approved
by
our board of directors in accordance with the foregoing.
38
Transactions
On
June
28, 2006, we joined Radiant Capital Partners LLC (“Radiant Capital”), an
affiliate of Bohn H. Crain to form Radiant Logistics Partners, LLC (“RLP”).
Radiant Capital and the Company contributed $12,000 and $8,000, respectively,
for their respective 60% and 40% interests in RLP. RLP has been certified
as a
minority business enterprise by the Northwest Minority Business Council.
As
currently structured, Mr. Crain’s ownership interest entitles him to a majority
of the profits and distributable cash, if any, generated by RLP. The operations
of RLP commenced in February of 2007 and are intended to provide certain
benefits to us, including expanding the scope of services offered by us and
participating in supplier diversity programs not otherwise available to us.
As
the RLP operations mature, we will evaluate and approve all related service
agreements between us and RLP, including the scope of the services to be
provided by us to RLP and the fees payable to us by RLP, in accordance with
our
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.
For
the
year ended June 30, 2008, and net of ordinary and customary management
fees paid
to Airgroup, RLP reported a loss of $115,000. For the year ended June 30,
2007,
and net of ordinary and customary management fees paid to Airgroup, RLP
reported
income of $76,000. The profits and losses of RLP are shared 40% by Airgroup
and
60% by Radiant Capital.
Director
Independence
Mr.
Harrington satisfies the definition of “independent” established by the American
Stock Exchange as set forth in Section 121A of the American Stock Exchange
(“AMEX”) Company Guide. Mr. Crain does not satisfy the definition of
“independent” established by the American Stock Exchange as set forth in Section
121A of the American Stock Exchange Company Guide. As of the date of the
report,
we do not maintain a separately designated audit, compensation or nominating
committee. In applying the “independence standards” established by AMEX, our
board of directors has determined that Mr. Crain is not “independent” for
purposes of Section 803 of the AMEX Company Guide, applicable to audit,
compensation and nominating committee members.
The
following table presents fees for professional audit services performed by
for
the audit of our annual financial statements for the years ended June 30,
2008
and 2007 and fees billed and unbilled for other services rendered by it during
those periods.
|
2008
|
2007
|
||||||
|
Audit
Fees:
|
$
|
83,000
|
$
|
70,000
|
|||
|
Audit
Related Fees:
|
2,000
|
1,412
|
|||||
|
Tax
Fees:
|
8,500
|
7,632
|
|||||
|
All
Other Fees:
|
0
|
0
|
|||||
|
Total:
|
$
|
93,500
|
$
|
79,044
|
|||
Audit
Fees consist of fees billed and unbilled for professional services rendered
for
the audit of our consolidated financial statements and review of the interim
financial statements included in quarterly reports and services that are
normally provided by our independent registered public accountants in connection
with statutory and regulatory filings or engagements.
Audit
Related Fees
Audit-Related
Fees consist of fees billed for assurance and related services that are
reasonably related to the performance of the audit or review of the Company's
consolidated financial statements and are not reported under "Audit Fees."
39
Tax
Fees
Tax
Fees
consists of fees billed for professional services for tax compliance, tax
advice
and tax planning. These services include assistance regarding federal and
state
tax compliance, tax audit defense, customs and duties, and mergers and
acquisitions.
All
Other Fees
All
Other
Fees consist of fees billed for products and services provided not described
above.
Audit
Committee Pre-Approval Policies and Procedures
Our
Board
of Directors serves as our audit committee. Our Board of Directors approves
the
engagement of our independent auditors, and meets with our independent auditors
to approve the annual scope of accounting services to be performed and the
related fee estimates. It also meets with our independent auditors, on a
quarterly basis, following completion of their quarterly reviews and annual
audit and prior to our earnings announcements, if any, to review the results
of
their work. During the course of the year, our chairman has the authority
to
pre-approve requests for services that were not approved in the annual
pre-approval process. The chairman reports any interim pre-approvals at the
following quarterly meeting. At each of the meetings, management and our
independent auditors update the Board of Directors with material changes
to any
service engagement and related fee estimates as compared to amounts previously
approved. During 2007 and 2008, all audit and non-audit services performed
by
our independent registered public accountants were pre-approved by the Board
of
Directors in accordance with the foregoing procedures.
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
Exhibit
No.
|
Description
|
|
|
2.1
|
Stock
Purchase Agreement by and among Radiant Logistics, Inc., the Shareholders
of Airgroup Corporation and William H. Moultrie (as Shareholders’ Agent)
dated January 11, 2006, effective as of January 1, 2006. (incorporated
by
reference to the Registrant’s Current Report on Form 8-K filed on January
18, 2006).
|
|
|
2.2
|
Registration
Rights Agreement by and among Radiant Logistics, Inc. and the Shareholders
of Airgroup Corporation dated January 11, 2006, effective as of
January 1,
2006. (incorporated by reference to the Registrant’s Current Report on
Form 8-K filed on January 18, 2006).
|
|
|
2.3
|
First
Amendment to Stock Purchase Agreement (incorporated by reference
to the
Registrant’s Current Report on Form 8-K filed on January 30,
2007).
|
|
|
2.4
|
Stock
Purchase Agreement by and between Radiant Logistics, Inc. and Robert
F.
Friedman dated September 5, 2008 (incorporated by reference to
the
Registrant’s Current Report on Form 8-K filed on September 11,
2008.
|
|
|
3.1
|
Certificate
of Incorporation (incorporated by reference to Exhibit 3.1 to the
Registrant’s Registration Statement on Form SB-2 filed on September 20,
2002).
|
|
|
3.2
|
Amendment
to Registrant’s Certificate of Incorporation (Certificate of Ownership and
Merger Merging Radiant Logistics, Inc. into Golf Two, Inc. dated
October
18, 2005) (incorporated by reference to Exhibit 3.1 to the Registrant’s
Current Report on Form 8-K dated October 18, 2005).
|
|
|
3.3
|
Bylaws
(incorporated by reference to Exhibit 3.2 to the Registrant's Registration
Statement on Form SB-2 filed on September 20, 2002)
|
|
|
10.1
|
Form
of Securities Purchase Agreement dated January 11, 2006 for the
sale of
1,009,093 shares of common stock (incorporated by reference to
the
Registrant’s Current Report on Form 8-K filed on January 18,
2006).
|
40
|
10.2
|
Loan
Agreement by and among Radiant Logistics, Inc., Airgroup Corporation
and
Bank of America, N.A. dated as of January 10, 2006 (incorporated
by
reference to the Registrant’s Current Report on Form 8-K filed on January
18, 2006).
|
|
|
10.3
|
Executive
Employment Agreement dated January 13, 2006 by and between Radiant
Logistics, Inc. and Bohn H. Crain (incorporated by reference to
the
Registrant’s Current Report on Form 8-K filed on January 18,
2006).
|
|
|
10.4
|
Option
Agreement dated October 20, 2005 by and between Radiant Logistics,
Inc.
and Bohn H. Crain (incorporated by reference to the Registrant’s Current
Report on Form 8-K filed on January 18, 2006).
|
|
|
10.5
|
Loan
Agreement by and among Radiant Logistics, Inc., Airgroup Corporation,
Radiant Logistics Global Services, Inc., Radiant Logistics Partners,
LLC
and Bank of America, N.A. dated as of February 13, 2007 (incorporated
by
reference to the Registrant’s Quarterly Report on Form 10-Q filed on
February 14, 2007).
|
|
|
10.6
|
Asset
Purchase Agreement dated May 21, 2007 by and between Radiant Logistics
Global Services, Inc. and Mass Financial Corp. (incorporated by
reference
to the Registrant’s Current Report on Form 8-K filed on May 24,
2007)
|
|
|
10.7
|
Management
Services Agreement dated May 21, 2007 by and between Radiant Logistics
Global Services, Inc. and Mass Financial Corp. (incorporated by
reference
to the Registrant’s Current Report on Form 8-K filed on May 24,
2007)
|
|
|
10.8
|
Lease
Agreement for Bellevue, WA office space dated April 11, 2007 by
and
between Radiant Logistics, Inc. and Pine Forest Properties, Inc.
(incorporated by reference to the Registrant’s Annual Report on Form 10-K
filed on October 1, 2007)
|
|
|
10.9
|
Amendment
to Asset Purchase Agreement dated as of November 1, 2007 by and
between
Radiant Logistics Global Services, Inc. and Mass Financial Corp.
(incorporated by reference to the Registrant’s Quarterly Report on Form
10-Q filed on November 14, 2007)
|
|
|
10.10
|
Amendment
No. 1 to Loan Agreement dated as of February 12, 2008 by and among
Radiant
Logistics, Inc., Airgroup Corporation, Radiant Logistics Global
Services,
Inc., Radiant Logistics Partners, LLC and Bank of America, N.A.
(incorporated by reference to the Registrant’s Quarterly Report on Form
10-Q filed on February 14, 2008)
|
|
|
10.11
|
Amendment
No. 2 to Loan Agreement dated as of June 24, 2008 by and among
Radiant
Logistics, Inc., Airgroup Corporation, Radiant Logistics Global
Services,
Inc., Radiant Logistics Partners, LLC and Bank of America, N.A.
(filed
herewith)
|
|
|
10.12
|
Third
Amendment to Loan Documents dated as of September 2, 2008 by and
among
Radiant Logistics, Inc., Airgroup Corporation, Radiant Logistics
Global
Services, Inc., Radiant Logistics Partners, LLC, Adcom Express,
Inc. and
Bank of America, N.A. (incorporated by reference to the Registrant’s
Current Report on Form 8-K filed on September 11, 2008)
|
|
|
10.13
|
Executive
Employment Agreement dated September 5, 2008 by and between Radiant
Logistics, Inc. and Robert F. Friedman (incorporated by reference
to the
Registrant’s Current Report on Form 8-K filed on September 11,
2008)
|
|
|
14.1
|
Code
of Business Conduct and Ethics (incorporated by reference to the
Registrant’s Annual Report on Form 10-KSB filed on March 17,
2006).
|
|
|
21.1
|
Subsidiaries
of the Registrant (filed herewith)
|
|
|
31.1
|
Certification
of Chief Executive Officer and Chief Financial Officer Pursuant
to Section
302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
|
|
|
32.1
|
Certification
of Chief Executive Officer and Chief Financial Officer Pursuant
to Section
906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
|
|
|
99.1
|
Press
Release dated September 29, 2008 (filed
herewith)
|
41
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
|
|
|
RADIANT
LOGISTICS, INC.
|
|
|
|
|
|
Date:
September 29, 2008
|
By:
|
/s/
Bohn H. Crain
|
|
|
|
Bohn
H. Crain
|
|
|
|
Chief
Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in
the
capacities and on the dates indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/
Stephen P. Harrington
|
|
Director
|
|
September
29, 2008
|
|
Stephen
P. Harrington
|
||||
|
/s/
Bohn H. Crain
|
|
Chairman
and
|
|
September
29, 2008
|
|
Bohn
H. Crain
|
Chief
Executive Officer
|
42
RADIANT
LOGISTICS, INC.
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Consolidated
Balance Sheets as of June 30, 2008 and 2007
|
F-3
|
|
Consolidated
Statements of Income (Operations) for the years ended June
30, 2008 and
2007
|
F-4
|
|
Consolidated
Statements of Stockholders’ Equity for the years ended June 30, 2008 and
2007
|
F-5
|
|
Consolidated
Statements of Cash flows for the years ended June 30, 2008
and
2007
|
F-6
- F7
|
|
Notes
to Consolidated Financial Statements
|
F-8 –
F-24
|
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Audit Committee of the Board of Directors
Radiant
Logistics, Inc.
Bellevue,
Washington
We
have
audited the accompanying consolidated balance sheets of Radiant Logistics,
Inc.
("the Company") as of June 30, 2008 and 2007, and the related
statements of income (operations), stockholders' equity, and cash flows
for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion
on
these consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The
Company
has determined that it is not required to have, nor were we engaged to
perform,
an audit of its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but
not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit includes examining, on a test basis, evidence supporting
the
amounts and disclosures in the consolidated financial statements. An audit
also
includes assessing the accounting principles used and significant estimates
made
by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audits provide a reasonable
basis
for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the financial position of Radiant Logistics,
Inc. as
of June 30, 2008 and 2007, and the results of its operations and its cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States.
/S/
PETERSON SULLIVAN PLLC
September 25,
2008
F-2
RADIANT
LOGISTICS, INC.
Consolidated
Balance Sheets
|
June 30,
|
June 30,
|
||||||
|
|
2008
|
2007
|
|||||
|
ASSETS
|
|||||||
|
Current
assets -
|
|||||||
|
Cash
and cash equivalents
|
$
|
392,223
|
$
|
719,575
|
|||
|
Accounts
receivable, net of allowance June 30, 2008 - $513,479; June, 30 2007
- $259,960
|
14,404,002
|
15,062,910
|
|||||
|
Current
portion of employee loan receivables and other receivables
|
68,367
|
42,800
|
|||||
|
Prepaid
expenses and other current assets
|
425,657
|
59,328
|
|||||
|
Deferred
tax asset
|
292,088
|
234,656
|
|||||
|
Total
current assets
|
15,582,337
|
16,119,269
|
|||||
|
|
|||||||
|
Furniture
and equipment, net
|
717,542
|
844,919
|
|||||
|
Acquired
intangibles, net
|
1,242,413
|
1,789,773
|
|||||
|
Goodwill
|
7,824,654
|
5,532,223
|
|||||
|
Employee
loan receivable
|
40,000
|
80,000
|
|||||
|
Investment
in real estate
|
40,000
|
40,000
|
|||||
|
Deposits
and other assets
|
131,496
|
618,153
|
|||||
|
Minority
interest
|
24,784
|
-
|
|||||
|
Total
long term assets
|
9,303,347
|
8,060,149
|
|||||
|
$
|
25,603,226
|
$
|
25,024,337
|
||||
|
|
|||||||
|
Current
liabilities -
|
|||||||
|
Notes
payable – current portion of long term debt
|
113,306
|
800,000
|
|||||
|
Accounts
payable and accrued transportation costs
|
9,914,831
|
13,270,756
|
|||||
|
Commissions
payable
|
1,136,859
|
700,020
|
|||||
|
Other
accrued costs
|
221,808
|
344,305
|
|||||
|
Income
taxes payable
|
498,142
|
224,696
|
|||||
|
Total
current liabilities
|
11,884,946
|
15,339,777
|
|||||
|
|
|||||||
|
Long
term debt
|
4,272,032
|
1,974,214
|
|||||
|
Deferred
tax liability
|
422,419
|
608,523
|
|||||
|
Total
long term liabilities
|
4,694,451
|
2,582,737
|
|||||
|
Total
liabilities
|
16,579,397
|
17,922,514
|
|||||
|
|
|||||||
|
Commitments
& contingencies
|
-
|
-
|
|||||
|
Minority
interest
|
-
|
57,482
|
|||||
|
|
|||||||
|
Stockholders'
equity:
|
|||||||
|
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. Issued
and
outstanding: June 30, 2008 – 34,660,293; June 30, 2007 –
33,961,639
|
16,116
|
15,417
|
|||||
|
Additional
paid-in capital
|
7,703,658
|
7,137,774
|
|||||
|
Retained
earnings (deficit)
|
1,304,055
|
(108,850
|
)
|
||||
|
Total
stockholders’ equity
|
9,023,829
|
7,044,341
|
|||||
|
$
|
25,603,226
|
$
|
25,024,337
|
||||
The
accompanying notes form an integral part of these consolidated financial
statements.
F-3
RADIANT
LOGISTICS, INC.
Consolidated
Statements of Income (Operations)
|
YEAR ENDED
JUNE 30,
|
YEAR ENDED
JUNE 30,
|
||||||
|
2008
|
2007
|
||||||
|
Revenues
|
$
|
100,201,795
|
$
|
75,526,788
|
|||
|
Cost
of transportation
|
64,373,545
|
48,812,662
|
|||||
|
Net
revenues
|
35,828,250
|
26,714,126
|
|||||
|
|
|||||||
|
Agent
Commissions
|
25,210,068
|
20,047,536
|
|||||
|
Personnel
costs
|
5,303,612
|
2,916,073
|
|||||
|
Selling,
general and administrative expenses
|
3,801,085
|
2,507,317
|
|||||
|
Depreciation
and amortization
|
963,913
|
830,486
|
|||||
|
Total
operating expenses
|
35,278,678
|
26,301,412
|
|||||
|
Income
from operations
|
549,572
|
412,714
|
|||||
|
|
|||||||
|
Other
income (expense):
|
|||||||
|
Interest
income
|
4,115
|
16,272
|
|||||
|
Interest
expense
|
(121,399
|
)
|
(22,215
|
)
|
|||
|
Other
|
1,819,634
|
(42,686
|
)
|
||||
|
Total
other income (expense)
|
1,702,350
|
(48,629
|
)
|
||||
|
Income
before income tax expense
|
2,251,922
|
364,085
|
|||||
|
|
|||||||
|
Income
tax expense
|
(907,748
|
)
|
(155,867
|
)
|
|||
|
|
|||||||
|
Income
before minority interest
|
1,344,174
|
208,218
|
|||||
|
Minority
interest
|
68,731
|
(45,482
|
)
|
||||
|
Net
income
|
$
|
1,412,905
|
$
|
162,736
|
|||
|
|
|||||||
|
Net
income per common share – basic and diluted
|
$
|
.04
|
$
|
-
|
|||
|
Weighted
average shares outstanding:
|
|||||||
|
Basic
shares
|
34,126,972
|
33,882,872
|
|||||
|
Diluted
shares
|
34,358,746
|
34,324,736
|
|||||
The
accompanying notes form an integral part of these consolidated financial
statements.
F-4
RADIANT
LOGISTICS, INC.
Consolidated
Statements of Stockholders’ Equity
|
|
COMMON
STOCK
|
ADDITIONAL
|
RETAINED
|
TOTAL
|
||||||||||||
|
|
SHARES
|
AMOUNT
|
PAID-IN
CAPITAL
|
EARNINGS
(DEFICIT)
|
STOCKHOLDERS
EQUITY
|
|||||||||||
|
Balance
at June 30, 2006
|
33,611,639
|
$
|
15,067
|
$
|
6,590,355
|
$
|
(271,586
|
)
|
$
|
6,333,836
|
||||||
|
Issuance
of common stock for training materials at $1.01 per share (September
2006)
|
250,000
|
250
|
252,250
|
-
|
252,500
|
|||||||||||
|
Issuance
of common stock for bonus compensation at $1.01 per share (October
2006)
|
100,000
|
100
|
100,900
|
-
|
101,000
|
|||||||||||
|
Stock
based compensation
|
-
|
-
|
194,269
|
-
|
194,269
|
|||||||||||
|
Net
income for the year ended June 30, 2007
|
-
|
-
|
-
|
162,736
|
162,736
|
|||||||||||
|
Balance
at June 30, 2007
|
33,961,639
|
$
|
15,417
|
$
|
7,137,774
|
$
|
(108,850
|
)
|
$
|
7,044,341
|
||||||
|
Issuance
of common stock to former Airgroup shareholders per earn-out agreement
at
$.60 per share – (February 2008)
|
356,724
|
357
|
213,677
|
214,034
|
||||||||||||
|
Issuance
of common stock for investor
relations at $.34 per (May 2008)
|
208,333
|
208
|
71,042
|
71,250
|
||||||||||||
|
Issuance
of common stock for finders
fees at $.58 per (June 2008)
|
133,597
|
134
|
77,103
|
77,237
|
||||||||||||
|
Stock
based compensation
|
-
|
-
|
204,062
|
-
|
204,062
|
|||||||||||
|
Net
income for the year ended June 30, 2008
|
1,412,905
|
1,412,905
|
||||||||||||||
|
|
||||||||||||||||
|
Balance
at June 30, 2008
|
34,660,293
|
$
|
16,116
|
$
|
7,703,658
|
$
|
1,304,055
|
$
|
9,023,829
|
|||||||
The
accompanying notes form an integral part of these consolidated financial
statements.
F-5
Consolidated
Statements of Cash Flows
|
YEAR
ENDED
JUNE 30,
2008
|
YEAR
ENDED
JUNE 30,
2007
|
||||||
|
CASH FLOWS
PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
|
|||||||
|
Net
income
|
$
|
1,412,905
|
$
|
162,736
|
|||
|
ADJUSTMENTS
TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED FOR) OPERATING
ACTIVITIES:
|
|||||||
|
non-cash
issuance of common stock (services)
|
148,487
|
-
|
|||||
|
non-cash
compensation expense (stock options)
|
204,062
|
194,269
|
|||||
|
provision
for doubtful accounts
|
253,519
|
57,130
|
|||||
|
amortization
of intangibles
|
547,360
|
611,827
|
|||||
|
depreciation
|
396,557
|
230,046
|
|||||
|
deferred
income tax benefit
|
(243,536
|
)
|
(165,260
|
)
|
|||
|
minority
interest in income (loss) of subsidiaries
|
(68,731
|
)
|
45,482
|
||||
|
change
in estimated accrued transportation costs
|
(1,431,452
|
)
|
|||||
|
income
tax indemnity
|
(486,694
|
)
|
|||||
|
change
in fair value of accounts receivable
|
-
|
(6,127
|
)
|
||||
|
CHANGE
IN OPERATING ASSETS AND LIABILITIES:
|
|||||||
|
accounts
receivable
|
405,389
|
(6,632,141
|
)
|
||||
|
employee
loan receivable and other receivables
|
39,433
|
(2,471
|
)
|
||||
|
prepaid
expenses and other assets
|
(318,406
|
)
|
(238,128
|
)
|
|||
|
accounts
payable and accrued transportation costs
|
(2,127,035
|
)
|
7,458,810
|
||||
|
commissions
payable
|
436,839
|
270,708
|
|||||
|
other
accrued costs
|
(122,497
|
)
|
141,982
|
||||
|
income
taxes payable
|
273,446
|
(869,300
|
)
|
||||
|
Net
cash provided by (used for) operating
activities
|
(680,354
|
)
|
1,259,563
|
||||
|
CASH
FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
|
|||||||
|
Purchase
of Detroit Assets (see Note 4), including indemnified costs
paid
|
(1,461,266
|
)
|
(242,890
|
)
|
|||
|
Purchase
of furniture and equipment
|
(245,015
|
)
|
(524,346
|
)
|
|||
|
Issuance
of notes receivable
|
(25,000
|
)
|
|||||
|
Net
cash used for investing activities
|
(1,731,281
|
)
|
(767,236
|
)
|
|||
|
|
|||||||
|
CASH
FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
|
|||||||
|
Payment
to former shareholders of Airgroup
|
(500,000
|
)
|
|||||
|
Contribution
from minority interest of subsidiary
|
-
|
12,000
|
|||||
|
Distribution
to minority interest
|
(13,535
|
)
|
-
|
||||
|
Proceeds
from (payments to) credit facility net of credit fees
|
2,597,818
|
(295,722
|
)
|
||||
|
Net
cash provided by (used for) financing activities
|
2,084,283
|
(283,722
|
)
|
||||
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(327,352
|
)
|
208,605
|
||||
|
CASH
AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR
|
719,575
|
510,970
|
|||||
|
CASH
AND CASH EQUIVALENTS AT END OF YEAR
|
$
|
392,223
|
$
|
719,575
|
|||
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|||||||
|
Income
taxes paid
|
$
|
872,786
|
$
|
1,136,784
|
|||
|
Interest
paid
|
$
|
121,399
|
$
|
22,215
|
|||
The
accompanying notes form an integral part of these consolidated financial
statements.
F-6
Supplemental
disclosure of non-cash investing and financing activities:
In
September 2006, the Company issued 250,000 shares of its common stock, at a
market value of $1.01 per share, in exchange for $252,500 in value, of domestic
and international freight training materials for the development of its
employees and exclusive agent offices, and was included in the balance sheet
as furniture and equipment.
In
October 2006, the Company issued 100,000 shares of common stock, at a market
value of $1.01 a share, as incentive compensation to its senior managers which
was recorded against other accrued costs.
In
January 2007 the former shareholders of Airgroup agreed with the Company to
make
the first contingent payment of $600,000 payable in two installments with
$300,000 payable on June 30, 2008 and $300,000 on January 1, 2009 resulting
in
an increase to goodwill of $600,000.
In
June
2007, and based on the operating income for year ended June 30, 2007, $214,034
was recorded as an accrued payable and increase to goodwill, for the first
annual earn-out for the former Airgroup shareholders for the Company’s
acquisition of Airgroup. See Note 4.
In
November 2007, the Company reclassified $438,734 from long-term other assets
to
goodwill related to prior year costs incurred on the Detroit asset acquisition.
In
February 2008, the Company issued 356,724 shares of common stock at a fair
value
of $.60 per share in full satisfaction of the $214,034 earnout payment for
the
year ending June 30, 2007.
In
June
2008, and based on the operating income for year ended June 30, 2008, $416,596
was recorded as an accrued payable and increase to goodwill, for the second
annual earn-out for the former Airgroup shareholders for the Company’s
acquisition of Airgroup.
F-7
RADIANT
LOGISTICS, INC.
Notes
to the Consolidated Financial Statements
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. Airgroup 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 based on the operations of Airgroup as a
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 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.
The
Company continues to identify a number of additional companies as suitable
acquisition candidates and has completed two material acquisitions over the
past
twelve months. In November 2007, the Company purchased certain assets in Detroit
Michigan to service the automotive industry. In September 2008, the Company
acquired Adcom Express, Inc. d/b/a Adcom Worldwide (“Adcom”). Adcom is a
Minneapolis, Minnesota based logistics company contributing an additional 30
locations across North America and augmenting the Company’s overall domestic and
international freight forwarding capabilities.
The
Company will continue to search for targets that fit within its acquisition
criteria. The Company’s ability to secure additional financing will rely upon
the sale of debt or equity securities, and the development of an active trading
market for its securities. Although the Company can make no assurance as to
its
long term access to debt or equity securities or its ability to develop an
active trading market, in connection with its acquisition of Adcom the Company
was successful in increasing its credit facility from $10.0 million to $15.0
million.
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.
F-8
Basis
of Presentation
The
consolidated financial statements also include the accounts of Radiant
Logistics, Inc. and its wholly-owned subsidiaries as well as a single
variable interest entity, Radiant Logistics Partners LLC which is 40% owned
by
Airgroup, a wholly owned subsidiary of the Company, whose accounts are included
in the consolidated financial statements in accordance with Financial Accounting
Standards Board (“FASB”) Interpretation No. 46(R) consolidation of “Variable
Interest Entities” (See Note 7). All significant inter-company 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 of America
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, 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) 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.
c) Concentration
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.
d) 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.
e) 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.
Under
the
provisions of Statement of Position 98-1, “Accounting
for the Costs of Computer Software Developed or Obtained for Internal
Use”,
the
Company capitalizes costs associated with internally developed and/or purchased
software systems that have reached the application development stage and meet
recoverability tests. Capitalized costs include external direct costs of
materials and services utilized in developing or obtaining internal-use
software, payroll and payroll-related expenses for employees who are directly
associated with and devote time to the internal-use software project and
capitalized interest, if appropriate. Capitalization of such costs begins when
the preliminary project stage is complete and ceases no later than the point
at
which the project is substantially complete and ready for its intended purpose.
F-9
Costs
for
general and administrative, overhead, maintenance and training, as well as
the
cost of software that does not add functionality to existing systems, are
expensed as incurred.
f) Goodwill
The
Company follows the provisions of Statement of Financial Accounting Standards
("SFAS") No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires
an
annual impairment test for goodwill and intangible assets with indefinite lives.
Under the provisions of SFAS No. 142, the first step of the impairment test
requires that the Company determines the fair value of each reporting unit,
and
compare the fair value to the reporting unit's carrying amount. 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. 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. As of June 30, 2008, management believes there are no
indications of an impairment.
g) 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 a 5 year period.
See Note 4 and 5.
The
Company follows the provisions of SFAS No. 144, “Accounting for the Impairment
or Disposal of Long-Lived Assets,” which establishes accounting standards for
the impairment of long-lived assets such as property, plant and equipment and
intangible assets subject to amortization. The Company reviews long-lived assets
to be held-and-used for impairment whenever events or changes in circumstances
indicate that 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 that no
impairment of the respective carrying value has occurred as of June 30, 2008.
h) Commitments
The
Company has operating lease commitments for office and warehouse space and
equipment rentals and are under non-cancelable operating leases expiring at
various dates through December 2012. Future annual commitments for years ending
June 30, 2009 through 2013, respectively, are $588,258,
$237,517, $142,203, $32,281 and $23,393. Lease and rent expense for the years
ended June 30, 2008 and June 30, 2007 approximated $665,003 and $344,757,
respectively.
i) Income
Taxes
Taxes
on
income are provided in accordance with SFAS No. 109, “Accounting for
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.
F-10
The
Company accounts for uncertain income tax positions in accordance with FAS
interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement 109” (“FIN 48”), which was adopted by the
Company on July 1, 2007. Accordingly, 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.
There was no financial statement impact from the adoption of FIN
48.
j) Revenue
Recognition and Purchased Transportation Costs
The
Company recognizes revenue on a gross basis, in accordance with Emerging Issues
Task Force ("EITF") 91-9, "Reporting Revenue Gross versus Net," as a result
of
the following: 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. In accordance with EITF 91-9, revenue
from freight forwarding and export services is recognized at the time the
freight is tendered to the direct carrier at origin, and direct expenses
associated with the cost of transportation are accrued concurrently. At the
time
when revenue is recognized on a transportation shipment, the Company records
costs related to that shipment based on the estimate of total purchased
transportation costs. The estimates are 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.
k) Share
based Compensation
The
Company follows the provisions of SFAS No. 123R, "Share Based Payment,” a
revision of FASB Statement No. 123 ("SFAS 123R"). This statements requires
that
the cost resulting from all share-based payment transactions be recognized
in
the Company’s consolidated financial statements. In addition, the Company
follows the guidance of the Securities and Exchange Commission ("SEC") Staff
Accounting Bulletin No. 107, "Share-Based Payment" ("SAB 107"). SAB 107 provides
the SEC’s staff’s position regarding the application of SFAS 123R and certain
SEC rules and regulations, and also provides the staff’s views regarding the
valuation of share-based payment arrangements for public companies. SFAS 123R
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the statement of operations based on their
fair values.
For
the
year ended June 30, 2008, the Company recorded a share based compensation
expense of $204,062, which, net of income taxes, resulted in a $134,681 net
reduction of net income. For the year ended June 30, 2007, the Company recorded
a share based compensation expense of $194,269, which, net of income taxes,
resulted in a $128,218 net reduction of net income.
l) Basic
and Diluted Income Per Share
The
Company uses SFAS No. 128, "Earnings Per Share" for calculating the basic and
diluted income (loss) 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 options, had been issued and if the additional
common shares were dilutive. For the year ended June 30, 2008, the weighted
average outstanding number of potentially dilutive common shares totaled
34,358,746 shares of common stock, including options to purchase 3,410,000
shares of common stock at June 30, 2008, of which 2,985,000 were excluded as
their effect would have been antidilutive. For the year ended June 30, 2007,
the
weighted average outstanding number of potentially dilutive common shares
totaled 34,324,736 shares of common stock, including options to purchase
3,150,000 shares of common stock at June 30, 2007, of which 1,575,000 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.
F-11
|
|
Year ended
June 30, 2008
|
Year ended
June 30, 2007
|
|||||
|
Weighted
average basic shares outstanding
|
34,126,972
|
33,882,872
|
|||||
|
Options
& other
|
231,774
|
441,864
|
|||||
|
Weighted
average dilutive shares outstanding
|
34,358,746
|
34,324,736
|
|||||
m) Fair
Value of Financial Instruments
The
carrying value of the Company's receivables, accounts payable, other accrued
liabilities, notes payable and long term debt approximate their estimated fair
values due to the relatively short maturities of those instruments.
n) Comprehensive
Income
The
Company has no components of Other Comprehensive Income and, accordingly, no
Statement of Comprehensive Income has been included in the accompanying
consolidated financial statements.
NOTE
3 - RECENT ACCOUNTING PRONOUNCEMENTS
In
September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 157 “Fair Value Measurements” which relate to the definition of fair value,
the methods used to estimate fair value, and the requirement of expanded
disclosures about estimates of fair value. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. The adoption of SFAS No. 157
is
not expected to have a material impact on the Company’s financial position,
results of operations or cash flows.
In
February 2007 the Financial Accounting Standards Board ("FASB") issued SFAS
159
“The Fair Value Option for Financial Assets and Financial Liabilities.” The
statement permits entities to choose to measure many financial instruments
and
certain other items at fair value. The objective is to improve financial
reporting by providing entities with the opportunity to mitigate volatility
in
reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. This Statement
is
expected to expand the use of fair value measurement, which is consistent with
the Board’s long-term measurement objectives for accounting for financial
instruments. This Statement is effective as of the beginning of an entity’s
first fiscal year that begins after November 15, 2007. The Company does not
believe that SFAS 159 will have a material impact on the Company’s financial
statements.
In
December 2007, the FASB issued SFAS No. 141R, Business Combinations , which
replaces SFAS No. 141. The statement retains the purchase method of
accounting for acquisitions, but requires a number of changes, including changes
in the way assets and liabilities are recognized in the purchase accounting.
It
also changes the recognition of assets acquired and liabilities assumed arising
from contingencies, requires the capitalization of in-process research and
development at fair value, and requires the expensing of acquisition-related
costs as incurred. SFAS No. 141R is effective for us beginning July 1,
2009 and will apply prospectively to business combinations completed on or
after
that date.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51, which
changes the accounting and reporting for minority interests. Minority interests
will be recharacterized as noncontrolling interests and will be reported as
a
component of equity separate from the parent’s equity, and purchases or sales of
equity interests that do not result in a change in control will be accounted
for
as equity transactions. In addition, net income attributable to the
noncontrolling interest will be included in consolidated net income on the
face
of the income statement and, upon a loss of control, the interest sold, as
well
as any interest retained, will be recorded at fair value with any gain or loss
recognized in earnings. SFAS No. 160 is effective for the Company beginning
July 1, 2009 and will apply prospectively, except for the presentation and
disclosure requirements, which will apply retrospectively. The Company is
currently assessing the potential impact that adoption of SFAS No. 160 may
have on the Company’s financial statements.
In
March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments
and
Hedging Activities, an amendment of FASB Statement No. 133, which
requires additional disclosures about the objectives of the derivative
instruments and hedging activities, the method of accounting for such
instruments under SFAS No. 133 and its related interpretations, and a tabular
disclosure of the effects of such instruments and related hedged items on the
Company’s financial position, financial performance, and cash flows. SFAS No.
161 is effective for the Company beginning January 1, 2009. The Company is
currently assessing the potential impact that adoption of SFAS No. 161 may
have
on the Company’s financial statements.
F-12
In
May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles. This statement identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP)
in
the United States. The Company does not expect that this Statement will
resulting in a change in any of its current accounting practices.
NOTE
4 – ACQUISITIONS - AIRGROUP
In
January of 2006, the Company acquired 100 percent of the outstanding stock
of
Airgroup. Airgroup is a Bellevue, Washington based non-asset based logistics
company that provides domestic and international freight forwarding services
through a network of 34 exclusive agent offices across North America. Airgroup
services a diversified account base including manufacturers, distributors and
retailers using a network of independent carriers and over 100 international
agents positioned strategically around the world. See the Company’s Form 8-K
filed on January 18, 2006 for additional information.
The
transaction was valued at up to $14.0 million. This consists of: (i) $9.5
million payable in cash at closing (before giving effect for $2.8 million in
acquired cash); (ii) a
subsequent cash payment of $0.5 million in cash which was paid on December
31,
2007; (iii) as amended, an additional base payment of $0.6 million payable
in
cash with $300,000 payable on June 30, 2008 and $300,000 payable on January
1,
2009; (iv) a base earn-out payment of $1.9 million payable in Company common
stock over a three-year earn-out period based upon Airgroup achieving income
from continuing operations of not less than $2.5 million per year; and
(v)
as additional incentive to achieve future earnings growth, an opportunity to
earn up to an additional $1.5 million payable in Company common stock at the
end
of a five-year earn-out period (the “Tier-2 Earn-Out”). Under Airgroup’s Tier-2
Earn-Out, the former shareholders of Airgroup are entitled to receive 50% of
the
cumulative income from continuing operations in excess of $15,000,000 generated
during the five-year earn-out period up to a maximum of $1,500,000. With respect
to the base earn-out payment of $1.9 million, in the event there is a shortfall
in income from continuing operations, the earn-out payment will be reduced
on a
dollar-for-dollar basis to the extent of the shortfall. Shortfalls may be
carried over or carried back to the extent that income from continuing
operations in any other payout year exceeds the $2.5 million level. For the
year
ended June 30, 2007 the former Airgroup shareholders earned approximately
$214,000. Through June 30, 2008, the former Airgroup shareholders earned a
total
of approximately $631,000 in base earn-out payments. Of this amount, $214,034
was paid during the year ended June 30, 2008 with Company common stock. The
remaining amount of $416,596 is accrued in accounts payable.
In
the
quarter ended December 31, 2007, the Company reduced the estimate of accrued
transportation costs assumed in the acquisition of Airgroup. This adjustment
was
made with the benefit of 2 years of operating experience and resulted in the
recognition of approximately $1.4 million in non-recurring other income.
Pursuant to the acquisition agreement, the former shareholders of Airgroup
have
indemnified the Company for taxes of $486,694 associated with the income
recognized in connection with this change in estimate. The tax indemnity has
been reflected as a reduction of the additional base payment otherwise payable
to the former shareholders of Airgroup.
NOTE
5 – ACQUIRED INTANGIBLE ASSETS
The
table
below reflects acquired intangible assets related to the acquisition of Airgroup
on January 1, 2006. The information is for the years ended June 30, 2008 and
June 30, 2007. Prior to the Company’s acquisition of Airgroup, there were no
intangible assets for prior years as this was the Company’s first
acquisition.
F-13
|
Year ended
June 30, 2008
|
Year ended
June 30, 2007
|
||||||||||||
|
Gross
carrying
amount
|
Accumulated
Amortization
|
Gross
carrying
amount
|
Accumulated
Amortization
|
||||||||||
|
Amortizable intangible assets:
|
|
||||||||||||
|
Customer
related
|
$
|
2,652,000
|
$
|
1,454,587
|
$
|
2,652,000
|
$
|
925,227
|
|||||
|
Covenants
not to compete
|
90,000
|
45,000
|
90,000
|
27,000
|
|||||||||
|
Total
|
$
|
2,742,000
|
$
|
1,499,587
|
$
|
2,742,000
|
$
|
952,227
|
|||||
|
Aggregate
amortization expense:
|
|||||||||||||
|
For
twelve months ended June 30, 2008
|
$
|
547,360
|
|||||||||||
|
For
twelve months ended June 30, 2007
|
$
|
611,827
|
|||||||||||
|
Aggregate
amortization expense for the year ended June 30:
|
|||||||||||||
|
2009
|
597,090
|
||||||||||||
|
2010
|
483,123
|
||||||||||||
|
2011
|
162,200
|
||||||||||||
|
Total
|
$
|
1,242,413
|
|||||||||||
For
the
year ended June 30, 2008, the Company recorded an expense of $547,360 from
amortization of intangibles and an income tax benefit of $186,104 from
amortization of the long term deferred tax liability; both arising from the
acquisition of Airgroup. For the year ended June 30, 2007, the Company recorded
an expense of $611,827 from amortization of intangibles and an income tax
benefit of $208,021 from amortization of the long term deferred tax liability;
both arising from the acquisition of Airgroup. The Company expects the net
reduction in income, from the combination of amortization of intangibles and
long term deferred tax liability, will be $394,079 in 2009, $318,862 in 2010,
and $107,053 in 2011.
NOTE
6 – ACQUISITION OF ASSETS - AUTOMOTIVE
In
May,
2007, the Company launched a new logistics service offering focused on the
automotive industry through its wholly owned subsidiary, Radiant Logistics
Global Services, Inc. (“RLGS”). The Company entered into an Asset Purchase
Agreement (the “APA”) with Mass Financial Corporation (“Mass”) to acquire
certain assets formerly used in the operations of the automotive division of
Stonepath Group, Inc. (the “Purchased Assets”). The agreement of the transaction
was valued at up to $2.75 million.
Concurrent
with the execution of the APA, the Company also entered into a Management
Services Agreement (“MSA”) with Mass, whereby it agreed to operate the Purchased
Assets within its automotive services group during the interim period pending
the closing under the APA. As part of the MSA, Mass agreed to indemnify the
Company from and against any and all expenses, claims and damages arising out
of
or relating to any use by any of the Company’s subsidiaries or affiliates of the
Purchased Assets and the operation of the business utilizing the Purchased
Assets.
Shortly
after commencing operation of the Purchased Assets pursuant to the MSA, a
judgment creditor of Stonepath (the “Stonepath Creditor”) issued garnishment
notices to the automotive customers being serviced by the Company disputing
the
priority and superiority of the underlying security interests of Mass in the
Purchased Assets and asserting that the Company was in possession of certain
accounts receivable of other assets covered by a garnishment notice. This
resulted in a significant disruption to the automotive business and the Company
exercised an indemnity claim against Mass resulting in a restructured
transaction with Mass.
In
November 2007,
the
purchase price of the Purchased Assets was reduced to $1.56 million,
consisting of cash of $560,000 and a $1.0 million credit in satisfaction of
indemnity claims asserted by the Company arising from its interim operation
of
the Purchased Assets since May 22, 2007. Of the cash component of the
transaction, $100,000 was paid in May of 2007, $265,000 was paid at closing
and
a final payment of $195,000 was to be paid in November of 2008, subject to
off-set of up to $75,000 for certain qualifying expenses incurred by the
Company. Net of qualifying expenses and a discount for accelerated payment,
the
final payment was reduced to $95,000 and paid in June of 2008.
The
total
purchase price of the acquired assets is $1.9 million, which is comprised of
the
$1.56 million purchase price less $25,000 for the early payment of note, and
an
additional $365,000 in acquisition expenses. The following table summarizes
the
preliminary allocation of the purchase price based on the estimated fair value
of the acquired assets at November 1, 2007. No liabilities were assumed in
connection with the transaction:
F-14
|
Furniture
and equipment
|
$
|
24,165
|
||
|
Goodwill
and other intangibles
|
1,875,835
|
|||
|
Total
acquired assets
|
1,900,000
|
|||
|
Total
acquired liabilities
|
-
|
|||
|
Net
assets acquired
|
$
|
1,900,000
|
The
results of operations related to these assets are included in the Company’s
statement of income from the date of acquisition in November 2007. The above
allocation is still preliminary and the Company expects to finalize it prior
to
the November 2008 anniversary of the acquisition of Purchased Assets as required
per SFAS 141.
The
following information is based on estimated results for the years ending
June
30, 2008 and 2007 as if the acquisition of the Detroit assets had occurred
as of
the beginning of fiscal year 2007 (in thousands, except earnings per
share):
|
Fiscal
Year Ended 2008
|
Fiscal
Year Ended 2007
|
||||||
|
Total
revenue
|
$
|
102,522
|
$
|
82,487
|
|||
|
Net
income
|
$
|
1,424
|
$
|
195
|
|||
|
Earnings
per share
|
|||||||
|
Basic
|
$
|
.04
|
$
|
.01
|
|||
|
Diluted
|
$
|
.04
|
$
|
.01
|
|||
NOTE
7 – VARIABLE INTEREST ENTITY
FIN46(R)
clarifies the application of Accounting Research Bulletin No. 51 “Consolidated
Financial Statements,” to 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 (“variable interest
entities”). Radiant Logistics Partners LLC (“RLP”) is 40% owned by Airgroup
Corporation and qualifies under FIN46(R) as a variable interest entity and
is
included in the Company’s consolidated financial statements. RLP commenced
operations in February 2007. Minority interest recorded on the income statement
for the year ended June 30, 2008 was a benefit of $68,731 and for the year
ended
June 30, 2007 minority interest expense was $45,482.
NOTE
8 – RELATED PARTY
RLP
is
owned 40% by Airgroup and 60% by an affiliate of the Chief Executive Officer
of
the Company, Radiant Capital Partners (RCP). 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. 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. Under FIN46(R), RLP is
consolidated in the financial statements of the Company (see Note
7).
NOTE
9 – FURNITURE AND EQUIPMENT
|
June 30,
|
June 30,
|
||||||
|
|
2008
|
2007
|
|||||
|
Vehicles
|
$
|
3,500
|
$
|
3,500
|
|||
|
Communication
equipment
|
1,353
|
1,353
|
|||||
|
Office
equipment
|
261,633
|
261,633
|
|||||
|
Furniture
and fixtures
|
47,191
|
23,379
|
|||||
|
Computer
equipment
|
290,135
|
232,667
|
|||||
|
Computer
software
|
738,566
|
570,494
|
|||||
|
Leasehold
improvements
|
30,526
|
10,699
|
|||||
|
1,372,904
|
1,103,725
|
||||||
|
Less:
Accumulated depreciation and amortization
|
(655,362
|
)
|
(258,806
|
)
|
|||
|
Furniture
and equipment – net
|
$
|
717,542
|
$
|
844,919
|
|||
F-15
Depreciation
and amortization expense related to furniture and equipment for the year ended
June 30, 2008 was $396,556, and for the year ended June 30, 2007 was
$190,046.
NOTE
10 - LONG TERM DEBT
In
February 2008, the Company’s $10 million revolving credit facility (Facility)
was extended into 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 .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 accounts
receivable. The Facility was increased to $15.0 million in September of 2008.
See note 17.
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
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.
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., Airgroup
Corporation, Radiant Logistics Global Services Inc. (“RLGS”) and Radiant
Logistics Partners, LLC (“RLP”). RLP is owned 40% by Airgroup and 60% by an
affiliate of the Chief Executive Officer of the Company, Radiant Capital
Partners. RLP has been certified as a minority business enterprise, and intends
to focus on corporate and government accounts with diversity initiatives. As
a
co-borrower under the Facility, the accounts receivable of RLP and RLGS 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 June 30, 2008, the
Company was in compliance with all of its covenants.
As
of
June 30, 2008, the Company had $2,714,026 advances under the Facility and
$1,558,006 in outstanding checks, which had not yet been presented to the bank
for payment. The outstanding checks have been reclassed to cash as they will
be
advanced from, or against, the Facility when presented for payment to the bank.
These amounts total long term debt of $4,272,032.
As
of
June 30, 2007, the Company had no advances under the Facility and $1,674,214
in
outstanding checks, which had not yet been presented to the bank for payment.
The outstanding checks have been reclassed from cash as they will be advanced
from, or against, the Facility when presented for payment to the bank. The
$1,674,214, in addition to a $300,000 payable to the former shareholders of
Airgroup, totals long term debt of $1,974,214.
At
June
30, 2008, based on available collateral and $205,000 in outstanding letter
of
credit commitments, there was $5,858,510 available for borrowing under the
Facility based on advances outstanding. At June 30, 2007, based on available
collateral and $315,000 in outstanding letter of credit commitments, there
was
$6,567,708 available for borrowing under the Facility.
F-16
NOTE
11 - 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.
|
June 30,
|
June 30,
|
||||||
|
|
2008
|
2007
|
|||||
|
Deferred tax assets:
|
|||||||
|
Allowance
for doubtful accounts
|
$
|
174,583
|
$
|
88,386
|
|||
|
Accruals
|
865,282
|
862,767
|
|||||
|
Stock
based compensation
|
135,433
|
66,051
|
|||||
|
Total
deferred tax assets
|
$
|
1,175,298
|
$
|
1,017,204
|
|||
|
Deferred
tax liabilities:
|
|||||||
|
Accruals
|
883,210
|
782,548
|
|||||
|
Total
deferred tax liability
|
$
|
883,210
|
$
|
782,548
|
|||
|
Net
deferred tax asset – current
|
$
|
292,088
|
$
|
234,656
|
|||
|
Long
term deferred tax liability – intangibles – Note
5
|
$
|
422,419
|
$
|
608,523
|
|||
The
acquisition of Airgroup resulted in $932,280 of long term deferred tax liability
resulting from the acquisition of certain amortizable intangibles, identified
during the Company’s purchase price allocation, which is 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.
Income
tax expense attributable to operations is as follows.
|
Year ended
June 30,
2008
|
Year ended June 30,
2007
|
||||||
|
Current:
|
|
||||||
|
Federal
|
$
|
1,146,069
|
$
|
313,627
|
|||
|
State
|
5,215
|
7,500
|
|||||
|
|
|
||||||
|
Deferred:
|
|
||||||
|
Federal
|
(243,536
|
)
|
(165,260
|
)
|
|||
|
State
|
-
|
||||||
|
Net
income tax expense
|
$
|
907,748
|
$
|
155,867
|
|||
The
following table reconciles income taxes based on the U.S. statutory tax rate
to
the Company’s income tax expense.
|
|
Year
ended June 30,
2008
|
Year
ended June 30,
2007
|
|||||
|
Tax at statutory rate
|
$
|
789,022
|
$
|
108,325
|
|||
|
Net tax
payment for amended Airgroup 2005 return
|
26,342
|
||||||
|
Permanent
differences
|
113,511
|
||||||
|
State
income taxes
|
5,215
|
7,500
|
|||||
|
Other
|
-
|
13,700
|
|||||
|
Net
income tax expense
|
$
|
907,748
|
$
|
155,867
|
|||
F-17
The
Company’s acquisition agreement of Airgroup contains future contingent
consideration provisions that provide for the selling shareholders to receive
additional consideration if minimum pre-tax income levels are made in future
periods. Pursuant to SFAS No. 141, “Business
Combinations,”
contingent consideration is accounted for as additional goodwill when
earned.
Effective
January 1, 2006, the Company acquired 100% of the outstanding stock of Airgroup.
The transaction was valued at up to $14.0
million based on meeting all incentive and contingent factors. This consists
of:
(i) $9.5 million payable in cash at closing (before giving effect for $2.8
million in acquired cash); (ii) a subsequent cash payment of $0.5 million in
cash which was paid on December 31, 2007; (iii) as amended, an additional base
payment of $0.6 million payable in cash with $300,000 payable on June 30, 2008
and $300,000 payable on January 1, 2009; (iv) a base earn-out payment of $1.9
million payable in Company common stock over a three-year earn-out period based
upon Airgroup achieving income from continuing operations of not less than
$2.5
million per year; and (v) as additional incentive to achieve future earnings
growth, an opportunity to earn up to an additional $1.5 million payable in
Company common stock at the end of a five-year earn-out period (the “Tier-2
Earn-Out”). Under Airgroup’s Tier-2 Earn-Out, the former shareholders of
Airgroup are entitled to receive 50% of the cumulative income from continuing
operations in excess of $15,000,000 generated during the five-year earn-out
period up to a maximum of $1,500,000. With respect to the base earn-out payment
of $1.9 million, in
the
event there is a shortfall in income from continuing operations, the earn-out
payment will be reduced on a dollar-for-dollar basis to the extent of the
shortfall. Shortfalls may be carried over or carried back to the extent that
income
from continuing operations in
any
other payout year exceeds the $2.5 million level. For the year ended June 30,
2007 the former Airgroup shareholders earned approximately $214,000. Through
June 30, 2008, the former Airgroup shareholders earned a total of approximately
$631,000 in base earn-out payments. Of this amount, $214,034 was paid during
the
year ended June 30, 2008 with Company common stock. The remaining amount of
$416,596 is accrued in accounts payable.
Assuming
minimum targeted earnings levels are achieved, the following table summarizes
the Company’s contingent base earn-out payments related to the acquisition of
Airgroup that will be paid in the fiscal years indicated based on results of
the
prior year (in thousands) (1)
:
|
|
2010
|
|||
|
|
||||
|
Earn-out
payments:
|
|
|||
|
Cash
|
$
|
—
|
||
|
Equity
|
634
|
|||
|
Total
potential earn-out payments
|
$
|
634
|
||
|
|
|
|||
|
Prior
year earnings targets (income from continuing operations)
(2)
|
|
|||
|
|
|
|||
|
Total
earnings actual and targets
|
$
|
2,500
|
||
|
|
|
|||
|
Earn-outs
as a percentage of prior year earnings targets:
|
|
|||
|
|
|
|||
|
Total
|
25.3
|
%
|
||
|
(1)
|
During
the fiscal year 2007-2011 earn-out period, there is an additional
contingent obligation related to tier-two earn-outs that could be
as much
as $1.5 million if Airgroup generates at least $18.0 million in income
from continuing operations during the period.
|
|
|
|
|
(2)
|
Income
from continuing operations as presented refers to the uniquely defined
earnings targets of Airgroup and should not be interpreted to be
the
consolidated income from continuing operations of the Company which
would
give effect to, among other things, amortization or impairment of
intangible assets or various other expenses which may not be charged
to
Airgroup for purposes of calculating
earn-outs.
|
F-18
In
fiscal
year 2007, the Company entered into finders fee arrangements with third parties
to assist the Company in locating logistics businesses that could become
additional exclusive agent operations of the Company and/or candidates for
acquisition. Any amounts due under these arrangements are payable as a function
of the financial performance of any newly acquired operation and are conditioned
payable upon, among other things, the retention of any newly acquired operations
for a period of not less than 12 months. Payment of the finders fee may be
paid
in cash, Company shares, or a combination of cash and shares. For the year
ended
June 30, 2008, the Company paid $77,235 and issued 133,597 shares of stock
valued at $.58 per share in satisfaction of the finders fee obligation.
NOTE
13 - 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 June 30, 2008, none of the shares were issued or
outstanding.
Common
Stock
In
September 2006, the Company issued 250,000 shares of common stock, at a market
value of $1.01 per share, in exchange for $252,500, in value, of domestic and
international freight training materials for the development of its employees
and exclusive agent offices.
In
October 2006, the Company issued of 100,000 shares of common stock, at a market
value of $1.01 a share, as incentive compensation to its senior
managers.
In
February 2008, the Company issued 356,724 shares of common stock, at a market
value of $.60 a share, in satisfaction of the $214,000 earnout obligation due
to
former Airgroup shareholders for the earnout period ending June 30, 2007.
In
May
2008, the Company issued 250,000 shares of common stock in to a financial
advisor who provided investor relations and financial advisory services to
the
Company. Shares issued were for services provided February through July 2008,
and as such, only the value of 208,333 shares has been recorded during the
year
ended June 30, 2008.
In
June
2008, the Company issued 133,597 shares of common stock, at a market value
of
$.58, in satisfaction of half of the finders fees associated with bringing
on
new stations. The remaining obligation was paid in cash.
NOTE
14 – STOCK OPTION PLAN
On
October 20, 2005, the Company’s shareholders approved the Company’s 2005 Stock
Incentive Plan (“2005 Plan). The 2005 Plan authorizes the granting of awards,
the exercise of which would allow up to an aggregate of 5,000,000 shares of
the
Company’s common stock to be acquired by the holders of said awards. For the
2005 Plan the awards can take the form of incentive stock options (“ISOs”) or
nonqualified stock options (“NSOs”) and may be granted to key employees,
directors and consultants. Unless and until the 2005 Plan is approved by the
Company’s stockholders, the Company may not issue ISOs. Options shall be
exercisable at such time or times, or upon such event, or events, and subject
to
such terms, conditions, performance criteria, and restrictions as shall be
determined by the Plan Administrator and set forth in the Option Agreement
evidencing such Option; provided, however, that (i) no Option shall be
exercisable after the expiration of ten (10) years after the date of grant
of
such Option, (ii) no Incentive Stock Option granted to a participant who owns
more than 10% of the combined voting power of all classes of stock of the
Company (or any parent or subsidiary of the Company) shall be exercisable after
the expiration of five (5) years after the date of grant of such Option, and
(iii) no Option granted to a prospective employee, prospective consultant or
prospective director may become exercisable prior to the date on which such
person commences Service with the Participating Company. Subject to the
foregoing, unless otherwise specified by the Option Agreement evidencing the
Option, any Option granted hereunder shall have a term of ten (10) years from
the effective date of grant of the Option.
The
price
at which each share covered by an Option may be purchased shall be determined
in
each case by the Plan Administrator; provided, however, that such price shall
not, in the case of an Incentive Stock Option, be less than the Fair Market
Value of the underlying Stock at the time the Option is granted. If a
participant owns (or is deemed to own under applicable provisions of the Code
and rules and regulations promulgated hereunder) more than ten
percent (10%) of the combined voting power of all classes of the stock of
the Company and an Option granted to such participant is intended to qualify
as
an Incentive Stock Option, the Option price shall be no less than 110% of the
Fair Market Value of the Stock covered by the Option on the date the Option
is
granted.
F-19
Fair
market value of the Stock on any given date means (i) if the Stock is listed
on
any established stock exchange or a national market system, including without
limitation the National Market or Small Cap Market of The NASDAQ Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system
for
the last market trading day prior to the time of determination, as reported
in
The Wall Street Journal or such other source as the Administrator deems
reliable; (ii) if the Stock is regularly traded on the NASDAQ OTC Bulletin
Board
Service, or a comparable automated quotation system, its Fair Market Value
shall
be the mean between the high bid and low asked prices for the Stock on the
last
market trading day prior to the day of determination; or (iii) in the absence
of
an established market for the Stock, the Fair Market Value thereof shall be
determined in good faith by the Plan Administrator.
Under
the
2005 Plan, stock options were granted to employees up to 10 years at and are
exercisable in whole or in part at stated times from the date of grant up to
ten
years from the date of grant. Under the 2005 Plan, during the year ended June
30, 2008, 650,000 stock options were granted to employees at a weighted average
exercise price of $.274 per share. During the year ended June 30. 2007, 725,000
stock options were granted to employees at a weighted average exercise price
of
$.646 per share. The Company recorded a compensation expense of $204,062 for
the
year ended June 30, 2008, and $194,269 for the year ended June 30,
2007.
The
following table reflects activity under the plan for years ended June 30, 2008
and 2007.
|
|
Year ended
June 30, 2008
|
Year ended
June 30, 2007
|
|||||||||||
|
|
Granted
Shares
|
Weighted
Average
Exercise
Price
|
Granted
Shares
|
Weighted
Average
Exercise
Price
|
|||||||||
|
Outstanding at beginning of year
|
3,150,000
|
$
|
0.605
|
2,425,000
|
$
|
0.593
|
|||||||
|
Granted
|
650,000
|
$
|
0.274
|
725,000
|
0.646
|
||||||||
|
Exercised
|
-
|
-
|
-
|
-
|
|||||||||
|
Forfeited
|
(390,000
|
)
|
$
|
0.628
|
-
|
-
|
|||||||
|
Cancelled
|
-
|
-
|
-
|
-
|
|||||||||
|
Outstanding
at end of year
|
3,410,000
|
$
|
0.539
|
3,150,000
|
$
|
0.605
|
|||||||
|
Exercisable
at end of year
|
1,027,000
|
$
|
0.596
|
485,000
|
$
|
0.593
|
|||||||
|
Non-vested
at end of year
|
2,383,000
|
$
|
0.514
|
2,665,000
|
$
|
0.607
|
|||||||
The
fair
value of each stock option grant is estimated as of the date of grant using
the
Black-Scholes option pricing model with the following weighted average
assumptions:
|
Year ended
|
Year ended
|
||||||
|
June 30, 2008
|
June 30, 2007
|
||||||
|
Risk-Free Interest Rates
|
0.95%
- 3.49%
|
|
5.05%
|
|
|||
|
Expected
Lives
|
5
yrs
|
5
yrs
|
|||||
|
Expected
Volatility
|
66.2%
- 68.7%
|
|
102.5%
|
|
|||
|
Expected
Dividend Yields
|
0.00%
|
|
0.00%
|
|
|||
|
Forfeiture
Rate
|
0.00%
|
|
0.00%
|
|
|||
As
of
June 30, 2008, the Company had $629,000 of total unrecognized stock compensation
costs relating to unvested stock options which is expected to be recognized
over
a weighted average period of 3.01 years. The following table summarizes the
Company’s unvested stock options and changes for the years ended June 30, 2008
and 2007.
F-20
|
Shares
|
Weighted
Average
Grant
Date Fair
Value
|
||||||
|
Outstanding at June 30, 2006
|
2,425,000
|
$
|
0.353
|
||||
|
Granted
during the year ended
June
30, 2007
|
725,000
|
0.509
|
|||||
|
Less
options vested during 2007
|
(485,000
|
)
|
(0.353
|
)
|
|||
|
Outstanding
at June 30, 2007
|
2,665,000
|
$
|
0.395
|
||||
|
Granted
during the year ended
June
30, 2008
|
650,000
|
0.158
|
|||||
|
Less
options vested during 2008
|
(542,000
|
)
|
(0.374
|
)
|
|||
|
Less
options forfeited during 2008
|
(390,000
|
)
|
(0.498
|
)
|
|||
|
Outstanding
at June 30, 2008
|
2,383,000
|
$
|
0.319
|
||||
The
following table summarizes outstanding and exercisable options by price range
as
of June 30, 2008:
|
|
|
|
Exercisable Options
|
||||||||||||||||
|
Exercise Prices
|
Number
Outstanding
at June 30,
2008
|
Weighted
Average
Remaining
Contractual
Life-Years
|
Weighted
Average
Exercise
Price
|
Aggregate
Intrinsic
Value
at June 30,
2008
|
Number
Exercisable
|
Weighted
Average
Exercise
Price
|
|||||||||||||
|
$0.00 - $0.19
|
425,000
|
9.98
|
$
|
0.180
|
$
|
12,750
|
-
|
$
|
-
|
||||||||||
|
$0.20 -
$0.39
|
50,000
|
9.72
|
$
|
0.350
|
$
|
-
|
-
|
$
|
-
|
||||||||||
|
$0.40
- $0.59
|
1,700,000
|
7.69
|
$
|
0.489
|
$
|
-
|
580,000
|
$
|
0.489
|
||||||||||
|
$0.60
- $0.79
|
1,190,000
|
7.57
|
$
|
0.729
|
$
|
-
|
438,000
|
$
|
0.729
|
||||||||||
|
$1.00
- $1.19
|
45,000
|
8.23
|
$
|
1.010
|
$
|
-
|
9,000
|
$
|
1.010
|
||||||||||
|
Total
|
3,410,000
|
7.97
|
$
|
0.539
|
$
|
12,750
|
1,027,000
|
$
|
0.596
|
||||||||||
F-21
NOTE
15 - QUARTERLY FINANCIAL DATA SCHEDULE (Unaudited)
|
Fiscal Year 2008 - Quarter Ended
|
|||||||||||||
|
|
June 30
|
March 31
|
December 31
|
September 30
|
|||||||||
|
|
|||||||||||||
|
Revenue
|
$
|
25,770,386
|
$
|
25,765,377
|
$
|
23,108,798
|
$
|
25,557,234
|
|||||
|
Cost
of transportation
|
16,280,521
|
16,264,393
|
14,712,256
|
17,116,365
|
|||||||||
|
Net
revenues
|
9,489,865
|
9,500,984
|
8,396,542
|
8,440,859
|
|||||||||
|
|
|||||||||||||
|
Total
operating expenses
|
9,400,595
|
9,317,977
|
8,226,619
|
8,333,487
|
|||||||||
|
Income
from operations
|
89,270
|
183,007
|
169,923
|
107,372
|
|||||||||
|
|
|||||||||||||
|
Total
other income (expense)
|
(63,403
|
)
|
(74,184
|
)
|
1,884,220
|
(44,283
|
)
|
||||||
|
Income
before income tax and minority interest
|
25,867
|
108,823
|
2,054,143
|
63,089
|
|||||||||
|
|
|||||||||||||
|
Income
tax (benefit)
|
135,369
|
35,841
|
744,269
|
(7,731
|
)
|
||||||||
|
Income
before minority interest
|
(109,502
|
)
|
72,982
|
1,309,874
|
70,820
|
||||||||
|
Minority
interest
|
23,089
|
13,696
|
14,334
|
17,612
|
|||||||||
|
Net
income (loss)
|
$
|
(86,413
|
)
|
$
|
86,678
|
$
|
1,324,208
|
$
|
88,432
|
||||
|
|
|||||||||||||
|
Net
income (loss) per common share - basic and diluted
|
$
|
-
|
$
|
-
|
$
|
.04
|
$
|
-
|
|||||
F-22
|
Fiscal Year 2007 - Quarter
|
Ended
|
||||||||||||
|
|
June 30
|
March 31
|
December 31
|
September 30
|
|||||||||
|
|
|||||||||||||
|
Revenue
|
$
|
23,371,733
|
$
|
19,394,026
|
$
|
18,343,928
|
$
|
14,417,101
|
|||||
|
Cost
of transportation
|
15,455,623
|
12,278,178
|
11,655,542
|
9,423,319
|
|||||||||
|
Net
revenues
|
7,916,110
|
7,115,848
|
6,688,386
|
4,993,782
|
|||||||||
|
Total
operating expenses
|
7,803,590
|
7,030,185
|
6,641,277
|
4,826,360
|
|||||||||
|
Income
from operations
|
112,520
|
85,663
|
47,109
|
167,422
|
|||||||||
|
Total
other income (expense)
|
(15,114
|
)
|
(24,690
|
)
|
(2,737
|
)
|
(6,088
|
) | |||||
|
Income
before income tax expense (benefit)
|
97,406
|
60,973
|
44,372
|
161,334
|
|||||||||
|
Income
tax (benefit)
|
137,542
|
37,449
|
(20,932
|
)
|
1,808
|
||||||||
|
Income
before minority interest
|
(40,136
|
)
|
23,524
|
65,304
|
159,526
|
||||||||
|
Minority
interest
|
45,464
|
18
|
-
|
-
|
|||||||||
|
Net
income (loss)
|
$
|
(85,600
|
)
|
$
|
23,506
|
$
|
65,304
|
$
|
159,526
|
||||
|
Net
income (loss) per common share - basic and diluted
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||
NOTE
16 – VALUATION ALLOWANCE AND QUALIFYING ACCOUNTS
|
|
Balance at
beginning of
year
|
Write off to
expense
|
Increase in
reserve
|
Balance at end of
year
|
|||||||||
|
Allowance for Doubtful Accounts:
|
|||||||||||||
|
|
|||||||||||||
|
Year
ended June 30, 2007
|
$
|
202,830
|
$
|
(1,148
|
)
|
$
|
58,278
|
$
|
259,960
|
||||
|
Year
ended June 30, 2008
|
$
|
259,960
|
(224,673
|
)
|
478,192
|
513,479
|
|||||||
On
September 5, 2008, the Company concurrently entered into and closed upon a
Stock
Purchase Agreement (the “Agreement”) pursuant to which it acquired all 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
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 a maximum of $2,000,000, equal to 20% of the amount by which the Adcom
cumulative Gross Profit Contribution exceeds $16,580,000 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 future 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.
F-23
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.
In
connection with the acquisition of Adcom, the Company entered into a third
amendment to the secured credit facility. As amended, and including availability
for Company letters of credit, the Facility has been increased from $10 million
to $15 million. 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. The Facility provides for advances of up to 80% of the
Company’s eligible accounts receivable.
F-24
EXHIBIT
INDEX
|
Exhibit
No.
|
Exhibit
|
|
|
10.11
|
Amendment
No. 2 to Loan Agreement dated as of June 24, 2008 by and among Radiant
Logistics, Inc., Airgroup Corporation, Radiant Logistics Global Services,
Inc., Radiant Logistics Partners, LLC and Bank of America,
N.A.
|
|
|
21.1
|
Subsidiaries
of the Registrant
|
|
|
31.1
|
Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to
Section
302 of the Sarbanes-Oxley Act of 2002
|
|
|
32.1
|
Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to
Section
906 of the Sarbanes-Oxley Act of
2002
|