RADIANT LOGISTICS, INC - Annual Report: 2009 (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, 2009
o 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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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 o 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. o
Indicate
by check mark whether the registrant (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 o
Yes x No o
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. o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes o No x
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 o
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Accelerated
filer o
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Non-accelerated
filer o
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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, 2008 as reported on the OTC Bulletin
Board was $3,743,380. 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 30, 2009, 32,757,310 shares of the registrant's common stock were
outstanding.
Documents
Incorporated by Reference: None
TABLE OF
CONTENTS
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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16
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ITEM
4
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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17
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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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17
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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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18
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ITEM
8
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FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
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33
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ITEM
9
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
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ON
ACCOUNTING AND FINANCIAL DISCLOSURES
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33
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ITEM
9A(T)
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CONTROLS
AND PROCEDURES
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33
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ITEM
9B
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OTHER
INFORMATION
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34
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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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34
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ITEM
11
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EXECUTIVE
COMPENSATION
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36
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ITEM
12
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
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AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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41
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ITEM
13
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND
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DIRECTOR
INDEPENDENCE
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42
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ITEM
14
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PRINCIPAL
ACCOUNTANT FEES AND SERVICES
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43
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ITEM
15
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EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
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44
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Signatures
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46
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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 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 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 continue to focus on both organic growth and
acquisitions. From an organic perspective, we will focus on
strengthening existing and expanding new customer relationships. 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 completed our most recent transaction in September 2008, when 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.
In
connection with the acquisition of Adcom, we changed the name of Airgroup
Corporation to Radiant Global Logistics, Inc. (“Radiant Global
Logistics”) in order to better position our centralized back-office operations
to service both the Airgroup and Adcom network brands.
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.
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.
2
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. We operate as a freight
forwarder. Freight forwarders procure shipments from customers and
arrange 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 offer a variety of customized
shipping options.
Most
freight forwarders, like Radiant Global Logistics, 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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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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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.
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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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3
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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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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.
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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 Radiant Global Logistics through its
Airgroup and Adcom brands. 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.
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. We believe the highly
fragmented composition of the marketplace, the industry participants' need for
capital, and their owners' desire for liquidity has and will continue to produce
a large number of attractive acquisition candidates. More
specifically, we believe that there are a number of participants within the
agent-based forwarding community that will be seeking liquidity within the next
several years as these owners approach retirement age, which creates a significant
growth opportunity by supporting these logistics entrepreneurs in
transition. 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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the
highly fragmented composition of our
market;
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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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the
ability to utilize our experienced management to identify, acquire and
integrate acquisition
opportunities.
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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 our back-office operations
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.
Our
Competitive Advantages
As a
non-asset based third-party logistics provider, we believe that we are
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.
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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.
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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.
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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.
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6
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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. Although we have no customers that account for
more than 5% of our revenues, there are two agency
locations that each account
for more than 5% of our total gross
revenues.
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Sales
and Marketing
We
principally market our services through the senior management teams in place at
each of our 70 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 generally carry a fixed term and can range from one to 25 years and
generally include a first-right-of refusal to acquire the location. Two of our
agency locations 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.
During
the past two years, we have not spent any material amount on research and
development activities.
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.
7
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.
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 82 employees, of which 80 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.
8
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 generally terminable by either party subject to requisite notice
provisions that generally range from 10-30 days. The Adcom agency agreements
generally 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 two 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.
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.
9
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.
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.
10
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.
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 Radiant Global Logistics, 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.
11
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 effect 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:
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failure
to agree on the terms necessary for a transaction, such as the purchase
price;
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incompatibility
between our operational strategies and management philosophies and those
of the potential acquiree;
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competition
from other acquirers of operating companies;
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a
lack of sufficient capital to acquire a profitable logistics company;
and
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the
unwillingness of a potential acquiree to work with our
management.
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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.
12
Our
credit facility places certain limits on the type and number of acquisitions we
may make.
In
September 2008, our $10.0 million revolving credit facility, including a
$500,000 sublimit to support letters of credit, was increased 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 including 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.
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.
13
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:
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difficulties
in integrating operations, technologies, services and
personnel;
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the
diversion of financial and management resources from existing
operations;
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the
risk of entering new markets;
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the
potential loss of key employees; and
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the
inability to generate sufficient revenue to offset acquisition or
investment costs.
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As a
result, if we fail to properly evaluate and execute any acquisitions or
investments, our business and prospects may be seriously harmed.
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.
14
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 the Adcom and other 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.
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 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.
15
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
Our
principal executive offices are located at 1227 120th Avenue
N.E., Bellevue, Washington 98005 and consist of approximately 10,326 feet of
office & warehouse space which we lease for approximately $17,160 per month
pursuant to the lease expiring October 31, 2010. 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.
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,
tortuously 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 unspecified
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 as such no loss contingency has
been accrued. We intend to vigorously defend this matter.
16
Friedman
Arbitration Claim
In
December of 2008, a dispute arose between the Company and Robert Freidman, the
former shareholder of Adcom regarding, among other things, the final purchase
price based upon the closing date working capital, as adjusted, of Adcom. In
addition to the working capital dispute we asserted claims arising from breaches
of representations and warranties included in the stock purchase
agreement. In response to our claims and as provided in the stock
purchase agreement, on or about February 19, 2009, Robert Friedman, filed an
arbitration claim against us with the American Arbitration Association (“AAA”)
in Minneapolis, MN alleging breach of the securities purchase between the
Company and Mr. Friedman. Mr. Friedman alleges that we have
breached the agreement in connection with the calculation and payment of the
final purchase price and payment of certain other post closing
amounts. Mr. Friedman is seeking payment in excess of
$1,000,000. We have denied all claims and raised a number of
defenses, including set off rights based on breaches of certain representations
and warranties included in the stock purchase agreement. We have
fully accrued for all amounts potentially due Mr. Friedman in connection with
the stock purchase agreement, but believe these amounts could be reduced by more
than $630,000 pending the resolution of the disputed amounts in our
favor. Discovery has been completed. A two day hearing was
conducted in September 2009 which is expected to be reconvened and concluded in
December 2009.
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 30, 2009, was $0.25 per
share.
|
High
|
Low
|
|||||||
|
Year Ended June 30,
2009:
|
||||||||
|
Quarter
ended June 30, 2009
|
$ | .32 | $ | .12 | ||||
|
Quarter
ended March 31, 2009
|
.17 | .06 | ||||||
|
Quarter
ended December 31, 2008
|
.30 | .09 | ||||||
|
Quarter
ended September 30, 2008
|
.30 | .15 | ||||||
|
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 | ||||||
Holders
As of
September 30, 2009, the number of stockholders of record of our common stock was
108. 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.
17
Pacific
Stock Transfer Company, 500 East Warm Springs, Suite 240, Las Vegas, Nevada
89119, serves as our transfer agent.
Share Repurchase Program
We have a
share repurchase program that authorizes us to purchase up to 5,000,000 shares
of common stock through December 31, 2010. The share repurchases may
occur from time-to-time through open market purchases at prevailing market
prices or through privately negotiated transactions as permitted by securities
laws and other legal requirements. The following table sets forth
information regarding our repurchases or acquisitions of common stock during the
fourth quarter of Fiscal 2009:
|
Period
|
Total
Number of Shares
(or Units)
Purchased
|
Average
Price Paid per Share
(or
Unit)
|
Total
Number
of
Shares
Purchased
as Part
of
Publicly
Announced
Plans
or
Programs
|
Maximum
Number
(or
Approximate Dollar Value) of Shares that May Yet Be Purchased Under the
Plans or Programs (1)
|
||||||||||||
|
Repurchases
from April 1, 2009 through April 30, 2009
|
0 | $ | - | - | 5,000,000 | |||||||||||
|
Repurchases
from May 1, 2009 through May 31, 2009
|
0 | - | - | 5,000,000 | ||||||||||||
|
Repurchases
from June 1, 2009 through June 30, 2009
|
595,000 | 0.23 | 595,000 | 4,405,000 | ||||||||||||
|
Total
|
595,000 | $ | 0.23 | 595,000 | 4,405,000 | |||||||||||
|
(1)
|
In
May 2009, our Board of Directors authorized the repurchase of up to
5,000,000 shares of our common
stock.
|
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The
following discussion and analysis of our financial condition and result of
operations should be read in conjunction with the 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. Operating under the Airgroup, Adcom and
Radiant Logistics brands, we service a diversified account base including
manufacturers, distributors and retailers using a network of independent
carriers and international agents positioned strategically around the
world.
18
By
implementing a growth strategy, we intend to build a leading global
transportation and supply-chain management company offering a full range of
domestic and international freight forwarding and other value added supply chain
management services, including order fulfillment, inventory management and
warehousing.
As a
non-asset based provider of third-party logistics services, we seek to limit our
investment in equipment, facilities and working capital through contracts and
preferred provider arrangements with various transportation providers who
generally provide us with favorable rates, minimum service levels, capacity
assurances and priority handling status. Our non-asset based approach allows us
to maintain a high level of operating flexibility and leverage a cost structure
that is highly variable in nature while the volume of our flow of freight
enables us to negotiate attractive pricing with our transportation
providers.
Our
growth strategy continues to focus on both organic growth and acquisitions. From
an organic perspective, we are focused on strengthening existing and expanding
new customer relationships. One of the drivers of our organic growth will be
retaining existing, and securing new exclusive agency locations as well as
enhancing our back-office infrastructure and transportation and accounting
systems.
As we
continue to build out our network of exclusive agent locations to achieve a
level of critical mass and scale, we are executing an acquisition strategy to
develop additional growth opportunities. We continue to identify a number of
additional companies as suitable acquisition candidates and completed our second
material acquisition in September 2008, when we acquired Adcom Express, Inc.
d/b/a Adcom Worldwide (“Adcom”). 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.
Successful implementation of our growth strategy depends upon a number of
factors, including our ability to: (i) continue developing new agency locations;
(ii) locate acquisition opportunities; (iii) secure adequate funding to finance
identified acquisition opportunities; (iv) efficiently integrate the businesses
of the companies acquired; (v) generate the anticipated economies of scale from
the integration; and (vi) maintain the historic sales growth of the acquired
businesses in order to generate continued organic growth. There are a variety of
risks associated with our ability to achieve our strategic objectives, including
the ability to acquire and profitably manage additional businesses and the
intense competition in the industry for customers and for acquisition
candidates.
Performance
Metrics
Our
principal source of income is derived from freight forwarding services. As a
freight forwarder, we arrange for the shipment of our customers’ freight from
point of origin to point of destination. Generally, we quote our customers a
turn key cost for the movement of their freight. Our price quote will often
depend upon the customer’s time-definite needs (first day through fifth day
delivery), special handling needs (heavy equipment, delicate items,
environmentally sensitive goods, electronic components, etc.) and the means of
transport (truck, air, ocean or rail). In turn, we assume the responsibility for
arranging and paying for the underlying means of transportation.
Our
transportation revenue represents the total dollar value of services we sell to
our customers. Our cost of transportation includes direct costs of
transportation, including motor carrier, air, ocean and rail services. We act
principally as the service provider to add value in the execution and
procurement of these services to our customers. Our net transportation revenue
(gross transportation revenue less the direct cost of transportation) is the
primary indicator of our ability to source, add value 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.
Our
compliance with the financial covenants of our credit facility is particularly
important given the materiality of the credit facility to our day-to-day
operations and overall acquisition strategy. Our debt capacity, subject to the
requisite collateral at an advance rate of 80%, is limited to a multiple of 3.00
times our consolidated EBITDA (as adjusted) as measured on a rolling four
quarter basis (or a multiple of 3.25 times our consolidated EBITDA (as adjusted)
at a reduced advance rate of 75.0%). If we fail to comply with the covenants in
our credit facility and are unable to secure a waiver or other relief, our
financial condition would be materiality weakened and our ability to fund
day-to-day operations would be materially and adversely
affected. Accordingly, we intend to employ EBITDA and adjusted EBITDA
as management tools to measure our historical financial performance and as a
benchmark for future financial flexibility.
Our
operating results are also subject to seasonal trends when measured on a
quarterly basis. The impact of seasonality on our business will depend on
numerous factors, including the markets in which we operate, holiday seasons,
consumer demand and economic conditions. Since our revenue is largely derived
from customers whose shipments are dependent upon consumer demand and
just-in-time production schedules, the timing of our revenue is often beyond our
control. Factors such as shifting demand for retail goods and/or manufacturing
production delays could unexpectedly affect the timing of our revenue. As we
increase the scale of our operations, seasonal trends in one area of our
business may be offset to an extent by opposite trends in another area. We
cannot accurately predict the timing of these factors, nor can we accurately
estimate the impact of any particular factor, and thus we can give no assurance
that historical seasonal patterns will continue in future periods.
Financial
Outlook
Our
revenues increased approximately $36.8 million, or 36.7%, in the year ended June
30, 2009. For 2010, we expect our continued network expansion and recent
acquisition of Adcom to offset the impact of the slowing global
economy. Over the longer term, we expect to continue growing our
revenues both organically and as the result of strategic
acquisitions. Our primary operating objective in fiscal 2010 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 $140 million in revenues on an annualized basis,
excluding the benefit of any further acquisitions.
20
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, 2009 are indicative of the future
financial performance of the combined group and excludes the impact of further
acquisitions. A reconciliation of estimated annual adjusted EBITDA for the
fiscal year ended June 30, 2010 amounts to net income, the most directly
comparable GAAP measure, is as follows:
(Amounts in
000’s)
|
Outlook
|
||||
|
Net
income
|
$
|
1,070
|
||
|
Interest
expense - net
|
300
|
|||
|
Income
tax expense
|
405
|
|||
|
Depreciation
and amortization
|
2,000
|
|||
|
EBITDA
|
3,775
|
|||
|
Stock-based
compensation and other non-cash charges
|
225
|
|||
|
Adjusted
EBITDA
|
$
|
4,000
|
||
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
perform an annual impairment test for goodwill and intangible assets with
indefinite lives. 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 typically perform
our 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 April 1, 2009, no goodwill existed due to the previously
recorded impairment described below.
During
the second quarter of fiscal 2009, we concluded indicators of potential
impairment were present due to the sustained decline in our share price
resulting in the market capitalization of the Company being less than its book
value. We conducted an impairment test during the second quarter of fiscal 2009
based on the facts and circumstances at that time and our business strategy in
light of existing industry and economic conditions, and considering future
expectations. As we have has significantly grown the business since our initial
acquisition of Airgroup, we have also grown our customer relationship
intangibles as we have added additional stations. Through our impairment testing
and review, we concluded that our discounted cash flow analysis supports a
valuation of its identifiable intangible assets well in excess of their carrying
value. Factoring this with management’s assessment of the fair value of other
assets and liabilities resulted in no residual implied fair value remaining to
be allocated to goodwill. As a result, for the quarter ended December 31, 2008,
we recorded a non-cash goodwill impairment charge of $11.4 million, which was
the full carrying value of goodwill as of that date. We do not expect this
non-cash charge to have any impact on our compliance with the financial
covenants in our credit agreement.
21
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 the term of the underlying
agreement.
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 its
customers. Based upon the terms in the contract of carriage, revenues related to
shipments where we issue a House Airway Bill ("HAWB") or a House Ocean Bill of
Lading ("HOBL") are recognized at the time the freight is tendered to the direct
carrier at origin. Costs related to the shipments are also recognized at
this same time based upon anticipated margins, contractual arrangements with
direct carriers, and other known factors. The estimates are routinely monitored
and compared to actual invoiced costs. The estimates are adjusted as deemed
necessary by us to reflect differences between the original accruals and actual
costs of purchased transportation.
This
method generally results in recognition of revenues and purchased transportation
costs earlier than the preferred methods under generally accepted accounting
principles ("GAAP") which do not recognize revenues until a proof of delivery is
received or which recognize revenues as progress on the transit is made. Our
method of revenue and cost recognition does not result in a material difference
from amounts that would be reported under such other methods.
Results
of Operations
Basis
of Presentation
The
results of operations discussion which appears below has been presented
utilizing a combination of historical and, where relevant, pro forma unaudited
information to include the effects of the acquisition of Adcom Express, Inc. on
our consolidated financial statements during fiscal year 2009. The pro forma
information has been presented for fiscal year ended June 30, 2009 as if we had
acquired Adcom as of July 1, 2008. The pro forma results are also adjusted to
reflect a consolidation of the historical results of operations of Adcom
Express, Inc. and the Company as adjusted to reflect the amortization of
acquired intangibles and are also provided in the Financial Statements included
within this report.
The pro
forma financial data presented is not necessarily indicative of results of
operations that would have occurred had this acquisition been consummated at the
beginning of the periods presented or which might be attained in the
future.
Overview
We
generated transportation revenue of $137.0 million and net transportation
revenue of $45.6 million for the year ended June 30, 2009 as compared to
transportation revenue of $100.2 million and net transportation revenue of $35.8
million for the year ended June 30, 2008. Net loss was $9.7 million
for the year ended June 30, 2009 compared to net income of $1.4 million for the
year ended June 30, 2008.
22
We had
adjusted earnings before interest, taxes, depreciation and amortization (EBITDA)
of $3.7 million and $1.8 million for years ended June 30, 2009 and 2008,
respectively. EBITDA is a non-GAAP measure of income and does not include the
effects of interest and taxes, and excludes the “non-cash” effects of
depreciation and amortization on current assets. Companies have some discretion
as to which elements of depreciation and amortization are excluded in the EBITDA
calculation. We exclude all depreciation charges related to property, plant and
equipment, all amortization charges relating to leasehold improvements and other
intangible assets, and impairment charges relating to goodwill. 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. Our ability to generate adjusted EBITDA ultimately limits
the amount of debt that we may carry and is a good indicator of our financial
flexibility and capacity to complete additional acquisitions in compliance with
the credit agreement. A violation of this covenant in the credit
agreement would greatly limit our financial flexibility, reduce available
liquidity, and absent a waiver, could give rise to an event of default under the
credit agreement. For the forgoing reasons, we believe that the
credit agreement is material to its operations and that adjusted EBITDA is
important to an evaluation of our financial condition and
liquidity. 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 for the fiscal years ended June 30,
2009 and June 30, 2008 of adjusted EBITDA to net income, the most directly
comparable GAAP measure in accordance with SEC Regulation G (in
thousands):
|
Years
ended June 30,
|
Change
|
|||||||||||||||
|
2009
|
2008
|
Amount
|
Percent
|
|||||||||||||
|
Net
income (loss)
|
$ | (9,730 | ) | $ | 1,413 | $ | (11,143 | ) | (788.6 | %) | ||||||
|
Income
tax expense
|
44 | 908 | (864 | ) | (95.2 | %) | ||||||||||
|
Net
interest expense
|
204 | 117 | 87 | 74.4 | % | |||||||||||
|
Depreciation
and amortization
|
1,743 | 964 | 779 | 80.8 | % | |||||||||||
|
EBITDA
(Earnings before interest, taxes, depreciation and
amortization)
|
$ | (7,739 | ) | $ | 3,402 | $ | (11,141 | ) | (327.5 | %) | ||||||
|
Share
based compensation and other non-cash costs
|
203 | 330 | (127 | ) | (38.5 | %) | ||||||||||
|
Goodwill
impairment
|
11,403 | - | 11,403 |
NM
|
||||||||||||
|
Gain
on early extinguishment of debt
|
(190 | ) | - | (190 | ) |
NM
|
||||||||||
|
Change
in estimate of liabilities assumed in Airgroup acquisition
|
- | (1,431 | ) | 1,431 | (100.0 | %) | ||||||||||
|
Tax
indemnity
|
- | (487 | ) | 487 | (100.0 | %) | ||||||||||
|
Adjusted
EBITDA
|
$ | 3,677 | $ | 1,814 | $ | 1,863 | 102.7 | % | ||||||||
The
following table summarizes transportation revenue, cost of transportation and
net transportation revenue (in thousands) for the fiscal years ended June 30,
2009 and June 30, 2008:
|
Years
ended June 30,
|
Change
|
|||||||||||||||
|
2009
|
2008
|
Amount
|
Percent
|
|||||||||||||
|
Transportation
revenue
|
$ | 136,996 | $ | 100,202 | $ | 36,794 | 36.7 | % | ||||||||
|
Cost
of transportation
|
91,427 | 64,374 | 27,053 | 42.0 | % | |||||||||||
|
Net
transportation revenue
|
$ | 45,569 | $ | 35,828 | $ | 9,741 | 27.2 | % | ||||||||
|
Net
transportation margins
|
33.3 | % | 35.8 | % | 26.5 | % | ||||||||||
We
generated transportation revenue of $137.0 million and net transportation
revenue of $45.6 million for the year ended June 30, 2009 as compared to
transportation revenue of $100.2 million and net transportation revenue of $35.8
million for the year ended June 30, 2008. Domestic and international
transportation revenue was $73.2 million and $63.8 million, respectively, for
year ended June 30, 2009 compared with $62.2 million and $40.0 million,
respectively, for the year ended June 30, 2008. Transportation
revenues and costs of transportation increased in fiscal year 2009 primarily due
the acquisition of Adcom in September 2008.
23
Cost of
transportation was 66.7% and 64.2% of transportation revenue for the years ended
June 30, 2009 and 2008, respectively. The increase in cost of
transportation was due to the acquisition of Adcom which has a higher percentage
of international sales which generally have lower margins.
Net
transportation margins were 33.3% and 35.8% of transportation revenue for the
years ended June 30, 2009 and 2008, respectively. The decrease in net
transportation margins was due to the acquisition of Adcom which has a higher
percentage of international sales which generally have lower
margins.
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, 2009 and June 30, 2008:
|
Years
ended June 30,
|
||||||||||||||||||||||||
|
2009
|
2008
|
Change
|
||||||||||||||||||||||
|
Amount
|
Percent
|
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||||||||||||
|
Net
transportation revenue
|
$ | 45,569 | 100.0 | % | $ | 35,828 | 100.0 | % | $ | 9,741 | 27.2 | % | ||||||||||||
|
Agent
commissions
|
30,565 | 67.1 | % | 25,210 | 70.4 | % | 5,355 | 21.2 | % | |||||||||||||||
|
Personnel
costs
|
6,921 | 15.2 | % | 5,304 | 14.8 | % | 1,617 | 30.5 | % | |||||||||||||||
|
Selling,
general and administrative
|
4,288 | 9.4 | % | 3,801 | 10.6 | % | 487 | 12.8 | % | |||||||||||||||
|
Depreciation
and amortization
|
1,743 | 3.8 | % | 964 | 2.7 | % | 779 | 80.8 | % | |||||||||||||||
|
Restructuring
charges
|
220 | 0.5 | % | - | 0.0 | % | 220 |
NM
|
||||||||||||||||
|
Goodwill
impairment charge
|
11,403 | 25.0 | % | - | 0.0 | % | 11,403 |
NM
|
||||||||||||||||
|
Total
operating costs
|
55,140 | 121.0 | % | 35,279 | 98.5 | % | 19,861 | 56.3 | % | |||||||||||||||
|
Income
(loss) from operations
|
(9,571 | ) | (21.0 | %) | 549 | 1.5 | % | (10,120 | ) | (1,843.4 | %) | |||||||||||||
|
Other
(expense) income
|
(88 | ) | (0.2 | %) | 1,703 | 4.8 | % | (1,791 | ) | (105.2 | %) | |||||||||||||
|
Income
(loss) before income taxes and minority interest
|
(9,659 | ) | (21.2 | %) | 2,252 | 6.3 | % | (11,911 | ) | (528.9 | %) | |||||||||||||
|
Income
tax (expense) benefit
|
(44 | ) | (0.1 | %) | (908 | ) | 2.5 | % | 864 | 95.2 | % | |||||||||||||
|
Income
(loss) before minority interest
|
(9,703 | ) | (21.3 | %) | 1,344 | 3.8 | % | (11,047 | ) | (821.9 | %) | |||||||||||||
|
Minority
interest
|
(27 | ) | 0.0 | % | 69 | 0.1 | % | (97 | ) | (139.1 | %) | |||||||||||||
|
Net
income (loss)
|
$ | (9,730 | ) | (21.3 | %) | $ | 1,413 | 3.9 | % | $ | (11,143 | ) | (788.6 | %) | ||||||||||
Agent
commissions were
$30.6 million for the year ended June 30, 2009, an increase of 21.2% from $25.2
million for the year ended June 30, 2008 as a direct result of increased
revenues from the acquisition of Adcom. As a percentage of net
revenues, agent commissions decreased to 67.1% for the year ended June 30, 2009
from 70.4% for the year ended June 30, 2008, due to higher international sales
which typically have lower margins.
Personnel
costs consist of payroll, payroll taxes, benefits and stock compensation
expense. Personnel
costs were $6.9
million for the year ended June 30, 2009, an increase of 30.5% from $5.3 million
for the year ended June 30, 2008. The increase is largely attributed
to additional employee headcount for much of the year as a result of the
acquisition of Adcom. As a percentage of net revenues, personnel costs increased
to 15.2% for the year ended June 30, 2009 from 14.8% for the year ended June 30,
2008.
Selling,
general and administrative costs, consists primarily of marketing, rent,
professional services, insurance and travel expenses. Selling,
general and administrative costs were $4.3 million for the year ended June 30,
2009, an increase of 12.8% from $3.8 million for the year ended June 30,
2008. The increase was primarily a result of the increased costs
associated with the Adcom transaction. As a percentage of net revenues, other
selling, general and administrative costs decreased to 9.4% for the year ended
June 30, 2009 from 10.6% for the year ended June 30, 2008.
24
Depreciation
and amortization costs were approximately $1.7 million for the year ended June
30, 2009, an increase of 80.8% from $964,000 for the year ended June 30, 2008 as
a result of increased amortization and depreciation costs associated with the
acquisition of Adcom. As a percentage of net revenues, depreciation
and amortization increased to 3.8% for the year ended June 30, 2009 from 2.7%
for the year ended June 30, 2008, due to increases in our net transportation
revenue.
Loss from
operations was $9.6 million for the year ended June 30, 2009, compared to income
from operations of $0.5 million for the year ended June 30, 2008. The
change in earning was attributed to a $11.4 million impairment to
goodwill.
Net loss
for the year ended June 30, 2009 was $9.7 million as compared to net income of
$1.4 million for the year ended June 30, 2008.
Supplemental
Pro forma Information
The
following table provides a reconciliation for the fiscal years ended June 30,
2009 (pro forma and unaudited) and June 30, 2008 (pro forma and unaudited) of
adjusted EBITDA to net income, the most directly comparable GAAP measure in
accordance with SEC Regulation G (in thousands):
|
Years
ended June 30,
|
Change
|
|||||||||||||||
|
2009
|
2008
|
Amount
|
Percent
|
|||||||||||||
|
Net
income (loss)
|
$ | (9,801 | ) | $ | 1,708 | $ | (11,509 | ) | (673.8 | %) | ||||||
|
Income
tax expense
|
- | 832 | (832 | ) | (100.0 | %) | ||||||||||
|
Net
interest expense
|
278 | 301 | (23 | ) | (7.6 | %) | ||||||||||
|
Depreciation
and amortization
|
1,897 | 1,311 | 586 | 44.7 | % | |||||||||||
|
EBITDA
(Earnings before interest, taxes, depreciation and
amortization)
|
$ | (7,626 | ) | $ | 4,152 | $ | (11,778 | ) | (283.7 | %) | ||||||
|
Share
based compensation and other non-cash costs
|
202 | 330 | (128 | ) | (38.8 | %) | ||||||||||
|
Goodwill
impairment
|
11,403 | - | 11,403 |
NM
|
||||||||||||
|
Gain
on early extinguishment of debt
|
(190 | ) | - | (190 | ) |
NM
|
||||||||||
|
Change
in estimate of liabilities assumed in Airgroup acquisition
|
- | (1,431 | ) | 1,431 | (100.0 | %) | ||||||||||
|
Tax
indemnity
|
- | (487 | ) | 487 | (100.0 | %) | ||||||||||
|
Adjusted
EBITDA
|
$ | 3,789 | $ | 2,564 | $ | 1,225 | 47.8 | % | ||||||||
The
following table summarizes transportation revenue, cost of transportation and
net transportation revenue (in thousands) for the fiscal years ended June 30,
2009 (pro forma and unaudited) and June 30, 2008 (pro forma and
unaudited):
|
Years
ended June 30,
|
Change
|
|||||||||||||||
|
2009
|
2008
|
Amount
|
Percent
|
|||||||||||||
|
Transportation
revenue
|
$ | 153,835 | $ | 161,950 | $ | (8,115 | ) | (5.0 | %) | |||||||
|
Cost
of transportation
|
102,666 | 104,474 | (1,808 | ) | (1.7 | %) | ||||||||||
|
Net
transportation revenue
|
$ | 51,169 | $ | 57,476 | $ | (6,307 | ) | (11.0 | %) | |||||||
|
Net
transportation margins
|
33.3 | % | 35.5 | % | 77.7 | % | ||||||||||
25
Pro forma
transportation revenue was
$153.8 million for the year ended June 30, 2009, a decrease of 5.0% from pro
forma transportation revenue of $162.0 million for the year ended June 30,
2008.
Pro forma
cost of transportation was $102.7 million for the year ended June 30, 2009, a
decrease of 1.7% from pro forma costs of transportation of $104.5 million for
the year ended June 30, 2008.
Pro forma
net transportation margins decreased slightly to 33.3% for the year ended June
30, 2009 compared to pro forma transportation margins of 35.5% for the year
ended June 30, 2008.
The
following table compares certain condensed consolidated statement of income data
as a percentage of our net transportation revenue (in thousands) for the fiscal
years ended June 30, 2009 (pro forma and unaudited) and June 30, 2008 (pro forma
and unaudited):
|
Years
ended June 30,
|
||||||||||||||||||||||||
|
2009
|
2008
|
Change
|
||||||||||||||||||||||
|
Amount
|
Percent
|
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||||||||||||
|
Net
transportation revenue
|
$ | 51,169 | 100.0 | % | $ | 57,476 | 100.0 | % | $ | (6,307 | ) | (11.0 | %) | |||||||||||
|
Agent
commissions
|
34,925 | 68.3 | % | 41,826 | 72.8 | % | (6,901 | ) | (16.5 | %) | ||||||||||||||
|
Personnel
costs
|
7,566 | 14.8 | % | 7,743 | 13.5 | % | (177 | ) | (2.3 | %) | ||||||||||||||
|
Selling,
general and administrative
|
4,654 | 9.1 | % | 5,209 | 9.0 | % | (555 | ) | (10.7 | %) | ||||||||||||||
|
Depreciation
and amortization
|
1,897 | 3.7 | % | 1,311 | 2.3 | % | 586 | 44.7 | % | |||||||||||||||
|
Restructuring
charge
|
220 | 0.4 | % | - | 0.0 | % | 220 |
NM
|
||||||||||||||||
|
Goodwill
impairment charge
|
11,403 | 22.3 | % | - | 0.0 | % | 11,403 |
NM
|
||||||||||||||||
|
Total
operating costs
|
60,665 | 118.6 | % | 56,089 | 97.6 | % | 4,576 | 8.2 | % | |||||||||||||||
|
Income
(loss) from operations
|
(9,496 | ) | (18.6 | %) | 1,387 | 2.4 | % | (10,883 | ) | (784.6 | %) | |||||||||||||
|
Other
(expense) income
|
(278 | ) | (0.5 | %) | 1,084 | 1.9 | % | (1,362 | ) | (125.6 | %) | |||||||||||||
|
Income
(loss) before income taxes and minority interest
|
(9,774 | ) | (19.1 | %) | 2,471 | 4.3 | % | (12,245 | ) | (495.5 | %) | |||||||||||||
|
Income
tax (expense) benefit
|
- | (0.0 | %) | (832 | ) | 1.4 | % | 832 | 100.0 | % | ||||||||||||||
|
Income
(loss) before minority interest
|
(9,774 | ) | (19.1 | %) | 1,639 | 2.9 | % | (11,413 | ) | (696.3 | %) | |||||||||||||
|
Minority
interest
|
(27 | ) | (0.1 | %) | 69 | 0.1 | % | (96 | ) | (139.1 | %) | |||||||||||||
|
Net
income (loss)
|
$ | (9,801 | ) | (19.2 | %) | $ | 1,708 | 3.0 | % | $ | (11,509 | ) | (673.8 | %) | ||||||||||
Pro forma
agent commissions were $34.9 million for the year ended June 30, 2009, a
decrease of 16.5% from $41.8 million for the year ended June 30, 2008. Pro forma
agent commissions as a percentage of net transportation revenue decreased to
68.3% of net transportation revenue the for year ended June 30, 2009, compared
to 72.8% for the comparable prior year period as a result of the introduction of
Company owned operations in Detroit and Newark, NJ as well as three Company
owned stores within the Adcom network where operations were not subject to agent
commissions.
Pro forma
personnel costs were $7.6 million for the year ended June 30, 2009, a decrease
of 2.3% from $7.7 million for the year ended June 30, 2008. Pro forma personnel
costs as a percentage of net transportation revenue were 14.8% for the year
ended June 30, 2009, an increase from 13.5% for the comparable prior year
period.
Pro forma
selling, general and administrative costs were $4.7 million for the year ended
June 30, 2009, a decrease of 10.7% from $5.2 million for the year ended June 30,
2008. As a percentage of net transportation revenue, pro forma other selling,
general and administrative costs increased to 9.1% for the year ended June 30,
2009, from 9.0% for the comparable prior year period.
26
Pro forma
depreciation and amortization costs were approximately $1.9 million and $1.3
million for the years ended June 30, 2009 and 2008, respectively. Pro forma
depreciation and amortization as a percentage of net transportation revenue
increased to 3.7% for the year ended June 30, 2009 from 2.3% for the comparable
prior year period.
Pro forma
restructuring costs incurred in the year ended June 30, 2009, were $0.2 million
as a result of the Adcom acquisition and relate to the elimination of redundant
international personnel and facilities costs. These restructuring charges will
be paid out over a one year period. There were no similar costs for the
comparable prior year.
For the
year ended June 30, 2009, we recorded an impairment charge to goodwill in the
amount of $11.4 million.
Pro forma
loss from operations was $9.5 million for the year ended June 30, 2009, compared
to income from operations of $1.4 million for the year ended June 30,
2008.
Pro forma
other expense was $0.3 million for the year ended June 30, 2009, compared to
other income of $1.1 million for the year ended June 30, 2008. For
the year ended June 30, 2008, we recorded a $1.4 million change in estimate of
the liabilities assumed in the acquisition of Airgroup combined with an
additional $0.5 million in income recognized as a result of the related tax
indemnity.
Pro forma
net loss was $9.8 million for the year ended June 30, 2009, compared to net
income $1.7 million for the year ended June 30, 2008.
Liquidity
and Capital Resources
Net cash
provided by operating activities for the year ended June 30, 2009 was $3.8
million, compared to net cash used by operating activities for the year ended
June 30, 2008 of $0.7 million. The change was principally driven by growth
resulting in an increase in working capital.
Net cash
used for investing was $6.7 million for the year ended June 30, 2009, compared
to $2.2 million for the year ended June 30, 2008. Use of cash in 2009 consisted
primarily of $5.5 million for the acquisition of Adcom, an additional $0.2
million for furniture and equipment, and $1.0 million paid to former
shareholders of Airgroup and Adcom. During 2008, we used $1.5 million
to acquire United American in Detroit, Michigan, an additional $0.2 million for
furniture and equipment, and payment of $0.5 million to former Airgroup
shareholders.
Net cash
provided by financing activities for the year ended June 30, 2009 was $3.5
million compared to $2.6 million for year ended June 30, 2008. Cash
from financing activities in 2009 consisted primarily of proceeds from our
credit facility of $3.6 million, netted against $0.1 million used to purchase
treasury stock. The $2.6 million of cash provided in 2008 consisted primarily of
borrowings from our credit facility which was offset by dividends to a minority
interest holder.
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 which was paid on December 31, 2007; (iii) as amended, an additional
base payment of $0.6 million payable in cash, $0.3 million of which was paid on
June 30, 2008 and $0.3 million was paid 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 $15.0 million generated during the
five-year earn-out period up to a maximum of $1.5 million. 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 years ended June 30, 2009 and 2008, the former
shareholders of Airgroup earned $633,000 and $417,000 in base earn-out payments,
respectively.
27
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 $0.5 million
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.
In
November 2008, we amended the Airgroup Stock Purchase Agreement and agreed to
unconditionally pay the former Airgroup shareholders an earn-out payment of
$633,333 for the earn-out period ending June 30, 2009 to be paid on or about
October 1, 2009 by delivery of shares of common stock of the Company. In
consideration for the certainty of the earn-out payment, the former Airgroup
shareholders agreed (i) to waive and release us from any and all further
obligations to pay any earn-outs payments on account of shortfall amounts, if
any, which may have accumulated prior to June 30, 2009; (ii) to waive and
release us from any and all further obligation to account for and pay the Tier-2
earn-out payment; and (iii) that the earn-out payment to be paid for the
earn-out period ended June 30, 2009 would constitute a full and final payment to
the former Airgroup shareholders of any and all amounts due to the former
Airgroup shareholders under the Airgroup Stock Purchase Agreement. In March of
2009, Airgroup shareholders agreed to receive $0.4 million in cash on an
accelerated basis rather than the $0.6 million in Company shares due in October
of 2009. No further payments of purchase price are due in connection
with this acquisition.
In
November 2007, the purchase price was reduced to $1.6 million, consisting of
cash of $0.6 million 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, $0.1 million was paid in May of 2007,
$0.3 million was paid at closing, and a final payment of $0.2 million was to be
paid in November of 2008, subject to off-set of up to $0.1 million for certain
qualifying expenses incurred by us. Net of qualifying expenses and a discount
for accelerated payment, the final payment was reduced to $0.1 million and paid
in June of 2008. No further payments of purchase price are due in
connection with this acquisition. For more information, see Note 4 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 $16,560,000 during the four year
earn-out period; and (v) an “Integration Payment” of $1,250,000 payable on the
earlier of the date certain integration targets are achieved or 18 months after
the closing, payable 50% in cash and 50% in our shares of our common stock
(valued at delivery date).
28
A dispute
has arisen between us and Robert Friedman, the former shareholder of Adcom
regarding, among other things, the final purchase price based upon the closing
date working capital, as adjusted, of Adcom. Mr. Friedman has filed an
arbitration claim against us. See “Part II Item 1 – Legal Proceedings” below for
a more complete description. We have fully accrued for all amounts potentially
due Mr. Friedman in connection with the stock purchase agreement, but believe
these amounts could be reduced by more than $630,000 pending the resolution of
the disputed amounts in our favor. We are not able to provide any definitive
guidance on the likely outcome of this matter.
For the
year ended June 30, 2009, the former Adcom shareholder earned approximately
$337,000. This amount is included in "Due to former Adcom
shareholder" on the face of our balance sheet and is payable on October 1, 2009,
in a combination of cash and Company common stock. On or
about September 30, 2009, we received written notice of a claim by Ryder Truck
Rental, Inc. in the amount of approximately $500,000 alleging breach
of an alleged guaranty agreement executed by Adcom. We
have commenced the process of seeking indemnification from the
former shareholder of Adcom in accordance with the stock purchase
agreement related to the Adcom
acquisition. We have also asserted our rights under
the stock purchase agreement to set off payments under the Stock
Purchase Agreement as a result of this claim, including the $337,000 referenced
above. 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):
|
Estimated
payment anticipated for fiscal year(1):
|
2011
|
2012
|
2013
|
|||||||||
|
Earn-out
period:
|
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 | ||||||
|
Equity
|
350 | 350 | 350 | |||||||||
|
Total
potential earn-out payments
|
$ | 700 | $ | 700 | $ | 700 | ||||||
|
Total
gross margin targets
|
$ | 4,320 | $ | 4,320 | $ | 4,320 | ||||||
(1)
Earn-out payments are paid October 1 following each fiscal year end in a
combination of cash and Company common stock.
Credit
Facility
We
currently have a $15.0 million revolving credit facility (“Facility”) with Bank
of America, NA (including a $500,000 sublimit for letters of credit) that
expires in February 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 domestic accounts receivable and for advances of up to 60% of our
eligible foreign accounts receivable.
The terms
of the Facility are subject to certain financial and operational covenants which
may limit the amount otherwise available under the Facility. The
first covenant limits funded debt to a multiple of 3.00 times 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 us 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 that we not
incur a net loss before taxes, amortization of acquired intangibles and
extraordinary items in any two consecutive quarterly accounting
periods.
29
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 forego the acquisition, obtain
the lender's consent, or retire the Facility. This may limit or slow our ability
to achieve the critical mass we may need to achieve our strategic
objectives.
We have
used a significant amount of our available capital to finance the acquisition of
Adcom. As of August 31, 2009, we have approximately $3.7 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 which will require future payments. The following table sets forth our
contractual obligations (in thousands) as of June 30, 2009:
|
Payments
due during fiscal years
ending
June 30
|
||||||||||||||||
|
Amounts
in 000’s
|
Total
|
2010
|
2011
|
2012
|
||||||||||||
|
Long-Term
Debt
|
$ | 7,869 | $ | - | $ | 7,869 | $ | - | ||||||||
|
Capital
Leases
|
7 | 7 | - | - | ||||||||||||
|
Operating
Leases
|
731 | 475 | 242 | 14 | ||||||||||||
|
Total
Contractual Obligations
|
$ | 8,607 | $ | 482 | $ | 8,111 | $ | 14 | ||||||||
30
As of
June 30, 2009, 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.
Recent
Accounting Pronouncements
On
July 1, 2008, we adopted the provisions of Financial Accounting Standards
Board ("FASB") Statement No. 157 ("SFAS 157"), "Fair Value Measurements"
for fair value measurements of financial assets and financial liabilities and
for fair value measurements of nonfinancial items that are recognized or
disclosed at fair value in the financial statements on a recurring basis.
SFAS 157 standardizes the definition and approaches for fair value
measurements of financial instruments for those standards which already permit
or require the use of fair value. It does not require any new fair value
measurements. SFAS 157 defines a hierarchy for valuation techniques and
also requires additional disclosures. The adoption of this Statement did not
have a material effect on our consolidated financial statements. FASB Staff
Position ("FSP") FAS 157-2, "Effective Date of FASB Statement No. 157"
delays the effective date of SFAS 157 only as it relates to fair value
measurement requirements for nonfinancial assets and liabilities that are not
measured at fair value on a recurring basis to fiscal years beginning after
November 15, 2008. In accordance with FSP FAS 157-2, we have not
applied SFAS 157 to its nonfinancial assets and liabilities, mainly
intangible assets and property and equipment. On July 1, 2009, we will be
required to apply the provisions of SFAS 157 to fair value measurements of
nonfinancial assets and nonfinancial liabilities that are recognized or
disclosed at fair value in the financial statements on a nonrecurring basis. We
are in the process of evaluating the impact, if any, of applying these
provisions on its financial statements.
In
February 2007, the FASB issued Statement No. 159 ("SFAS 159"),
"The Fair Value Option for Financial Assets and Financial Liabilities —
Including an Amendment of FASB Statement No. 115". SFAS 159 provides
companies the option to measure many financial instruments and certain other
items at fair value. This provides companies the opportunity to mitigate
volatility in earnings caused by measuring instruments differently without
complex hedge accounting provisions. SFAS 159 was effective for us
beginning July 1, 2008. The adoption of this statement did not have a
material effect on our consolidated financial statements.
In
December 2007, the FASB issued Statement No. 141 (revised 2007)
("SFAS 141R"), "Business Combinations". The objective of SFAS 141R is
to improve the relevance, representational faithfulness, and comparability of
the information that a reporting entity provides in its financial reports about
a business combination and its effects. SFAS 141R requires all business
combinations be accounted for by applying the acquisition method (previously
referred to as the purchase method), and most identifiable assets, liabilities,
noncontrolling interests, and goodwill acquired in business combinations to be
recorded at "full fair value." SFAS 141R also broadens the definition of a
business and changes the treatment of direct acquisition-related costs from
being included in the purchase price to instead being generally expensed if they
are not costs associated with issuing debt or equity securities. SFAS 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 Statement No. 160 ("SFAS 160"),
"Noncontrolling Interests in Consolidated Financial Statements — an
amendment of ARB No. 51". The objective of SFAS 160 is to improve the
relevance, comparability, and transparency of the financial information a
reporting entity provides in its consolidated financial statements by
establishing accounting and reporting standards for noncontrolling interests in
a subsidiary and for the deconsolidation of a subsidiary. SFAS 160
specifies noncontrolling interests (referred to as minority interests prior to
SFAS 160) be reported as a separate component of equity, not as a liability
or other item outside of equity, which changes the accounting for transactions
with noncontrolling interest holders. SFAS No. 160 is effective for us
beginning July 1, 2009 and will apply prospectively, except for the
presentation and disclosure requirements, which will apply
retrospectively. We are currently assessing the potential impact that
adoption of SFAS No. 160 may have on our financial statements.
31
In March
2008, the FASB issued Statement No. 161 ("SFAS 161"), "Disclosures
about Derivative Instruments and Hedging Activities — an amendment of FASB
Statement No. 133". The objective of SFAS 161 is to improve the
transparency of financial reporting by requiring additional disclosures about an
entity's derivative and hedging activities. This Statement is effective for us
beginning July 1, 2009, with early application encouraged. This Statement
encourages, but does not require, comparative disclosures for earlier periods at
initial adoption. We will apply this Statement prospectively to any derivative
and hedging activities entered into on or after the effective date.
In May
2008, the FASB issued Statement No. 162 ("SFAS 162"), "The Hierarchy
of Generally Accepted Accounting Principles". The objective of SFAS 162 is
to identify the sources of GAAP and provide a framework, or hierarchy, for
selecting the principles to be used in preparing U.S. GAAP financial
statements for nongovernmental entities. This Statement was effective
November 15, 2008. The adoption of this Statement did not have a material
impact on our consolidated financial statements.
In June
2008, the FASB issued Emerging Issues Task Force Issue No. 07-5 ("EITF
07-5"), "Determining Whether an Instrument (or Embedded Feature) Is Indexed to
an Entity’s Own Stock." EITF 07-5 provides guidance in assessing
whether an equity-linked financial instrument (or embedded feature) is indexed
to an entity’s own stock for purposes of determining whether the appropriate
accounting treatment falls under the scope of SFAS 133, "Accounting For
Derivative Instruments and Hedging Activities" and/or EITF 00-19,
"Accounting For Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock." EITF 07-05 is effective for fiscal
years beginning after December 15, 2008. We are currently assessing the
potential impact the adoption of EITF 07-5 may have on our financial
statements.
In
October 2008, the FASB issued FASB Staff Position ("FSP") No. FAS 157-3,
"Determining the Fair Value of a Financial Asset When the Market for That Asset
Is Not Active". This FSP clarifies the application of SFAS 157 in an
inactive market and illustrates how an entity would determine fair value when
the market for a financial asset is not active. The FSP was effective
immediately and applies to prior periods for which financial statements have not
been issued, including interim or annual periods ending on or before
September 30, 2008. The adoption of this FSP did not have a material effect
on our consolidated financial statements.
In April
2009, the FASB issued FSP 107-1, "Interim Disclosures about Fair Value of
Financial Instruments", which increases the frequency of fair value disclosures
to a quarterly basis instead of an annual basis. The guidance relates to fair
value disclosures for any financial instruments that are not currently reflected
on the balance sheet at fair value. FSP 107-1 is effective for interim and
annual periods ending after June 15, 2009, but entities may choose to adopt it
for the interim and annual periods ending after March 15, 2009. We
will provide this disclosure commencing with the three month period ending
September 30, 2009.
In
May 2009, the FASB issued SFAS No. 165 ("SFAS 165"), "Subsequent
Events", to
establish general standards of accounting for and disclosure of events which
occur after the balance sheet date but before the date the financial statements
are issued or available to be issued. SFAS 165 requires an entity to
reflect in their financial statements the effects of subsequent events which
provide additional evidence about conditions at the balance sheet date including
the estimates inherent in the process of preparing financial statements.
Subsequent events which provide evidence about conditions that arose after the
balance sheet date should be disclosed. Disclosures should include the nature of
the event and either an estimate of its financial effect or a statement that an
estimate cannot be made. SFAS 165 also requires the disclosure of the date
through which an entity has evaluated subsequent events and the basis for such
date. SFAS 165 is effective for interim and annual financial periods ending
after June 15, 2009. The adoption of SFAS 165 did not have
a material impact on our consolidated financial position, results of operations
and cash flows.
32
In
June 2009, the FASB issued SFAS No. 166 ("SFAS 166"), "Accounting for
Transfers of Financial Assets - an amendment of FASB Statement No. 140",
which provides guidance to improve transparency about transfers of financial
assets and a transferor’s continuing involvement, if any, with transferred
financial assets. SFAS 166, among other items, amends various provisions of
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities—a replacement of FASB Statement
No. 125",” by
removing the concept of a qualifying special-purpose entity and removes the
exception from applying FASB Interpretation No. 46 (revised 2003) ("FIN 46R")
"Consolidation of Variable Interest Entities — an interpretation of ARB No. 51"
to variable interest entities which are qualifying special-purpose entities;
limits the circumstances in which a transferor derecognizes a portion or
component of a financial asset; defines a participating interest; requires a
transferor to recognize and initially measure at fair value all assets obtained
and liabilities incurred as a result of a transfer accounted for as a sale; and
requires enhanced disclosures. SFAS 166 is effective for the Company
beginning July 1, 2010. SFAS 166 is not expected to have a material
impact on our consolidated financial position, results of operations and cash
flows.
In
June 2009, the FASB issued SFAS No. 167 ("SFAS 167"), "Amendments to FASB
Interpretation No. 46R". SFAS 167 amends certain requirements of FIN
46R to improve the
financial reporting by enterprises involved with variable interest entities and
to provide more relevant and reliable information to users of financial
statements. SFAS 167 is effective for us in the fiscal year beginning
July 1, 2010. SFAS 167 is not expected to have a material impact on our
consolidated financial position, results of operations and cash
flows.
In
June 2009, the FASB issued SFAS No. 168 ("SFAS 168"), "The FASB
Accounting Standards Codification™ and the Hierarchy of Generally Accepted
Accounting Principles — a replacement of FASB Statement No. 162". SFAS 168
replaces SFAS 162, "The Hierarchy of Generally Accepted Accounting
Principles" and
establishes the FASB Accounting Standards Codification™ ("Codification") as the
source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements
in accordance with GAAP. All existing accounting standard documents are
superseded by the Codification and any accounting literature not included in the
Codification will not be authoritative. However, rules and interpretive releases
of the Securities Exchange Commission ("SEC") issued under the authority of
federal securities laws will continue to be sources of authoritative GAAP for
SEC registrants. SFAS 168 is effective for interim and annual reporting
periods ending after September 15, 2009. Therefore, beginning with our
quarter ending September 30, 2009, all references made by it to GAAP in its
consolidated financial statements will use the new Codification numbering
system. The Codification does not change or alter existing GAAP and, therefore,
it is not expected to have a material impact on our consolidated financial
position, results of operations and cash flows.
33
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
such term is defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act as of
June 30, 2009 was carried out by our management under the supervision and with
the participation of our Chief Executive Officer ("CEO") who also serves as our
Chief Financial Officer ("CFO"). Based upon that evaluation, our CEO/CFO
concluded that, as of June 30, 2009, our disclosure controls and procedures were
effective to provide reasonable assurance that information we are required to
disclose in reports that we file or submit under the Exchange Act is (i)
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission rules and forms and (ii) accumulated
and communicated to our management, including our CEO/CFO, as appropriate to
allow timely decisions regarding 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 (the “Exchange Act”). 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
GAAP. 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 of 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, 2009.
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.
As
described in our Form 10-Q for the period ended December 31, 2008, we concluded
that we had a material weakness in internal control over financial reporting
related to our goodwill and intangible assets impairment analysis
process. We have remediated this material weakness by among other
things, hiring additional staff, requiring attention to the value of our
goodwill as part of our month end financial closing process, and implementing
new procedures with respect to how our goodwill impairment tests are
conducted.
Other
than the foregoing, 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
Exchange Act) that occurred during the fiscal quarter ended June 30, 2009 that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
34
ITEM
9B. OTHER INFORMATION
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
|
45
|
Chief
Executive Officer, Chief Financial Officer and Chairman of the Board of
Directors
|
||
|
Stephen
P. Harrington
|
51
|
Director
|
||
|
Daniel
Stegemoller
|
55
|
Vice
President and Chief Operating Officer of Radiant Global Logistics f/k/a
Airgroup
|
||
|
Robert
F. Friedman
|
65
|
President
– Adcom Express, Inc.
|
||
|
Todd
E. Macomber
|
45
|
Senior
Vice President & Chief Accounting Officer
|
||
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.
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.
35
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.
Todd E. Macomber.
Mr. Macomber has served as our Senior Vice President and
Chief Accounting Officer since August 7, 2009 and as our Vice President and
Corporate Controller for Radiant Global Logistics, Inc. f/k/a
Airgroup Corporation since December 2007. Prior to joining
Radiant Global Logistics, Inc., from September 2003 to November 2007 Mr.
Macomber served as Senior Vice President and Chief Financial Officer of Biotrace
International, Inc. a subsidiary of Biotrace International PLC an industrial
microbiology company and traded on the London Stock Exchange. From
January 1993 to September 2003 Mr. Macomber held a variety of positions and most
recently served as Senior Vice President and Chief Financial Officer for
International BioProducts, Inc. Mr. Macomber earned a Bachelor of
Science in Accounting from Seattle University and is a CPA.
Robert F.
Friedman. Mr. Freidman has served as President of Adcom
Express, Inc. since September 5, 2008. 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.”
36
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.
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 2009, all reporting persons timely complied with all filing
requirements applicable to them, except that Bohn Crain did not timely file Form
4 in October 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 $100,000 during the fiscal year ended June 30, 2009 and June 30,
2008.
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Option
Awards
($)(1)
|
All
other compensation
($)
|
Total
($)
|
|||||||||||||||
|
Bohn
H. Crain, Chief Executive
|
2009
|
250,000 | 250 | - | 22,528 | (2) | 272,778 | ||||||||||||||
| Officer and Chief Financial Officer |
2008
|
250,000 | - | - | 16,418 | (3) | 266,418 | ||||||||||||||
|
Dan
Stegemoller, Vice President
|
2009
|
180,000 | 250 | - | 69,834 | (4) | 250,084 | ||||||||||||||
| and Chief Operating Officer of Radiant Global Logistics |
2008
|
180,000 | - | 9,924 | (5) | 71,133 | (6) | 261,057 | |||||||||||||
|
Todd
Macomber, Senior Vice President and Chief Accounting Officer of Radiant
Logistics, Inc.
|
2009
|
134,000 | 250 | - | 10,795 | (7) | 145,045 | ||||||||||||||
(1) The
assumptions used in calculating the value of the option awards are set forth in
note 14 of our consolidated financial statements.
(2) Consists
of $12,000 for automobile allowance, $873 for company provided life &
disability insurance premiums, and $9,655 for Company 401k match.
(3) Consists
of $12,000 for automobile allowance, $1,501 for company provided life &
disability insurance premiums, and $2,917 for Company 401k match.
37
(4) Consists
of $6,000 for automobile allowance, $873 for company provided life &
disability insurance premiums, $7,964 for Company 401k match, and $54,997
relating to amortization of moving expenses, per his December 2005 relocation
agreement. Mr. Stegemoller was issued a note receivable for $200,000
in December 2005 to pay for his relocation expenses and to provide an incentive
to accept the Company’s offer of employment. The agreement provided
for the note to be forgiven in equal installments over five years, along with
the accrued interest, and for a gross up to pay for the taxes relating to the
note forgiveness.
(5) Mr.
Stegemoller was granted options to purchase 100,000 shares on June 24, 2008 at
an exercise price $.18 per share.
(6) Consists
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. See note 4 above for a description of the relocation
agreement.
(7) Consists
of $6,000 for automobile allowance, $782 for company provided life &
disability insurance premiums, $4,013 for Company 401k match.
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth officer information regarding outstanding unexercised
options that had not vested for each named executive as of June 30,
2009.
|
Option
Awards
|
|||||||||||||
|
Name
|
Number
of securities underlying unexercised options
exercisable(#)
|
Number
of securities underlying unexercised options
Unexercisable
(#)
|
Option
exercise price
($)
|
Option
expiration
date
|
|||||||||
|
Bohn
H. Crain
|
600,000 | 400,000 | 0.50 |
10/19/2015(1)
|
|||||||||
| 600,000 | 400,000 | 0.75 |
10/19/2015(1)
|
||||||||||
|
Dan
Stegemoller
|
180,000 | 120,000 | 0.44 |
1/10/2016(2)
|
|||||||||
| 20,000 | 80,000 | 0.18 |
6/23/2018(3)
|
||||||||||
|
Todd
Macomber
|
20,000 | 80,000 | 0.48 |
12/10/2017(4)
|
|||||||||
| 20,000 | 80,000 | 0.18 |
6/23/2018(5)
|
||||||||||
| 0 | 100,000 | 0.28 |
8/6/2019(6)
|
||||||||||
(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.
(4) The
stock options were granted on December 11, 2007 and vest in equal annual
installments over a five year period commencing on the date of
grant.
(5) 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.
(6) The
stock options were granted on August 7, 2009 and vest in equal annual
installments over a five year period commencing on the date of
grant.
38
Director
Compensation
The
following table sets forth compensation paid to our directors during the fiscal
year ended June 30, 2009.
|
Name(1)
|
All
other compensation
($)
|
Total
($)
|
||||||
|
Stephen
P. Harrington
|
18,000 | (2) | 18,000 | |||||
(1) Bohn
Crain is not listed in the above table because he does not receive any
additional compensation for serving on our board of directors.
(2) Mr.
Harrington began receiving compensation for serving on our board beginning
January 2009 at a rate of $3,000 per month. Prior to January 2009, Mr.
Harrington received no compensation for serving on our board.
Narrative
Disclosure of Executive Compensation
Employment
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. On December 31, 2008, we and Bohn Crain, entered
into a Letter Agreement for the purpose of amending Mr. Crain’s Employment
Agreement. The Letter Agreement was approved by the Company’s Board of
Directors.
The
amendments evidenced by the Letter Agreement (1) extended Mr. Crain’s Employment
Agreement through December 31, 2013 and (2) brought Mr. Crain’s Employment
Agreement into compliance with the requirements of Section 409A of the Internal
Revenue Code of 1986 (the “Code) by, among other things, providing for a six
month delay in the payment of any amounts to be received by Mr. Crain upon a
separation of service if the payment, absent such delay, would have triggered
the imposition of excise taxes or other penalties under Section 409A of the
Code.
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.
Option
Agreements
On
October 20, 2005, we issued to Mr. Crain an option 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.
On
January 11, 2006, we issued to Mr. Stegemoller an option to purchase 300,000
shares of our common stock, which are exercisable at $0.44 per share, the last
sales price on the date of grant. The option vests in equal annual
installments over a five year period commencing on the date of grant and
terminates ten years from the date of grant.
On
December 11, 2007, we issued to Mr. Macomber an option to purchase 100,000
shares of our common stock, which are exercisable at $0.48 per share, the last
sales price on the date of grant. The options vest in equal annual
installments over a five year period commencing on the date of grant and
terminate ten years from the date of grant
On June
24, 2008, we granted to each of Messrs. Stegemoller and Macomber an option to
purchase 100,000 shares of our common stock. Each option is
exercisable at $0.18, the last sales price on the date of grant. The
options vest in equal annual installments over a five year period commencing on
the date of grant and terminate ten years from the date of grant.
39
On August
7, 2009, we issued to Mr. Macomber an option to purchase 100,000 shares of our
common stock, which are exercisable at $0.28 per share, the last sales price on
the date of grant. The option vests in equal annual installments over
a five year period commencing on the date of grant and terminates ten years from
the date of grant.
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;
|
|
|
·
|
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.”
40
Directors’
Compensation
In
January 2009 we began compensating Mr. Harrington $3,000 per month for his
services. Mr. Crain does not receive any additional compensation for
serving our board of directors. Other than our arrangement with Mr.
Harrington, 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.
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 day’s 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 28, 2009, there were outstanding options to purchase 3,370,000 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, 360,000 of which are exercisable at $0.18 per
share, 190,000 of which are exercisable at $0.62 per share, 175,000 of which are
exercisable at $0.48 per share, 100,000 of which are exercisable at $0.20 per
share, 100,000 of which are exercisable at $0.16 per share, 50,000 of which are
exercisable at $0.30 per share and 20,000 of which are exercisable at $1.01 per
share.
41
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 30, 2009, 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 Radiant Logistics, Inc., 1227
120th Avenue N.E., Bellevue, Washington 98005.
|
Name
of Beneficial Owner
|
Amount(1)
|
Percent of Class
|
||||||
|
Bohn
H. Crain
|
10,869,301 | (2) | 33.2 | % | ||||
|
Stephen
P. Harrington
|
1,568,182 | (3) | 4.8 | % | ||||
|
Dan
Stegemoller
|
218,182 | (4) | * | |||||
|
Stephen
M. Cohen
|
2,500,000 | (6) | 7.6 | % | ||||
|
Robert
F. Friedman
|
-- | -- | ||||||
|
Todd
E. Macomber
|
40,000 | (5) | * | |||||
|
All
officers and directors as a group (6 persons)
|
15,195,665 | 46.4 | % | |||||
(*) 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 30, 2009
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 32,757,310
shares of
common stock outstanding as of September 30,
2009.
|
|
(2)
|
Consists
of 8,500,000 shares held by Radiant Capital Partners, LLC over which Mr.
Crain has sole voting and dispositive power, 769,301 shares directly held
by Mr. Crain and 1,600,000 shares issuable upon exercise of
options. Does not include 400,000 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 200,000 shares issuable
upon exercise of options. Does not include 200,000 shares
issuable upon exercise of options which are subject to
vesting.
|
|
(5)
|
Includes 40,000 shares issuable
upon exercise of options. Does not include 260,000 shares
issuable upon exercise of options which are subject to
vesting.
|
|
(6)
|
Consists of shares held of record
by Mr. Cohen’s wife over which he shares voting and dispositive
power.
|
42
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,
2009.
|
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
|
3,370,000 | $ | 0.520 | 1,630,000 | ||||||||
|
Total
|
3,370,000 | $ | 0.520 | 1,630,000 | ||||||||
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.
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.
43
For the
fiscal year ended June 30, 2009, RLP recorded $362,008 in revenues including
$110,335 in commission revenues earned from members of the affiliated group, and
paid management service fees totaling $22,598 to members of the affiliated group
and reported a profit of $44,000. For the fiscal year ended June 30,
2008, RLP recorded $864,578 in revenues including $100,336 in commission
revenues earned from members of the affiliated group, and paid management
service fees totaling $54,093 to members of the affiliated group and reported a
loss of $115,000. The profits and losses of RLP are split 40% to the
Company and 60% to Radiant Capital.
Director
Independence
Mr.
Harrington satisfies the definition of “independent” established by the
NYSE-AMEX as set forth in Section 803 of the NYSE-AMEX Company
Guide. Mr. Crain does not satisfy the definition of “independent”
established by the NYSE-AMEX as set forth in Section 803 of the NYSE-AMEX
Company Guide. As of the date of the report, we do not maintain a
separately designated audit, compensation or nominating committee.
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, 2009
and 2008 and fees billed and unbilled for other services rendered by it during
those periods.
|
2009
|
2008
|
|||||||
|
Audit
Fees:
|
$ | 96,000 | $ | 83,000 | ||||
|
Audit
Related Fees:
|
5,000 | 2,000 | ||||||
|
Tax
Fees:
|
43,200 | 8,500 | ||||||
|
All
Other Fees:
|
- | - | ||||||
|
Total:
|
$ | 144,200 | $ | 93,500 | ||||
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."
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.
44
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 the fiscal years ended June 30, 2009 and June 30, 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
|
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).
|
|
10.2
|
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).
|
|
10.3
|
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).
|
45
|
10.4
|
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)
|
|
10.5
|
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)
|
|
10.6
|
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)
|
|
10.7
|
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)
|
|
10.8
|
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)
|
|
10.9
|
Amendment
No. 2 to Loan Agreement dated as of June 28, 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)
|
|
10.10
|
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)
|
|
10.11
|
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)
|
|
10.12
|
Letter
Agreement dated December 31, 2008; Amendment to the Employment Agreement
between Radiant Logistics, Inc. and Bohn H. Crain (incorporated by
reference to the Registrant’s Current Report on Form 8-K filed on January
9, 2009)
|
|
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 October 5, 2009 (filed
herewith)
|
46
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:
October 5, 2009
|
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
|
October
5, 2009
|
|||
| Stephen P. Harrington | |||||
|
/s/ Bohn H. Crain
|
Chairman
and
|
October
5, 2009
|
|||
| Bohn H. Crain |
Chief
Executive Officer
|
||||
|
|
|||||
|
/s/ Todd E.
Macomber
|
Chief
Accounting Officer
|
October
5, 2009
|
|||
| Todd E. Macomber | |||||
47
RADIANT
LOGISTICS, INC.
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Consolidated
Balance Sheets as of June 30, 2009 and 2008
|
F-3
|
|
Consolidated
Statements of Income (Operations) for the years ended June 30, 2009 and
2008
|
F-4
|
|
Consolidated
Statements of Stockholders’ Equity (Deficit) for the years ended June 30,
2009 and 2008
|
F-5
|
|
Consolidated
Statements of Cash flows for the years ended June 30, 2009 and
2008
|
F-6
– F-7
|
|
Notes
to Consolidated Financial Statements
|
F-8
– F-25
|
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, 2009 and 2008, and the related
statements of income (operations), stockholders' equity (deficit), 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 audits 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, 2009 and 2008, 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 LLP
October
5, 2009
F-2
RADIANT
LOGISTICS, INC.
Consolidated
Balance Sheets
|
June
30,
|
June
30,
|
|||||||
|
2009
|
2008
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets -
|
||||||||
|
Cash
and cash equivalents
|
$ | 890,572 | $ | 392,223 | ||||
|
Accounts
receivable, net of allowance
|
||||||||
|
June
30, 2009 - $754,578; June, 30 2008 - $513,479
|
17,275,387 | 14,404,002 | ||||||
|
Current
portion of employee loan receivable and other receivables
|
613,288 | 68,367 | ||||||
|
Income
tax deposit
|
535,074 | - | ||||||
|
Prepaid
expenses and other current assets
|
305,643 | 425,657 | ||||||
|
Deferred
tax asset
|
427,713 | 292,088 | ||||||
|
Total
current assets
|
20,047,677 | 15,582,337 | ||||||
|
Furniture
and equipment, net
|
760,507 | 717,542 | ||||||
|
Acquired
intangibles, net
|
3,179,043 | 1,242,413 | ||||||
|
Goodwill
|
337,000 | 7,824,654 | ||||||
|
Employee
loan receivable, net of current portion
|
40,000 | 40,000 | ||||||
|
Investment
in real estate
|
40,000 | 40,000 | ||||||
|
Deposits
and other assets
|
359,606 | 156,280 | ||||||
|
Total
long term assets
|
3,955,649 | 9,303,347 | ||||||
|
Total
assets
|
$ | 24,763,833 | $ | 25,603,226 | ||||
|
Current
liabilities -
|
||||||||
|
Notes
payable – current portion of long term debt
|
$ | - | $ | 113,306 | ||||
|
Accounts
payable and accrued transportation costs
|
13,249,628 | 9,914,831 | ||||||
|
Commissions
payable
|
1,323,004 | 1,136,859 | ||||||
|
Other
accrued costs
|
472,202 | 221,808 | ||||||
|
Income
taxes payable
|
- | 498,142 | ||||||
|
Due
to former Adcom shareholder
|
2,153,721 | - | ||||||
|
Total
current liabilities
|
17,198,555 | 11,884,946 | ||||||
|
Long
term debt
|
7,869,110 | 4,272,032 | ||||||
|
Deferred
tax liability
|
352,387 | 422,419 | ||||||
|
Total
long term liabilities
|
8,221,497 | 4,694,451 | ||||||
|
Total
liabilities
|
25,420,052 | 16,579,397 | ||||||
|
Minority
interest
|
1,907 | - | ||||||
|
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. Issuedand outstanding: June 30, 2009 –
34,106,960; June 30, 2008 –34,660,293
|
16,157 | 16,116 | ||||||
|
Additional
paid-in capital
|
7,889,458 | 7,703,658 | ||||||
|
Treasury
stock, at cost, 595,000 and zero shares, respectively
|
(138,250 | ) | - | |||||
|
Retained
earnings (deficit)
|
(8,425,491 | ) | 1,304,055 | |||||
|
Total
stockholders’ equity (deficit)
|
(658,126 | ) | 9,023,829 | |||||
|
Total
liabilities and stockholders’ equity (deficit)
|
$ | 24,763,833 | $ | 25,603,226 | ||||
The
accompanying notes form an integral part of these consolidated financial
statements.
F-3
RADIANT
LOGISTICS, INC.
Consolidated
Statements of Income (Operations)
|
YEAR
ENDED
|
YEAR
ENDED
|
|||||||
|
JUNE
30,
|
JUNE
30,
|
|||||||
|
2009
|
2008
|
|||||||
|
Revenues
|
$ | 136,996,319 | $ | 100,201,795 | ||||
|
Cost
of transportation
|
91,427,781 | 64,373,545 | ||||||
|
Net
revenues
|
45,568,538 | 35,828.250 | ||||||
|
Agent
commissions
|
30,565,136 | 25,210,068 | ||||||
|
Personnel
costs
|
6,920,914 | 5,303,612 | ||||||
|
Selling,
general and administrative expenses
|
4,286,572 | 3,801,085 | ||||||
|
Depreciation
and amortization
|
1,743,159 | 963,913 | ||||||
|
Restructuring
charges
|
220,000 | - | ||||||
|
Goodwill
impairment
|
11,403,342 | - | ||||||
|
Total
operating expenses
|
55,139,123 | 35,278,678 | ||||||
|
Income
(loss) from operations
|
(9,570,585 | ) | 549,572 | |||||
|
Other
income (expense):
|
||||||||
|
Interest
income
|
13,540 | 4,115 | ||||||
|
Interest
expense
|
(216,893 | ) | (121,399 | ) | ||||
|
Other
– non-recurring
|
- | 1,918,416 | ||||||
|
Gain
on early extinguishment of debt
|
190,000 | - | ||||||
|
Other
|
(75,005 | ) | (98,782 | ) | ||||
|
Total
other income (expense)
|
(88,358 | ) | 1,702,350 | |||||
|
Income
(loss) before income tax expense
|
(9,658,943 | ) | 2,251,922 | |||||
|
Income
tax expense
|
(43,912 | ) | (907,748 | ) | ||||
|
Income
(loss) before minority interest
|
(9,702,855 | ) | 1,344,174 | |||||
|
Minority
interest
|
(26,691 | ) | 68,731 | |||||
|
Net
income (loss)
|
$ | (9,729,546 | ) | $ | 1,412,905 | |||
|
Net
income (loss) per common share – basic and diluted
|
$ | (0.28 | ) | $ | 0.04 | |||
|
Weighted
average shares outstanding:
|
||||||||
|
Basic
shares
|
34,678,755 | 34,126,972 | ||||||
|
Diluted
shares
|
34,678,755 | 34,358,746 | ||||||
The
accompanying notes form an integral part of these consolidated financial
statements.
F-4
RADIANT
LOGISTICS, INC.
Consolidated
Statements of Stockholders’ Equity (Deficit)
|
COMMON
STOCK
|
||||||||||||||||||||||||
|
SHARES
|
AMOUNT
|
ADDITIONAL
PAID-IN
CAPITAL
|
TREASURY
STOCK
|
RETAINED
EARNINGS
(DEFICIT)
|
TOTAL
STOCKHOLDERS’
EQUITY
(DEFICIT)
|
|||||||||||||||||||
|
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
|
356,724 | 357 | 213,677 | - | - | 214,034 | ||||||||||||||||||
|
Issuance
of common stock for investor relations
|
208,333 | 208 | 71,042 | - | - | 71,250 | ||||||||||||||||||
|
Issuance
of common stock for finders fees
|
133,597 | 134 | 77,103 | - | - | 77,237 | ||||||||||||||||||
|
Share-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 | ||||||||||||||||||
|
Issuance
of common stock for investor relations
|
41,667 | 41 | 12,041 | - | - | 12,082 | ||||||||||||||||||
|
Repurchase
of common stock
|
(595,000 | ) | - | (138,250 | ) | - | (138,250 | ) | ||||||||||||||||
|
Share-based
compensation
|
- | - | 173,759 | - | - | 173,759 | ||||||||||||||||||
|
Net
loss for the year ended June 30, 2009
|
- | - | - | - | (9,729,546 | ) | (9,729,546 | ) | ||||||||||||||||
|
Balance
at June 30, 2009
|
34,106,960 | $ | 16,157 | $ | 7,889,458 | $ | (138,250 | ) | $ | (8,425,491 | ) | $ | (658,126 | ) | ||||||||||
The
accompanying notes form an integral part of these consolidated financial
statements.
F-5
RADIANT
LOGISTICS, INC.
Consolidated
Statements of Cash Flows
|
YEAR
ENDED
JUNE
30,
2009
|
YEAR
ENDED
JUNE
30,
2008
|
|||||||
|
CASH
FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
|
||||||||
|
Net
income (loss)
|
$ | (9,729,546 | ) | $ | 1,412,905 | |||
|
ADJUSTMENTS
TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
|
||||||||
|
non-cash
compensation expense (stock options)
|
173,759 | 204,062 | ||||||
|
non-cash
issuance of common stock (services)
|
|
12,082 | 148,487 | |||||
|
amortization
of intangibles
|
1,263,370 | 547,360 | ||||||
|
deferred
income tax benefit
|
(1,421,657 | ) | (243,536 | ) | ||||
|
depreciation
and leasehold amortization
|
479,789 | 396,557 | ||||||
|
goodwill
impairment
|
11,403,342 | - | ||||||
|
gain
on early extinguishment of debt
|
(190,000 | ) | - | |||||
|
minority
interest in income (loss) of subsidiaries
|
26,691 | (68,731 | ) | |||||
|
provision
for (recovery of) doubtful accounts
|
(90,766 | ) | 253,519 | |||||
|
income
tax indemnity
|
- | (486,694 | ) | |||||
|
change
in estimated accrued transportation costs
|
- | (1,431,452 | ) | |||||
|
CHANGE
IN OPERATING ASSETS AND LIABILITIES:
|
||||||||
|
accounts
receivable
|
7,669,229 | 405,389 | ||||||
|
employee
loan receivable and other receivables
|
(113,884 | ) | 39,433 | |||||
|
income
tax deposit
|
(450,046 | ) | - | |||||
|
prepaid
expenses and other current assets
|
178,704 | (366,329 | ) | |||||
|
deposits
and other assets
|
97,186 | 47,923 | ||||||
|
accounts
payable and accrued transportation costs
|
(5,210,752 | ) | (2,127,035 | ) | ||||
|
commissions
payable
|
186,145 | 436,839 | ||||||
|
other
accrued costs
|
(16,368 | ) | (122,497 | ) | ||||
|
income
taxes payable
|
(498,142 | ) | 273,446 | |||||
|
Net
cash provided by (used for)
|
||||||||
|
operating
activities
|
3,769,136 | (680,354 | ) | |||||
|
CASH
FLOWS USED FOR INVESTING ACTIVITIES:
|
||||||||
|
Purchase
of Automotive Services Group (see Note 4), including indemnified costs
paid
|
- | (1,461,266 | ) | |||||
|
Acquisition
of Adcom Express, Inc. (see Note 5), net of acquired cash, including an
additional $62,246 of costs incurred post-closing
|
(5,493,799 | ) | - | |||||
|
Purchase
of furniture and equipment
|
(230,892 | ) | (245,015 | ) | ||||
|
Issuance
of notes receivable
|
- | (25,000 | ) | |||||
|
Payments
to former shareholders of Airgroup
|
(889,915 | ) | (500,000 | ) | ||||
|
Payments
made to former Adcom shareholder
|
(115,009 | ) | - | |||||
|
Net
cash used for investing activities
|
(6,729,615 | ) | (2,231,281 | ) | ||||
|
CASH
FLOWS PROVIDED BY FINANCING ACTIVITIES:
|
||||||||
|
Dividends
to minority interest
|
- | (13,535 | ) | |||||
|
Proceeds
from credit facility, net of credit fees
|
3,597,078 | 2,597,818 | ||||||
|
Repurchase
of common stock
|
(138,250 | ) | - | |||||
|
Net
cash provided by financing activities
|
3,458,828 | 2,584,283 | ||||||
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
498,349 | (327,352 | ) | |||||
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF THE YEAR
|
392,223 | 719,575 | ||||||
|
CASH
AND CASH EQUIVALENTS, END OF YEAR
|
$ | 890,572 | $ | 392,223 | ||||
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||
|
Income
taxes paid
|
$ | 2,369,845 | $ | 872,786 | ||||
|
Interest
paid
|
$ | 216,893 | $ | 121,399 |
The
accompanying notes form an integral part of these consolidated financial
statements.
F-6
Supplemental
disclosure of non-cash investing and financing activities:
In
November 2007, the Company reclassified $438,734 from long-term other assets to
goodwill related to prior year costs incurred on the Automotive Services Group
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 earn-out 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.
In
November 2008, the Company finalized its purchase price allocation for the
Automotive Services Group resulting in a decrease of net assets acquired by
$62,694 due to unutilized transaction costs. The effect of this transaction was
a decrease to goodwill and a decrease to accounts payable.
In
November 2008, the Company recorded $633,333 as an accrued payable and an
increase to goodwill for the final annual earn-out payment due to the former
Airgroup shareholders for the Company’s acquisition of Airgroup.
In
December 2008, the Company completed its quarterly analysis of allowance for
doubtful accounts. Included in the analysis of doubtful accounts was $205,462
relating to receivables acquired in the Adcom transaction. Pursuant to the
purchase agreement, the $205,462 was offset against amounts otherwise due to the
former sole shareholder of Adcom.
In
December 2008, the Company paid $333,276 to the former Airgroup shareholders for
the earn-out payment recorded on the books for the year ending June 30, 2008.
The earn-out payment was recorded at June 30, 2008 in the amount of $416,596,
and payable in shares of the Company common stock. The payment was discounted by
$83,320 as the former Airgroup shareholders agreed to receive cash rather than
Company shares. The effect of this reduction in the earn-out was a decrease to
goodwill and to the amount owed to the former Airgroup
shareholders.
In June
2009, and based on the operating income for year ended June 30, 2009, $337,000
was recorded as due to former Adcom shareholder and an increase to goodwill for
the first annual earn-out from the Company’s acquisition of Adcom.
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
twenty four months. In November 2007, the Company acquired Automotive
Services Group in Detroit, Michigan to service the automotive industry. In
September 2008, the Company acquired Adcom Express, Inc. d/b/a Adcom Worldwide
(“Adcom”). 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.
In
connection with the acquisition of Adcom, the Company changed the name
of Airgroup Corporation to Radiant Global Logistics, Inc. in order to better
position its centralized back-office operations to service both the
Airgroup and Adcom network brands.
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 the
Company and its wholly-owned subsidiaries as well as a single variable
interest entity, Radiant Logistics Partners LLC (RLP), which is 40% owned by
Radiant Global Logistics (f/k/a Airgroup Corporation), a wholly-owned subsidiary
of the Company, and whose accounts are included in the consolidated financial
statements. All significant intercompany balances and
transactions have been eliminated.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Use
of Estimates
The
preparation of financial statements and related disclosures in accordance with
accounting principles generally accepted in the United States 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, the fair value
of acquired assets and liabilities, accounting for the issuance of shares and
share based compensation, the assessment of the recoverability of long-lived
assets (specifically goodwill and acquired intangibles), the establishment of an
allowance for doubtful accounts and the valuation allowance for deferred tax
assets. Estimates and assumptions are reviewed periodically and the effects of
revisions are reflected in the period that they are determined to be necessary.
Actual results could differ from those estimates.
b) Fair
Value Measurements
Effective
July 1, 2008, the Company implemented the provisions of Financial
Accounting Standards Board ("FASB") Statement No. 157 ("SFAS 157"), "Fair
Value Measurements", for its financial assets and liabilities which are
remeasured and reported at fair value at each reporting period and non-financial
assets and liabilities which are remeasured and reported at fair value at least
annually. In accordance with the provisions of FASB Staff Position ("FSP")
FAS 157-2, "Effective Date of FASB Statement No. 157", the Company elected
to defer implementation of SFAS 157 as it relates to its non-financial
assets and non-financial liabilities which are recognized and disclosed at fair
value in the financial statements on a nonrecurring basis until July 1,
2009. The adoption of SFAS 157 with respect to financial assets and
liabilities which are remeasured and reported at fair value at each reporting
period and with respect to nonfinancial assets and liabilities which are
remeasured and reported at fair value at least annually did not have an impact
on the Company’s consolidated financial statements. The Company does not expect
the adoption of SFAS 157 with respect to non-financial assets and
liabilities which are recognized and disclosed at fair value on a nonrecurring
basis will have a material impact on its consolidated financial
position.
In
general, fair values determined by Level 1 inputs utilize quoted prices
(unadjusted) in active markets for identical assets or liabilities. Fair values
determined by Level 2 inputs utilize observable inputs other than
Level 1 prices, such as quoted prices for similar assets or liabilities,
quoted prices in markets that are not active or other inputs that are observable
or can be corroborated by observable market data for substantially the full term
of the related assets or liabilities. Fair values determined by Level 3
inputs are unobservable data points for the asset or liability, and include
situations where there is little, if any, market activity for the asset or
liability.
c) Fair
Value of Financial Instruments
The fair
values of the Company’s receivables, income tax deposit, accounts payable and
accrued transportation costs, commissions payable, other accrued costs and
amounts due to former Adcom shareholder approximate the carrying values dues to
the relatively short maturities of these instruments. The fair value
of the Company’s long-term debt, if recalculated based on current interest
rates, would not differ significantly from the recorded amount.
d) Cash
and Cash Equivalents
For
purposes of the statements of cash flows, cash equivalents include all highly
liquid investments with original maturities of three months or less which are
not securing any corporate obligations.
F-9
e) Concentrations
The
Company maintains its cash in bank deposit accounts, which, at times, may exceed
federally insured limits. The Company has not experienced any losses in such
accounts.
f) Accounts
Receivable
The
Company’s receivables are recorded when billed and represent claims against
third parties that will be settled in cash. The carrying value of the Company’s
receivables, net of the allowance for doubtful accounts, represents their
estimated net realizable value. The Company evaluates the
collectability of accounts receivable on a customer-by-customer basis. The
Company records a reserve for bad debts against amounts due to reduce the net
recognized receivable to an amount the Company believes will be reasonably
collected. The reserve is a discretionary amount determined from the analysis of
the aging of the accounts receivables, historical experience and knowledge of
specific customers.
g) Furniture
& Equipment
Technology
(computer software, hardware, and communications), furniture, and equipment are
stated at cost, less accumulated depreciation over the estimated useful lives of
the respective assets. Depreciation is computed using five to seven year lives
for vehicles, communication, office, furniture, and computer equipment and the
double declining balance method. Computer software is depreciated
over a three year life using the straight line method of
depreciation. For leasehold improvements, the cost is depreciated
over the shorter of the lease term or useful life on a straight line
basis. Upon retirement or other disposition of these assets, the cost
and related accumulated depreciation are removed from the accounts and the
resulting gain or loss, if any, is reflected in other income or expense.
Expenditures for maintenance, repairs and renewals of minor items are charged to
expense as incurred. Major renewals and improvements are
capitalized.
h) Goodwill
The
Company performs an annual impairment test for goodwill and intangible assets
with indefinite lives. The first step of the impairment test requires the
Company to 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 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 typically 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 April 1, 2009 no goodwill existed
due to the previously recorded impairment described below.
During
the second quarter of fiscal 2009, the Company concluded indicators of potential
impairment were present due to the sustained decline in the Company’s share
price resulting in the market capitalization of the Company being less than its
book value. The Company conducted an impairment test during the second quarter
of fiscal 2009 based on the facts and circumstances at that time and its
business strategy in light of existing industry and economic conditions, as well
as taking into consideration future expectations. As the Company has
significantly grown the business since its initial acquisition of Airgroup, it
has also grown its customer relationship intangibles as the Company added
additional stations. Through its impairment testing and review, the Company
concluded its discounted cash flow analysis supports a valuation of its
identifiable intangible assets well in excess of their carrying value. Factoring
this with management’s assessment of the fair value of other assets and
liabilities resulted in no residual implied fair value remaining to be allocated
to goodwill. As a result, for the quarter ending December 31, 2008, the Company
recorded a non-cash goodwill impairment charge of $11.4 million, which was the
full carrying value of goodwill as of that date. The Company does not expect
this non-cash charge to have any impact on the Company’s compliance with the
financial covenants in its credit agreement.
F-10
The table
below reflects changes in goodwill for the years ending June 30:
|
2009
|
2008
|
|||||||
|
Goodwill
– beginning of year
|
$ | 7,824,654 | $ | 5,532,223 | ||||
|
Airgroup
earn-out and adjustment (see Note 12)
|
550,013 | 416,596 | ||||||
|
Automotive
Services Group acquisition and adjustments (see Note 4)
|
(62,694 | ) | 1,875,835 | |||||
|
Adcom
acquisition (see Note 5)
|
3,091,369 | - | ||||||
|
Adcom
earn-out (see Note 12)
|
337,000 | - | ||||||
|
Impairment
charge
|
(11,403,342 | ) | - | |||||
|
Goodwill
– end of year
|
$ | 337,000 | $ | 7,824,654 | ||||
i) Long-Lived
Assets
Acquired
intangibles consist of customer related intangibles and non-compete agreements
arising from the Company’s acquisitions. Customer related intangibles are
amortized using accelerated methods over approximately 5 years and non-compete
agreements are amortized using the straight line method over the term of the
underlying agreements. See Notes 4, 5 and 6.
The
Company reviews long-lived assets to be held-and-used for impairment whenever
events or changes in circumstances indicate the carrying amount of the assets
may not be recoverable. If the sum of the undiscounted expected future cash
flows over the remaining useful life of a long-lived asset is less than its
carrying amount, the asset is considered to be impaired. Impairment
losses are measured as the amount by which the carrying amount of the asset
exceeds the fair value of the asset. When fair values are not available, the
Company estimates fair value using the expected future cash flows discounted at
a rate commensurate with the risks associated with the recovery of the
asset. Assets to be disposed of are reported at the lower of carrying
amount or fair value less costs to sell. Management has performed a
review of all long-lived assets and has determined no impairment of the
respective carrying value has occurred as of June 30, 2009.
j) Commitments
The
Company has operating lease commitments for office space, warehouse space and
equipment rentals under non-cancelable operating leases expiring at various
dates through December 2012. Future annual commitments for years ending June 30,
2010 through 2012, respectively, are $474,801, $242,123 and
$13,674. Lease and rent expense for the years ended June 30, 2009 and
June 30, 2008 approximated $713,467 and $665,003, respectively.
k) Income
Taxes
Deferred
income tax assets and liabilities are recognized for the expected future tax
consequences of events that have been reflected in the consolidated financial
statements. Deferred tax assets and liabilities are determined based on the
differences between the book values and the tax bases of particular assets and
liabilities. Deferred tax assets and liabilities are measured using tax rates in
effect for the years in which the differences are expected to reverse. A
valuation allowance is provided to offset the net deferred tax assets if, based
upon the available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.
The
Company reports a liability for unrecognized tax benefits resulting from
uncertain income tax positions taken or expected to be taken in an income tax
return. Estimated interest and penalties are recorded as a component
of interest expense or other expense, respectively.
l) Revenue
Recognition and Purchased Transportation Costs
The
Company is the primary obligor responsible for providing the service desired by
the customer and is responsible for fulfillment, including the acceptability of
the service(s) ordered or purchased by the customer. At the Company’s sole
discretion, it sets the prices charged to its customers, and is not required to
obtain approval or consent from any other party in establishing its
prices. The Company has multiple suppliers for the services it sells
to its customers, and has the absolute and complete discretion and right to
select the supplier that will provide the product(s) or service(s) ordered by a
customer, including changing the supplier on a shipment-by-shipment basis. In
most cases, the Company determines the nature, type, characteristics, and
specifications of the service(s) ordered by the customer. The Company also
assumes credit risk for the amount billed to the customer.
F-11
As a
non-asset based carrier, the Company does not own transportation assets. The
Company generates the major portion of its air and ocean freight revenues by
purchasing transportation services from direct (asset-based) carriers and
reselling those services to its customers. Based upon the terms in the contract
of carriage, revenues related to shipments where the Company issues a House
Airway Bill ("HAWB") or a House Ocean Bill of Lading ("HOBL") are recognized at
the time the freight is tendered to the direct carrier at origin. Costs
related to the shipments are also recognized at this same time based upon
anticipated margins, contractual arrangements with direct carriers, and other
known factors. The estimates are routinely monitored and compared to actual
invoiced costs. The estimates are adjusted as deemed necessary by the Company to
reflect differences between the original accruals and actual costs of purchased
transportation.
This
method generally results in recognition of revenues and purchased transportation
costs earlier than the preferred methods under generally accepted accounting
principles ("GAAP") which do not recognize revenues until a proof of delivery is
received or which recognize revenues as progress on the transit is made. The
Company’s method of revenue and cost recognition does not result in a material
difference from amounts that would be reported under such other
methods.
m) Share
Based Compensation
The
Company accounts for share-based compensation under the fair value recognition
provisions such that compensation cost is measured at the grant date based on
the value of the award and is expensed ratably over the vesting period.
Determining the fair value of share-based awards at the grant date requires
judgment, including estimating the percentage of awards which will be forfeited,
stock volatility, the expected life of the award, and other inputs. If actual
forfeitures differ significantly from the estimates, share-based compensation
expense and the Company's results of operations could be materially
impacted.
For the
year ended June 30, 2009, the Company recorded share based compensation expense
of $173,759, which, net of income taxes, resulted in a $107,731 increase of net
loss. For the year ended June 30, 2008, the Company recorded share
based compensation expense of $204,062, which, net of income taxes, resulted in
a $126,518 net reduction of net income.
n) Basic
and Diluted Income Per Share
Basic
income per share is computed by dividing net income (loss) attributable to
common stockholders by the weighted average number of common shares outstanding.
Diluted income per share is computed similar to basic income per share except
that the denominator is increased to include the number of additional common
shares that would have been outstanding if the potential common shares, such as
stock options, had been issued and if the additional common shares were
dilutive. For the year ended June 30, 2009, options to purchase 3,370,000 shares
of common stock were excluded from the computation of diluted weighted average
shares outstanding as they are anti-dilutive due to the Company’s net loss for
the year. 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. The following table reconciles the numerator
and denominator of the basic and diluted per share computations for earnings per
share as follows.
|
Year
ended
June
30, 2009
|
Year
ended
June
30, 2008
|
|||||||
|
Weighted
average basic shares outstanding
|
34,678,755 | 34,126,972 | ||||||
|
Options
|
- | 231,774 | ||||||
|
Weighted
average dilutive shares outstanding
|
34,678,755 | 34,358,746 | ||||||
o) 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.
p) Subsequent
Events
On or
about September 30, 2009, the Company received written notice of a claim by
Ryder Truck Rental, Inc. in the amount of approximately $500,000 alleging
breach of an alleged guaranty agreement executed
by Adcom. The Company is investigating this claim and has
commenced the process of seeking indemnification from Robert Friedman, the prior
shareholder of Adcom, in accordance with the Stock Purchase Agreement
related to the Adcom acquisition. The Company has also
asserted its rights under the Stock Purchase Agreement to set off payment
of the 2009 Tier 1 Earn-out Payment and
other payments under the Stock Purchase Agreement as a result of this
claim. The
Company has considered subsequent events through October 5, 2009.
F-12
q) Reclassifications
Certain
amounts for prior periods have been reclassified in the consolidated financial
statements to conform to the classification used in fiscal 2009.
NOTE
3 - RECENT ACCOUNTING PRONOUNCEMENTS
On
July 1, 2008, the Company adopted the provisions of Financial Accounting
Standards Board ("FASB") Statement No. 157 ("SFAS 157"), "Fair Value
Measurements" for fair value measurements of financial assets and financial
liabilities and for fair value measurements of nonfinancial items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis. SFAS 157 standardizes the definition and approaches for fair value
measurements of financial instruments for those standards which already permit
or require the use of fair value. It does not require any new fair value
measurements. SFAS 157 defines a hierarchy for valuation techniques and
also requires additional disclosures. The adoption of this Statement did not
have a material effect on the Company's consolidated financial statements. FASB
Staff Position ("FSP") FAS 157-2, "Effective Date of FASB Statement
No. 157" delays the effective date of SFAS 157 only as it relates to
fair value measurement requirements for nonfinancial assets and liabilities that
are not measured at fair value on a recurring basis to fiscal years beginning
after November 15, 2008. In accordance with FSP FAS 157-2, the Company
has not applied SFAS 157 to its nonfinancial assets and liabilities, mainly
intangible assets and property and equipment. On July 1, 2009, the Company
will be required to apply the provisions of SFAS 157 to fair value
measurements of nonfinancial assets and nonfinancial liabilities that are
recognized or disclosed at fair value in the financial statements on a
nonrecurring basis. The Company is in the process of evaluating the impact, if
any, of applying these provisions on its financial statements.
In
February 2007, the FASB issued Statement No. 159 ("SFAS 159"),
"The Fair Value Option for Financial Assets and Financial Liabilities —
Including an Amendment of FASB Statement No. 115". SFAS 159 provides
companies the option to measure many financial instruments and certain other
items at fair value. This provides companies the opportunity to mitigate
volatility in earnings caused by measuring instruments differently without
complex hedge accounting provisions. SFAS 159 was effective for the Company
beginning July 1, 2008. The adoption of this statement did not have a
material effect on the Company's consolidated financial statements.
In
December 2007, the FASB issued Statement No. 141 (revised 2007)
("SFAS 141R"), "Business Combinations". The objective of SFAS 141R is
to improve the relevance, representational faithfulness, and comparability of
the information that a reporting entity provides in its financial reports about
a business combination and its effects. SFAS 141R requires all business
combinations be accounted for by applying the acquisition method (previously
referred to as the purchase method), and most identifiable assets, liabilities,
noncontrolling interests, and goodwill acquired in business combinations to be
recorded at "full fair value." SFAS 141R also broadens the definition of a
business and changes the treatment of direct acquisition-related costs from
being included in the purchase price to instead being generally expensed if they
are not costs associated with issuing debt or equity securities. SFAS 141R
is effective for the Company beginning July 1, 2009, and will apply
prospectively to business combinations completed on or after that
date.
In
December 2007, the FASB issued Statement No. 160 ("SFAS 160"),
"Noncontrolling Interests in Consolidated Financial Statements — an
amendment of ARB No. 51". The objective of SFAS 160 is to improve the
relevance, comparability, and transparency of the financial information a
reporting entity provides in its consolidated financial statements by
establishing accounting and reporting standards for noncontrolling interests in
a subsidiary and for the deconsolidation of a subsidiary. SFAS 160
specifies noncontrolling interests (referred to as minority interests prior to
SFAS 160) be reported as a separate component of equity, not as a liability
or other item outside of equity, which changes the accounting for transactions
with noncontrolling interest holders. 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 Statement No. 161 ("SFAS 161"), "Disclosures
about Derivative Instruments and Hedging Activities — an amendment of FASB
Statement No. 133". The objective of SFAS 161 is to improve the
transparency of financial reporting by requiring additional disclosures about an
entity's derivative and hedging activities. This Statement is effective for the
Company beginning July 1, 2009, with early application encouraged. This
Statement encourages, but does not require, comparative disclosures for earlier
periods at initial adoption. The Company will apply this Statement prospectively
to any derivative and hedging activities entered into on or after the effective
date.
F-13
In May
2008, the FASB issued Statement No. 162 ("SFAS 162"), "The Hierarchy
of Generally Accepted Accounting Principles". The objective of SFAS 162 is
to identify the sources of GAAP and provide a framework, or hierarchy, for
selecting the principles to be used in preparing U.S. GAAP financial
statements for nongovernmental entities. This Statement was effective
November 15, 2008. The adoption of this Statement did not have a material
impact on the Company's consolidated financial statements.
In June
2008, the FASB issued Emerging Issues Task Force Issue No. 07-5 ("EITF
07-5"), "Determining Whether an Instrument (or Embedded Feature) Is Indexed to
an Entity’s Own Stock." EITF 07-5 provides guidance in assessing
whether an equity-linked financial instrument (or embedded feature) is indexed
to an entity’s own stock for purposes of determining whether the appropriate
accounting treatment falls under the scope of SFAS 133, "Accounting For
Derivative Instruments and Hedging Activities" and/or EITF 00-19,
"Accounting For Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock. " EITF 07-05 is effective for fiscal
years beginning after December 15, 2008. The Company is currently assessing the
potential impact the adoption of EITF 07-5 may have on the Company’s financial
statements.
In
October 2008, the FASB issued FASB Staff Position ("FSP") No. FAS 157-3,
"Determining the Fair Value of a Financial Asset When the Market for That Asset
Is Not Active". This FSP clarifies the application of SFAS 157 in an
inactive market and illustrates how an entity would determine fair value when
the market for a financial asset is not active. The FSP was effective
immediately and applies to prior periods for which financial statements have not
been issued, including interim or annual periods ending on or before
September 30, 2008. The adoption of this FSP did not have a material effect
on the Company's consolidated financial statements.
In April
2009, the FASB issued FSP 107-1, "Interim Disclosures about Fair Value of
Financial Instruments", which increases the frequency of fair value disclosures
to a quarterly basis instead of an annual basis. The guidance relates to fair
value disclosures for any financial instruments that are not currently reflected
on the balance sheet at fair value. FSP 107-1 is effective for interim and
annual periods ending after June 15, 2009, but entities may choose to adopt it
for the interim and annual periods ending after March 15, 2009. The
Company will provide this disclosure commencing with the three month period
ending September 30, 2009.
In
May 2009, the FASB issued SFAS No. 165 ("SFAS 165"), "Subsequent
Events", to
establish general standards of accounting for and disclosure of events which
occur after the balance sheet date but before the date the financial statements
are issued or available to be issued. SFAS 165 requires an entity to
reflect in their financial statements the effects of subsequent events which
provide additional evidence about conditions at the balance sheet date including
the estimates inherent in the process of preparing financial statements.
Subsequent events which provide evidence about conditions that arose after the
balance sheet date should be disclosed. Disclosures should include the nature of
the event and either an estimate of its financial effect or a statement that an
estimate cannot be made. SFAS 165 also requires the disclosure of the date
through which an entity has evaluated subsequent events and the basis for such
date. SFAS 165 is effective for interim and annual financial periods ending
after June 15, 2009. The adoption of SFAS 165 did not have
a material impact on the Company’s consolidated financial position, results of
operations and cash flows.
In
June 2009, the FASB issued SFAS No. 166 ("SFAS 166"), "Accounting for
Transfers of Financial Assets - an amendment of FASB Statement No. 140",
which provides guidance to improve transparency about transfers of financial
assets and a transferor’s continuing involvement, if any, with transferred
financial assets. SFAS 166, among other items, amends various provisions of
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities—a replacement of FASB Statement
No. 125",” by
removing the concept of a qualifying special-purpose entity and removes the
exception from applying FASB Interpretation No. 46 (revised 2003) ("FIN 46R")
"Consolidation of Variable Interest Entities — an interpretation of ARB No. 51"
to variable interest entities which are qualifying special-purpose entities;
limits the circumstances in which a transferor derecognizes a portion or
component of a financial asset; defines a participating interest; requires a
transferor to recognize and initially measure at fair value all assets obtained
and liabilities incurred as a result of a transfer accounted for as a sale; and
requires enhanced disclosures. SFAS 166 is effective for the Company
beginning July 1, 2010. SFAS 166 is not expected to have a material
impact on the Company’s consolidated financial position, results of operations
and cash flows.
In
June 2009, the FASB issued SFAS No. 167 ("SFAS 167"), "Amendments to
FASB Interpretation No. 46R". SFAS 167 amends certain requirements of
FIN 46R to improve
the financial reporting by enterprises involved with variable interest entities
and to provide more relevant and reliable information to users of financial
statements. SFAS 167 is effective for the Company in the fiscal year beginning
July 1, 2010. SFAS 167 is not expected to have a material impact on the
Company’s consolidated financial position, results of operations and cash
flows.
F-14
In
June 2009, the FASB issued SFAS No. 168 ("SFAS 168"), "The FASB
Accounting Standards Codification™ and the Hierarchy of Generally Accepted
Accounting Principles — a replacement of FASB Statement No. 162". SFAS 168
replaces SFAS 162, "The Hierarchy of Generally Accepted Accounting
Principles" and
establishes the FASB Accounting Standards Codification™ ("Codification") as the
source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements
in accordance with GAAP. All existing accounting standard documents are
superseded by the Codification and any accounting literature not included in the
Codification will not be authoritative. However, rules and interpretive releases
of the Securities Exchange Commission ("SEC") issued under the authority of
federal securities laws will continue to be sources of authoritative GAAP for
SEC registrants. SFAS 168 is effective for interim and annual reporting
periods ending after September 15, 2009. Therefore, beginning with the
Company’s quarter ending September 30, 2009, all references made by it to GAAP
in its consolidated financial statements will use the new Codification numbering
system. The Codification does not change or alter existing GAAP and, therefore,
it is not expected to have a material impact on the Company’s consolidated
financial position, results of operations and cash flows.
NOTE
4 – ACQUISITION OF AUTOMOTIVE SERVICES GROUP
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”). This
transaction was accounted for as the acquisition of a business, and the original
agreement provided for a purchase price of 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
Company finalized its purchase price allocation in November 2008 resulting in a
decrease of net assets acquired by approximately $63,000 due to unutilized
transaction costs. The total purchase price was $1.84 million. The purchase
price of the acquired assets was comprised of the $1.56 million purchase price
less $25,000 for the early payment of the note, and an additional $302,306 in
acquisition expenses. Given the nature of the transaction and the disruption to
the business caused by the garnishment proceedings, there was no covenant not to
compete arrangements, continuing customer contracts or similar amortizable
intangibles associated with this transaction. The following table summarizes the
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:
|
Furniture
& equipment
|
$ | 24,165 | ||
|
Goodwill
|
1,813,141 | |||
|
Total
assets acquired
|
1,837,306 | |||
|
Total
liabilities acquired
|
- | |||
|
Net
assets acquired
|
$ | 1,837,306 |
F-15
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. All of the goodwill is expected to be deductible for income tax
purposes.
NOTE
5 – ACQUISITION OF ADCOM EXPRESS, INC.
On
September 5, 2008, the Company entered into and closed a Stock Purchase
Agreement (the “Agreement”) pursuant to which it acquired 100% of the issued and
outstanding stock of Adcom Express, Inc., d/b/a Adcom Worldwide (“Adcom”), a
privately-held Minnesota corporation. For financial accounting purposes, the
transaction was deemed to be effective as of September 1, 2008. The stock was
acquired from Robert F. Friedman, the sole shareholder of Adcom. The total value
of the transaction was $11,050,000, consisting of: (i) $4,750,000 in cash paid
at the closing; (ii) $250,000 in cash payable shortly after the closing, subject
to adjustment, based upon the working capital of Adcom as of August 31, 2008;
(iii) up to $2,800,000 in four “Tier-1 Earn-Out Payments” of up to $700,000
each, covering the four year earn-out period through June 30, 2012, based upon
Adcom achieving certain levels of “Gross Profit Contribution” (as defined in the
Agreement), payable 50% in cash and 50% in shares of Company common stock
(valued at delivery date); (iv) a “Tier-2 Earn-Out Payment” of up to $2,000,000,
equal to 20% of the amount by which the Adcom cumulative Gross Profit
Contribution exceeds $16,560,000 during the four year earn-out period; and (v)
an “Integration Payment” of $1,250,000 payable on the earlier of the date
certain integration targets are achieved or 18 months after the closing, payable
50% in cash and 50% in shares of Company common stock (valued at delivery date).
The Integration Payment, the Tier-1 Earn-Out Payments and certain amounts of the
Tier-2 Payments may be subject to acceleration upon occurrence of a “Corporate
Transaction” (as defined in the Agreement), which includes a sale of Adcom or
the Company, or certain changes in corporate control. The cash component of the
transaction was financed through a combination of existing funds and the
proceeds from the Company’s revolving credit facility.
Founded
in 1978, Adcom provides a full range of domestic and international freight
forwarding solutions to a diversified account base including manufacturers,
distributors and retailers through a combination of three company-owned and
twenty-seven independent agency locations across North America.
The
acquisition was accounted for as a purchase and accordingly, the results of
operations and cash flows of Adcom have been included in the Company’s condensed
consolidated financial statements prospectively from the date of acquisition. At
September 1, 2008, the total purchase price consisted of an initial payment of
$4,750,000, an additional $136,796 in acquisition expenses and net of an offset
of $110,000 for certain liabilities assumed in connection with the transaction.
As part of the acquisition the Company recorded $220,000 in restructuring
charges which are anticipated to be paid over the course of a year. As of June
30, 2009 the Company has incurred $162,584 in restructuring costs and the
Company has a residual restructuring liability of $57,416. Also included in the
acquisition is $1,250,000 in future integration payments (included in current
liabilities) and $394,408 in working capital and other adjustments. In the
second fiscal quarter ended December 31, 2008, the Company incurred an
additional $35,437 of integration costs. The total purchase price does not
include any amount for the Tier-1 or Tier -2 Earn-out payments as these amounts
are contingent upon future financial thresholds being achieved for Adcom (see
Note 12). The following table summarizes the allocation of the purchase price
based on the estimated fair value of the acquired assets at August 31,
2008:
|
Current
assets
|
$ | 11,980,440 | ||
|
Furniture
& equipment
|
291,862 | |||
|
Notes
receivable
|
343,602 | |||
|
Intangibles
|
3,200,000 | |||
|
Goodwill
|
3,091,368 | |||
|
Other
assets
|
325,296 | |||
|
Total
assets acquired
|
19,232,568 | |||
|
Current
liabilities assumed
|
11,559,927 | |||
|
Long-term
deferred tax liability
|
1,216,000 | |||
|
Total
liabilities acquired
|
12,775,927 | |||
|
Net
assets acquired
|
$ | 6,456,641 |
F-16
None of
the goodwill is expected to be deductible for income tax purposes.
The following information is
based on estimated results for the years ending June 30, 2009 and 2008 as if the
acquisition of the Adcom assets had occurred as of the beginning of fiscal year
2008 (in thousands, except earnings per share):
|
Fiscal
Year Ended
|
Fiscal
Year Ended
|
|||||||
|
UNAUDITED
|
2009
|
2008
|
||||||
|
Total
revenue
|
$ | 153,835 | $ | 161,950 | ||||
|
Net
income (loss)
|
$ | (9,801 | ) | $ | 295 | |||
|
Income
(loss) per share:
|
||||||||
|
Basic
|
$ | (.28 | ) | $ | .01 | |||
|
Diluted
|
$ | (.28 | ) | $ | .01 | |||
NOTE
6 – ACQUIRED INTANGIBLE ASSETS
The table
below reflects acquired intangible assets related to the acquisition of
Airgroup, Automotive Services group and Adcom:
|
Year
ended
June
30, 2009
|
Year
ended
June
30, 2008
|
|||||||||||||||
|
Gross
carrying
amount
|
Accumulated
Amortization
|
Gross
carrying
amount
|
Accumulated
Amortization
|
|||||||||||||
|
Amortizable
intangible assets:
|
||||||||||||||||
|
Customer
related
|
$ | 5,752,000 | $ | 2,679,547 | $ | 2,652,000 | $ | 1,454,587 | ||||||||
|
Covenants
not to compete
|
190,000 | 83,410 | 90,000 | 45,000 | ||||||||||||
|
Total
|
$ | 5,942,000 | $ | 2,762,957 | $ | 2,742,000 | $ | 1,499,587 | ||||||||
|
Aggregate
amortization expense:
|
||||||||||||||||
|
For
twelve months ended June 30, 2009
|
$ | 1,263,370 | ||||||||||||||
|
For
twelve months ended June 30, 2008
|
$ | 547,360 | ||||||||||||||
|
Aggregate
amortization expense for the years ended June 30:
|
||||||||||||||||
|
2010
|
1,159,286 | |||||||||||||||
|
2011
|
827,762 | |||||||||||||||
|
2012
|
769,772 | |||||||||||||||
|
2013
|
374,344 | |||||||||||||||
|
2014
|
47,879 | |||||||||||||||
|
Total
|
$ | 3,179,043 | ||||||||||||||
For the
year ended June 30, 2009, the Company recorded an expense of $1,263,370 from
amortization of intangibles and an income tax benefit of $456,199 from
amortization of the long term deferred tax liability; arising from the
acquisitions of Airgroup and Adcom. 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. The
Company expects the net reduction in income from the combination of amortization
of intangibles and long term deferred tax liability will be $738,082 in 2010,
$519,700 in 2011, $477,259 in 2012, $232,093 in 2013, and $29,688 in
2014.
NOTE
7 – VARIABLE INTEREST ENTITY
Certain
entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have the sufficient equity at risk for
the entity to finance its activities without additional subordinated financial
support from other parties are considered “variable interest
entities”. RLP is 40% owned by Radiant Global Logistics (RGL),
qualifies as a variable interest entity and is included in the Company’s
consolidated financial statements (see Note 8). RLP commenced
operations in February 2007. Minority interest recorded on the
income statement for the year ended June 30, 2009 was an expense of $26,691 and
for the year ended June 30, 2008 was a benefit was $68,731.
F-17
The
following table summarizes the balance sheets of RLP as of June 30:
|
2009
|
2008
|
|||||||
|
ASSETS
|
||||||||
|
Accounts
receivable – Radiant Logistics
|
$ | 6,656 | $ | - | ||||
|
Prepaid
expenses and other current assets
|
2,165 | 1,261 | ||||||
|
Furniture
& fixtures, net
|
- | 1,826 | ||||||
|
Total
assets
|
$ | 8,821 | $ | 3,087 | ||||
|
LIABILITIES
AND PARTNERS' CAPITAL
|
||||||||
|
Checks
issued in excess of bank balance
|
$ | 212 | $ | - | ||||
|
Accounts
payable – Radiant Logistics
|
- | 7,653 | ||||||
|
Other
accrued costs
|
5,431 | 12,412 | ||||||
|
Total
liabilities
|
5,643 | 20,065 | ||||||
|
Partners'
capital
|
3,178 | (16,978 | ) | |||||
|
Total
liabilities and partners' capital
|
$ | 8,821 | $ | 3,087 | ||||
NOTE
8 – RELATED PARTY
RLP is
owned 40% by RGL and 60% by Radiant Capital Partners, LLC (RCP), a company for
which the Chief Executive Officer of the Company is the lone
member. RLP is a certified minority business enterprise which was
formed for the purpose of providing the Company with a national accounts
strategy to pursue corporate and government accounts with diversity
initiatives. As currently structured, RCP’s ownership interest
entitles it to a majority of the profits and distributable cash, if any,
generated by RLP. The operations of RLP are intended to provide
certain benefits to the Company, including expanding the scope of services
offered by the Company and participating in supplier diversity programs not
otherwise available to the Company. RGL currently provides
administrative services necessary to operate RLP while RLP continues to
develop. As the RLP operations mature, the Company will evaluate and
approve all related service agreements between the Company and RLP, including
the scope of the services to be provided by the Company to RLP and the fees
payable to the Company by RLP, in accordance with the Company’s corporate
governance principles and applicable Delaware corporation law. This
process may include seeking the opinion of a qualified third party concerning
the fairness of any such agreement or the approval of the Company’s
shareholders. RLP is consolidated in the financial statements of the
Company (see Note 7).
NOTE
9 – FURNITURE AND EQUIPMENT
|
June
30,
|
June
30,
|
|||||||
|
2009
|
2008
|
|||||||
|
Vehicles
|
$ | 33,788 | $ | 3,500 | ||||
|
Communication
equipment
|
1,353 | 1,353 | ||||||
|
Office
equipment
|
309,156 | 261,633 | ||||||
|
Furniture
and fixtures
|
66,036 | 47,191 | ||||||
|
Computer
equipment
|
554,337 | 290,135 | ||||||
|
Computer
software
|
884,384 | 738,566 | ||||||
|
Leasehold
improvements
|
44,002 | 30,526 | ||||||
| 1,893,056 | 1,372,904 | |||||||
|
Less: Accumulated
depreciation and amortization
|
(1,132,549 | ) | (655,362 | ) | ||||
|
Furniture
and equipment – net
|
$ | 760,507 | $ | 717,542 | ||||
Depreciation
and amortization expense related to furniture and equipment was $479,789 and
$396,557 for the years ended June 30, 2009 and 2008, respectively.
F-18
NOTE
10 - LONG TERM DEBT
In
September 2008, the Company’s $10.0 million revolving credit facility, including
a $500k sublimit to support letters of credit, (the Facility) was increased to
$15.0 million with a maturity date of February 1, 2011. The Facility is
collateralized by accounts receivable and other assets of the Company and its
subsidiaries. Advances under the Facility are available to fund future
acquisitions, capital expenditures or for other corporate purposes. Borrowings
under the facility bear interest, at the Company’s option, at the Bank’s prime
rate minus .15% to 1.00% or LIBOR plus 1.55% to 2.25%, and can be adjusted up or
down during the term of the Facility based on the Company’s performance relative
to certain financial covenants. The Facility provides for advances of up to 80%
of the Company’s eligible domestic accounts receivable and for advances of up to
60% of eligible foreign accounts receivable.
The terms
of the Facility are subject to certain financial and operational covenants which
may limit the amount otherwise available under the Facility. The first covenant
limits funded debt to a multiple of 3.00 times the Company’s consolidated EBITDA
(as adjusted) measured on a rolling four quarter basis (or a multiple of 3.25 at
a reduced advance rate of 75.0%). The second financial covenant requires the
Company to maintain a basic fixed charge coverage ratio of at least 1.1 to 1.0.
The third financial covenant is a minimum profitability standard that requires
the Company not to incur a net loss before taxes, amortization of acquired
intangibles and extraordinary items in any two consecutive quarterly accounting
periods.
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., Radiant Global
Logistics, Inc., (f/k/a Airgroup Corporation), Radiant Logistics Global Services
Inc. (“RLGS”), Radiant Logistics Partners, LLC (“RLP”), and Adcom Express, Inc.
(d/b/a Adcom Worldwide). RLP is owned 40% by Radiant Global Logistics, Inc., 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
focuses on corporate and government accounts with diversity initiatives. As a
co-borrower under the Facility, the accounts receivable of RLP are eligible for
inclusion within the overall borrowing base of the Company and all borrowers
will be responsible for repayment of the debt associated with advances under the
Facility, including those advanced to RLP. At June 30, 2009, the Company was in
compliance with all of its covenants.
As of
June 30, 2009, the Company had $6,435,211 in advances under the Facility and
$1,433,899 in outstanding checks, which had not yet been presented to the bank
for payment. The outstanding checks have been reclassified from 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
$7,869,110.
As of
June 30, 2008, the Company had $2,714,026 in 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 reclassified from 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.
At June
30, 2009, based on available collateral and $205,000 in outstanding letter of
credit commitments, there was $2,881,214 available for borrowing under the
Facility based on advances outstanding.
F-19
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,
|
|||||||
|
2009
|
2008
|
|||||||
|
Current
deferred tax assets (liabilities):
|
||||||||
|
Allowance
for doubtful accounts
|
$ | 286,740 | $ | 174,583 | ||||
|
Accruals
|
140,973 | (17,928 | ) | |||||
|
Stock
based compensation
|
- | 135,433 | ||||||
|
Total
current deferred tax assets
|
$ | 427,713 | $ | 292,088 | ||||
|
Long-term
deferred tax assets (liabilities):
|
||||||||
|
Stock-based
compensation
|
$ | 217,394 | $ | - | ||||
|
Goodwill
deductible for tax purposes
|
612,439 | - | ||||||
|
Intangibles
not deductible for tax purposes
|
(1,182,220 | ) | (422,419 | ) | ||||
|
Net
long-term deferred tax liability
|
$ | (352,387 | ) | $ | (422,419 | ) | ||
The
acquisitions of Airgroup and Adcom resulted in $2,148,280 of long term deferred
tax liability resulting from certain amortizable intangibles identified during
the Company’s purchase price allocation which are not deductible for tax
purposes. The long term deferred tax liability will be reduced as the
non-deductible amortization of the intangibles is recognized. See
Note 6.
Income
tax expense attributable to operations is as follows.
|
Year
ended
June
30,
|
Year
ended
June
30,
|
|||||||
|
2009
|
2008
|
|||||||
|
Current:
|
||||||||
|
Federal
|
$ | 1,311,299 | $ | 1,146,069 | ||||
|
State
|
154,270 | 5,215 | ||||||
|
Deferred:
|
||||||||
|
Federal
|
(1,272,009 | ) | (243,536 | ) | ||||
|
State
|
(149,648 | ) | - | |||||
|
Net
income tax expense
|
$ | 43,912 | $ | 907,748 | ||||
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,
|
Year
ended June 30,
|
|||||||
|
2009
|
2008
|
|||||||
|
Tax
(benefit) expense at statutory rate
|
$ | (3,293,116 | ) | $ | 789,022 | |||
|
Permanent
differences
|
3,260,668 | 113,511 | ||||||
|
State
income taxes
|
76,360 | 5,215 | ||||||
|
Net
income tax expense
|
$ | 43,912 | $ | 907,748 | ||||
Tax year
that remain subject to examination by federal and state authorities are the
years ended June 30, 2006 through June 30, 2009.
The
Company’s agreements with respect to the acquisitions of Airgroup and Adcom
contain future contingent consideration provisions which provide for the selling
shareholders to receive additional consideration if minimum pre-tax income
levels are made in future periods. Contingent consideration is accounted for as
additional goodwill when earned.
F-20
Airgroup Purchase
Contingencies
Effective
January 1, 2006, the Company 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, $0.3
million of which was paid on June 30, 2008 and $0.3 million was paid 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 $15.0 million
generated during the five-year earn-out period up to a maximum of $1.5
million. 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, 2008, the former
shareholders of Airgroup earned $416,596 in base earn-out
payments. In October 2008, the former shareholders of Airgroup agreed
to a 20% discount on this amount to receive the full amount in cash, resulting
in a reduction in the payout of $83,320
In
November 2008, we amended the Airgroup Stock Purchase Agreement and agreed to
unconditionally pay the former Airgroup shareholders an earn-out payment of
$633,333 for the earn-out period ending June 30, 2009 to be paid on or about
October 1, 2009 by delivery of shares of common stock of the Company. In
consideration for the certainty of the earn-out payment, the former Airgroup
shareholders agreed (i) to waive and release us from any and all further
obligations to pay any earn-outs payments on account of shortfall amounts, if
any, that may have accumulated prior to June 30, 2009; (ii) to waive and release
us from any and all further obligation to account for and pay the Tier-2
earn-out payment; and (iii) that the earn-out payment to be paid for the
earn-out period ending June 30, 2009 would constitute a full and final payment
to the former Airgroup shareholders of any and all amounts due to the former
Airgroup shareholders under the Airgroup Stock Purchase Agreement. In March of
2009, Airgroup shareholders agreed to receive $443,333 in cash on an accelerated
basis rather than the $633,333 in Company shares due in October of 2009,
resulting in a gain on early extinguishment of debt of $190,000.
During
the quarter ended December 31, 2007, the Company 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 other
income. Pursuant to the acquisition agreement, the former
shareholders of Airgroup have indemnified the Company for taxes of $486,694
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.
Adcom Purchase
Contingencies
Effective
September 1, 2008, the Company acquired all of the outstanding stock of Adcom
Express (See Note 5). For the year ended June 30, 2009 the former
Adcom shareholder earned approximately $337,000 as part of the Tier 1 Earn-Out
arrangement. This amount is included in Due to former Adcom
shareholder and is payable on October 1, 2009.
A dispute
has arisen between the Company and Robert Friedman, the former shareholder of
Adcom regarding, among other things, the final purchase price based upon the
closing date working capital, as adjusted, of Adcom. Mr. Friedman has filed an
arbitration claim against the Company. See “Part II Item 1 – Legal Proceedings”
below for a more complete description. The Company has fully accrued for all
amounts potentially due Mr. Friedman in connection with the stock purchase
agreement, but believes these amounts could be reduced by more than $630,000
pending the resolution of the disputed amounts in the Company’s favor. Due to
the initial stage of the proceedings, management is not able to provide any
definitive guidance on the likely outcome of this matter. Assuming minimum
targeted earnings levels are achieved, the following table summarizes the
Company’s 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):
|
Estimated
payment anticipated for fiscal year(1):
|
2011
|
2012
|
2013
|
|||||||||
|
Earn-out
period:
|
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 | ||||||
|
Equity
|
350 | 350 | 350 | |||||||||
|
Total
potential earn-out payments
|
$ | 700 | $ | 700 | $ | 700 | ||||||
|
Total
gross margin targets
|
$ | 4,320 | $ | 4,320 | $ | 4,320 | ||||||
(1)
Earn-out payments are paid October 1 following each fiscal year
end.
F-21
Finders Fee
Arrangements
In fiscal
year 2007, the Company entered into finder’s 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 finder’s fee
may be paid in cash, Company shares, or a combination of cash and
shares. For the year ended June 30, 2009, the Company paid $30,000 in
satisfaction of finder’s fee obligations. 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 finder’s fee obligations.
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, 2009 and 2008, none of the shares were issued or
outstanding.
Common
Stock
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 earn-out obligation due
to former Airgroup shareholders for the earn-out 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, the value of 41,667 and 208,333 shares has been recorded
during the years ended June 30, 2009 and 2008, respectively.
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.
In May
2009, the Company was authorized by the board of directors to repurchase up to
5,000,000 shares of the Company’s common stock through 2010. As of
June 30, 2009 the Company had repurchased as treasury shares 595,000 shares at a
cost of $138,250.
Common
Stock Repurchase Program
During
2009, the Company's Board of Directors approved a stock repurchase program,
pursuant to which up to 5,000,000 shares of its common stock could be
repurchased under the program through December 31, 2010. During the year ended
June 30, 2009, the Company purchased 595,000 shares of its common stock under
this repurchase program at a cost of $138,250. Subsequent to year
end, the Company purchased an additional 1,349,650 shares of its common stock
under this repurchase program at a cost of $390,636.
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.
F-22
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.
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, 2009, 250,000 stock options were granted to employees at a weighted average
exercise price of $.204 per share. 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. The Company recorded a compensation expense of $173,759 for the
year ended June 30, 2009, and $204,062 for the year ended June 30,
2008.
The
following table reflects activity under the plan for years ended June 30, 2009
and 2008.
|
Year
ended
June
30, 2009
|
Year
ended
June
30, 2008
|
|||||||||||||||
|
Granted
Shares
|
Weighted
Average Exercise Price
|
Granted
Shares
|
Weighted
Average Exercise Price
|
|||||||||||||
|
Outstanding
at beginning of year
|
3,410,000 | $ | 0.539 | 3,150,000 | $ | 0.605 | ||||||||||
|
Granted
|
250,000 | 0.204 | 650,000 | 0.274 | ||||||||||||
|
Forfeited
|
(290,000 | ) | 0.472 | (390,000 | ) | 0.628 | ||||||||||
|
Outstanding
at end of year
|
3,370,000 | $ | 0.520 | 3,410,000 | $ | 0.539 | ||||||||||
|
Exercisable
at end of year
|
1,616,000 | $ | 0.578 | 1,027,000 | $ | 0.596 | ||||||||||
|
Non-vested
at end of year
|
1,754,000 | $ | 0.467 | 2,383,000 | $ | 0.514 | ||||||||||
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
June
30, 2009
|
Year
ended
June
30, 2008
|
||||
|
Risk-Free
Interest Rates
|
1.29%
- 2.67%
|
0.95%
- 3.49%
|
|||
|
Expected
Term
|
5 –
6.5yrs
|
5
yrs
|
|||
|
Expected
Volatility
|
63.9%
- 64.7%
|
66.2%
- 68.7%
|
|||
|
Expected
Dividend Yields
|
0.00%
|
0.00%
|
|||
|
Forfeiture
Rate
|
0.00%
|
0.00%
|
F-23
As of
June 30, 2009, the Company had approximately $375,000 of total unrecognized
stock compensation costs relating to unvested stock options which is expected to
be recognized over a weighted average period of 2.21 years. The
following table summarizes the Company’s unvested stock options and changes for
the years ended June 30, 2009 and 2008.
|
Shares
|
Weighted
Average Grant Date Fair Value
|
|||||||
|
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 the year ended June 30, 2008
|
(542,000 | ) | (0.374 | ) | ||||
|
Less
options forfeited during the year ended June 30, 2008
|
(390,000 | ) | (0.498 | ) | ||||
|
Outstanding
at June 30, 2008
|
2,383,000 | $ | 0.319 | |||||
|
Granted
during the year ended June 30, 2009
|
250,000 | 0.120 | ||||||
|
Less
options vested during the year ended June 30, 2009
|
(624,000 | ) | (0.331 | ) | ||||
|
Less
options forfeited during the year ended June 30, 2009
|
(255,000 | ) | (0.333 | ) | ||||
|
Outstanding
at June 30, 2009
|
1,754,000 | $ | 0.284 | |||||
The
following table summarizes outstanding and exercisable options by price range as
of June 30, 2009:
|
Exercisable
Options
|
||||||||||||||||||||||||
|
Exercise
Prices
|
Number
Outstanding
at
June 30, 2009
|
Weighted
Average Remaining Contractual Life-Years
|
Weighted
Average Exercise Price
|
Aggregate
Intrinsic Value
at
June 30, 2009
|
Number
Exercisable
|
Weighted
Average Exercise Price
|
||||||||||||||||||
|
$0.00
- $0.19
|
460,000 | 9.18 | $ | 0.176 | $ | 57,200 | 72,000 | $ | 0.180 | |||||||||||||||
|
$0.20
- $0.39
|
150,000 | 9.52 | 0.233 | 10,000 | - | - | ||||||||||||||||||
|
$0.40
- $0.59
|
1,550,000 | 6.60 | 0.483 | - | 860,000 | 0.483 | ||||||||||||||||||
|
$0.60
- $0.79
|
1,190,000 | 6.57 | 0.729 | - | 676,000 | 0.735 | ||||||||||||||||||
|
$1.00
- $1.19
|
20,000 | 7.22 | 1.010 | - | 8,000 | 1.010 | ||||||||||||||||||
|
Total
|
3,370,000 | 7.08 | $ | 0.520 | $ | 67,200 | 1,616,000 | $ | 0.578 | |||||||||||||||
F-24
NOTE
15 – QUARTERLY FINANCIAL DATA SCHEDULE (Unaudited)
|
Fiscal
Year 2009 – Quarter Ended
|
||||||||||||||||
|
June
30
|
March
31
|
December
31
|
September
30
|
|||||||||||||
|
Revenue
|
$ | 32,360,984 | $ | 29,718,852 | $ | 42,513,263 | $ | 32,403,220 | ||||||||
|
Cost
of transportation
|
22,212,677 | 18,971,855 | 29,023,751 | 21,219,498 | ||||||||||||
|
Net
revenues
|
10,148,307 | 10,746,997 | 13,489,512 | 11,183,722 | ||||||||||||
|
Total
operating expenses
|
9,831,607 | 10,475,060 | 24,013,215 | 10,819,241 | ||||||||||||
|
Income
from operations
|
316,700 | 271,937 | (10,523,703 | ) | 364,481 | |||||||||||
|
Total
other income (expense)
|
(155,890 | ) | 106,001 | (66,844 | ) | 28,375 | ||||||||||
|
Income
(loss) before income tax (expense) benefit
|
160,810 | 377,938 | (10,590,547 | ) | 392,856 | |||||||||||
|
Income
tax (expense) benefit
|
(210,793 | ) | (63,150 | ) | 382,690 | (152,659 | ) | |||||||||
|
Income
(loss) before minority interest
|
(49,983 | ) | 314,788 | (10,207,857 | ) | 240,197 | ||||||||||
|
Minority
interest
|
(7,088 | ) | (21,750 | ) | (7,843 | ) | 9,990 | |||||||||
|
Net
income (loss)
|
$ | (57,071 | ) | $ | 293,038 | $ | (10,215,700 | ) | $ | 250,187 | ||||||
|
Net
income (loss) per common share – basic and diluted
|
$ | - | $ | .01 | $ | (.29 | ) | $ | .01 | |||||||
|
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 (expense) benefit
|
25,867 | 108,823 | 2,054,143 | 63,089 | ||||||||||||
|
Income
tax (expense) benefit
|
(135,369 | ) | (35,841 | ) | (744,269 | ) | 7,731 | |||||||||
|
Income
(loss) 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-25
EXHIBIT
INDEX
|
Exhibit
No.
|
Exhibit |
|
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
|