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EX-32.1 - RADIANT LOGISTICS, INCv211133_ex32-1.htm
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EX-99.1 - RADIANT LOGISTICS, INCv211133_ex99-1.htm
 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
x QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: December 31, 2010
 
¨ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ___________ to _____________
 
Commission File Number: 000-50283

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

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

 405 114th Ave S.E., Bellevue, WA 98004
 (Address of Principal Executive Offices)

(425) 943-4599
 (Issuer’s Telephone Number, including Area Code)

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

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

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

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

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

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

There were 30,514,759 issued and outstanding shares of the registrant’s common stock, par value $.001 per share, as of February 11, 2011.

 

 
 
RADIANT LOGISTICS, INC.
TABLE OF CONTENTS
 
PART I. FINANCIAL INFORMATION
 
Item 1.
 
Condensed Consolidated Financial Statements - Unaudited
     
           
   
Condensed Consolidated Balance Sheets at December 31, 2010 and June 30, 2010
 
3
 
           
   
Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2010 and 2009
 
5
 
           
   
Condensed Consolidated Statement of Stockholders’ Equity for the six months ended December 31, 2010
 
6
 
           
   
Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2010 and 2009
 
7
 
           
   
Notes to Condensed Consolidated Financial Statements
 
9
 
           
Item 2.
 
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
 
20
 
           
Item 4.
 
Controls and Procedures
 
31
 
           
PART II OTHER INFORMATION
 
Item 1.
 
Legal Proceedings
 
32
 
           
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
32
 
           
Item 6.
 
Exhibits
 
33
 
 
 
2

 

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

   
DECEMBER 31,
   
JUNE 30,
 
   
2010
   
2010
 
ASSETS 
           
Current assets:
           
Cash and cash equivalents
  $ 98,042     $ 682,108  
Accounts receivable, net of allowance of $474,258 and $626,401, respectively
    23,783,074       21,442,023  
Current portion of employee loan receivable
    18,001       13,100  
Current portion of  station and other receivables
    110,822       195,289  
Prepaid expenses and other current assets
    1,779,261       1,104,211  
Deferred tax asset
    316,740       402,428  
Total current assets
    26,105,940       23,839,159  
                 
Furniture and equipment, net
    880,678       881,416  
                 
Acquired intangibles, net
    1,526,182       2,019,757  
Goodwill
    1,011,310       982,788  
Employee loan receivable, net of current portion
    29,526       38,000  
Station and other receivables, net of current portion
    136,051       151,160  
Investment in real estate
    40,000       40,000  
Deposits and other assets
    177,785       153,116  
Deferred tax asset – long term
    190,718       106,023  
Total long term assets
    3,111,572       3,490,844  
Total assets
  $ 30,098,190     $ 28,211,419  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current liabilities:
               
Accounts payable and accrued transportation costs
  $ 18,023,253     $ 16,004,814  
Commissions payable
    1,965,506       2,119,503  
Other accrued costs
    684,796       538,854  
Income taxes payable
    212,410       76,309  
Due to former Adcom shareholder
    36,708       603,205  
Other current liabilities
    75,000       -  
Total current liabilities
    20,997,673       19,342,685  
                 
Long term debt
    6,319,629       7,641,021  
Other long term liabilities
    611,024       439,905  
Total long term liabilities
    6,930,653       8,080,926  
Total liabilities
    27,928,326       27,423,611  

 
3

 

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

   
DECEMBER 31,
   
JUNE 30,
 
   
2010
   
2010
 
Stockholders' equity:
           
Radiant Logistics, Inc. 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,  29,782,721 and 31,273,461 shares issued and outstanding, respectively
    16,157       16,157  
Common stock issuable, $0.001 par value, 732,038 and 0 shares, respectively
    732       -  
Additional paid-in capital
    8,446,788       8,108,239  
Treasury stock, at cost, 4,919,239 and 3,428,499 shares, respectively
    (1,407,455 )     (936,190 )
Retained deficit
    (4,967,738 )     (6,466,946 )
Total Radiant Logistics, Inc. stockholders’ equity
    2,088,484       721,260  
Non-controlling interest
    81,380       66,548  
Total stockholders’ equity
    2,169,864       787,808  
Total liabilities and stockholders’ equity
  $ 30,098,190     $ 28,211,419  

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

 
4

 

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

   
THREE MONTHS ENDED
DECEMBER 31,
   
SIX MONTHS ENDED
DECEMBER 31,
 
   
2010
   
2009
   
2010
   
2009
 
                                 
Revenue
  $ 44,496,820     $ 39,115,845     $ 90,857,877     $ 73,144,179  
Cost of transportation
    30,314,763       27,611,567       62,557,124       51,091,017  
Net revenues
    14,182,057       11,504,278       28,300,753       22,053,162  
                                 
Agent commissions
    9,850,191       7,838,360       19,682,651       15,293,565  
Personnel costs
    1,561,268       1,531,465       3,118,428       2,953,862  
Selling, general and administrative expenses
    1,140,135       1,153,161       2,203,417       2,249,433  
Depreciation and amortization
    326,808       385,937       652,066       795,717  
Total operating expenses
    12,878,402       10,908,923       25,656,562       21,292,577  
                                 
Income from operations
    1,303,655       595,355       2,644,191       760,585  
                                 
Other income (expense):
                               
Interest income
    5,630       9,563       11,439       3,273  
Interest expense
    (42,179 )     (36,756 )     (84,421 )     (85,791 )
Other
    63,407       454       89,693       98,765  
Gain (loss) on litigation settlement
    (150,000 )     354,670       (150,000 )     354,670  
Total other income (expense)
    (123,142 )     327,931       (133,289 )     370,917  
                                 
Income before income tax expense
    1,180,513       923,286       2,510,902       1,131,502  
                                 
Income tax expense
    (413,319 )     (336,539 )     (918,862 )     (407,665 )
                                 
Net income
    767,194       586,747       1,592,040       723,837  
                                 
Less: Net income attributable to non-controlling interest
    (50,929 )     (37,638 )     (92,832 )     (58,678 )
                                 
Net income attributable to Radiant Logistics, Inc.
  $ 716,265     $ 549,109     $ 1,499,208     $ 665,159  
                                 
Net income per common share – basic and diluted
  $ .02     $ .02     $ .05     $ .02  
                                 
Weighted average shares outstanding:
                               
Basic shares
    30,122,700       32,533,680       30,296,880       32,950,810  
Diluted shares
    31,212,861       32,723,181       30,968,361       33,135,684  

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

 
5

 
 
RADIANT LOGISTICS, INC.
Condensed Consolidated Statement of Stockholders’ Equity
(unaudited)
 
   
RADIANT LOGISTICS, INC. STOCKHOLDERS
             
   
COMMON STOCK
   
COMMON STOCK
ISSUABLE
   
ADDITIONAL
PAID-IN
   
TREASURY
   
RETAINED
   
NON-
CONTROLLING
   
TOTAL
STOCKHOLDERS’
 
   
SHARES
   
AMOUNT
   
SHARES
   
AMOUNT
   
CAPITAL
   
STOCK
   
DEFICIT
   
INTEREST
   
EQUITY (DEFICIT)
 
Balance at June 30, 2010
    31,273,461     $ 16,157       -     $ -     $ 8,108,239     $ (936,190 )   $ (6,466,946 )   $ 66,548     $ 787,808  
Repurchase of common stock
    (1,490,740 )     -       -       -       -       (471,265 )     -       -       (471,265 )
Issuance of common stock to the former Adcom shareholder per earn-out agreement at $0.35 per share
    -       -       732,038       732       257,778       -       -       -       258,510  
Share-based compensation
    -       -       -       -       80,771       -       -       -       80,771  
Distribution to non-controlling interest
    -       -       -       -       -       -       -       (78,000 )     (78,000 )
Net income for the six months ended December 31, 2010
    -       -       -       -       -       -       1,499,208       92,832       1,592,040  
                                                                         
Balance at December 31, 2010
    29,782,721     $ 16,157       732,038     $ 732     $ 8,446,788     $ (1,407,455 )   $ (4,967,738 )   $ 81,380     $ 2,169,864  

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

 
6

 

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

   
SIX MONTHS ENDED
DECEMBER 31,
 
   
2010
   
2009
 
             
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
           
Net income
  $ 1,499,208     $ 665,159  
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
               
non-cash compensation expense (stock options)
    80,771       108,904  
amortization of intangibles
    493,575       591,978  
deferred income tax expense (benefit)
    993       (261,532 )
depreciation and leasehold amortization
    158,491       203,739  
change in non-controlling interest
    92,832       58,678  
loss (gain) on litigation settlement
    150,000       (354,670 )
loss on disposal of assets
    11,931       -  
provision for (recovery of) doubtful accounts
    (152,143 )     143,608  
CHANGE IN OPERATING ASSETS AND LIABILITIES:
               
accounts receivable
    (2,188,908 )     (4,436,656 )
employee loan receivable
    3,573       33,266  
station and other receivables
    99,576       185,475  
prepaid expenses and other assets
    (699,719 )     (80,091 )
accounts payable and accrued transportation costs
    2,018,439       2,383,214  
commissions payable
    (153,997 )     (179,945 )
other accrued costs
    145,942       (172,669 )
other long-term liabilities
    96,119       -  
income taxes payable
    136,101       -  
income tax deposit
    -       503,556  
                 
Net cash provided by (used for) operating activities
    1,792,784       (607,986 )
                 
CASH FLOWS USED FOR INVESTING ACTIVITIES:
               
Purchase of furniture and equipment
    (169,684 )     (11,010 )
Payments made to former Adcom shareholder
    (336,509 )     (139,937 )
                 
Net cash used for investing activities
    (506,193 )     (150,947 )
                 
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
               
Proceeds from (repayments to) credit facility, net of credit fees
    (1,321,392 )     838,129  
Distribution to non-controlling interest
    (78,000 )     -  
Purchases of treasury stock
    (471,265 )     (491,636 )
                 
Net cash provided by (used for) financing activities
    (1,870,657 )     346,493  
                 
NET DECREASE IN CASH AND CASH EQUIVALENTS
    (584,066 )     (412,440 )
                 
CASH AND CASH EQUIVALENTS, BEGINNING OF  PERIOD
    682,108       890,572  
                 
CASH AND CASH EQUIVALENTS, END OF PERIOD
  $ 98,042     $ 478,132  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
               
Income taxes paid
  $ 781,768     $ 177,642  
Interest paid
  $ 62,438     $ 82,855  
 
 
7

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

Supplemental disclosure of non-cash investing and financing activities:
 
In September 2009, the Company finalized its purchase price allocation relating to the acquisition of Adcom, resulting in an increase of net assets acquired by $151,550 due to increased transaction costs and other adjustments to the fair value of the acquired assets. The effect of this transaction was an increase to goodwill of $157,291 with offsetting changes to other balance sheet amounts as follows: a decrease to the allowance for doubtful accounts of $72,280, an increase in other receivables of $11,831, an increase in accounts payable of $4,275, an increase of other accrued costs of $279,488, and a decrease in the amount due to the former Adcom shareholder of $42,361.
 
In September 2010, the Company revised its estimate of the "Tier-One Earn-Out Payment" (see Note 4) relating to the acquisition of Adcom for the year ended June 30, 2010, resulting in an increase to goodwill and the amount due to the former Adcom shareholder of $28,522.
 
In December 2010, the Company issued 732,038 shares of common stock at a fair value of $0.35 per share in satisfaction of the $258,510 earn-out payment for the year ended June 30, 2010, resulting in a decrease to the amount due to former Adcom shareholder, an increase in common stock issuable of $732 and an increase in additional paid-in capital of $257,778.

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

 
8

 

RADIANT LOGISTICS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
 
NOTE 1 –
THE COMPANY AND BASIS OF PRESENTATION
 
The Company
 
Radiant Logistics, Inc. (the "Company") was incorporated in the State of Delaware on March 15, 2001. 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.
 
The Company continues to identify a number of additional companies as suitable acquisition candidates and has completed two material acquisitions since its acquisition of Airgroup.  In November 2007, the Company acquired Automotive Services Group in Detroit, Michigan to service the automotive industry. In September 2008, the Company acquired Adcom Express, Inc. d/b/a Adcom Worldwide ("Adcom"), adding an additional 30 locations across North America and augmenting the Company’s overall domestic and international freight forwarding capabilities.
 
In connection with the acquisition of Adcom, the Company changed the name of Airgroup Corporation to Radiant Global Logistics, Inc. ("RGL") in order to better position its centralized back-office operations to service both the Airgroup and Adcom network brands.  RGL, through the Airgroup and Adcom network brands, has a diversified account base including manufacturers, distributors and retailers using a network of independent carriers and international agents positioned strategically around the world.
 
The Company’s growth strategy will continue to focus on both organic growth and acquisitions.  From an organic perspective, the Company will focus on strengthening existing and expanding new customer relationships. One of the drivers of the Company’s organic growth will be retaining existing, and securing new exclusive agency locations. Since the Company’s acquisition of Airgroup in January 2006, the Company has focused its efforts on the build-out of its network of exclusive agency offices, as well as enhancing its back-office infrastructure and transportation and accounting systems.  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.
 
Interim Disclosure
 
The condensed consolidated financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC").  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. The Company’s management believes that the disclosures are adequate to make the information presented not misleading.  These condensed financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2010.
 
The interim period information included in this Quarterly Report on Form 10-Q reflects all adjustments, consisting of normal recurring adjustments, that are, in the opinion of the Company’s management, necessary for a fair statement of the results of the respective interim periods.  Results of operations for interim periods are not necessarily indicative of results to be expected for an entire year.

 
9

 

Basis of Presentation
 
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries as well as a single variable interest entity, Radiant Logistics Partners LLC ("RLP"), which is 40% owned by Radiant Global Logistics (f/k/a Airgroup Corporation), a wholly-owned subsidiary of the Company, and whose accounts are included in the consolidated financial statements. All significant intercompany balances and transactions have been eliminated.
 
NOTE 2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
a)
Use of Estimates
 
The preparation of financial statements and related disclosures in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates include revenue recognition, accruals for the cost of purchased transportation, the fair value of acquired assets and liabilities, accounting for the issuance of shares and share based compensation, the assessment of the recoverability of long-lived assets and goodwill, the establishment of an allowance for doubtful accounts and the valuation allowance for deferred tax assets. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period that they are determined to be necessary. Actual results could differ from those estimates.
 
b)
Fair Value Measurements
 
In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
 
c)
Fair Value of Financial Instruments
 
The fair values of the Company’s receivables, accounts payable and accrued transportation costs, commissions payable, other accrued costs, income taxes payable, other current liabilities and amounts due to former Adcom shareholder approximate the carrying values dues to the relatively short maturities of these instruments. The fair value of the Company’s long-term debt, if recalculated based on current interest rates, would not differ significantly from the recorded amount.
 
d)
Cash and Cash Equivalents
 
For purposes of the statements of cash flows, cash equivalents include all highly liquid investments with original maturities of three months or less which are not securing any corporate obligations.
 
e)
Concentrations
 
The Company maintains its cash in bank deposit accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts.
 
f)
Accounts Receivable
 
The Company’s receivables are recorded when billed and represent claims against third parties that will be settled in cash. The carrying value of the Company’s receivables, net of the allowance for doubtful accounts, represents their estimated net realizable value. The Company evaluates the collectability of accounts receivable on a customer-by-customer basis. The Company records a reserve for bad debts against amounts due to reduce the net recognized receivable to an amount the Company believes will be reasonably collected. The reserve is a discretionary amount determined from the analysis of the aging of the accounts receivable, historical experience and knowledge of specific customers.

 
10

 

On occasion the Company extends credit to agent-based stations.
 
g)
Furniture and Equipment
 
Technology (computer software, hardware, and communications), furniture, and equipment are stated at cost, less accumulated depreciation over the estimated useful lives of the respective assets. Depreciation is computed using five to seven year lives for vehicles, communication, office, furniture, and computer equipment using the double declining balance method. Computer software is depreciated over a three year life using the straight line method of depreciation. For leasehold improvements, the cost is depreciated over the shorter of the lease term or useful life on a straight line basis. Upon retirement or other disposition of these assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss, if any, is reflected in other income or expense. Expenditures for maintenance, repairs and renewals of minor items are charged to expense as incurred. Major renewals and improvements are capitalized.
 
h)
Goodwill
 
The Company performs an annual impairment test for goodwill. The first step of the impairment test requires that the Company determine the fair value of its reporting unit, and compare the fair value to the reporting unit's carrying amount. The Company has only one reporting unit.  To the extent the reporting unit's carrying amount exceeds its fair value, an indication exists that the reporting unit's goodwill may be impaired and the Company must perform a second more detailed impairment assessment. The second impairment assessment involves allocating the reporting unit’s fair value to all of its recognized and unrecognized assets and liabilities in order to determine the implied fair value of the reporting unit’s goodwill as of the assessment date. The implied fair value of the reporting unit’s goodwill is then compared to the carrying amount of goodwill to quantify an impairment charge as of the assessment date. The Company performs its annual impairment test effective as of April 1 of each year, unless events or circumstances indicate impairment may have occurred before that time. As of December 31, 2010, management believes there are no indications of impairment.
 
i)
Long-Lived Assets
 
Acquired intangibles consist of customer related intangibles and non-compete agreements arising from the Company’s acquisitions. Customer related intangibles are amortized using accelerated methods over approximately five years and non-compete agreements are amortized using the straight line method over the term of the underlying agreements. See Notes 4 and 5.
 
The Company reviews long-lived assets to be held-and-used for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. If the sum of the undiscounted expected future cash flows over the remaining useful life of a long-lived asset is less than its carrying amount, the asset is considered to be impaired. Impairment losses are measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risks associated with the recovery of the asset. Assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. Management has performed a review of all long-lived assets and has determined no impairment of the respective carrying value has occurred as of December 31, 2010.
 
j)
Commitments
 
The Company has operating lease commitments for equipment rentals, office space, and warehouse space under non-cancelable operating leases expiring at various dates through May 2021.  As of December 31, 2010, minimum future lease payments under these non-cancelable operating leases for the next five fiscal years ending June 30and thereafter are as follows:

 
11

 
 
2011 (remaining portion)
  $ 136,189  
2012
    229,567  
2013
    221,158  
2014
    230,921  
2015
    240,223  
Thereafter
    1,639,454  
         
Total minimum lease payments
  $ 2,697,512  
 
Included in these future commitments are upcoming rental lease payments pertaining to the Company’s new corporate office location.  The initial term of this lease commenced on June 1, 2010, and is set to expire on May 31, 2021.  Rent for the first 12-month period has been abated by the landlord and lease payments will begin on June 1, 2011.
 
Rent expense amounted to $342,559 and $247,690 for the six months ended December 31, 2010 and 2009.
 
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.
 
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 revenue until a proof of delivery is received or which recognize revenue as progress on the transit is made. The Company’s method of revenue and cost recognition does not result in a material difference from amounts that would be reported under such other methods.

 
12

 

m)
Share-Based Compensation
 
The Company accounts for share-based compensation under the fair value recognition provisions such that compensation cost is measured at the grant date based on the value of the award and is expensed ratably over the vesting period. Determining the fair value of share-based awards at the grant date requires judgment, including estimating the percentage of awards which will be forfeited, stock volatility, the expected life of the award, and other inputs. If actual forfeitures differ significantly from the estimates, share-based compensation expense and the Company's results of operations could be materially impacted.
 
For the three months ended December 31, 2010, the Company recorded share based compensation expense of $25,833, which, net of income taxes, resulted in a $16,016 reduction of net income. For the three months ended December 31, 2009, the Company recorded share based compensation expense of $54,696, which, net of income taxes, resulted in a $33,912 reduction of net income.
 
For the six months ended December 31, 2010, the Company recorded share based compensation expense of $80,771, which, net of income taxes, resulted in a $50,078 reduction of net income. For the six months ended December 31, 2009, the Company recorded share based compensation expense of $108,904, which, net of income taxes, resulted in a $67,520 reduction of net income.
 
n)
Basic and Diluted Income per Share
 
Basic income per share is computed by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding. Diluted income per share is computed similar to basic income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares, such as stock options, had been issued and if the additional common shares were dilutive.
 
For the three months ended December 31, 2010, the weighted average outstanding number of potentially dilutive common shares totaled 31,212,861 shares of common stock, including options to purchase 3,647,779 shares of common stock at December 31, 2010, of which 1,020,000 were excluded as their effect would have been anti-dilutive.  For the three months ended December 31, 2009, the weighted average outstanding number of potentially dilutive common shares totaled 32,723,181 shares of common stock, including options to purchase 3,620,000 shares of common stock at December 31, 2009, of which 3,060,000 were excluded as their effect would have been anti-dilutive.
 
For the six months ended December 31, 2010, the weighted average outstanding number of potentially dilutive common shares totaled 30,968,361 shares of common stock, including options to purchase 3,647,779 shares of common stock at December 31, 2010, of which 1,020,000 were excluded as their effect would have been anti-dilutive.  For the six months ended December 31, 2009, the weighted average outstanding number of potentially dilutive common shares totaled 33,135,684 shares of common stock, including options to purchase 3,620,000 shares of common stock at December 31, 2009, of which 3,060,000 were excluded as their effect would have been anti-dilutive.
 
The following table reconciles the numerator and denominator of the basic and diluted per share computations for earnings per share as follows:

   
Three months ended December 31,
   
Six months ended December 31,
 
   
2010
   
2009
   
2010
   
2009
 
Weighted average basic shares outstanding
    30,122,700       32,533,680       30,296,880       32,950,810  
Options
    1,090,161       189,501       671,481       184,874  
Weighted average dilutive shares outstanding
    31,212,861       32,723,181       30,968,361       33,135,684  

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

 
13

 

p)
Reclassifications
 
Certain amounts for prior periods have been reclassified in the condensed consolidated financial statements to conform to the classification used in fiscal 2010.
 
q)
Subsequent events
 
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 alleged that the Company, 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 alleged that the Company and other defendants caused VRC to leave the Team network of companies, and become a branch office of Airgroup Corporation.  The suit sought unspecified damages for the loss of business opportunity and profits as a result of VRC leaving the Team system.
 
This litigation was resolved on January 11, 2011 by agreement amongst the parties to enter an Agreed Order of Dismissal with prejudice, without admission of guilt and with affirmation of the parties’ right to freely compete in the marketplace. In connection with the settlement of the matter, the Company agreed to make a $150,000 donation to a mutually agreeable IRC 503(c) charitable organization.  Neither the Company, the co-defendants, nor Team received any compensation in connection with the settlement of the matter.
 
NOTE 3 –
RECENT ACCOUNTING PRONOUNCEMENTS
 
In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements. The guidance in ASU 2010-06 provides amendments to literature on fair value measurements and disclosures currently within the Accounting Standards Codification ("ASC") by clarifying certain existing disclosures and requiring new disclosures for the various classes of fair value measurements.   ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  The adoption of this guidance is not expected to have a material impact on the Company’s financial position or results of operations.
 
In December 2010, the FASB issued ASU No. 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. The guidance in ASU 2010-29 provides amendments to clarify the acquisition date which should be used for reporting the pro forma financial information disclosures in Topic 805 when comparative financial statements are presented. The amendments also improve the usefulness of the pro forma revenue and earnings disclosures by requiring a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination(s). The amendments in this update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial position or results of operations.
 
NOTE 4 –
ACQUISITION OF ADCOM EXPRESS, INC.
 
On September 5, 2008, the Company entered into and closed a Stock Purchase Agreement (the "Agreement") pursuant to which it acquired 100% of the issued and outstanding stock of Adcom Express, Inc., d/b/a Adcom Worldwide ("Adcom"), a privately-held Minnesota corporation. 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.
 
 
14

 

Contingent consideration associated with the acquisition of Adcom included "Tier-1 Earn-Out Payments" of up to $700,000 annually, 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); and 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. 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.
 
Mr. Friedman, the sole shareholder of Adcom, earned $517,019 in Tier-1 earn-out payment for the year ended June 30, 2010.  This amount was paid 50% in cash and 50% in stock to Mr. Friedman during the quarter ended December 31, 2010.
 
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 achieving Gross Profit Contributions (in thousands):
 
Estimated payment anticipated for fiscal year(1):
2012
 
2013
 
Earn-out period:
7/1/2010 –
6/30/2011
 
7/1/2011 –
6/30/2012
 
Earn-out payments:
       
Cash
  $ 350     $ 350  
Equity
    350       350  
Total potential earn-out payments
  $ 700     $ 700  
                 
Total gross margin targets
  $ 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.
 
ACQUIRED INTANGIBLE ASSETS
 
The table below reflects acquired intangible assets related to the acquisitions of Airgroup, Automotive Services Group and Adcom:

 
15

 
 
   
As of
December 31, 2010
   
As of
June 30, 2010
 
   
Gross 
Carrying
Amount
   
Accumulated
Amortization
   
Gross
Carrying
Amount
   
Accumulated
Amortization
 
Amortizable intangible assets:
                       
Customer related
  $ 5,752,000     $ 4,268,670     $ 5,752,000     $ 3,796,340  
Covenants not to compete
    190,000       147,148       190,000       125,903  
Total
  $ 5,942,000     $ 4,415,818     $ 5,942,000     $ 3,922,243  
                                 
Aggregate amortization expense:
                               
For six months ended December 31, 2010
          $ 493,575                  
For six months ended December 31, 2009
          $ 591,978                  
                                 
Aggregate amortization expense for the years ending June 30:
                               
2011 – For the remainder of the year
          $ 334,185                  
2012
            769,772                  
2013
            374,344                  
2014
            47,881                  
Total
          $ 1,526,182                  
 
NOTE 6 –
VARIABLE INTEREST ENTITY
 
Certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have the sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties are considered "variable interest entities". RLP is 40% owned by Radiant Global Logistics ("RGL"), qualifies as a variable interest entity and is included in the Company’s condensed consolidated financial statements (see Note 7). RLP commenced operations in February 2007. Non-controlling interest recorded as an expense on the statements of operations was $92,832 and $58,678 for the six months ended December 31, 2010 and 2009, respectively.
 
The following table summarizes the balance sheets of RLP:
 
   
December 31,
   
June 30,
 
   
2010
   
2010
 
ASSETS
           
Accounts receivable
  $ 1,689     $ 15,910  
Accounts receivable – Radiant Logistics
    138,464       110,336  
Prepaid expenses and other current assets
    401       950  
Total assets
  $ 140,554     $ 127,196  
                 
LIABILITIES AND PARTNERS' CAPITAL
               
Other accrued costs
  $ 4,920     $ 16,284  
Total liabilities
  $ 4,920     $ 16,284  
                 
Partners' capital
    135,634       110,912  
Total liabilities and partners' capital
  $ 140,554     $ 127,196  

 
16

 
 
NOTE 7 –
RELATED PARTY
 
RLP is owned 40% by RGL and 60% by Radiant Capital Partners, LLC ("RCP"), a company for which the Chief Executive Officer of the Company is the sole member. RLP is a certified minority business enterprise which was formed for the purpose of providing the Company with a national accounts strategy to pursue corporate and government accounts with diversity initiatives. RCP’s ownership interest entitles it to a majority of the profits and distributable cash, if any, generated by RLP. The operations of RLP are intended to provide certain benefits to the Company, including expanding the scope of services offered by the Company and participating in supplier diversity programs not otherwise available to the Company. RGL currently provides administrative services necessary to operate RLP while RLP continues to develop. As the RLP operations mature, the Company will evaluate and approve all related service agreements between the Company and RLP, including the scope of the services to be provided by the Company to RLP and the fees payable to the Company by RLP, in accordance with the Company’s corporate governance principles and applicable Delaware corporation law. This process may include seeking the opinion of a qualified third party concerning the fairness of any such agreement or the approval of the Company’s shareholders. RLP is consolidated in the financial statements of the Company (see Note 6).
 
NOTE 8 –
FURNITURE AND EQUIPMENT
 
Furniture and equipment consists of the following:
 
   
December 31,
   
June 30,
 
   
2010
   
2010
 
Vehicles
  $ 33,788     $ 33,788  
Communication equipment
    31,359       31,359  
Office equipment
    311,191       311,191  
Furniture and fixtures
    109,409       149,504  
Computer equipment
    643,689       606,405  
Computer software
    1,007,447       884,352  
Leasehold improvements
    448,502       439,197  
                 
      2,585,385       2,455,796  
Less:  Accumulated depreciation and amortization
    (1,704,707 )     (1,574,380 )
                 
Furniture and equipment – net
  $ 880,678     $ 881,416  
 
Depreciation and amortization expense related to furniture and equipment was $158,491 and $203,739 for the six months ended December 31, 2010 and 2009, respectively.
 
NOTE 9 –
LONG TERM DEBT
 
In March 2010, the Company’s $15.0 million revolving credit facility, including a $0.5 million sublimit to support letters of credit (collectively, the "Facility"), was increased to $20.0 million with a maturity date of March 31, 2012. Advances under the Facility are available to fund future acquisitions, capital expenditures or for other corporate purposes, including the repurchase of the Company’s stock. Borrowings under the facility accrue interest, at the Company’s option, at the bank’s prime rate minus 0.75% to plus 0.50% or LIBOR plus 1.75% to 3.00%, 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 is collateralized by accounts receivable and other assets of the Company and its subsidiaries and provides for advances of up to 80% of 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 4.00 times the Company’s consolidated earnings before interest, taxes, depreciation and amortization ("EBITDA"), as adjusted, measured on a rolling four quarter basis. 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 which requires the Company not to incur a net loss before taxes, amortization of acquired intangibles and extraordinary items in any two consecutive quarterly accounting periods.

 
17

 

Under the terms of the Facility, the Company is permitted to make additional acquisitions without the lender's consent only if certain conditions are satisfied. The conditions imposed by the Facility include the following: (i) the absence of an event of default under the Facility; (ii) the company to be acquired must be in the transportation and logistics industry; (iii) the purchase price to be paid must be consistent with the Company’s historical business and acquisition model; (iv) after giving effect for the funding of the acquisition, the Company must have undrawn availability of at least $1.0 million under the Facility; (v) the lender must be reasonably satisfied with projected financial statements the Company provides covering a 12 month period following the acquisition; (vi) the acquisition documents must be provided to the lender and must be consistent with the description of the transaction provided to the lender; and (vii) the number of permitted acquisitions is limited to three per calendar year and shall not exceed $7.5 million in aggregate purchase price financed by funded debt. In the event that the Company is not able to satisfy the conditions of the Facility in connection with a proposed acquisition, it must either forego the acquisition, obtain the lender's consent, or retire the Facility. This may limit or slow the Company’s ability to achieve the critical mass it may need to achieve its strategic objectives.
 
The co-borrowers of the Facility include Radiant Logistics, Inc., RGL (f/k/a Airgroup Corporation), Radiant Logistics Global Services, Inc. ("RLGS"), RLP, and Adcom Express, Inc. (d/b/a Adcom Worldwide).  As a co-borrower under the Facility, the accounts receivable of RLP are eligible for inclusion within the overall borrowing base of the Company and all borrowers will be responsible for repayment of the debt associated with advances under the Facility, including those advanced to RLP.  At December 31, 2010, the Company was in compliance with all of its covenants.
 
As of December 31, 2010, the Company had $3,904,379 in advances under the Facility and $2,415,250 in outstanding checks, which had not yet been presented to the bank for payment. The outstanding checks have been reclassified from our cash, as they will be advanced from, or against, our Facility when presented for payment to the bank.  This results in total long term debt of $6,319,629.
 
At December 31, 2010, based on available collateral and $205,000 in outstanding letter of credit commitments, there was $7,850,888 available for borrowing under the Facility based on advances outstanding.
 
NOTE 10 –
PROVISION FOR INCOME TAXES
 
The acquisitions of Airgroup and Adcom resulted in $2,148,280 of long term deferred tax liability resulting from certain amortizable intangibles identified during the Company’s purchase price allocation which are not deductible for tax purposes. The long term deferred tax liability will be reduced as the non-deductible amortization of the intangibles is recognized. See Note 5.
 
For the three months ended December 31, 2010, the Company recognized net income tax expense of $413,319 which consisted of current income tax expense of $293,887 and deferred income tax expense of $119,432.  For the three months ended December 31, 2009, the Company recognized net income tax expense of $336,539 which consisted of current income tax expense of $538,008, and deferred income tax benefit of $201,469.
 
For the six months ended December 31, 2010, the Company recognized net income tax expense of $918,862 which consisted of current income tax expense of $917,869 and deferred income tax expense of $993.  For the six months ended December 31, 2009, the Company recognized net income tax expense of $407,665 which consisted of current income tax expense of $669,197, and deferred income tax benefit of $261,532.
 
Tax years which remain subject to examination by state authorities are the years ended June 30, 2008, 2009 and 2010.  Tax years which remain subject to examination by Federal authorities are the years ended June 30, 2008, 2009 and 2010.
 
NOTE 11 –
STOCKHOLDERS’ EQUITY
 
Preferred Stock
 
The Company is authorized to issue 5,000,000 shares of preferred stock, par value at $.001 per share. As of December 31, 2010 and 2009, none of the shares were issued or outstanding.

 
18

 

Common Stock Repurchase Program
 
During 2009, the Company's Board of Directors approved a stock repurchase program, pursuant to which up to 5,000,000 shares of its common stock could be repurchased under the program through December 31, 2010.  During the six months ended December 31, 2010, the Company purchased 1,490,740 shares of its common stock under this repurchase program at a cost of $471,265.
 
NOTE 12 –
SHARE-BASED COMPENSATION
 
During the six months ended December 31, 2010, the Company issued employee options to purchase 27,779 stock options at a $0.60 price per share in November, 2010.  The options vest 20% per year over a five year period.
 
Share based compensation costs recognized during the six months ended December 31, 2010, include compensation costs based on the fair value estimated on the grant-date for all share based payments granted to date. No options have been exercised as of December 31, 2010.
 
During the six months ended December 31, 2010, the weighted average fair value per share of employee options granted in November 2010 was $0.29.  The fair value of options granted were estimated on the date of grant using the Black-Scholes option pricing model, with the following assumptions for each issuance of options:
 
Risk-Free Interest Rate
0.22%
Expected Term
6.5 years
Expected Volatility
61.2%
Expected Dividend Yield
0.00%
Forfeiture Rate
0.00%
 
During the six months ended December 31, 2010 and 2009, the Company recognized stock option compensation expense of $80,771 and $108,904, respectively.  The following table summarizes activity under the plan for the six months ended December 31, 2010.
 
   
Number of
Shares
 
Weighted
Average
Exercise Price
 
Weighted
Average
Remaining
Contractual
Life - Years
 
Aggregate
Intrinsic
Value
 
Outstanding at June 30, 2010
 
3,620,000
 
 $
0.503
 
6.29 years
 
$
50,400
 
Granted
 
27,779
   
0.600
 
9.89 years
   
13,890
 
Exercised
 
-
   
-
 
-
   
-
 
Forfeited
 
-
   
-
 
-
   
-
 
Expired
 
-
   
-
 
-
   
-
 
Outstanding at December 31, 2010
 
3,647,779
 
$
0.504
 
5.81 years
 
$
774,090
 
Exercisable at December 31, 2010
 
2,799,000
 
$
0.562
 
5.27 years
 
$
236,280
 
 
NOTE 13 –
OPERATING AND GEOGRAPHIC SEGMENT INFORMATION
 
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in making decisions regarding allocation of resources and assessing performance. The Company's chief decision-maker is the Chief Executive Officer. The Company continues to operate in a single operating segment.
 
The Company’s geographic operations outside the United States include shipments to and from Canada, Central America, Europe, Africa, Asia and Australia. The following data presents the Company’s revenue generated from shipments to and from these locations for the United States and all other countries, which is determined based upon the geographic location of a shipment's initiation and destination points (in thousands):

 
19

 

 
   
United States
   
Other Countries
   
Total
 
   
2010
   
2009
   
2010
   
2009
   
2010
   
2009
 
Three months ended December 31:
                                               
Revenue
 
$
25,537
   
$
19,385
   
$
18,960
   
$
19,731
   
$
44,497
   
$
39,116
 
Cost of transportation
   
16,295
     
11,554
     
14,020
     
16,058
     
30,315
     
27,612
 
Net revenue
 
$
9,242
   
$
7,831
   
$
4,940
   
$
3,673
   
$
14,182
   
$
11,504
 
 
   
United Stated
   
Other Countries
   
Total
 
   
2010
   
2009
   
2010
   
2009
   
2010
   
2009
 
Six months ended December 31:
                                               
Revenue
 
$
49,787
   
$
37,496
   
$
41,071
   
$
35,648
   
$
90,858
   
$
73,144
 
Cost of transportation
   
30,918
     
22,443
     
31,639
     
28,648
     
62,557
     
51,091
 
Net revenue
 
$
18,869
   
$
15,053
   
$
9,432
   
$
7,000
   
$
28,301
   
$
22,053
 
 
ITEM 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding future operating performance, events, trends and plans. All statements other than statements of historical fact contained herein, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected revenues and costs, and plans and objectives of management for future operations, are forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expects," "intends," "plans," "projects," "estimates," "anticipates," or "believes" or the negative thereof or any variation thereon or similar terminology or expressions. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are not guarantees and are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. While it is impossible to identify all of the factors that may cause our actual operating performance, events, trends or plans to differ materially from those set forth in such forward-looking statements, such factors include the inherent risks associated with our ability to: (i) use our current infrastructure 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) continue growing our business and maintain historical or increased gross profit margins; (v) locate suitable acquisition opportunities; (vi) secure the financing necessary to complete any acquisition opportunities we locate; (vii) assess and respond to competitive practices in the industries in which we compete; (viii) mitigate, to the best extent possible, our dependence on current management and certain of our larger exclusive agency locations; (ix) 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 (x) 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 under the caption “Risk Factors” in Part 1 Item 1A of our annual report on Form 10-K for the year ended June 30, 2010. 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.

 
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The following discussion and analysis of our financial condition and result of operations should be read in conjunction with the financial statements and the related notes and other information included elsewhere in this report.
 
Overview
 
We are 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.  Operating under the Airgroup, Adcom & Radiant 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.
 
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.
 
We continue to identify a number of additional companies as suitable acquisition candidates and have completed two material acquisitions since our initial acquisition of Airgroup in January of 2006.  In November 2007, we acquired certain assets formerly used in the operations of the automotive division of Stonepath Group, Inc. in Detroit, Michigan to service the automotive industry. In September 2008, we acquired Adcom Express, Inc. d/b/a Adcom Worldwide ("Adcom"), adding 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. ("RGL") in order to better position its centralized back-office operations to service both the Airgroup and Adcom network brands.  RGL, through the Airgroup and Adcom network brands, has a diversified account base including manufacturers, distributors and retailers using a network of independent carriers and international agents positioned strategically around the world. We have built a global transportation and supply chain management company offering our customers domestic and international freight forwarding services and an expanding array of 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. One of the drivers of our organic growth will be retaining existing, and securing new exclusive agency locations. Since our acquisition of Airgroup, we have focused our efforts on the build-out of our network of exclusive agency offices, as well as enhancing our back-office infrastructure and transportation and accounting systems.  We will continue to search for targets that fit within its 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.

 
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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.
 
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.
 
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 March of 2010, we were successful in increasing our credit facility from $15.0 million to $20.0 million.
 
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 turnkey 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.
 
Our operating results will be affected as acquisitions occur. Since all acquisitions are made using the purchase method of accounting for business combinations, our financial statements will only include the results of operations and cash flows of acquired companies for periods subsequent to the date of acquisition.
 
Our GAAP-based net income will be affected by non-cash charges relating to the amortization of customer related intangible assets and other intangible assets arising from completed acquisitions. Under applicable accounting standards, purchasers are required to allocate the total consideration in a business combination to the identified assets acquired and liabilities assumed based on their fair values at the time of acquisition. The excess of the consideration paid over the fair value of the identifiable net assets acquired is to be allocated to goodwill, which is tested at least annually for impairment. Applicable accounting standards require that we separately account for and value certain identifiable intangible assets based on the unique facts and circumstances of each acquisition. As a result of our acquisition strategy, our net income will include material non-cash charges relating to the amortization of customer related intangible assets and other intangible assets acquired in our acquisitions. Although these charges may increase as we complete more acquisitions, we believe we will actually be growing the value of our intangible assets (e.g., customer relationships). Thus, we believe that earnings before interest, taxes, depreciation and amortization, 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, extraordinary items and other non-cash charges.

 
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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% of eligible domestic accounts receivable and up to 60% of eligible foreign receivables, is limited to a multiple of 4.00 times our consolidated EBITDA (as adjusted) as measured on a rolling four quarter basis. 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 any historical seasonal patterns will continue in future periods.
 
Results of Operations
 
Three months ended December 31, 2010 (actual and unaudited) and December 31, 2009 (actual and unaudited)
 
We generated transportation revenue of $44.5 million and $39.1 million and net transportation revenue of $14.2 million and $11.5 million for the three months ended December 31, 2010 and 2009, respectively.  Net income was $0.7 million for the three months ended December 31, 2010, compared to net income of $0.5 million for the three months ended December 31, 2009.
 
We had adjusted EBITDA of $1.7 million and $1.0 million for three months ended December 31, 2010 and 2009, respectively. EBITDA is a non-GAAP measure of income and does not include the effects of interest and taxes and excludes the "non-cash" effects of depreciation and amortization on current assets. Companies have some discretion as to which elements of depreciation and amortization are excluded in the EBITDA calculation. We exclude all depreciation charges related to property, plant and equipment, and all amortization charges, including amortization of leasehold improvements and other intangible assets. We then further adjust EBITDA to exclude extraordinary items and costs related to share based compensation expense, goodwill impairment charges and other non-cash charges consistent with the financial covenants of our credit facility. As explained above, we believe that EBITDA is useful to us and to our investors in evaluating and measuring our financial performance.  While management considers EBITDA and adjusted EBITDA useful in analyzing our results, it is not intended to replace any presentation included in our consolidated financial statements.  Set forth below is a reconciliation of EBITDA and adjusted EBITDA to net income, the most directly comparable GAAP measure for the three months ended December 31, 2010 and 2009.
 
The following table provides a reconciliation of adjusted EBITDA to net income, the most directly comparable GAAP measure in accordance with SEC Regulation G (in thousands), for the three months ended December 31, 2010 and 2009:
 
   
Three months ended December 31,
   
Change
 
   
2010
   
2009
   
Amount
   
Percent
 
                         
Net income
  $ 716     $ 549     $ 167       30.4 %
Income tax expense
    414       337       77       22.8 %
Net interest expense
    36       27       9       33.3 %
Depreciation and amortization
    327       386       (59     (15.3 )%
                                 
EBITDA
  $ 1,493     $ 1,299     $ 194       14.9 %
                                 
Share based compensation and other non-cash costs
    29       82       (53 )     (64.6 )%
Loss (gain) on litigation settlement
    150       (355 )     505       (142.3 )%
Adjusted EBITDA
  $ 1,672     $ 1,026     $ 646       63.0 %
 
 
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The following table summarizes transportation revenue, cost of transportation and net transportation revenue (in thousands) for the three months ended December 31, 2010 and 2009 (actual and unaudited):
 
 
Three months ended December 31,
 
Change
 
 
2010
 
2009
 
Amount
 
Percent
 
                 
Transportation revenue
  $ 44,497     $ 39,116     $ 5,381       13.8 %
Cost of transportation
    30,315       27,612       2,703       9.8 %
                                 
Net transportation revenue
  $ 14,182     $ 11,504     $ 2,678       23.3 %
Net transportation margins
    31.9 %     29.4 %                
 
Transportation revenue was $44.5 million for the three months ended December 31, 2010, an increase of 13.8% over transportation revenue of $39.1 million for the three months ended December 31, 2009.  Domestic transportation revenue increased by 31.4% to $25.5 million for the three months ended December 31, 2010, from $19.4 million for the three months ended December 31, 2009.  International transportation revenue decreased by 3.6% to $19.0 million for the three months ended December 31, 2010, from $19.7 million for the comparable prior year period.   These increases in revenue were due to a stronger demand for domestic services.
 
Cost of transportation increased to $30.3 million for the three months ended December 31, 2010, compared to $27.6 million for the three months ended December 31, 2009.  The increase is due to increased volume as reflected in our increased transportation revenues.
 
Net transportation margins increased to 31.9% of transportation revenue for the three months ended December 31, 2010, as compared to 29.4% of transportation revenue for the three months ended December 31, 2009.  The margin expansion was attributed to higher domestic sales, which typically yield higher margins.
 
The following table compares certain condensed consolidated statement of operations data as a percentage of our net transportation revenue (in thousands) for the three months ended December 31, 2010 and 2009 (actual and unaudited):
 
   
Three months ended December 31,
       
   
2010
   
2009
   
Change
 
   
Amount
   
Percent
   
Amount
   
Percent
   
Amount
   
Percent
 
                                     
Net transportation revenue
  $ 14,182       100.0 %   $ 11,504       100.0 %   $ 2,678       23.3 %
                                                 
Agent commissions
    9,850       69.5 %     7,838       68.1 %     2,012       25.7 %
Personnel costs
    1,561       11.0 %     1,532       13.3 %     29       1.9 %
Selling, general and administrative
    1,140       8.0 %     1,153       10.0 %     (13 )     (1.1 )%
Depreciation and amortization
    327       2.3 %     386       3.4 %     (59 )     (15.3 )%
                                                 
Total operating expenses
    12,878       90.8 %     10,909       94.8 %     1,969       18.0 %
                                                 
Income from operations
    1,304       9.2 %     595       5.2 %     709       119.2 %
Other income (expense)
    (123 )     (0.9 )%     328       2.8 %     (451 )     (137.5 )%
                                                 
Income before income taxes and non-controlling interest
    1,181       8.3 %     923       8.0 %     258       27.9 %
Income tax expense
    (414 )     (2.9 )%     (337 )     (2.9 )%     (77 )     22.8 %
                                                 
Income before non-controlling interest
    767       5.4 %     586       5.1 %     181       30.9 %
Non-controlling interest
    (51 )     (0.4 )%     (37 )     (0.3 )%     (14 )     37.8 %
                                                 
Net income
  $ 716       5.0 %   $ 549       4.8 %   $ 167       30.4 %
 
 
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Agent commissions were $9.9 million for the three months ended December 31, 2010, an increase of 25.7% from $7.8 million for the three months ended December 31, 2009.  Agent commissions as a percentage of net transportation revenue increased to 69.5% for the three months ended December 31, 2010, from 68.1% for the comparable prior year period as a result of increased domestic sales, which typically yield higher margins and consequently higher commissions.
 
Personnel costs were $1.6 million for the three months ended December 31, 2010, an increase of 1.9% from $1.5 million for the three months ended December 31, 2009.  Personnel costs as a percentage of net transportation revenue decreased to 11.0% for the three months ended December 31, 2010, from 13.3% for the comparable prior year period.  The decrease is primarily attributed to an increase in net transportation revenues (particularly domestic) due to strong demand for our services, without the need to increase corporate personnel proportionately.
 
Selling, general and administrative costs were $1.1 million for the three months ended December 31, 2010, a decrease of 1.1% from $1.2 million for the three months ended December 31, 2009.  As a percentage of net transportation revenue, selling, general and administrative costs decreased to 8.0% for the three months ended December 31, 2010, from 10.0% for the comparable prior year period.
 
Depreciation and amortization costs for the three months ended December 31, 2010, were approximately $0.3 million, a decrease of 15.3% from $0.4 million for the three months ended December 31, 2009.  Depreciation and amortization as a percentage of net transportation revenue decreased to 2.3% for the three months ended December 31, 2010, from 3.4% for the comparable prior year period, primarily due to lower amortization costs associated with the Airgroup & Adcom acquisitions.
 
Income from operations was $1.3 million for the three months ended December 31, 2010, compared to income from operations of $0.6 million for the three months ended December 31, 2009.
 
Other expense was $0.1 million for the three months ended December 31, 2010, compared to other income of $0.3 million for the three months ended December 31, 2009.  The decrease is primarily due to a loss on litigation of $150k in the current quarter versus a gain on litigation of $355k in the prior year period.
 
Net income was $0.7 million for the three months ended December 31, 2010, compared to net income of $0.5 million for the three months ended December 31, 2009.
 
Six months ended December 31, 2010 (actual and unaudited) and December 31, 2009 (actual and unaudited)
 
We generated transportation revenue of $90.9 million and $73.1 million and net transportation revenue of $28.3 million and $22.1 million for the six months ended December 31, 2010 and 2009, respectively.  Net income was $1.5 million for the six months ended December 31, 2010, compared to net income of $0.7 million for the six months ended December 31, 2009.
 
We had adjusted EBITDA of $3.4 million and $1.8 million for six months ended December 31, 2010 and 2009, respectively. EBITDA is a non-GAAP measure of income and does not include the effects of interest and taxes and excludes the "non-cash" effects of depreciation and amortization on current assets. Companies have some discretion as to which elements of depreciation and amortization are excluded in the EBITDA calculation. We exclude all depreciation charges related to property, plant and equipment, and all amortization charges, including amortization of leasehold improvements and other intangible assets. We then further adjust EBITDA to exclude extraordinary items and costs related to share based compensation expense, goodwill impairment charges and other non-cash charges consistent with the financial covenants of our credit facility. As explained above, we believe that EBITDA is useful to us and to our investors in evaluating and measuring our financial performance.  While management considers EBITDA and adjusted EBITDA useful in analyzing our results, it is not intended to replace any presentation included in our consolidated financial statements.  Set forth below is a reconciliation of EBITDA and adjusted EBITDA to net income, the most directly comparable GAAP measure for the six months ended December 31, 2010 and 2009.
 
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The following table provides a reconciliation of adjusted EBITDA to net income, the most directly comparable GAAP measure in accordance with SEC Regulation G (in thousands), for the six months ended December 31, 2010 and 2009:
   
Six months ended December 31,
   
Change
 
   
2010
   
2009
   
Amount
   
Percent
 
                         
Net income
  $ 1,499     $ 665     $ 834       125.4 %
Income tax expense
    920       408       512       125.5 %
Net interest expense
    72       82       (10 )     (12.2 )%
Depreciation and amortization
    652       796       (144 )     (18.1 )%
                                 
EBITDA
  $ 3,143     $ 1,951     $ 1,192