The
14,847,461 shares of our common stock, $0.001 par value per share, are being
offered by the selling shareholders identified in this prospectus. All of the
shares were previously issued by us in private placement
transactions.
We
are
not selling any shares of our common stock in this offering and, therefore,
will
not receive any proceeds from this offering. We will bear all costs associated
with this registration. The selling shareholders may offer the shares covered
by
this prospectus at fixed prices, at prevailing market prices at the time of
sale, at varying prices or negotiated prices, in negotiated transactions, or
in
trading markets for our common stock.
Our
common stock trades on the OTC Bulletin Board under the symbol “RLGT.OB” The
closing price of our common stock on the OTC Bulletin Board on June 19, 2006,
was $1.05 per share.
Investing
in our common stock involves a high degree of risk. See “Risk Factors” beginning
on page 3 of this prospectus.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved these securities or determined that this prospectus is accurate or
complete. Any representation to the contrary is a criminal offense.
YOU
SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE
INTO THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY
STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION PROVIDED IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN
THE DATE ON THE FRONT OF THIS PROSPECTUS.
This
summary highlights selected information contained elsewhere in this prospectus.
It is not complete and may not contain all of the information that is important
to you. To understand this offering fully, you should read the entire prospectus
carefully. Investors should carefully consider the information set forth under
the heading “Risk Factors.” In this prospectus, the terms “the Company,”“we,”“us,” and “our” refer to Radiant Logistics, Inc.
Our
Company
We
are a
non-asset based supply chain management company. We offer domestic and
international air, ocean and ground freight forwarding for shipments. Our
primary 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. 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. In turn,
we assume the responsibility for arranging and paying for the underlying means
of transportation.
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 is
designed to allow 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
Strategy
Through
the strategic acquisition of regional best-of-breed non-asset based
transportation and logistics service providers, 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.
Our
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. We believe the industry is
positioned for further consolidation as it remains highly fragmented, and as
customers continue to demand the types of sophisticated and broad reaching
service offerings that can more effectively be handled by larger more diverse
organizations.
Our
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. As to our first factor, effective January 1
2006, we acquired Airgroup Corporation (“Airgroup”), a non-asset based logistics
company located in the Seattle, Washington area. Airgroup provides domestic
and
international freight forwarding services through a network of 34 exclusive
agent offices across North America. It services a diversified account base
including manufacturers, distributors and retailers using a network of
independent carriers and over 100 international agents positioned strategically
around the world. We have also identified a number of additional companies
that
may be suitable acquisition candidates and are in preliminary discussions with
a
select number of them. As to our second factor, 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, neither of which
can
be assured.
Our
strategy also relies upon our ability to efficiently integrate the businesses
of
the companies we acquire, generate the anticipated economies of scale from
the
integration, and 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 our ability to finance and locate candidates for
acquisition, to profitably manage additional businesses, once acquired, and
to
compete in our industry for customers and for the acquisition of additional
businesses. The business risks associated with these factors are identified
or
referred to later in this prospectus.
Background
We
were
formed under the laws of the state of Delaware on March 15, 2001 as “Golf Two,
Inc.” From inception through the third quarter of 2005, our principal business
strategy focused on the development of retail golf stores. In October 2005,
our
management team consisting of Bohn H. Crain and Stephen M. Cohen, completed
a
change of control transaction when they acquired a majority of the Company’s
outstanding securities from the Company’s former officers and directors in
privately negotiated transactions. In conjunction with the change of control
transaction, we: (i) elected to discontinue the Company’s former business model;
(ii) repositioned ourselves as a global transportation and supply chain
management company; and (iii) changed our name to
“Radiant Logistics, Inc.” to, among other things, better align our name with our
new business focus.
Our
principal executive offices are located at 1227 120th
Avenue
N.E., Bellevue, WA98005, and our telephone number is (425) 943-4599. We
maintain a web site at www.radiant-logistics.com. Information contained on
our
web site does not constitute part of this prospectus.
The
Offering
Common
stock outstanding:
33,611,639
shares as of June 19,
2006
Common
stock that may be offered by selling shareholders:
Up
to 14,847,461 shares that were previously issued to the selling
shareholders in private placement transactions. This prospectus
includes
7,243,182 shares being offered by certain of our principal shareholders
and 113,637 shares offered by one of our executive officers.
Total
proceeds raised by offering:
We
will not receive any proceeds from the resale or other disposition
of the
shares covered by this prospectus by any selling shareholder.
Risk
factors:
There
are significant risks involved in investing in our Company. For
a
discussion of risk factors you should consider before buying our
common
stock, see “Risk Factors” beginning on page3.
An
investment in our common stock involves a high degree of risk. You should
carefully consider the following risk factors in addition to other information
in this prospectus before purchasing our common stock. The risks and
uncertainties described below are those that we currently deem to be material
and that we believe are specific to our company and our industry. In addition
to
these risks, our business may be subject to risks currently unknown to us.
If
any of these or other risks actually occurs, our business may be adversely
affected, the trading price of our common stock may decline and you may lose
all
or part of your investment.
RISKS
PARTICULAR TO OUR BUSINESS
We
are implementing a new business plan.
We
have
recently discontinued our former business model involving the development of
retail golf stores, and adopted a new model involving the development of
non-asset based third-party logistics services. We have only recently completed
our platform acquisition under our new business model. As a result, we have
a
very limited operating history under our current business model. Even though
we
are being managed by senior executives with significant experience in the
industry, our limited operating history makes it difficult to predict trends
that may affect our business and the longer-term success of our business model.
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. Critical to this strategy is an aggressive acquisition program
which will require the acquisition of a number of diverse companies within
the
logistics industry covering a variety of geographic regions and specialized
service offerings. As a result of our recently completed acquisition of
Airgroup, we have a limited amount of cash resources and our ability to make
additional acquisitions without securing additional financing from outside
sources will be limited. This may limit or slow our ability to achieve the
critical mass we need to achieve our strategic objectives.
Risks
related to acquisition financing.
In
order
to pursue our acquisition strategy in the longer term, we will require
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 substantial 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.
We
have used a significant amount of our available capital to finance the
acquisition of Airgroup.
We
expect
to structure our acquisitions with certain amounts paid at closing, and the
balance paid over a number of years in the form of earn-out installments which
would be payable based upon the future earnings of the acquired businesses
payable in cash, Company stock or some combination thereof. As we execute our
acquisition strategy, we expect that we will be required to make significant
payments in the future if the earn-out installments under prospective
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 existing credit 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.
Our
credit facility places certain limits on the type and number of acquisitions
we
may make.
We
have
obtained a $10 million credit facility from Bank of America, N.A. to provide
additional funding for acquisitions and for 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 were 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.
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.
Due
to our acquisition strategy, our earnings will be adversely affected by non-cash
charges relating to the amortization of intangibles which may cause our stock
price to decline .
Under
applicable accounting standards, purchasers are required to allocate the total
consideration paid in a business combination to the identified acquired assets
and liabilities based on their fair values at the time of acquisition. The
excess of the consideration paid to acquire a business over the fair value
of
the identifiable tangible assets acquired must be allocated among identifiable
intangible assets and goodwill. The amount allocated to goodwill is not subject
to amortization. However, it is tested at least annually for impairment. The
amount allocated to identifiable intangibles, such as customer relationships
and
the like, is amortized over the life of these intangible assets. We expect
that
this will subject us to periodic charges against our earnings to the extent
of
the amortization incurred for that period. Because our business strategy focuses
on growth through acquisitions, our future earnings will be subject to greater
non-cash amortization charges than a company whose earnings are derived
organically. As a result, we will experience an increase in non-cash charges
related to the amortization of intangible assets acquired in our acquisitions.
This will create the appearance, based on our financial statements, that our
intangible assets are diminishing in value, when in fact 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. Thus, while we believe EBITDA
provides a meaningful measure of our financial performance, should the
investment community elect to place more emphasis on our 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.
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:
·
a
failure to agree on the terms necessary for a transaction, such as
the
amount of the purchase price;
·
incompatibility
between our operational strategies and management philosophies and
those
of the potential acquiree;
·
competition
from other acquirers of operating
companies;
·
a
lack of sufficient capital to acquire a profitable logistics company;
and
·
the
unwillingness of a potential acquiree to work with our management.
If
we are
unable to successfully compete with other entities in identifying and executing
possible acquisitions of companies we target, then we will not be able to
successfully implement our business plan.
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.
We
intend
to continue to build our business through a combination of organic growth,
and
to a greater extent, through additional acquisitions. Growth by acquisitions
involve a number of risks, including possible adverse effects on our operating
results, diversion of management resources, failure to retain key personnel,
and
risks associated with unanticipated liabilities, some or all of which could
have
a material adverse effect on our business, financial condition and results
of
operations.
Dependence
on key personnel.
For
the
foreseeable future our success will depend largely on the continued services
of
our Chief Executive Officer, Bohn H. Crain, as well as certain of the other
key
executives of Airgroup, because of their collective industry knowledge,
marketing skills and relationships with major vendors and customers. We have
secured employment arrangements with each of these individuals, which contain
non-competition covenants which survives 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.
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 one such acquisition
and, therefore, our ability to complete such acquisitions and integrate any
acquired businesses into our Company is unproven. Increased competition for
acquisition candidates may develop, in which event there may be fewer
acquisition opportunities available to us as well as higher acquisition prices.
There can be no assurance that we will be able to identify, acquire or
profitably manage businesses or successfully integrate acquired businesses
into
the Company without substantial costs, delays or other operational or financial
problems. Such acquisitions also involve numerous operational risks, including:
·
difficulties
in integrating operations, technologies, services and
personnel;
·
the
diversion of financial and management resources from existing
operations;
·
the
risk of entering new markets;
·
the
potential loss of key employees;
and
·
the
inability to generate sufficient revenue to offset acquisition
or
investment costs.
As
a
result, if we fail to properly evaluate and execute any acquisitions or
investments, our business and prospects may be seriously harmed.
We
are largely dependent on the efforts of our exclusive agents to generate our
revenue and service our customers.
We
currently sell principally all of our services through a network of 34 exclusive
agents stationed throughout the United States. Although we have exclusive and
long-term relationships with these agents, the agency agreements are terminable
by either party on 10-day’s notice. Although we have no customers that account
for more than 5% of our revenues, there are five agency locations that each
account for more than 5% of our 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.
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 involving
bids from a number of competitors, including competitors that are larger than
us.
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 which 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.
Provisions
of our charter, 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 Prospectus as well as our
operating results, financial condition, announcements, general conditions in
the
industry, and other events or factors. In recent years, broad stock market
indices, in general, and smaller capitalization companies, in particular, have
experienced substantial price fluctuations. In a volatile market, we may
experience wide fluctuations in the market price of our common stock. These
fluctuations may have a negative effect on the market price of our common
stock.
The
influx of additional shares of our common stock onto the market may create
downward pressure on the trading price of our common
stock.
We
completed the private placement of approximately 15.4 million shares of our
common stock between October 2005 and February 2006. This prospectus covers
the
public resale of 14,847,461 of these shares. The availability of a substantial
number of additional shares for sale to the public and sale of such shares
in
the 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.
Our
acquisition strategy my result in additional dilution to our existing
stockholders.
We
will
require additional financing to fund our acquisition strategy. At some point
this may entail the issuance of additional shares of common stock or common
stock equivalents, which would 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. For the foreseeable future, we anticipate
that we will retain any earnings which we may generate from our operations
to
finance and develop our growth and that we will not pay cash dividends to our
stockholders. Accordingly, investors seeking dividend income should not purchase
our stock.
We
are not subject to certain of the corporate governance provisions of the
Sarbanes-Oxley Act of 2002
Since
our
common stock is not listed for trading on a national securities exchange, we
are
not subject to certain of the corporate governance requirements established
by
the national securities exchanges pursuant to the Sarbanes-Oxley Act of 2002.
These include rules relating to independent directors, and independent director
nomination, audit and compensation committees. Unless we voluntarily elect
to
comply with those obligations, investors in our shares will not have the
protections offered by those corporate governance provisions. As of the date
of
this prospectus, 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.
This
prospectus 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
facts included or incorporated by reference in this prospectus, including,
without limitation, statements regarding our future financial position, business
strategy, budgets, projected revenues, projected costs and plans and objective
of management for future operations, are forward-looking statements. In
addition, forward-looking statements generally can be identified by the use
of
forward-looking terminology such as “may,”“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, projections and
assumptions about future events. These forward-looking statements are not
guarantees and are subject to known and unknown risks, uncertainties and
assumptions about us that, if not realized, 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: (i) our belief that Airgroup will be able to serve as a platform
acquisition under our business strategy; (ii) our ability to use Airgroup
as a “platform” upon which we can build a profitable global transportation and
supply chain management company, which itself relies upon securing significant
additional funding, as to which we have no present assurances; (iii) our
ability, on a long term basis, to at least maintain historical levels of
transportation revenue, net transportation revenue (gross profit margins) and
related operating expenses at Airgroup; (iv) competitive practices in the
industries in which we compete, (v) our dependence on current management; (vi)
the impact of current and future laws and governmental regulations affecting
the
transportation industry in general and our operations in particular; and (vii)
other factors which may be identified from time to time in our Securities and
Exchange Commission (SEC) filings and other public announcements. Furthermore,
the general business assumptions used for purposes of the forward-looking
statements included within this prospectus represent estimates of future events
and are subject to uncertainty as to possible changes in economic, legislative,
industry, and other circumstances. As a result, the identification and
interpretation of data and other information and their use in developing and
selecting assumptions from and among reasonable alternatives require the
exercise of judgment. To the extent that the assumed events do not occur, the
outcome may vary substantially from anticipated or projected results, and,
accordingly, no opinion is expressed on the achievability of those
forward-looking statements. Except as required by law, we undertake no
obligation to publicly release the result of any revision of these
forward-looking statements to reflect events or circumstances after the date
they are made or to reflect the occurrence of unanticipated events.
Our
common stock currently trades on the OTC Bulletin Board under the symbol
“RLGT.OB.” The first reported trade in our common stock occurred on December 27,2005. 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 since the first
reported trade, 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 June 19, 2006, was $1.05per
share.
As
of
June 19, 2006, the number of stockholders of record of our common stock was
89.We
believe that 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.
The
following tables present portions of our financial statements and are not
complete. You should read the following selected consolidated financial data
together with our consolidated financial statements and related footnotes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The selected historical consolidated statement of operations and
balance sheet data for each of the five years in the period ended December31,2005 are derived from our consolidated financial statements that have been
audited by Stonefield Josephson, Inc.
From
inception through the third quarter of 2005, our principal business strategy
focused on the development of retail golf stores. In October 2005, our
management team, consisting of Bohn H. Crain and Stephen M. Cohen, completed
a
change of control transaction when they acquired a majority of the Company’s
outstanding securities from the Company’s former officers and directors in
privately negotiated transactions. In conjunction with the change of control
transaction, we: (i) elected to discontinue the Company’s former business model;
(ii) repositioned ourselves as a global transportation and supply chain
management company; and (iii) changed our name to
“Radiant Logistics, Inc.” to, among other things, better align our name with our
new business focus.
The
selected financial data that appears below has been presented utilizing a
combination of historical and, where relevant, pro forma information to include
the effects on our consolidated financial statements of our recently completed:
(i) equity offerings; and (ii) acquisition of Airgroup Corporation. Historical
financial data has been supplemented, where appropriate, with pro forma
financial data since historical data which merely reflects the prior period
results of the Company on a stand-alone basis, would provide no meaningful
data
with respect to our ongoing operations since we were in the development stage
prior to our acquisition of Airgroup. The pro forma information has been
presented as if we had completed our equity offerings and acquired Airgroup
as
of January 1, 2005. The pro forma results are also adjusted to reflect a
consolidation of the historical results of operations of Airgroup and Radiant
as
adjusted to reflect the amortization of acquired intangibles and
are
provided in the Financial Statements included within this prospectus.
Similarly, pro
forma
statements of income have been presented for Airgroup’s fiscal years ended June30, 2005 and 2004 as if we had completed our equity offerings and acquired
Airgroup as of July 1, 2003. The
pro
forma results are also adjusted to reflect a consolidation of the historical
results of operations of Airgroup and the Company as adjusted to reflect the
amortization of acquired intangibles and
are
also provided in the Financial Statements included within this prospectus.
The
pro
forma presentation for the interim period ended March 31, 2005 differs from
the
initial presentation provided in our Current Report on Form 8-K filed with
the
SEC on January 18, 2006 reporting the acquisition of Airgroup to: (1)
increase our initial estimates for the amortization of acquired intangibles
as a
result of increased values attributable to the acquired intangibles, (2) reduce
our estimate for interest expense associated with the acquisition financing
because we incurred less debt to complete the acquisition than we had originally
expected; and (3) exclude the impact of anticipated contractual reductions
of
officers’ and related family members’ compensation at Airgroup so that any such
cost reductions could be more easily identified in our comparative
analysis.
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 that might be attained in the
future.
Consolidated
Statement of Operations Data for the interim periods ending March 31, 2006
and
2005 (historic and unaduited); (in thousands, except per share
amounts):
Consolidated
Statement Of Operations Data: (In Thousands, Except Per Share
Amounts)
Total
revenue
$
11,843
$
—
Cost
of transportation
7,480
—
Net
revenue
4,363
—
Operating
expenses
4,490
14
Loss
from operations
(127
)
(14
)
Other
income (expense)
(2
)
—
Loss
before income taxes
(129
)
(14
)
Income
tax expense (benefit)
(102
)
—
Net
loss
$
(27
)
$
(14
)
Net
loss per common share (1) :
Basic
and diluted
$
0.00
$
0.00
Weighted
average common shares:
Basic
and diluted
32,755
25,964
(1)
For
all periods presented, the weighted average common shares outstanding
have
been adjusted to reflect 3.5:1 stock split effected in October of
2005.
Consolidated
Statement of Operations Data for the Five Years ended December 31, 2005
(historical and audited); (in thousands, except per share amounts):
Consolidated
Statement of Operations Data for the interim periods ending March 31, 2006
(historic and unaduited) and March 31, 2005 (pro forma and unaudited); (in
thousands, except per share amounts):
Consolidated
Statement Of Operations Data: (In Thousands, Except Per Share
Amounts)
Total
revenue
$
11,842
$
12,566
Cost
of transportation
7,480
7,330
Net
revenue
4,363
5,236
Operating
expenses
4,490
5,243
Loss
from operations
(127
)
(7
)
Other
income (expense)
(2
)
(2
)
Loss
before income taxes
(129
)
(9
)
Income
tax expense (benefit)
(102
)
(3
)
Net
loss
$
(27
)
$
(6
)
Net
loss per common share:
Basic
and diluted
$
0.00
$
0.00
Weighted
average common shares:
Basic
and diluted
32,755
25,964
(1)
The
pro forma income from operations information provided above includes
approximately $14,000 in costs associated with the continuing operations of
the
Company plus the historical results of Airgroup, adjusted to reflect
amortization of acquired intangibles.
Consolidated
Statement of Operations Data for the Two Years ended June 30, 2005 (pro forma
and unaudited); (in thousands, except per share amounts)
Supplemental
pro forma information is being provided
since historical data which merely reflects the prior period results of the
Company on a stand-alone basis prior to the acquisition of Airgroup would
provide no meaningful data with respect to our ongoing operations.
Consolidated
Statement Of Operations Data: (In Thousands, Except Per Share
Amounts)
Total
revenue
$
51,521
$
42,972
Cost
of transportation
29,957
22,832
Net
revenue
21,564
20,140
Operating
expenses
19,974
18,588
Income
(loss) from operations
1,590
1,552
Other
income (expense)
(162
)
(163
)
Income
(loss) from continuing operations before income tax expense and minority
interest
1,428
1,389
Income
tax expense
486
472
Net
income (loss)
$
942
$
917
Net
income (loss) per common share:
Basic
and diluted
$
0.04
$
0.04
Weighted
average common shares (2)
:
Basic
and diluted
25,964
25,964
(1)
The
pro forma income from operations information provided above includes
the
costs associated with the continuing operations of the Company
(approximately $29,000 for 2005 and $31,000 for 2004), plus the historical
results of Airgroup, adjusted to reflect amortization of acquired
intangibles.
(2)
For
all periods presented, the weighted average common shares outstanding
have
been adjusted to reflect 3.5:1 stock split effected in October of
2005.
The
following discussion and analysis of our financial condition and results
of
operations should be read in conjunction with the financial statements and
the
related notes and other information included elsewhere in this
Prospectus.
Overview
In
conjunction with a change of control transaction completed during October
2005
and discussed under the “Business” section of this prospectus, we: (i)
discontinued our former business model; (ii) adopted a new business strategy
focused on building a global transportation and supply chain management company;
(iii) changed our name to
“Radiant Logistics, Inc.” to, among other things, better align our name with our
new business focus; and (iv) completed our first acquisition within the
logistics industry.
We
accomplished the first step in our new business strategy by completing the
acquisition of Airgroup effective as of January 1, 2006. Airgroup is a
Seattle-Washington based non-asset based logistics company providing domestic
and international freight forwarding services through a network of 34 exclusive
agent offices across North America. Airgroup services a diversified account
base
including manufacturers, distributors and retailers using a network of
independent carriers and over 100 international agents positioned strategically
around the world.
Through
the strategic acquisition of regional best-of-breed non-asset based
transportation and logistics service providers, 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
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.
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
stock
option expense and other non-cash charges. Accordingly, we intend to employ
EBITDA and adjusted EBITDA as a management tools to measure our historical
financial performance and as a benchmark for future financial
flexibility.
Our
operating results are also subject to seasonal trends when measured on a
quarterly basis. The impact of seasonality on our business will depend on
numerous factors, including the markets in which we operate, holiday seasons,
consumer demand and economic conditions. Since our revenue is largely derived
from customers whose shipments are dependent upon consumer demand and
just-in-time production schedules, the timing of our revenue is often beyond
our
control. Factors such as shifting demand for retail goods and/or manufacturing
production delays could unexpectedly affect the timing of our revenue. As
we
increase the scale of our operations, seasonal trends in one area of our
business may be offset to an extent by opposite trends in another area. We
cannot accurately predict the timing of these factors, nor can we accurately
estimate the impact of any particular factor, and thus we can give no assurance
that historical seasonal patterns will continue in future periods.
Critical
Accounting Policies
Accounting
policies, methods and estimates are an integral part of the consolidated
financial statements prepared by management and are based upon management’s
current judgments. Those judgments are normally based on knowledge and
experience with regard to past and current events and assumptions about future
events. Certain accounting policies, methods and estimates are particularly
sensitive because of their significance to the financial statements and because
of the possibility that future events affecting them may differ from
management’s current judgments. While there are a number of accounting policies,
methods and estimates that affect our financial statements, the areas that
are
particularly significant include the assessment of the recoverability of
long-lived assets, specifically goodwill, acquired intangibles, and revenue
recognition.
We
follow
the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142,
Goodwill and Other Intangible Assets. SFAS No. 142 requires an annual impairment
test for goodwill and intangible assets with indefinite lives. Under the
provisions of SFAS No. 142, the first step of the impairment test requires
that
we determine the fair value of each reporting unit, and compare the fair
value
to the reporting unit’s carrying amount. To the extent a reporting unit’s
carrying amount exceeds its fair value, an indication exists that the reporting
unit’s goodwill may be impaired and we must perform a second more detailed
impairment assessment. The second impairment assessment involves allocating
the
reporting unit’s fair value to all of its recognized and unrecognized assets and
liabilities in order to determine the implied fair value of the reporting
unit’s
goodwill as of the assessment date. The implied fair value of the reporting
unit’s goodwill is then compared to the carrying amount of goodwill to quantify
an impairment charge as of the assessment date. In the future, we will perform
our annual impairment test during our fiscal fourth quarter unless events
or
circumstances indicate an impairment may have occurred before that
time.
Acquired
intangibles consist of customer related intangibles and non-compete agreements
arising from our acquisitions. Customer related intangibles will be amortized
using accelerated methods over approximately 5 years and non-compete agreements
will be amortized using the straight line method over a 5 year
period.
We
follow
the provisions of SFAS No. 144, Accounting for the Impairment or Disposal
of
Long-Lived Assets, which establishes accounting standards for the impairment
of
long-lived assets such as property, plant and equipment and intangible assets
subject to amortization. We review long-lived assets to be held-and-used
for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. If the sum of the
undiscounted expected future cash flows over the remaining useful life of
a
long-lived asset is less than its carrying amount, the asset is considered
to be
impaired. Impairment losses are measured as the amount by which the carrying
amount of the asset exceeds the fair value of the asset. When fair values
are
not available, we 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.
As
a
non-asset based carrier, we do not own transportation assets. We generate
the
major portion of our air and ocean freight revenues by purchasing transportation
services from direct (asset-based) carriers and reselling those services
to our
customers. In accordance with Emerging Issues Task Force (“EITF”) 91-9 “Revenue
and Expense Recognition for Freight Services in Process”, revenue from freight
forwarding and export services is recognized at the time the freight is tendered
to the direct carrier at origin, and direct expenses associated with the
cost of
transportation are accrued concurrently. These
accrued purchased transportation costs are estimates based upon anticipated
margins, contractual arrangements with direct carriers and other known factors.
The estimates are routinely monitored and compared to actual invoiced costs.
The
estimates are adjusted as deemed necessary to reflect differences between
the
original accruals and actual costs of purchased transportation.
We
recognize revenue on a gross basis, in accordance with EITF 99-19, “Reporting
Revenue Gross versus Net”, as a result of the following: We are the primary
obligor responsible for providing the service desired by the customer and
are
responsible for fulfillment, including the acceptability of the service(s)
ordered or purchased by the customer. We, at our sole discretion, set the
prices
charged to our customers, and are not required to obtain approval or consent
from any other party in establishing our prices. We have multiple suppliers
for
the services we sell to our customers, and have the absolute and complete
discretion and right to select the supplier that will provide the product(s)
or
service(s) ordered by a customer, including changing the supplier on a
shipment-by-shipment basis. In most cases, we determine the nature, type,
characteristics, and specifications of the service(s) ordered by the customer.
We also assume credit risk for the amount billed to the
customer.
The
results of operations discussion that appears below has been presented utilizing
a combination of historical and, where relevant, pro forma information to
include the effects on our consolidated financial statements of our recently
completed: (i) equity offerings; and (ii) acquisition of Airgroup Corporation.
Historical financial data has been supplemented, where appropriate, with
pro
forma financial data since historical data which merely reflects the prior
period results of the Company on a stand-alone basis, would provide no
meaningful data with respect to our ongoing operations since we were in the
development stage prior to our acquisition of Airgroup. The pro forma
information has been presented as if we had completed our equity offerings
and
acquired Airgroup as of January 1, 2005. The pro forma results are also adjusted
to reflect a consolidation of the historical results of operations of Airgroup
and Radiant as adjusted to reflect the amortization of acquired intangibles
and
are
provided in the Financial Statements included within this prospectus.
Similarly, pro
forma
statements of income have been presented for Airgroup’s fiscal years ended June30, 2005 and 2004 as if we had completed our equity offerings and acquired
Airgroup as of July 1, 2003. The
pro
forma results are also adjusted to reflect a consolidation of the historical
results of operations of Airgroup and the Company as adjusted to reflect
the
amortization of acquired intangibles and
are
also provided in the Financial Statements included within this prospectus.
The
pro
forma presentation for the interim period ended March 31, 2005 differs from
the
initial presentation provided in our Current Report on Form 8-K filed with
the
SEC on January 18, 2006 reporting the acquisition of Airgroup to: (1)
increase our initial estimates for the amortization of acquired intangibles
as a
result of increased values attributable to the acquired intangibles, (2)
reduce
our estimate for interest expense associated with the acquisition financing
because we incurred less debt to complete the acquisition than we had originally
expected; and (3) exclude the impact of anticipated contractual reductions
of
officers’ and related family members’ compensation at Airgroup so that any such
cost reductions could be more easily identified in our comparative
analysis.
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 that might be attained in the
future.
Quarter
ended March 31, 2006 (historic and unaudited) compared to Quarter ended March,
31, 2005 (historic and unaudited)
We
generated transportation revenue of $11.8 million and net transportation
revenue
of $4.4 million for the three months ended March 31, 2006 with no revenues
for
the comparative prior year period. Net loss was $27,110 for the three months
ended March 31, 2006 compared to a loss of $14,330 for the three months ended
March 31, 2005.
We
had
adjusted earnings (loss) before interest, taxes, depreciation and amortization
(EBITDA) of approximately $122,000 and ($14,000) for three months ended March31, 2006 and 2005, respectively. EBITDA, is a non-GAAP
measure of income and does not include the effects of interest and taxes,
and
excludes the “non-cash” effects of depreciation and amortization on current
assets. Companies have some discretion as to which elements of depreciation
and
amortization are excluded in the EBITDA calculation. We exclude all depreciation
charges related to property, plant and equipment, and all amortization charges,
including amortization of goodwill, leasehold improvements and other intangible
assets. While management considers EBITDA useful in analyzing our results,
it is
not intended to replace any presentation included in our consolidated financial
statements.
The
following table provides a reconciliation of March 31, 2006 (historic and
unaudited) and March 31, 2005 historic and unaudited) adjusted EBITDA to
net
income, the most directly comparable GAAP measure in accordance with SEC
Regulation G (in thousands):
Three
months ended March 31,
Change
2006
2005
Amount
Percent
Net
loss
$
(27
)
$
(14
)
$
(13
)
NM
Income
tax expense (benefit)
(102
)
-
(102
)
NM
Interest
expense
2
-
2
-
Depreciation
and amortization
206
-
206
NM
EBITDA
(Earnings before interest, taxes, depreciation and
amortization)
$
79
$
(14
)
$
93
127.4
%
Stock
Options and other non-cash costs
43
-
43
NM
Adjusted
EBITDA
$
122
$
(14
)
$
136
NM
The
following table summarizes March 31, 2006 (historic and unaudited) and March31,2005 (historic and unaudited) transportation revenue, cost of transportation
and
net transportation revenue (in thousands):
Three
months ended March 31,
Change
2006
2005
Amount
Percent
Transportation
revenue
$
11,843
$
-
$
11,843
NM
Cost
of transportation
7,480
-
7,480
NM
Net
transportation revenue
$
4,363
$
-
$
4,363
NM
Net
transportation margins
36.8
%
-
Transportation
revenue was $11.8 million for the three months ended March 31, 2006. Domestic
and International transportation revenue was $7.5 million and $4.3 million,
respectively. There were no revenues for the comparable prior year
period.
Cost
of
transportation increased to 63.2% of transportation revenue for the three
months
ended March 31, 2006 with no comparable data for the prior year period.
Net
transportation margins were 36.8% of transportation revenue for the three
months
ended March 31, 2006 with no comparable data for the prior year
period.
The
following table compares certain March 31, 2006 (historic and unaudited)
and
March 31, 2005 (historic and unaudited) condensed consolidated statement
of
income data as a percentage of our net transportation revenue (in
thousands):
Agent
commissions were $3.2 million and 73.3% of net revenues for the three months
ended March 31, 2006. There were no similar costs for the comparable prior
year
period.
Personnel
costs were $639,000 14.6% of net revenues for the three months ended March31,2006. There were no similar costs for the comparable prior year
period.
Other
selling, general and administrative costs were $447,000 and 10.2% of net
revenues for the three months ended March 31, 2006 compared to $14,000 for
the
three months ended March 31, 2005
Depreciation
and amortization costs were approximately $200,000 and 4.7% of net revenues
for
the three months ended March 31, 2006. There
were no similar costs for the comparable prior year period.
Loss
from
operations was $127,000 for the three months ended March 31, 2006 compared
to a
loss from operations of $14,000 for the three months ended March 31,2005.
Net
loss
was $27,000 for the three months ended March 31, 2006, compared to a net
loss of
$14,000 for the three months ended March 31, 2005.
Quarter
ended March 31, 2006 (historic and unaudited) compared to the Quarter ended
March 31, 2005 (pro forma and unaudited)
We
generated transportation revenue of $11.8 million and $12.6 million and net
transportation revenue of $4.4 million and $5.2 million for the three months
ended March 31, 2006 and 2005, respectively. Net loss was $27,000 for the
three
months ended March 31, 2006 compared to a loss of $6,000 for the three months
ended March 31. 2005.
We
had
adjusted earnings before interest, taxes, depreciation and amortization (EBITDA)
of approximately $122,000 and $192,000 for three months ended March 31, 2006
and
2005, respectively. EBITDA, is a non-GAAP measure of income
and does not include the effects of interest and taxes, and excludes the
“non-cash” effects of depreciation and amortization on current assets. Companies
have some discretion as to which elements of depreciation and amortization
are
excluded in the EBITDA calculation. We exclude all depreciation charges related
to property, plant and equipment, and all amortization charges, including
amortization of goodwill, leasehold improvements and other intangible assets.
While management considers EBITDA useful in analyzing our results, it is
not
intended to replace any presentation included in our consolidated financial
statements.
The
following table provides a reconciliation of March 31, 2006 (historic and
unaudited) and March 31, 2005 (pro forma and unaudited) adjusted EBITDA to
net
income, the most directly comparable GAAP measure in accordance with SEC
Regulation G (in thousands):
Three
months ended March 31,
Change
2006
2005
Amount
Percent
Net
loss
$
(27
)
$
(6
)
$
(21
)
NM
Income
tax expense (benefit)
(102
)
(3
)
(99
)
NM
Interest
expense
2
2
-
-
Depreciation
and amortization
206
199
7
3.5
%
EBITDA
(Earnings before interest, taxes, depreciation and
amortization)
The
following table summarizes March 31, 2006 (historic and unaudited) and March31,2005 (pro forma and unaudited) transportation revenue, cost of transportation
and net transportation revenue (in thousands):
Three
months ended March 31,
Change
2006
2005
Amount
Percent
Transportation
revenue
$
11,843
$
12,566
$
(723
)
-5.8
%
Cost
of transportation
7,480
7,330
(150
)
-2.0
%
Net
transportation revenue
$
4,363
$
5,236
$
(873
)
-16.7
%
Net
transportation margins
36.8
%
41.7
%
Transportation
revenue was $11.8 million for the three months ended March 31, 2006, a decrease
of 5.8% over total transportation revenue of $12.6 million for the three
months
ended March 31, 2006. Domestic transportation revenue decreased by 15.6%
to $7.5
million for the three months ended March 31, 2006 from $8.9 million for the
three months ended March 31, 2005. The decrease was due primarily to project
services work done in 2005 which was completed in April of 2005. International
transportation revenue increased by 18.4% to $4.3 million for the three months
ended March 31, 2006 from $3.6 million for the comparable prior year period,
due
mainly to increased air and ocean import freight volume.
Cost
of
transportation increased to 63.2% of transportation revenue for the three
months
ended March 31, 2006 from 58.3% of transportation revenue for the three months
ended March 31, 2005. This increase was primarily due to increased international
ocean import freight volume which historically reflects a higher cost of
transportation as a percentage of sales.
Net
transportation margins decreased to 36.8% of transportation revenue for the
three months ended March 31, 2006 from 41.7% of transportation revenue for
the
three months ended March 31, 2005 as a result of the factors described
above.
The
following table compares certain March 31, 2006 (historic and unaudited)
and
March 31, 2005 (pro forma and unaudited) condensed consolidated statement
of
income data as a percentage of our net transportation revenue (in
thousands):
Agent
commissions were $3.2 million for the three months ended March 31, 2006,
a
decrease of 17.6% from $3.9 million for the three months ended March 31,2005.
Agent commissions as a percentage of net revenue decreased to 73.3% for three
months ended March 31, 2006 from 74.2% for the comparable prior year period
as a
result of increased international ocean import freight volume at reduced
margins
which reduced amounts paid as commissions.
Personnel
costs were $639,000 for the three months ended March 31, 2006, a decrease
of
23.2% from $832,000 for the three months ended March 31, 2005. Personnel
costs
as a percentage of net revenue decreased to 14.6% for three months ended
March31, 2006 from 15.9% for the comparable prior year period as a result of
contractual reductions in compensation paid to certain of the selling
shareholders of Airgroup.
Other
selling, general and administrative costs were $447,000 for the three months
ended March 31, 2006, an increase of 36.3% from $328,000 for the three months
ended March 31, 2005. As a percentage of net revenue, other selling, general
and
administrative costs increased to 10.2% for three months ended March 31,2006
from 6.3% for the comparable prior year period primarily as a result of
transaction costs incurred by Airgroup in connection with the sale of the
company to us and the incremental costs associated with operating as a public
company.
Depreciation
and amortization costs remained relatively unchanged at approximately $200,000
for the three months ended March 31, 2006 and 2005. Depreciation and
amortization as a percentage of net revenue remained relatively unchanged
at
approximately 4.7% and 3.8% for the three months ended March 31, 2006 and
2005,
respectively.
Loss
from
operations was $127,000 for the three months ended March 31, 2006 compared
to a
loss from operations of $7,000 for the three months ended March 31,2005.
Net
loss
was $27,000 for the three months ended March 31, 2006, compared to a net
loss of
$6,000 for the three months ended March 31, 2005.
The
following table compares certain December 31, 2005 and 2004 (audited)
consolidated statement of income data as a percentage of our net transportation
revenue (in thousands):
As
we
remained in the development stage for all of 2005 and 2004, we had no
transportation revenue for these years and incurred operating costs of
approximately $162,000 for the year ended December 31, 2005 compared to
operating costs of approximately $23,000 for the year ended December 31,2004.
The
year
over year increase in operating costs resulted from our increased activities
in
the fourth quarter of 2005 in connection with the Company’s change in management
and strategy to enter into the logistics business. Net loss for the year
ended
December 31, 2005 was approximately $149,000 compared to a net loss of
approximately $25,000 for the year ended December 31, 2004.
The
following table compares certain December 31, 2004 and 2003 (audited)
consolidated statement of income data as a percentage of our net transportation
revenue (in thousands):
As
we
remained in the development stage for all of 2004 and 2003, we had no
transportation revenue for these years and operating costs remained relatively
unchanged at approximately $23,000 for the year ended December 31, 2004 compared
to operating costs of approximately $30,000 for the year ended December 31,2003.
Net
loss
also remained relatively unchanged at approximately $23,000 for the year
ended
December 31, 2004 compared to a net loss of approximately $30,000 for the
year
ended December 31, 2003.
Supplemental
Pro Forma Information for the Airgroup year ended June 30, 2005 (pro forma
and
unaudited) compared to year ended June 30, 2004 (pro forma and unaudited)
We
generated transportation revenue of $51.5 million and $43.0 million, and
net
transportation revenue of $21.6 million and $20.1 million for the fiscal
years
ended June 30, 2005 and 2004, respectively. Net income remained relatively
unchanged at approximately $0.9 million for each of the fiscal years ended
June30, 2005 and 2004.
We
had
earnings before interest, taxes, depreciation and amortization (EBITDA) of
approximately $2.3 million for each of the fiscal years ended June 30, 2005
and
2004. EBITDA, is a non-GAAP measure of income and does not include the effects
of interest and taxes, and excludes the “non-cash” effects of depreciation and
amortization on current assets. Companies have some discretion as to which
elements of depreciation and amortization are excluded in the EBITDA
calculation. We exclude all depreciation charges related to property, plant
and
equipment, and all amortization charges, including amortization of goodwill,
leasehold improvements and other intangible assets. While management considers
EBITDA useful in analyzing our results, it is not intended to replace any
presentation included in our consolidated financial statements.
The
following table provides a reconciliation of June 30, 2005 and 2004 (pro
forma
and unaudited) EBITDA to net income, the most directly comparable GAAP measure
in accordance with SEC Regulation G (in thousands):
Year
ended June 30,
Change
2005
2004
Amount
Percent
Net
income
$
942
$
917
$
25
2.7
%
Income
tax expense
486
472
14
3.0
%
Interest
expense
162
163
(1
)
-0.6
%
Depreciation
and amortization
688
760
(72
)
-9.5
%
EBITDA
(Earnings before interest, taxes, depreciation and
amortization)
$
2,278
$
2,312
$
(34
)
-1.5
%
The
following table summarizes June 30, 2005 and 2004 (pro forma and unaudited)
transportation revenue, cost of transportation and net transportation revenue
(in thousands):
Transportation
revenue was $51.5 million for the year ended June 30, 2005, an increase of
19.9%
over total transportation revenue of $43.0 million for the year ended June
30
2004. Domestic transportation revenue increased by 7.0% to $38.4 million
for the
year ended June 30, 2005 from $35.9 million for the prior fiscal year as
a
result of organic growth across the network. International transportation
revenue increased by 84.5% to $13.1 million for the 2005 fiscal year from
$7.1
million for the 2004 fiscal year, due mainly to increased air and ocean import
freight volume.
Cost
of
transportation increased to 58.1% of transportation revenue for the year
ended
June 30, 2005 from 53.1% of transportation revenue for the 2004 fiscal year.
This increase was primarily due to increased international ocean import freight
volume which historically reflects a higher cost of transportation as a
percentage of sales.
Net
transportation margins decreased to 41.9% of transportation revenue for the
fiscal year ended June 30, 2005 from 46.9% of transportation revenue for
the
2004 fiscal year as a result of the factors described above.
The
following table compares certain June 30, 2005 and 2004 (pro forma and
unaudited) consolidated statement of income data as a percentage of our net
transportation revenue (in thousands):
Agent
commissions were $16.0 million for the year ended June 30, 2005, an increase
of
7.2% over $14.9 million for the year ended June 30 2004. Agent commissions
as a
percentage of net revenue remained relatively unchanged at approximately
74.0%.
Personnel
costs were $2.0 million for the fiscal year ended June 30, 2005, an increase
of
12.4% over $1.7 million for the 2004 fiscal year. Personnel costs as a
percentage of net revenue increased to 9.1% for the 2005 fiscal year from
8.7%
for the 2004 fiscal year. This increase resulted primarily from the hiring
of a
senior operating officer in November of 2004. For the fiscal year ended June30,2005 compared to the prior year period, headcount decreased by 4 to a total
of
34 individuals who primarily provide finance and administrative services
for the
benefit of the agent offices.
Other
selling, general and administrative costs were $1.3 million for the fiscal
year
ended June 30, 2005, an increase of 14.1% over $1.2 million for the 2004
fiscal
year. This increase was primarily the result of increased costs associated
with
updating our web-site. As a percentage of net revenue, other selling, general
and administrative costs increased to 6.2% for the fiscal year ended 2005
from
5.8% for the 2004 fiscal year.
Depreciation
and amortization was $0.7 million for the fiscal year ended June 30, 2005,
a
decrease of 9.5% over $0.8 million for the 2004 fiscal year. Depreciation
and
amortization as a percentage of net revenue decreased to 3.2% for the fiscal
year ended June 30, 2005 from 3.8% for the 2004 fiscal year.
Income
from operations remained relatively unchanged at $1.6 million for fiscal
years
ended June 30, 2005 and 2004.
Net
incomeremained
relatively unchanged at approximately $0.9 million for fiscal years ended
June30, 2005 and 2004.
Liquidity
and Capital Resources
Effective
January 1, 2006, we acquired 100 percent of the outstanding stock of Airgroup.
The transaction was valued at up to $14.0
million and consisted of: (i) $9.5 million payable in cash at closing; (ii)
an
additional base payment of $0.6 million payable in cash on the one-year
anniversary of the closing, provided at least 31 of Airgroup’s locations remain
operational through the first anniversary of the closing (the “Additional Base
Payment”); (iii) a subsequent cash payment of $0.5 million in cash on the
two-year anniversary of the closing; (iv) a base earn-out payment of $1.9
million payable in Company common stock over a three-year earn-out period
based
upon Airgroup achieving income from continuing operations of not less than
$2.5
million per year; and (v) as additional incentive to achieve future earnings
growth, an opportunity to earn up to an additional $1.5 million payable in
Company common stock at the end of a five-year earn-out period (the “Tier-2
Earn-Out”). Under Airgroup’s Tier-2 Earn-Out, the former shareholders of
Airgroup are entitled to receive 50% of the cumulative income from continuing
operations in excess of $15,000,000 generated during the five-year earn-out
period up to a maximum of $1,500,000. With respect to the base earn-out payment
of $1.9 million, in
the
event there is a shortfall in income from continuing operations, the earn-out
payment will be reduced on a dollar-for-dollar basis to the extent of the
shortfall. Shortfalls may be carried over or carried back to the extent that
income
from continuing operations in
any
other payout year exceeds the $2.5 million level.
In
preparation for, and in conjunction with, the Airgroup transaction, we secured
financing proceeds through several private placements of our common stock
to a
limited number of accredited investors as follows:
Date
Shares
Sold
Gross
Proceeds
Price
Per Share
●
October 2005
2,272,728
$
1.0
million
$
0.44
●
December 2005
10,098,934
$
4.4
million
$
0.44
●
January 2006
1,009,093
$
444,000
$
0.44
●
February 2006
1,446,697
$
645,000
$
0.44
In
January 2006, we entered into a $10.0 million secured credit facility with
Bank
of America, N.A with a term of two years (the “Facility”). The Facility is
collateralized by our 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 prime minus 1.00% or
LIBOR
plus 1.55% 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 75% of our eligible accounts
receivable.
As
of
June 19,2006,
we
had approximately $442,000 outstanding under the Facility and we had eligible
accounts receivable sufficient to support approximately $3.6 million in
borrowings. The terms of our Facility are subject to certain financial
and
operational covenants which may limit the amount otherwise available under
the
Facility. The first covenant limits our 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 70.0%). The second financial covenant
requires that we maintain a basic fixed charge coverage ratio of at least
1.1 to
1.0. The third financial covenant is a minimum profitability standard that
requires us 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, 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 our historical business and acquisition model, (iv) after
giving effect for the funding of the acquisition, we must have undrawn
availability of at least $2.0 million under the Facility, (v) the lender
must be
reasonably satisfied with projected financial statements 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 would have to either forego the acquisition, obtain
the
lender's consent, or retire the Facility. This may limit or slow our ability
to
achieve the critical mass we may need to achieve our strategic
objectives.
The
following table summarizes our contingent base earn-out payments for the fiscal
years indicated based on results of the prior year (in thousands)(1):
Prior
year earnings targets (income from continuing operations) (3)
Total
earnings targets
$
—
$
2,500
$
2,500
$
2,500
$
—
$
7,500
Earn-outs
as a percentage of prior year earnings targets:
Total
—
45.3
%
25.3
%
25.3
%
—
40.0
%
(1)
During
the fiscal year 2007-2011 earn-out period, there is an additional
contingent obligation related to tier-two earn-outs that could be
as much
as $1.5 million if Airgroup generates at least $18.0 million in income
from continuing operations during the period.
(2)
Payable
in cash on the one-year anniversary of the closing, so long as at
least 31
of Airgroup’s agent operations remain operational through the first
anniversary of the closing.
(3)
Income
from continuing operations as presented refers to the uniquely defined
earnings targets of Airgroup and should not be interpreted to be
the
consolidated income from continuing operations of the Company which
would
give effect to, among other things, amortization or impairment of
intangible assets or various other expenses which may not be charged
to
Airgroup for purposes of calculating
earn-outs.
Net
cash
used by operating activities for the three months ending March 31, 2006 was
$0.3
million compared to $.01 million at March 31, 2005. The change was principally
driven by a greater reduction in accounts payable than in accounts receivable.
Net
cash
used for investing was $7.1 million for three months ending March 31, 2006
while
there was no activity for the same comparable time frame in 2005. $10.1 million
was used for the acquisition of Airgroup which had a cash balance of $2.8
million at the time it was acquired by the company at January 1, 2006 and is
netted against cash used for the acquisition for purposes of the consolidated
statement of cash flows.
Net
cash
provided by financing activity for three months ending March 31, 2006, was
$2.8
million compared to $.02 million for the same period in 2005. Financing
activities in 2006 consisted of issuing 2,475,790 shares of common stock for
$1.1 million. During January and February 2006, respectively, $0.4 million
of
shares were issued to certain shareholders and employees of Airgroup, while
$0.7
million of the shares were issued to other accredited investors for cash. Also
associated with the acquisition of Airgroup, there is $0.5 million due to
Airgroup in 2007. The Company also has a credit facility which it drew down
$0.3
million and used for operations.
We
have
entered into contracts with various third parties in the normal course of
business that will require future payments. The following table illustrates
our
contractual obligations as of March 31, 2006:
Payments
due by period
Total
Less
than 1 year
1-3
years
3-5
years
More
than 5 years
Contractual
Obligations
Long-Term
Debt
$
1,781
$
500
$
1,281
$
-
$
-
Capital
Leases
-
-
-
-
-
Operating
Leases
383
100
251
32
-
Purchase
Obligations
-
-
-
-
-
Other
Long-Term Liabilities
-
-
-
-
-
Total
Contractual Obligations
$
2,164
$
600
$
1,532
$
32
-
We
believe that our current working capital and anticipated cash flow from
operations are adequate to fund existing operations. However, our ability to
finance further acquisitions is limited by the availability of additional
capital. We may, however, finance acquisitions using our common stock as all
or
some portion of the consideration. In the event that our common stock does
not
attain or maintain a sufficient market value or potential acquisition candidates
are otherwise unwilling to accept our securities as part of the purchase price
for the sale of their businesses, we may be required to utilize more of our
cash
resources, if available, in order to continue our acquisition program. If we
do
not have sufficient cash resources through either operations or from debt
facilities, our growth could be limited unless we are able to obtain such
additional capital. In this regard and in the course of executing our
acquisition strategy, we expect to pursue an additional equity offering within
the next twelve months.
We
have
used a significant amount of our available capital to finance the acquisition
of
Airgroup. 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 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.
As
of
March 31, 2006, 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.
Quantitative
and Qualitative Disclosures about Market Risk
The
Company’s exposure to market risk for changes in interest rates relates
primarily to the Company’s short-term cash investments and its line of credit.
The Company is averse to principal loss and ensures the safety and preservation
of its invested funds by limiting default risk, market risk and reinvestment
risk. The Company invests its excess cash in institutional money market
accounts. The Company does not use interest rate derivative instruments to
manage its exposure to interest rate changes. If market interest rates were
to
change by 10% from the levels at March 31, 2006, the change in interest expense
would have had an immaterial impact on the Company’s results of operations and
cash flows.
Recent
Accounting Pronouncements
In
December 2004, the FASB issued SFAS No.153, “Exchanges of Nonmonetary Assets, an
amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.” The
amendments made by Statement 153 are based on the principle that exchanges
of
nonmonetary assets should be measured based on the fair value of the assets
exchanged. Further, the amendments eliminate the narrow exception for
nonmonetary exchanges of similar productive assets and replace it with a broader
exception for exchanges of nonmonetary assets that do not have commercial
substance. Previously, Opinion 29 required that the accounting for an exchange
of a productive asset for a similar productive asset or an equivalent interest
in the same or similar productive asset should be based on the recorded amount
of the asset relinquished. Opinion 29 provided an exception to its basic
measurement principle (fair value) for exchanges of similar productive assets.
The Statement is effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. Earlier application is permitted for
nonmonetary asset exchanges occurring in fiscal periods beginning after the
date
of issuance. The pronouncement will not affect us as we do not engage in these
types of transactions.
In
December 2004, the FASB issued SFAS No.123 (revised 2004), “Share-Based
Payment”. Statement 123R will provide investors and other users of financial
statements with more complete and neutral financial information by requiring
that the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on the
fair
value of the equity or liability instruments issued. Statement 123R covers
a
wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights,
and
employee share purchase plans. Statement 123R replaces FASB Statement No. 123,
Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. Statement 123, as originally issued
in
1995, established as preferable a fair-value-based method of accounting for
share-based payment transactions with employees. However, that Statement
permitted entities the option of continuing to apply the guidance in Opinion
25,
as long as the footnotes to financial statements disclosed what net income
would
have been had the preferable fair-value-based method been used. Non-public
entities will be required to apply Statement 123R as of the first annual
reporting period that begins after December 15, 2005. We adopted SFAS 123R
which
resulted in an incremental $29,238 of compensation expense included in our
results for the year ended December 31, 2005.
In
December 2004, the FASB issued two Staff Positions, FSP 109-1 “Accounting for
Income Taxes” to the tax deduction on “Qualified Production Activities Provided
by the American Job Creation Act of 2004”, and FSP FAS 109-2, “Accounting and
Disclosure Guidance for the Foreign Earnings Repatriation Provision with the
American Jobs Creation Act of 2004.” Neither of these pronouncements had an
effect on us as we do not participate in the related activities.
In
March
2005, the staff of the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”).
The interpretations in SAB 107 express views of the staff regarding the
interaction between SFAS 123R and certain SEC rules and regulations and provide
the staff’s views regarding the valuation of share-based payment arrangements
for public companies. In particular SAB 107 provides guidance related to
share-based payment transactions with nonemployees, the transition from public
entity status, valuation methods (including assumptions such as expected
volatility and expected term), the accounting for certain redeemable financial
instruments issued under share-based payment arrangements, the classification
of
compensation expense, non-GAAP financial measures, first-time adoption of SFAS
123R in an interim period, capitalization of compensation cost related to
share-based payment arrangements, the accounting for income tax effects of
share-based payment arrangements upon adoption of SFAS 123R and the modification
of employee share options prior to adoption of SFAS 123R. Management
is currently evaluating the impact SAB 107 will have on our consolidated
financial statements.
In
March
2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional
Asset Retirement Obligations” (“FIN 47”). FIN 47 provides guidance relating to
the identification of and financial reporting for legal obligations to perform
an asset retirement activity. The Interpretation requires recognition of a
liability for the fair value of a conditional asset retirement obligation when
incurred if the liability’s fair value can be reasonably estimated. FIN 47 also
defines when an entity would have sufficient information to reasonably estimate
the fair value of an asset retirement obligation. The provision is effective
no
later than the end of fiscal years ending after December 15, 2005. We will
adopt
FIN 47 beginning the first quarter of fiscal year 2006 and do not believe the
adoption will have a material impact on our financial position or results of
operations or cash flows.
In
May
2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”
which replaces Accounting Principles Board Opinion No. 20 “Accounting Changes”
and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements-An
Amendment of APB Opinion No. 28.” SFAS 154 provides guidance on the accounting
for and reporting of accounting changes and error corrections. SFAS 154 is
effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005 and is required to be adopted in the first
quarter of fiscal 2006.
In
February 2006, the FASB has issued FASB Statement No. 155, Accounting for
Certain Hybrid Instruments. This standard amends the guidance in FASB Statements
No. 133, Accounting for Derivative Instruments and Hedging Activities, and
No.
140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. Statement 155 allows financial instruments
that
have embedded derivatives to be accounted for as a whole (eliminating the need
to bifurcate the derivative from its host) if the holder elects to account
for
the whole instrument on a fair value basis. Statement 155 is effective for
all
financial instruments acquired or issued after the beginning of an entity’s
first fiscal year that begins after September 15, 2006. The
Company does not expect the adoption of SFAS 155 to have any impact on its
financial position, results of operations or cash flows.
In
February 2006, the FASB decided to move forward with the issuance of a final
FSP
FAS 123R-4 “Classification
of Options and Similar Instruments Issued as Employee Compensation That Allow
for Cash Settlement upon the Occurrence of a Contingent Event”.
The
guidance in FSP FAS 123R-4 amends paragraphs 32 and A229 of FASB Statement
No.
123R to incorporate the concept articulated in footnote 16 of FAS 123R. That
is,
a cash settlement feature that can be exercised only upon the occurrence of
a
contingent event that is outside the employee’s control does not meet the
condition in paragraphs 32 and A229 until it becomes probable that the event
will occur. Originally under FAS 123R, a provision in a share-based payment
plan
that required an entity to settle outstanding options in cash upon the
occurrence of any contingent event required classification and accounting for
the share based payment as a liability. This caused an issue under certain
awards that require or permit, at the holder’s election, cash settlement of the
option or similar instrument upon (a) a change in control or other liquidity
event of the entity or (b) death or disability of the holder. With this new
FSP,
these types of cash settlement features will not require liability accounting
so
long as the feature can be exercised only upon the occurrence of a contingent
event that is outside the employee’s control (such as an initial public
offering) until it becomes probable that event will occur. The guidance in
this
FSP shall be applied upon initial adoption of Statement 123(R). An entity that
adopted Statement 123(R) prior to the issuance of the FSP shall apply the
guidance in the FSP in the first reporting period beginning after February
2006.
Early application of FSP FAS 123R-4 is permitted in periods for which financial
statements have not yet been issued. The Company does not expect that this
new
FSP will have any impact upon its financial position, results of operations
or
cash flows.
In
June
2005, the Emerging Issues Task Force (EITF) reached a consensus on Issue 05-6
,
“ Determining
the Amortization Period for Leasehold Improvements ”,
which
requires that leasehold improvements acquired in a business combination or
purchased subsequent to the inception of a lease be amortized over the lesser
of
the useful life of the assets or a term that includes renewals that are
reasonably assured at the date of the business combination or purchase. EITF
05-6 is effective for periods beginning after July 1, 2005. The Company does
not
expect the provisions of this consensus to have any impact on its financial
position, results of operations or cash flows.
Radiant
Logistics, Inc. (formerly known as “Golf Two, Inc”) (the “Company”) was formed
under the laws of the state of Delaware on March 15, 2001. From inception
through the third quarter of 2005, the Company’s principal business strategy
focused on the development of retail golf stores. In October 2005, our
management team consisting of Bohn H. Crain and Stephen M. Cohen completed
a
change of control transaction when they acquired a majority of the Company’s
outstanding securities from the Company’s former officers and directors in
privately negotiated transactions. In conjunction with the change of control
transaction, we: (i) elected to discontinue the Company’s former business model;
(ii) repositioned ourselves as a global transportation and supply chain
management company; and (iii) changed our name to
“Radiant Logistics, Inc.” to, among other things, better align our name with our
new business focus.
General
Through
the strategic acquisition of regional best-of-breed non-asset based
transportation and logistics service providers, 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.
Our
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. Also, 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.
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. As to our first factor,
following our recent acquisition of Airgroup Corporation (“Airgroup”), we have
identified a number of additional companies that may be suitable acquisition
candidates and are in preliminary discussions with a select number of them.
As
to our second factor, 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, neither of which can be assured.
Our
growth strategy relies upon a number of factors, including our ability to
efficiently integrate the businesses of the companies we acquire, generate
the
anticipated economies of scale from the integration, and 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 our ability to acquire and profitably manage
additional businesses and the intense competition in our industry for customers
and for the acquisition of additional businesses. Certain of these business
risks are identified or referred to later in this section and under the section
captioned “Risk Factors” beginning on page 3 of this prospectus.
We
accomplished the first step in our strategy by completing the acquisition of
Airgroup effective as of January 1, 2006. Airgroup is a Seattle, Washington
based non-asset based logistics company that provides domestic and international
freight forwarding services through a network of 34 exclusive agent offices
across North America. Airgroup services a diversified account base including
manufacturers, distributors and retailers using a network of independent
carriers and over 100 international agents positioned strategically around
the
world.
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 lowest cost locations and
distribute their products in numerous global markets. As a result, companies
are
increasingly looking to third-party logistics providers to help them execute
their supply chain strategies.
Customers
have two principal third-party alternatives: a freight forwarder or a
fully-integrated carrier. A freight forwarder, such as Airgroup, procures
shipments from customers and arranges the transportation of the cargo on a
carrier. A freight forwarder may also arrange pick-up from the shipper to the
carrier and delivery of the shipment from the carrier to the recipient. Freight
forwarders often tailor shipment routing to meet the customer’s price and
service requirements. Fully-integrated carriers, such as FedEx Corporation,
DHL
Worldwide Express, Inc. and United Parcel Service (“UPS”), provide pick up and
delivery service, primarily through their own captive fleets of trucks and
aircraft. Because freight forwarders select from various transportation
options in routing customer shipments, they are often able to serve customers
less expensively and with greater flexibility than integrated carriers.
Freight forwarders, generally handle shipments of any size and can offer a
variety of customized shipping options.
Most
freight forwarders, like Airgroup, 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.
Based
on
management’s experience in the logistics industry, we believe there are several
factors that are increasing demand for global logistics solutions. The primary
factors consist of:
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.
·
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.
·
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.
·
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.
·
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 who can facilitate real-time
transaction processing and web-based shipment
monitoring.
Our
Business Strategy
Our
objective is to provide customers with comprehensive value-added logistics
solutions. Initially, we plan to achieve this goal through the basic services
offered by Airgroup, which will establish our baseline of service offerings.
Thereafter, we expect to grow our business organically and by completing
acquisitions of other companies with complementary geographical and logistics
service offerings. These acquisitions 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 of larger public companies or to independently attempt
their
own public offerings.
We
believe there are many attractive acquisition candidates in our industry because
of the highly fragmented composition of the marketplace, the industry
participants’ need for capital and their owners’ desire for liquidity. We intend
to pursue an aggressive acquisition program to consolidate and enhance our
position in our current market and to acquire operations in new markets.
We
believe we can successfully implement our acquisition strategy due to the
following factors:
·
the
highly fragmented composition of our
market;
·
our
strategy for creating an organization with global reach should enhance
an
acquired
company’s
ability to compete in its local and regional markets through an expansion of
offered services and lower operating costs;
·
the
potential for increased profitability as a result of our centralization
of
certain administrative functions, greater purchasing power and economies
of scale;
·
our
centralized management capabilities should enable us to effectively
manage
our growth and integration of acquired
companies;
·
our
status as a public corporation may ultimately provide us with a liquid
trading currency for acquisitions;
and
·
the
ability to utilize our experienced management to identify, acquire
and
integrate acquisition
opportunities.
Initially,
we intend to expand our business through acquisitions in key gateway locations
such as Los Angeles, New York, Chicago, Seattle, Miami, Dallas and Houston.
We
also intend to expand our international base of operations. Once our expansion
objectives are achieved, 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 Airgroup.
A key
element of our operating strategy is to maximize our operational efficiencies
by
integrating general and administrative functions into the back-office of our
platform acquisition and reducing or eliminating redundant functions and
facilities at acquired companies. This is designed to enable us to quickly
realize potential savings and synergies, efficiently control and monitor
operations of acquired companies and allow acquired companies to focus on
growing their sales and operations.
●
Develop
and Maintain Strong Customer Relationships.
We seek
to develop and maintain strong interactive customer relationships by
anticipating and focusing on our customers’ needs. We emphasize a
relationship-oriented approach to business, rather than the transaction or
assignment-oriented approach used by many of our competitors. To develop close
customer relationships, we and our network of exclusive agents regularly meet
with both existing and prospective clients to help design solutions for, and
identify the resources needed to execute, their supply chain
strategies. We
believe that this relationship-oriented approach results in greater customer
satisfaction and reduced business development expense.
Through
our acquisition of Airgroup, 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. As
we
execute our acquisition strategy, our revenues will ultimately be 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 will 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.
Information
Services
The
regular enhancement of our information systems and ultimate migration of
acquired companies to a common set of back-office and customer facing
applications is a key component of our acquisition and 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
we have integrated to our third-party accounting system (SAP) which 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 result
in
the investment of significant management and financial resources to deliver
these enabling technologies.
As
a
non-asset based third-party logistics provider with an expanding global
presence, we believe that we will be well-positioned to provide cost-effective
and efficient solutions to address the demand in the marketplace for
transportation and logistics services. We believe that the most important
competitive factors in our industry are quality of service, including
reliability, responsiveness, expertise and convenience, scope of operations,
geographic coverage, information technology and price. We believe our
primary competitive advantages are: (i) our low cost; non-asset based
business model; (ii) our information technology resources; and (iii) our diverse
customer base.
·
Non-asset
based business model.
With relatively no dedicated or fixed operating costs, we are able
to leverage our network 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.
·
Global
network.
We intend to focus on expanding our network on a global basis. Once
accomplished, this will enable us to provide a closed-loop logistics
chain
to our customers worldwide. Within North America, our capabilities
consist of our pick up and delivery network, ground and air networks,
and
logistics capabilities. Our ground and pick up and delivery networks
enable us to service the growing deferred forwarding market while
providing the domestic connectivity for international shipments once
they
reach North America. In addition, our heavyweight air network
provides for competitive costs on shipments, as we have no dedicated
charters or leases and can capitalize on available capacity in the
market
to move our customers’ goods.
·
Information
technology resources.
A primary component of our business strategy is the continued
development of advanced information systems to continually provide
accurate and timely information to our management and customers.
Our
customer delivery tools enable connectivity with our customers’ and
trading partners’ systems, which leads to more accurate and up-to-date
information on the status of shipments.
·
Diverse
customer base.
We have a well diversified
base of customers that includes manufacturers, distributors and retailers.
As of the date of this Prospectus, no single customer represented
more
than 5% of our business reducing risks associated with any particular
industry or customer concentration.
Sales
and Marketing
We
principally market our services through the senior management teams in place
at
each of our 34 exclusive agent offices located strategically across the United
States. Each office is staffed with operational employees of the agent to
provide support for the sales team, develop frequent contact with the customer’s
traffic department, and maintain customer service. 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.
Sales
are
primarily generated by our exclusive agents on a localized basis. However,
to
better utilize our available network of agents, we are in the process of
implementing 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 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.
The
logistics business is directly impacted by the volume of domestic and
international trade. The volume of such trade is influenced by many factors,
including economic and political conditions in the United States and abroad,
major work stoppages, exchange controls, currency fluctuations, acts of war,
terrorism and other armed conflicts, United States and international laws
relating to tariffs, trade restrictions, foreign investments and taxation.
The
global logistics services and transportation industries are intensively
competitive and are expected to remain so for the foreseeable future. We will
compete against other integrated logistics companies, as well as transportation
services companies, consultants, information technology vendors and shippers’
transportation departments. This competition is based primarily on rates,
quality of service (such as damage-free shipments, on-time delivery and
consistent transit times), reliable pickup and delivery and scope of operations.
Most of our competitors will have substantially greater financial resources
than
we do.
Regulation
There
are
numerous transportation related regulations. Failure to comply with the
applicable regulations or to maintain required permits or licenses could result
in substantial fines or revocation of operating permits or authorities. We
cannot give assurance as to the degree or cost of future regulations on our
business. Some of the regulations affecting our current and prospective
operations are described below.
Air
freight forwarding businesses are subject to regulation, as an indirect air
cargo carrier, under the Federal Aviation Act by the U.S. Department of
Transportation. 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 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 prospectus, we have approximately 35 employees. 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.
Our
offices are located at 1227 120th
Avenue
N.E., Bellevue, Washington98005 and consist of approximately 14,500 feet of
office space which we lease for approximately $11,300 per month pursuant to
lease that expires April 30, 2007. We also maintain approximately 8,125 feet
of
office space at 19320 Des Moines Memorial Drive South, SeaTac, Washington which
we lease for
approximately $5,300 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.
Below
is
certain information regarding our directors and executive officers.
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
42
Chief
Executive Officer, Chief Financial Officer and Chairman
Stephen
M. Cohen
49
General
Counsel, Secretary and Director
William
H. Moultrie
64
President
and Chief Operating Officer of Airgroup
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 over 15
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. Stonepath is a
global non-asset based provider of third party logistics services listed on
the
American Stock Exchange. 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
M. Cohen.
Mr.
Cohen has served as our General Counsel, Secretary and member of our Board
of
Directors since October 10, 2005. In 2004, Mr. Cohen founded SMC Capital
Advisors, Inc. which provides business and legal consulting services focusing
on
corporate finance and federal securities matters. From 2000 until 2004, Mr.
Cohen served as senior vice president, general counsel and secretary of
Stonepath Group, Inc., a global non-asset based provider of third party
logistics services listed on the American Stock Exchange, where he helped
transition that company from a venture investor in early stage technology
businesses to a global logistics company and assisted in the acquisition of
domestic and international logistics companies in the United States, Asia and
South America. Prior to 2000, Mr. Cohen practiced law, including having been
a
shareholder of Buchanan Ingersoll P.C., from 1996 to 2000, and a partner at
Clark, Ladner, Fortenbaugh & Young from 1990 to 1996. Mr. Cohen earned a
Bachelor of Science in Accounting from the School of Commerce and Finance of
Villanova University in 1977, a Juris Doctor from Temple University in 1980,
and
an LLM in Taxation from Villanova University School of Law. Mr. Cohen is
licensed to practice law in Pennsylvania.
William
H. Moultrie.
Mr.
Moultrie serves as the President and Chief Operating Officer of Airgroup
Corporation. Mr. Moultrie co-founded Airgroup in March of 1987. Over the
past 18 years, he built Airgroup into a non-asset based logistics company
providing domestic and international freight forwarding to a diversified account
base of manufacturers, distributors and retailers using a network of independent
carriers and over 100 international agents positioned strategically around
the
world with over $50.0 million in annual revenues, and 34 agent offices across
North America. Mr. Moultrie has over thirty-five years of logistics
experience in the both the domestic and international markets. Mr. Moultrie
received a Bachelor of Science from Eastern Washington University.
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 and Audit Committee Financial Expert
Our
Board
of Directors acts as our audit committee. No member of our Board of Directors
has been designated as an “audit committee financial expert,” as that term is
defined in Item 401(e) of Regulation S-B promulgated under the Securities Act.
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: (i) we have no Audit Committee; and (ii) Mr. Crain does not satisfy
the
“independence” standards adopted by the American Stock Exchange.
Our
Board
of Directors consists of only two members, both of whom are executive officers
of the Company. In addition, to date, we have conducted limited operations,
having only concluded our first acquisition during January 2006. In light of
the
foregoing, and upon evaluating the Company’s internal controls, our Board of
Directors determined that our internal controls are adequate to insure that
financial information is recorded, processed, summarized and reported in a
timely and accurate manner in accordance with applicable rules and regulations
of the Securities and Exchange Commission. Accordingly, our Board of Directors
concluded that the benefits of retaining an individual who qualifies as an
“audit committee financial expert” would be outweighed by the costs of retaining
such a person.
The
following table sets forth a summary of the compensation paid or accrued for
the
three fiscal years ended December 31, 2005 to or for the benefit of our
Chief Executive Officer and our four most highly compensated executive officers
whose total annual salary and bonus compensation exceeded $100,000 (the “Named
Executive Officers”).
Mr.
Crain has served as our Chief Executive Officer since October 18,2005.
During the fiscal years ended December 31, 2003 and 2004 and from
January1, 2005 until October 17, 2005, we did not pay any compensation to
any of
our executive officers, except that in 2003 we issued shares of common
stock to our former president valued at
$90,000.
(2)
Mr.
Cohen serves as our General Counsel, Secretary and Director. SMC
Capital
Advisors, a legal and financial advisory firm owned by Mr. Cohen,
provides
outside legal services to the Company. Please see “Certain Relationships
and Related Transactions” below.
The
following table sets forth information concerning options granted during our
fiscal year ended December 31, 2005 for each of the Named Executive Officers.
OPTION
GRANTS IN LAST FISCAL YEAR
Number
of
Options
%
of Total Options Granted to Employees
in
Exercise
Market
Price on Date
of
Expiration
Potential
Realization Value at Annualized Annual rates of Stock Price Appreciation
for Option Term
These
options vest in equal annual installments over a five year period
commencing on the date of grant.
(2)
As
of the date of grant, there was no established trading market for
our
common stock and there was no trading of our shares on or around
the date
the options were granted. On or about the date the options were granted,
we completed an offering of our common stock at a price of $0.44
per
share
The
following table sets forth information concerning year-end option values for
fiscal 2005 for the Named Executive Officers.
FISCAL
YEAR END OPTION VALUES
Number
of Unexercised Options at Fiscal Year End
Value
of Unexercised In-The-Money Options at Fiscal Year End
(1)
Name
Exercisable
Unexercisable
Exercisable
Unexercisable
Bohn
H. Crain
—
2,000,000
$
-
$
0
(1)
As
of December 31, 2005, there was no established trading market for
our
common stock with only a single trade of our shares in late December
of
2005. The table has been prepared based on a market value of $0.44
per
share, the price at which we sold shares of common stock to independent
third party accredited investors in arm’s length transactions between
October 2005 and January 2006.
On
January 13, 2006, we entered into an employment agreement with Bohn H. Crain
to
serve as our Chief Executive Officer. The agreement has an initial employment
term of five years and automatically renews for consecutive one-year terms
thereafter, subject to certain notice provision. The agreement provides for
an
annual base salary of $250,000, a performance bonus of up to 50% of the base
salary based upon the achievement of certain target objectives, and
discretionary merit bonus that can be awarded at the discretion of our Board
of
Directors. Mr. Crain will also be entitled to certain severance benefits upon
his death, disability or termination of employment, 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. The employment agreement contains standard and customary
non-solicitation, non-competition, work made for hire, and confidentiality
provisions.
On
October 20, 2005, we issued an option to Mr. Crain to purchase 2,000,000 shares
of common stock, 1,000,000 of which are exercisable at $0.50 per share and
the
balance of which are exercisable at $0.75 per share. The options have a term
of
10 years and vest in equal annual installments over the five year period
commencing on the date of grant.
In
connection with our acquisition of Airgroup, on January 11, 2006 Airgroup
entered into an employment agreement with William H. Moultrie to serve as the
President of Airgroup. The agreement expires on June 30, 2009, provides for
an
annual base salary of $120,000, and an annual performance bonus equal to up
to
25% of the annual base salary payable at the discretion of the board of
directors of Airgroup. Mr. Moultrie is entitled to certain severance payments
in
the event he is terminated without cause and to certain fringe benefits
including, participation in pension, profit sharing and bonus plans, as
applicable, life insurance, hospitalization and major medical as are in effect,
as well as paid vacation, and expense reimbursement. The agreement contains
non
competition and non solicitation covenants which prohibit Mr. Moultrie from
participating in any activity that is competitive with our business or from
soliciting any of our customers, employees or consultants until October 11,2011. The agreement also contains standard and customary confidentiality and
work made for hire provisions.
On
January 11, 2005, we issued an option to Mr. Moultrie to purchase 50,000 shares
of common stock exercisable at $0.44 per share. The options have a term of
10
years, vest in equal annual installments over the five year period commencing
on
the date of grant, and are otherwise subject to the terms of the Radiant
Logistics, Inc. 2005 Stock Incentive Plan, the material terms of which are
described below.
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 acquiror 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 unless the election, or the
nomination for election by our stockholders, of each new director
was
approved by a vote of at least a majority of the directors then
still in office who were directors at the beginning of the
period.
Notwithstanding
the foregoing, a “change in control” is not deemed to have occurred (i) in the
event of a sale, exchange, transfer or other disposition of substantially all
of
our assets to, or a merger, consolidation or other reorganization involving,
us
and any entity in which our chief executive officer has, directly
or indirectly, at least a 25% equity or ownership interest; or (ii) in a
transaction otherwise commonly referred to as a “management leveraged
buy-out.”
Directors’
Compensation
We
do not
have any standard arrangements regarding payment of any cash or other
compensation to our current directors for their services as directors, as
members of any committee of our board of directors or for any special
assignments, other than to reimburse them for their cost of travel and other
out-of-pocket costs incurred to attend board or committee meetings or to perform
any special assignment on behalf of the Company.
Stock
Incentive Plan
The
Radiant Logistics, Inc. 2005 Stock Incentive Plan, (the “Stock Incentive Plan”)
covers 5,000,000 shares of common stock. Under its terms, employees, officers
and directors of the Company and its subsidiaries are currently eligible to
receive non-qualified stock options, restricted stock awards and, at such time
as the Plan is approved by our stockholders, incentive stock options within
the
meaning of Section 422 of the Code. In addition, advisors and consultants
who perform services for the Company or its subsidiaries are eligible to receive
non-qualified stock options under the Stock Incentive Plan. The Stock Incentive
Plan is administered by the Board of Directors or a committee designated by
the
Board of Directors.
All
stock
options granted under the Stock Incentive Plan are exercisable for a period
of
up to ten years from the date of grant and are subject to vesting as determined
by the Board upon grant. We may not grant incentive stock options pursuant
to
the Stock Incentive Plan at exercise prices which are less than the fair market
value of the common stock on the date of grant. The term of an incentive stock
option granted under the Stock Incentive Plan to a stockholder owning more
than
10% of the issued and outstanding common stock may not exceed five years and
the
exercise price of an incentive stock option granted to such stockholder may
not
be less than 110% of the fair market value of the common stock on the date
of
grant. The Stock Incentive Plan contains certain limitations on the maximum
number of shares of the common stock that may be awarded in any calendar year
to
any one individual for the purposes of Section 162(m) of the
Code.
As
of the
date of this prospectus, there are outstanding options to purchase 2,425,000
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, and 425,000 of which
are
exercisable at $0.44 per share.
On
January 11, 2006, Bohn H. Crain, our Chief Executive Officer and Chairman of
the
Board of Directors, and Stephen M. Cohen, our Secretary General Counsel and
a
Director, surrendered 5,712,500 and 1,904,166 shares of common stock,
respectively, to the Company for cancellation.
On
January 13, 2006 we entered into a five year employment agreement with Bohn
H.
Crain to serve as our Chief Executive Officer. On October 20, 2005 we issued
options to Mr. Crain to purchase 2,000,000 shares of common stock. See
“EXECUTIVE COMPENSATION-Employment
and Option Agreements” above.
On
February 10, 2006, the Company reimbursed Radiant Capital Partners LLC (“Radiant
Capital”), an affiliate of Bohn H. Crain, $75,000 for amounts Radiant Capital
had paid on behalf of the Company for financial advisory services paid to a
financial advisor.
SMC
Capital Advisors, Inc., a legal and financial advisory firm owned by Stephen
Cohen, our Secretary, General Counsel and Director, provided approximately
$50,000 of outside legal services to the Company in connection with the
acquisition of Airgroup.
The
following table indicates how many shares of our common stock were beneficially
owned as of June 19, 2006, 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. The address of each of the directors and
executive officers listed below is c/o Airgroup, 1227 120th
Avenue
N.E., Bellevue, Washington98005.
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 May 31,2006
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 33,611,639 sharesof
common stock outstanding as of June 19, 2006.
(2)
Consists
of shares held by Radiant Capital Partners, LLC over which Mr. Crain
has
sole voting and dispositive power. Does not include 2,000,000 shares
issuable upon exercise of options which are subject to vesting.
(3)
Consists
of shares held of record by Mr. Cohen’s wife over which he has sole voting
and dispositive power.
(4)
Does
not include 50,000 shares issuable upon exercise of options which
are
subject to vesting.
The
prices at which the shares of common stock covered by the Prospectus may
actually be sold will be determined by the prevailing public market price for
shares of common stock or by negotiations in private transactions.
The
table
below sets forth the name of each person who is offering for resale shares
of
common stock covered by this prospectus, the number of shares of common stock
beneficially owned by each person, the number of shares of common stock that
may
be sold in this offering, and the number of shares of common stock each person
will own after the offering, assuming they sell all of the shares offered.
The
shares of common stock included in this Prospectus were issued in the following
private placement transactions, each of which was exempt from the registration
requirements of the Securities Act of 1933, as amended, as follows:
●
In
October 2005, we issued an aggregate of 2,272,728 shares of our common
stock to a limited number of accredited investors for gross cash
consideration of $1.0 million.
●
In
December, 2005, we issued 10,098,943 shares of our common stock to
a
limited number of accredited investors for gross cash proceeds of
$4,440,000.
●
In
January 2006, we issued 1,009,093 shares of our common stock to certain
Airgroup shareholders and employees who are accredited investors
for gross
proceeds of $444,000.
●
In
February 2006, we issued 1,466,697 shares of our common stock to
a limited
number of accredited investors for gross cash proceeds of $645,000.
Each
of
the foregoing private placements was completed at a purchase price of $0.44
per
share.
Because
the selling shareholders may offer all, some, or none of their shares of our
common stock, we cannot provide a definitive estimate of the number of shares
that the selling shareholders will hold after this offering.
Except
as
otherwise disclosed in the table below, none of the selling shareholders has
at
any time during the past three years acted as one of our employees, officers,
or
directors or otherwise had a material relationship with us, although up to
7,243,182 shares are being offered by a principal stockholders and 113,637
shares are being offered by the president of our Airgroup subsidiary. In
addition, to our knowledge, none of the selling shareholders is associated
with
a broker-dealer.
For
purposes of the following table, beneficial ownership is determined in
accordance with the rules of the SEC. In computing the number of shares
beneficially owned by a selling shareholder and the percentage of ownership
of
that selling shareholder, shares of common stock issuable on exercise of
options
or warrants held by that selling shareholder that are convertible or
exercisable, as the case may be, within 60 days of June 19, 2006, are included.
Those shares, however, are not deemed outstanding for the purpose of computing
the percentage ownership of any other selling shareholder. The following
table
is based on 33,611,639 shares of common stock outstanding as of June 19,2006.
The
selling shareholders and any of their respective transferees, donees, assignees,
and other successors-in-interest may, from time to time, sell any or all of
their shares of common stock on any stock exchange, market or trading facility
on which the shares are traded or in private transactions. These sales may
be at
fixed or negotiated prices.
We
have
agreed, subject to certain limits, to bear all costs, expenses, and fees of
registration of shares of our common stock offered by the selling shareholders
for resale. However, any brokerage commissions, discounts, concessions, or
other
fees, if any, payable to broker-dealers in connection with any sale of shares
of
common stock will be borne by the selling shareholders selling those shares
or
by the purchasers of those shares.
On
our
being notified by a selling shareholder that any material arrangement has been
entered into with a broker-dealer for the sale of shares through a block trade,
special offering, exchange distribution, or secondary distribution, or a
purchase by a broker or dealer, a supplement to this prospectus will be filed,
if required, pursuant to Rule 424(b) under the Securities Act, disclosing the
following:
the
name of each such selling shareholder and of any participating
broker-dealer
·
the
number of securities involved
·
the
price at which such securities were
sold
·
the
commissions paid or discounts or concessions allowed to any broker-dealer,
where applicable
·
that
any broker-dealer did not conduct any investigation to verify the
information set out or incorporated by reference in this
prospectus
·
other
facts material to the transaction.
The
selling shareholders may use any one or more of the following methods when
selling shares:
·
directly
as principals or in ordinary brokerage transactions and transactions
in
which the broker-dealer solicits
purchasers
·
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
·
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account
·
an
exchange distribution in accordance with the rules of the applicable
exchange
·
privately
negotiated transactions
·
short
sales that are in compliance with the applicable laws and regulations
of
any state or the United States
·
broker-dealers
may agree with the selling shareholders to sell a specified number
of such
shares at a stipulated price per
share
·
a
combination of any such methods of
sale
·
any
other method permitted pursuant to applicable
law
The
selling shareholders may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus.
Any
sales
of the shares may be effected through the OTC Bulletin Board, through any
exchange on which our shares may be subsequently listed, in private transactions
or otherwise, and the shares may be sold at market prices prevailing at the
time
of sale, at prices related to prevailing market prices, or at negotiated prices.
The
selling shareholders may also engage in short sales against the box, puts and
calls, and other transactions in our securities or derivatives of our securities
and may sell or deliver shares in connection with these trades. The selling
shareholders may pledge their shares to their brokers under the margin
provisions of customer agreements. If a selling shareholder defaults on a margin
loan, the broker may, from time to time, offer and sell the pledged shares.
We
believe that the selling shareholders have not entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding
sale of their shares other than ordinary course brokerage arrangements, nor
is
there an underwriter or coordinating broker acting in connection with the
proposed sale of shares by the selling shareholders.
Broker-dealers
engaged by the selling shareholders may arrange for other brokers-dealers to
participate in sales. If the selling shareholders effect sales through
underwriters, brokers, dealers or agents, such firms may receive compensation
in
the form of discounts, concessions or commissions from the selling shareholders
or the purchasers of the shares for whom they may act as agent, principal or
both in amounts to be negotiated. Those persons who act as broker-dealers or
underwriters in connection with the sale of the shares may be selected by the
selling shareholders and may have other business relationships with, and perform
services for, us. The selling shareholders do not expect these commissions
and
discounts to exceed what is customary in the types of transactions involved.
Any
selling shareholder or broker-dealer who participates in the sale of the shares
may be deemed to be an “underwriter” within the meaning of section 2(11) of the
Securities Act. Any commissions received by any underwriter or broker-dealer
and
any profit on any sale of the shares as principal may be deemed to be
underwriting discounts and commissions under the Securities Act.
The
anti-manipulation provisions of Rules 101 through 104 of Regulation M
promulgated under the Exchange Act may apply to purchases and sales of shares
of
common stock by the selling shareholders. In addition, there are restrictions
on
market-making activities by persons engaged in the distribution of the common
stock. We have advised each selling shareholder that it may not use shares
of
common stock issuable on conversion of warrants and included in prospectus
to
cover short sales of common stock made prior to the date on which the
registration statement of which this prospectus forms a part has been declared
effective.
Under
the
securities laws of certain states, the shares may be sold in those states only
through registered or licensed brokers or dealers. In addition, in certain
states the shares may not be able to be sold unless our common stock has been
registered or qualified for sale in that state or an exemption from registration
or qualification is available and is complied with.
We
are
required to pay expenses incident to the registration, offering, and sale of
the
shares under this offering. We estimate that our expenses will total
approximately $100,000. We have agreed to indemnify certain selling shareholders
and certain other persons against certain liabilities, including liabilities
under the Securities Act, and to contribute to payments to which those selling
shareholders or their respective pledges, donees, transferees or other
successors in interest may be required to make in respect thereof. Insofar
as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons, we have been advised
that in the opinion of the SEC, such indemnification is against public policy
as
expressed in the Securities Act and is therefore, unenforceable.
We
are
authorized to issue 50,000,000 shares of common stock, $0.001 par value per
share, of which33,611,639
are outstanding as of the date of this prospectus.
Holders
of common stock have equal rights to receive dividends when, as and if declared
by the Board of Directors, out of funds legally available therefor. We have
not
declared any dividends, and we do not expect to declare or pay any dividends
in
the foreseeable future. Our ability to pay dividends is limited by the terms
of
our Bank of America, N.A. credit facility. Holders of common stock have one
vote
for each share held of record and do not have cumulative voting rights. Removal
of directors requires the affirmative of holders of 75% of our outstanding
shares and approval of amendments to our bylaws requires the affirmative vote
of
holders of two-thirds of our outstanding shares. Holders of common stock are
entitled, upon liquidation of the Company, to share ratably in the net assets
available for distribution, subject to the rights, if any, of holders of any
preferred stock then outstanding. Shares of common stock are not redeemable
and
have no preemptive or similar rights.
We
are
authorized to issue 5,000,000 shares of preferred stock, par value $0.001 per
share of which none are outstanding. Our board of directors has the authority,
without further action by our stockholders, to issue shares of preferred stock
in one or more series, and to fix, as to any such series, any dividend rate,
redemption price, preference on liquidation or dissolution, sinking fund terms,
conversion rights, voting rights, and any other preference or special rights
and
qualifications. Any or all of the rights and preferences selected by our board
of directors may be greater than the rights of our common stock. The issuance
of
preferred stock could adversely affect the voting power of holders of common
stock and the likelihood that holders of common stock will receive dividend
payments and payments upon liquidation.
The
following provisions of our certificate of incorporation, our bylaws and the
Delaware General Corporation Law (“DGCL”) may discourage takeover attempts of us
that may be considered by some stockholders to be in their best interest. The
effect of such provisions could delay or frustrate a merger, tender offer or
proxy contest, the removal of incumbent directors, or the assumption of control
by stockholders, even if such proposed actions would be beneficial to our
stockholders.
Undesignated
Preferred Stock
Our
certificate of incorporation grants our board of directors the authority to
issue up to 5,000,000 shares of preferred stock and to fix the rights,
preferences, qualifications and restrictions of the preferred stock. The
issuance of preferred stock could, under certain circumstances, have the effect
of delaying, deferring or preventing a change in control of us if, for example,
our board of directors designates and issues a series of preferred stock in
an
amount that sufficiently increases the number of outstanding shares to overcome
a vote by the holders or our common stock or with rights and preferences that
includes special voting rights to veto a change in control.
Removal
of Directors
Our
certificate of incorporation provides that members of our board of directors
may
be removed only for cause and only by the affirmative vote of the holders of
75%
of the outstanding shares of our capital stock entitled to vote in the election
of our board of directors. This provision may discourage a third party from
making a tender offer or otherwise attempting to obtain control of us because
it
makes it more difficult for stockholders to replace a majority of our
directors.
Advance
Notice Requirements for Stockholder Nominations and Proposals
Our
bylaws establish an advance notice procedure for stockholder proposals to be
brought before an annual meeting of our stockholders, including proposed
nominations of persons for election to our board of directors. At an annual
meeting, stockholders may only consider proposals or nominations specified
in
the notice of meeting or brought before the meeting by or at the direction
of
our board of directors. Stockholders may also consider a proposal or nomination
by a person who was a stockholder of record on the record date for the meeting
and who has given our secretary timely notice, in proper form, of his or her
intention to bring that business before the meeting. These provisions may have
the effect of precluding the conduct of business at a meeting if the proper
procedures are not followed. These provisions may also discourage or deter
a
potential acquirer from conducting a solicitation of proxies to elect the
acquirer’s own slate of directors or otherwise attempting to obtain control of
us.
Our
bylaws provide that any vacancies in our board of directors resulting from
death, resignation, retirement, disqualification or removal from office or
other
cause will be filled solely by the vote of our remaining directors. This
provision may discourage a third party from making a tender offer or otherwise
attempting to obtain control of us because the provision effectively limits
stockholder election of directors to annual and special meetings of the
stockholders.
Our
certificate of incorporation provides that our bylaws may be amended only by
the
vote of a majority of our board of directors or by the vote of holders of at
least two thirds of the outstanding shares of our capital stock entitled to
vote
in the election of our board of directors. This provision may discourage a
third
party from making a tender offer or otherwise attempting to obtain control
of us
because the provision makes it more difficult for stockholders to amend the
provisions in our bylaws relating to advance notice and director
vacancies.
Delaware
Anti-Takeover Statute
We
are
subject to Section 203 of the Delaware General Corporation Law (“DGCL”). In
general, Section 203 of the DGCL prohibits a publicly-held Delaware corporation
from engaging in a “business combination” with an “interested stockholder” for a
period of three years after the date of the transaction through which the person
became an interested stockholder, unless:
●
prior
to the date of the transaction, the board of directors of the corporation
approved either the business combination or the transaction that
resulted
in the stockholder becoming an interested
stockholder;
●
upon
completion of the transaction that resulted in the stockholder becoming
an
interested stockholder, the interested stockholder owned at least
85% of
the voting stock of the corporation at the time such transaction
commenced, subject to certain exclusions; or
●
on
or subsequent to the date of the transaction, the business combination
is
approved by the board of directors of the corporation and authorized
at an
annual or special meeting of stockholders by the affirmative vote
of at
least two thirds of the outstanding voting stock that is not owned
by the
interested stockholder.
“Business
combination” means a merger, asset sale and other transactions resulting in a
financial benefit to the interested stockholder. “Interested stockholder” means
a person who, together with his or her affiliates and associates, owns, or
at
any time within the three-year period prior to the date on which it is sought
to
be determined whether such person is an interested stockholder owned, 15% or
more of the corporation’s outstanding voting stock.
The
audited financial statements as of December 31, 2005, and for the year then
ended, and for the period from March 15, 2001 (date of inception) through
December 31, 2005, were audited by Stonefield Josephson, Inc., and are included
herein in reliance upon the authority of this firm as expert in accounting
and
auditing.
The
audited financial statements for Airgroup Corporation as of June 30, 2005,
and
for the 2 years then ended, were audited by Holtz Rubenstein Reminick LLP,
and
are included herein in reliance upon the authority of this firm as expert in
accounting and auditing.
Section
145 of the Delaware General Corporation Law (the “DGCL”) provides that a
Delaware corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than action by or in the right of the corporation) by reason of the
fact
that the person is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise.
The
indemnity may include expenses (including attorney’s fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by the person in
connection with the action, suit or proceeding, provided such person acted
in
good faith and in a manner he reasonably believed to be in or not opposed to
the
corporation’s best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
A
similar standard of care is applicable in the case of actions by or in the
right
of the corporation, except that no indemnification may be made in respect of
any
claim, issue or matter as to which such person will have been adjudged to be
liable to the corporation unless and only to the extent that the court in which
such action was brought determines that, despite the adjudication of liability
but in view of all of the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for expenses that the court shall deem proper.
Section
102(b)(7) of the DGCL provides that a Delaware corporation may, in its
certificate of incorporation or an amendment thereto, eliminate or limit the
personal liability of a director to a corporation or its stockholders for
monetary damages for violations of the director’s fiduciary duty of care,
except: (i) for any breach of the director’s duty of loyalty to the corporation
or its stockholders; (ii) for actions or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii) pursuant
to
Section 174 of the DGCL, which relates to unlawful payments of dividends or
unlawful stock purchases or redemptions; or (iv) any transaction from which
a
director derived an improper personal benefit.
Our
bylaws provide that we will indemnify and advance expenses to our directors,
officers, employees and agents, and those serving at our request as a director,
officer, employee or agent of another corporation or enterprise, to the fullest
extent permitted by the DGCL. The rights conferred in our certificate of
incorporation and bylaws are not exclusive of any other right that an
indemnified person may have or hereafter acquire under any statute, our
certificate of incorporation, our bylaws, any agreement, any vote of
stockholders or disinterested directors, or otherwise. Our certificate of
incorporation prevents us from repealing or modifying any of these provisions
to
the extent such repeal or modification would adversely affect any right or
protection of our directors existing at the time of such repeal or modification.
In the event the DGCL is amended to further reduce or eliminate the personal
liability of directors, our certificate of incorporation and bylaws provide
that
the liability of each of our directors shall be reduced or eliminated to the
fullest extent permitted by the DGCL as so amended.
We
are
authorized to enter into indemnification agreements with our directors,
officers, employees and agents, and those serving at the request of the
corporation as a director, officer, employee or agent of another corporation
or
enterprise, which may, in some cases, be broader than the specific
indemnification provisions set forth in the DGCL. In addition, we are authorized
to purchase and maintain insurance on behalf of these persons to indemnify
them
for expenses and liabilities incurred by them by reason of their being or having
been such a director, officer, employee or agent, regardless of whether we
have
the power to indemnify such persons against such expenses and liabilities under
our certificate of incorporation, our bylaws, the DGCL, or otherwise.
These
provisions may have the practical effect in certain cases of eliminating the
ability of stockholders to collect monetary damages from directors or
officers.
We
believe that the limitation of liability, indemnification and insurance
provisions in our certificate of incorporation and bylaws are useful to attract
and retain qualified officers, directors, employees and agents. No material
litigation or proceeding involving any of our officers, directors, employees
or
agents is currently pending for which indemnification or advancement of expenses
is being sought.
The
effect of these indemnification provisions is to authorize such indemnification
for liabilities arising under the Securities Act and the Exchange Act. Insofar
as indemnification for liabilities arising under the Securities Act of 1933
(the
“Act”) may be permitted to directors, officers and controlling persons pursuant
the foregoing provisions or otherwise, we have been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
This
prospectus is part of a registration statement we filed with the United States
Securities and Exchange Commission. You should rely only on the information
provided in this prospectus. We have not authorized anyone to provide you with
information different from that contained in this prospectus. The selling
security holders are offering to sell, and seeking offers to buy, shares of
common stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of
this
prospectus, regardless of the time of delivery of this prospectus or of any
sale
of common stock. Applicable SEC rules may require us to update this prospectus
in the future.
We
file
annual, quarterly and current reports, proxy statements, information statements
and other information with the Securities and Exchange Commission (the “SEC”).
You may read and copy any report, statement or other information that we file
with the SEC at the SEC Public Reference Room at 100 F Street, N.E., Washington,
DC 20549. You may obtain further information on the operation of the Public
Reference room by calling the SEC at 1-800-SEC-0330. These SEC filings and
other
information regarding us are also available to the public at the SEC’s Internet
site at http://www.sec.gov, as well as our Internet site at
www.radiant-logistics.com. Information contained on our web site does not
constitute part of this prospectus.
This
prospectus is part of a registration statement that we filed with the SEC.
This
prospectus and any accompanying prospectus supplement do not contain all of
the
information included in the registration statement, and certain statements
contained in this prospectus and any accompanying prospectus supplement about
the provisions or contents of any contract, agreement or any other document
referred to herein are not necessarily complete. For each of these contracts,
agreements or documents filed as an exhibit to the registration statement,
we
refer you to the actual exhibit for a more complete description of the matters
involved. In addition, we have omitted certain parts of the registration
statement in accordance with the rules and regulations of the SEC. To obtain
all
of the information that we filed with the SEC in connection herewith, we refer
you to the registration statement, including its exhibits and schedules. You
should assume that the information contained in this prospectus and any
accompanying prospectus supplement is accurate only as of the date appearing
on
the front of the prospectus or prospectus supplement, respectively.
As
a
company listed on the OTC Bulletin Board, we are not required to deliver an
annual report to our shareholders. However, we intend to provide an annual
report to our shareholders containing audited financial statements in connection
with any annual meeting of shareholders that we hold.
Supplemental
disclosure of non-cash financing activities:
In
the
first quarter of 2005, an officer of the Company provides office space to
the
Company for $100 per month on a month-to-month basis, which was recorded
as a
contribution to capital. Total office expense for the three months ended
March31, 2005 amounted to $300.
On
March1, 2005, the Company was loaned $24,909 by a stockholder in exchange for
a
promissory note which was non-interest bearing. Interest was not imputed
as the
amount would be immaterial to the financial position at March 31, 2005 and
results of operations over the 5 years of accretion.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
NOTE
1 - NATURE OF OPERATION AND BASIS OF PRESENTATION
General
Radiant
Logistics, Inc. (formerly known as “Golf Two, Inc”) (the “Company”) was formed
under the laws of the state of Delaware on March 15, 2001 and from inception
through the third quarter of 2005, the Company's principal business strategy
focused on the development of retail golf stores. In October 2005, our
management team consisting of Bohn H. Crain and Stephen M. Cohen completed
a
change of control transaction when they acquired a majority of the Company’s
outstanding securities from the Company’s former officers and directors in
privately negotiated transactions. In conjunction with the change of control
transaction, we: (i) elected to discontinue the Company’s former business model;
(ii) repositioned ourselves as a global transportation and supply chain
management company; and (iii) changed our name to
“Radiant Logistics, Inc.” to, among other things, better align our name with our
new business focus.
Through
the strategic acquisition of regional best-of-breed non-asset based
transportation and logistics service providers, 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.
Our
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. Also, 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.
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. As to our first factor,
following our recent acquisition of Airgroup Corporation (“Airgroup”), we have
identified a number of additional companies that may be suitable acquisition
candidates and are in preliminary discussions with a select number of them.
As
to our second factor, 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, neither of which can be assured.
Our
growth strategy relies upon a number of factors, including our ability to
efficiently integrate the businesses of the companies we acquire, generate
the
anticipated economies of scale from the integration, and 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 our ability to acquire and profitably manage
additional businesses and the intense competition in our industry for customers
and for the acquisition of additional businesses.
We
accomplished the first step in our strategy by completing the acquisition
of
Airgroup effective as of January 1, 2006. Airgroup is a Seattle, Washington
based non-asset based logistics company that provides domestic and international
freight forwarding services through a network of 34 exclusive agent offices
across North America. Airgroup services a diversified account base including
manufacturers, distributors and retailers using a network of independent
carriers and over 100 international agents positioned strategically around
the
world.
Prior
to
our acquisition of Airgroup, we operated as a development stage company under
the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 7.
The
accompanying unaudited consolidated financial statements have been prepared
in
accordance with the instructions for Form 10-Q and Regulation S-X related
to
interim period financial statements and, therefore, do not include all
information and footnotes required by generally accepted accounting principles.
However, in the opinion of management, all adjustments (consisting of normal
recurring adjustments and accruals) considered necessary for a fair presentation
of the consolidated financial position of the Company at March 31, 2006 and
the
Company’s consolidated results of operations and cash flows for the three months
ended March 31, 2006 have been included. The results of operations for the
interim period are not necessarily indicative of the results that may be
expected for the entire year. Reference should be made to the annual financial
statements, including footnotes thereto, included in the Company’s Form 10-KSB
for the year ended December 31, 2005 as filed with the SEC on March 17, 2006.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a)
Use
of Estimates
The
preparation of financial statements and related disclosures in accordance
with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of
revenue and expenses during the reporting period. Such estimates include
revenue
recognition, accruals for the cost of purchased transportation, accounting
for
stock options, the assessment of the recoverability of long-lived assets
(specifically goodwill and acquired intangibles), the establishment of an
allowance for doubtful accounts and the valuation allowance for deferred
tax
assets. Estimates and assumptions are reviewed periodically and the effects
of
revisions are reflected in the period that they are determined to be necessary.
Actual results could differ from those estimates.
b)
Cash
and Cash Equivalents
For
purposes of the statement of cash flows, cash equivalents include all highly
liquid investments with original maturities of three months or less which
are
not securing any corporate obligations.
c)
Concentration
The
Company maintains its cash in bank deposit accounts, which, at times, may
exceed
federally insured limits. The Company has not experienced any losses in such
accounts.
d)
Goodwill
We
follow
the provisions of Statement of Financial Accounting Standards ("SFAS") No.
142,
Goodwill and Other Intangible Assets. SFAS No. 142 requires an annual impairment
test for goodwill and intangible assets with indefinite lives. Under the
provisions of SFAS No. 142, the first step of the impairment test requires
that
we determine the fair value of each reporting unit, and compare the fair
value
to the reporting unit's carrying amount. To the extent a reporting unit's
carrying amount exceeds its fair value, an indication exists that the reporting
unit's goodwill may be impaired and we must perform a second more detailed
impairment assessment. The second impairment assessment involves allocating
the
reporting unit’s fair value to all of its recognized and unrecognized assets and
liabilities in order to determine the implied fair value of the reporting
unit’s
goodwill as of the assessment date. The implied fair value of the reporting
unit’s goodwill is then compared to the carrying amount of goodwill to quantify
an impairment charge as of the assessment date. In the future, we will 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.
Acquired
intangibles consist of customer related intangibles and non-compete agreements
arising from our acquisitions. Customer related intangibles are amortized
using
accelerated methods over approximately 5 years and non-compete agreements
are
amortized using the straight line method over a 5 year period.
We
follow
the provisions of SFAS No. 144, Accounting for the Impairment or Disposal
of
Long-Lived Assets, which establishes accounting standards for the impairment
of
long-lived assets such as property, plant and equipment and intangible assets
subject to amortization. We review long-lived assets to be held-and-used
for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. If the sum of the
undiscounted expected future cash flows over the remaining useful life of
a
long-lived asset is less than its carrying amount, the asset is considered
to be
impaired. Impairment losses are measured as the amount by which the carrying
amount of the asset exceeds the fair value of the asset. When fair values
are
not available, we estimate 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.
f)
Commitments
The
company has operating lease commitments some of which are for office and
warehouse space and are under non-cancelable operating leases expiring at
various dates through December 2010. Annual commitments, 2006 through 2010,
respectively, are $76,000, $64,000, $64,000, $64,000, and $32,000
thereafter.
g)
Income
Taxes
Taxes
on
income are provided in accordance with SFAS No. 109, “Accounting
for Income Taxes.”Deferred
income tax assets and liabilities are recognized for the expected future
tax
consequences of events that have been reflected in the consolidated financial
statements. Deferred tax assets and liabilities are determined based on the
differences between the book values and the tax bases of particular assets
and
liabilities and the tax effects of net operating loss and capital loss
carryforwards. 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.
h)
Revenue
Recognition and Purchased Transportation Costs
We
recognize revenue on a gross basis, in accordance with EITF 99-19, "Reporting
Revenue Gross versus Net", as a result of the following: We are the primary
obligor responsible for providing the service desired by the customer and
are
responsible for fulfillment, including the acceptability of the service(s)
ordered or purchased by the customer. We, at our sole discretion, set the
prices
charged to our customers, and are not required to obtain approval or consent
from any other party in establishing our prices. We have multiple suppliers
for
the services we sell to our customers, and have the absolute and complete
discretion and right to select the supplier that will provide the product(s)
or
service(s) ordered by a customer, including changing the supplier on a
shipment-by-shipment basis. In most cases, we determine the nature, type,
characteristics, and specifications of the service(s) ordered by the customer.
We also assume credit risk for the amount billed to the customer.
As
a
non-asset based carrier, we do not own transportation assets. We generate
the
major portion of our air and ocean freight revenues by purchasing transportation
services from direct (asset-based) carriers and reselling those services
to our
customers. In accordance with Emerging Issues Task Force ("EITF") 91-9 "Revenue
and Expense Recognition for Freight Services in Process", revenue from freight
forwarding and export services is recognized at the time the freight is tendered
to the direct carrier at origin, and direct expenses associated with the
cost of
transportation are accrued concurrently. At
the
time when revenue is recognized on a transportation shipment, the Company
records costs related to that shipment based on the estimate of total purchased
transportation costs. The estimates are based upon anticipated margins,
contractual arrangements with direct carriers and other known factors. The
estimates are routinely monitored and compared to actual invoiced costs.
The
estimates are adjusted as deemed necessary by the Company to reflect differences
between the original accruals and actual costs of purchased transportation.
In
December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No.
123R, "Share Based Payment: An Amendment of FASB Statements No. 123 and 95"
("SFAS 123R"). This statement requires that the cost resulting from all
share-based payment transactions be recognized in the Company’s consolidated
financial statements. In addition, in March 2005 the Securities and Exchange
Commission ("SEC") released SEC Staff Accounting Bulletin No. 107, "Share-Based
Payment" ("SAB 107"). SAB 107 provides the SEC’s staff’s position regarding the
application of SFAS 123R and certain SEC rules and regulations, and also
provides the staff’s views regarding the valuation of share-based payment
arrangements for public companies. Generally, the approach in SFAS 123R is
similar to the approach described in SFAS 123. However, SFAS 123R requires
all
share-based payments to employees, including grants of employee stock options,
to be recognized in the statement of operations based on their fair values.
Pro
forma disclosure of fair value recognition, as prescribed under SFAS 123,
is no
longer an alternative. The Company adopted statement 123R in October 2005
and
does not believe the impact will be significant to the Company’s overall results
of operations or financial position.
j)
Basic
and Diluted Income (Loss) Per Share
The
Company uses SFAS No. 128, "Earnings Per Share" for calculating the basic
and
diluted loss per share. Basic loss per share is computed by dividing net
loss
attributable to common stockholders by the weighted average number of common
shares outstanding. Diluted loss per share is computed similar to basic loss
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 had been issued and if the additional common shares were dilutive.
At March 31, 2006 and 2005, the outstanding number of potentially dilutive
common shares totaled 35,179,957 and 25,964,179 shares of common stock,
including options to purchase 2,425,000 shares of common stock at March 31,2006. There were no options outstanding at March 31, 2005. As the Company
has
net losses, their effect is anti-dilutive for all periods presented and has
not
been included in the diluted weighted average earnings per share as shown
on the
Statements of Operations.
NOTE
3 - ACQUISITION OF AIRGROUP
In
January of 2006, the Company acquired 100 percent of the outstanding stock
of
Airgroup Corporation (“Airgroup”). Airgroup is a Seattle, Washington based
non-asset based logistics company that provides domestic and international
freight forwarding services through a network of 34 exclusive agent offices
across North America. Airgroup services a diversified account base including
manufacturers, distributors and retailers using a network of independent
carriers and over 100 international agents positioned strategically around
the
world. See the Company’s Form 8-K filed on January 18, 2006 for additional
information.
The
transaction was valued at up to $14.0
million. This consists of: (i) $9.5 million payable in cash at closing (before
giving effect for $2.8 million in acquired cash); (ii) an additional base
payment of $0.6 million payable in cash on the one-year anniversary of the
closing, provided at least 90% of Airgroup’s locations remain operational
through the first anniversary of the closing (the “Additional Base Payment”);
(iii) a subsequent cash payment of $0.5 million in cash on the two-year
anniversary of the closing; (iv) a base earn-out payment of $1.9 million
payable
in Company common stock over a three-year earn-out period based upon Airgroup
achieving income from continuing operations of not less than $2.5 million
per
year; and (v) as additional incentive to achieve future earnings growth,
an
opportunity to earn up to an additional $1.5 million payable in Company common
stock at the end of a five-year earn-out period (the “Tier-2 Earn-Out”). Under
Airgroup’s Tier-2 Earn-Out, the former shareholders of Airgroup are entitled to
receive 50% of the cumulative income from continuing operations in excess
of
$15,000,000 generated during the five-year earn-out period up to a maximum
of
$1,500,000. With respect to the base earn-out payment of $1.9 million,
in
the
event there is a shortfall in income from continuing operations, the earn-out
payment will be reduced on a dollar-for-dollar basis to the extent of the
shortfall. Shortfalls may be carried over or carried back to the extent that
income
from continuing operations in
any
other payout year exceeds the $2.5 million level.
The
acquisition, which provided the platform operation for the Company’s
consolidation strategy, was accounted for as a purchase and accordingly,
the
results of operations and cash flows of Airgroup have been included in the
Company’s condensed consolidated financial statements prospectively from the
date of acquisition. At March 31, 2006 the total purchase price, including
acquisition expenses of $104,030, but excluding the contingent consideration,
was $10,104,030. The following table summarizes the preliminary allocation
of
the purchase price based on the estimated fair value of the assets acquired
and
liabilities assumed at January 1, 2006:
Current
assets
$
11,412,049
Furniture
and equipment
289,333
Other
assets
399,251
Goodwill
and other intangibles
7,846,922
Total
acquired assets
19,947,555
Current
liabilities assumed
8,911,245
Long
term deferred tax liability
932,280
Total
acquired liabilities
9,843,525
Net
assets acquired
$
10,104,030
For
the
three months ending March 31, 2006, the Company recorded an expense of $170,200
from amortization of intangibles and an income tax benefit of $57,868 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 $224,664 in a year in fiscal years 2006, $403,806 in 2007,
$361,257 in 2008, $394,079 in 2009, in $318,862 in 2010, and $107,052 in
2011.
The
company has not yet finalized the purchase price allocation as a result of
its
on-going review of the tax implications of the transaction which will be
completed in the allotted period of time as required per SFAS 141.
The
following information for the quarters ended March 31, 2006 (actual and
unaudited) and March 31, 2005 (pro forma and unaudited) is presented as if
the
acquisition of Airgroup had occurred as of the beginning of the reporting
period
(in thousands, except earnings per share):
To
complete the Airgroup acquisition and ensure adequate financial flexibility,
the
Company secured a $10,000,000 revolving credit facility (the "Facility")
in
January 2006. The
Facility is collateralized by our 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 prime minus
1.00%
or LIBOR plus 1.55% 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 75% of our eligible accounts
receivable.
As
of
March 31,2006,
we
had $300,752 in advances under the Facility along with $980,318 in outstanding
checks which had not yet been presented to the bank for payment. These amounts
in addition to $500,000
payable to the former shareholders of Airgroup total long
term
debt of $1,781,070.
At
March31, 2006, based on available collateral and $208,236 in outstanding letter
of
credit commitments, there was $3,256,775 available for borrowing under the
Facility.
NOTE
5 - PROVISION FOR INCOME TAXES
Deferred
income taxes are reported using the liability method. Deferred tax assets
are
recognized for deductible temporary differences and deferred tax liabilities
are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their
tax
bases. Deferred tax assets are reduced by a valuation allowance when, in
the
opinion of management, it is more likely than not that some portion or all
of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates
on the
date of enactment.
The
Company accumulated a net federal operating loss carryforward of $342,272
from
inception though its transition into the logistics business in January of
2006
which expires in 2025. Utilization of the net operating loss and tax credit
carryforwards is subject to significant limitations imposed by the change
in
control under I.R.C. 382, limiting its annual utilization to the value of
the
Company at the date of change in control times the federal discount rate.
A
significant portion of the NOL may expire before it can be utilized. The
Company is maintaining a valuation allowance of approximately $116,000 to
off-set the deferred tax asset associated with these net operating losses
until
when, in the opinion of management, utilization is reasonably
assured.
For
the
thee months ended March 31, 2006, the Company recognized an
income
tax benefit of $57,868 related to the amortization of the deferred tax liability
associated with the acquisition of Airgroup in accordance with FASB
109.
The
Company is authorized to issue 5,000,000 shares of preferred stock, par value
at
$.001 per share. As of March 31, 2005, none of the shares were issued or
outstanding (unaudited).
Common
Stock
In
January 2006, we issued 1,009,093 shares of our common stock to certain Airgroup
shareholders and employees who are accredited investors for gross proceeds
of
$444,000. In February 2006, we issued 1,466,697 shares of our common stock
to a
limited number of accredited investors for gross cash proceeds of $645,000.
Each
of these private placements was completed at a purchase price of $0.44 per
share.
NOTE
7 - SHARE BASED COMPENSATION
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
123R, “ Share
Based Payment: An Amendment of FASB Statements No. 123 and 95 ”
(“SFAS
123R”). This statement requires that the cost resulting from all share based
payment transactions be recognized in the Company’s consolidated financial
statements. In addition, in March 2005 the Securities and Exchange
Commission (“SEC”) released SEC Staff Accounting Bulletin No. 107, “
Share-Based
Payment ”
(“SAB
107”). SAB 107 provides the SEC staff’s position regarding the application of
SFAS 123R and certain SEC rules and regulations, and also provides the staff’s
views regarding the valuation of share based payment arrangements for public
companies. Generally, the approach in SFAS 123R is similar to the approach
described in SFAS 123. However, SFAS 123R requires all share-based payments
to
employees, including grants of employee stock options, to be recognized in
the
statement of operations based on their fair values. Pro forma disclosure
of fair
value recognition, as prescribed under SFAS 123, is no longer an alternative.
The
Company issued its first employee options in October of 2005 and adopted
the
fair value recognition provisions of SFAF123R concurrent with this initial
grant.
During
the quarter ended March 31, 2006, the Company issued employees options to
purchase 425,000 shares of common stock at $0.44 per share. The options vest
over a five year term.
Compensation
cost recognized during the three months ended March 31, 2006 includes
compensation cost for all share-based payments granted to date, based on
the
grant-date fair value estimated in accordance with the provisions of SFAS
123R.
No options have been exercised as of March 31, 2006.
The
weighted average fair value of employee options granted during the three
months
ended March 31, 2006 was $0.35 per share. The fair value of options granted
were
estimated on the date of grant using the Black-Scholes option pricing model,
with the following assumptions:
2006
Dividend
yield
None
Expected
volatility
117
%
Average
risk free interest rate
3.73
%
Average
expected lives
5.00
years
In
accordance with SFAS123R, the Company is required to estimate the number
of
awards that are ultimately expected to vest. Due to the lack of historical
information, the Company has not reduced its share based compensation costs
for
any estimated forfeitures. Estimated forfeitures will be reassessed in
subsequent periods and may change based on new facts and
circumstances.
For
the
three months ended March 31, 2006, the Company recognized compensation costs
of
$42,810, in accordance with SFAS 123R.
NOTE
8 - RECENT ACCOUNTING PRONOUNCEMENTS
In
February 2006, the FASB has issued FASB Statement No. 155, Accounting for
Certain Hybrid Instruments. This standard amends the guidance in FASB Statements
No. 133, Accounting for Derivative Instruments and Hedging Activities, and
No.
140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. Statement 155 allows financial instruments
that
have embedded derivatives to be accounted for as a whole (eliminating the
need
to bifurcate the derivative from its host) if the holder elects to account
for
the whole instrument on a fair value basis. Statement 155 is effective for
all
financial instruments acquired or issued after the beginning of an entity’s
first fiscal year that begins after September 15, 2006. The
Company does not expect the adoption of SFAS 155 to have any impact on its
financial position, results of operations or cash flows.
In
February 2006, the FASB decided to move forward with the issuance of a final
FSP
FAS 123R-4 “Classification
of Options and Similar Instruments Issued as Employee Compensation That Allow
for Cash Settlement upon the Occurrence of a Contingent Event”.
The
guidance in FSP FAS 123R-4 amends paragraphs 32 and A229 of FASB Statement
No.
123R to incorporate the concept articulated in footnote 16 of FAS 123R. That
is,
a cash settlement feature that can be exercised only upon the occurrence
of a
contingent event that is outside the employee’s control does not meet the
condition in paragraphs 32 and A229 until it becomes probable that the event
will occur. Originally under FAS 123R, a provision in a share-based payment
plan
that required an entity to settle outstanding options in cash upon the
occurrence of any contingent event required classification and accounting
for
the share based payment as a liability. This caused an issue under certain
awards that require or permit, at the holder’s election, cash settlement of the
option or similar instrument upon (a) a change in control or other liquidity
event of the entity or (b) death or disability of the holder. With this new
FSP,
these types of cash settlement features will not require liability accounting
so
long as the feature can be exercised only upon the occurrence of a contingent
event that is outside the employee’s control (such as an initial public
offering) until it becomes probable that event will occur. The guidance in
this
FSP shall be applied upon initial adoption of Statement 123(R). An entity
that
adopted Statement 123(R) prior to the issuance of the FSP shall apply the
guidance in the FSP in the first reporting period beginning after February
2006.
Early application of FSP FAS 123R-4 is permitted in periods for which financial
statements have not yet been issued. The Company does not expect that this
new
FSP will have any impact upon its financial position, results of operations
or
cash flows.
In
June
2005, the Emerging Issues Task Force (EITF) reached a consensus on Issue
05-6 ,
“ Determining
the Amortization Period for Leasehold Improvements ”,
which
requires that leasehold improvements acquired in a business combination or
purchased subsequent to the inception of a lease be amortized over the lesser
of
the useful life of the assets or a term that includes renewals that are
reasonably assured at the date of the business combination or purchase. EITF
05-6 is effective for periods beginning after July 1, 2005. The Company does
not
expect the provisions of this consensus to have any impact on its financial
position, results of operations or cash flows.
In
May
2005, the FASB issued SFAS No.154, “ Accounting
Changes and Error Corrections ”
(“SFAS
154”) which replaces Accounting Principles Board Opinions No. 20 “ Accounting
Changes ”
and
SFAS No. 3, “ Reporting
Accounting Changes in Interim Financial Statements - An Amendment of APB
Opinion
No. 28 .”
SFAS
154 provides guidance on the accounting for and reporting of accounting changes
and error corrections. It establishes retrospective application, for the
latest
practicable date, as the required method for reporting a change in accounting
principle and the reporting of a correction of an error. SFAS 154 is effective
for accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. The Company does not expect the adoption of SFAS
154 to
have any impact on its financial position, results of operations or cash
flows.
We
have
audited the accompanying balance sheets of Radiant Logistics, Inc. (a
development stage company) (formerly Golf Two, Inc.) as of December 31, 2005
and
2004, and the related statements of operations, stockholders' equity, and
cash
flows for the years then ended and for the period from March 15, 2001
(inception) to December 31, 2005. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an
opinion on these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit includes 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 also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Radiant Logistics, Inc. as of
December 31, 2005 and 2004, and the results of its operations and its cash
flows
for the years then ended and from March 15, 2001 (inception), to December31,2005, in conformity with accounting principles generally accepted in the
United
States of America.
CASH
FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net
loss
$
(149,034
)
$
(25,293
)
$
(342,272
)
ADJUSTMENTS
TO RECONCILE NET LOSS TO NET CASH PROVIDED BY (USED FOR) OPERATING
ACTIVITIES:
non-cash
issuance of common stock (services)
29,500
—
121,825
non-cash
contribution to capital (rent)
900
1,200
6,500
non-cash
compensation expense (stock options)
29,238
—
29,238
non-cash
contribution to capital (interest)
3,500
—
3.500
CHANGE
IN ASSETS AND LIABILITIES -
other
current assets
(25,054
)
—
(25,054
)
accounts
payable and accrued expenses
146,387
(7,150
)
148,387
Total
adjustments
184,471
(5,950
)
284,396
Net
cash provided by (used for) operating activities
35,437
(31,243
)
(57,876
)
CASH
FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Capitalized
acquisition costs
(15,907
)
—
(15,907
)
Net
cash used for investing
(15,907
)
—
(15,907
)
CASH
FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Proceeds
from notes payable, stockholders
24,909
—
84,909
Proceeds
from issuance of common stock
5,202,525
—
5,265,325
Payment
on notes payable, stockholder
—
—
(10,000
)
Net
cash provided by financing activities
5,227,434
—
5,340,234
NET
INCREASE (DECREASE) IN CASH
5,246,964
(31,243
)
5,266,451
CASH,
BEGINNING OF YEAR
19,487
50,730
—
CASH,
END OF YEAR
$
5,266,451
$
19,487
$
5,266,451
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
Income
taxes paid
$
800
$
800
$
4,000
Interest
paid
$
—
$
—
$
—
Supplemental
Disclosure of Non-cash Financing Activities:
In
April
2001, the Company entered into a $10,000 non-interest bearing note with a
stockholder. The note was due upon demand and repaid in April 2002. The Company
recorded $800 of interest expense on this note at 8% per annum as a contribution
to capital for the period from March 15, 2001 (inception) to December 31,2002.
An
officer of the Company provides office space to the Company for $100 per
month
on a month-to-month basis, which was recorded as a contribution to capital.
Total office expense for the years ended December 31, 2005 and 2004 and for
the
period from March 15, 2001 (inception) to December 31, 2004 amounted to $900,
1,200, and $6,200, respectively.
In
March15, 2001, the Company issued 2,325,000 shares of its common stock in exchange
for services to incorporate the Company, totaling $2,325. The Founder Shares
were valued at the par value of the Company's common stock, which represented
its fair market value on the date of issuance.
In
February 2002, 10,500,000 shares of common stock were issued at $0.03 per
share
in exchange for prior services rendered for a total of $90,000, which
represented its fair market value on the date of issuance.
On
March1, 2005, the Company borrowed $24,909 from a stockholder in exchange for
a
non-interest bearing promissory note with principal due and payable in five
years.
In
October of 2005, and in conjunction with the change in control transaction,
stockholders agreed to discharge $78,409 in notes and accumulated
interest.
In
December of 2005, 500,000 shares of common stock were issued to a financial
advisor for financial advisory and investment banking services provided in
connection with, among other things, our transition to a third-party logistics
company at a price $0.44 per share.
The
accompanying notes form an integral part of these financial
statements.
Radiant
Logistics, Inc., formerly known as Golf Two, Inc. (the "Company"), is currently
a development stage company under the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 7 and was incorporated under the laws of
the
State of Delaware on March 15, 2001. Since inception, the Company planned
to
operate retail golf stores, however, in October 2005, in conjunction with
a
change in control transaction, the Company discontinued its former business
model with the intention to reposition itself as a non-asset based
transportation and supply chain management company. The Company completed
the
first phase of its business strategy completing the acquisition of Airgroup
Corporation effective January 1, 2006. (See Note 5). As a result, through
the
2005 calendar year, the Company had not produced revenues since inception
and
will continue to report as a development stage company through December 31,2005.
The
financial statements have been prepared by the Company, pursuant to the rules
and regulations of the Securities and Exchange Commission (“SEC”). The
information furnished herein reflects all adjustments (consisting of normal
recurring accruals and adjustments). Which are, in the opinion of management,
necessary to fairly represent the operating results for the respective
periods.
Use
of Estimates
The
preparation of financial statements in conformity 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 revenues and expenses
during the reported periods. Actual results could materially differ from
those
estimates.
Cash
and Cash Equivalents
For
purposes of the statement 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.
Concentration
The
Company maintains its cash in bank deposit accounts, which, at times, may
exceed
federally insured limits. The Company has not experienced any losses in such
accounts.
Comprehensive
Income (Loss)
The
company accounts for comprehensive income in accordance with SFAS No. 130,
“Reporting Comprehensive Income,” which requires comprehensive income and its
components to be reported when a company has items of comprehensive
income. Comprehensive income includes net income plus other comprehensive
income (i.e. certain revenues, expenses, gains, and losses reported as separate
components of stockholders’ equity rather than in net income). The Company
has no items that represent other comprehensive income and, therefore has
not
included a schedule of other comprehensive income in these financial statements.
Basic
and Diluted Income (Loss) per Share
The
Company uses SFAS No. 128, "Earnings Per Share" for calculating the basic
and
diluted loss per share. Basic loss per share is computed by dividing net
loss
attributable to common stockholders by the weighted average number of common
shares outstanding. Diluted loss per share is computed similar to basic loss
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 had been issued and if the additional common shares were dilutive.
At December 31, 2005 and 2004, the outstanding number of potentially dilutive
common shares totaled 31,135,849 and 25,964,179 shares of common stock,
including options to purchase 2,000,000 shares of common stock as December31,2005. There were no options outstanding at December 31, 2004. As the Company
has
net losses, their effect is anti-dilutive for all periods presented and has
not
been included in the diluted weighted average earnings per share as shown
on the
Statements of Operations.
The
Company accounts for income taxes under SFAS 109,"Accounting for Income Taxes."
Under the asset and liability method of SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statements carrying amounts of existing
assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to
be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
the
enactment occurs. A valuation allowance is provided for certain deferred
tax
assets if it is more likely than not that the Company will not realize tax
assets through future operations.
Fair
Value of Financial Instruments
The
estimated fair values of cash, accounts receivable, accounts payable, and
accrued expenses, none of which are held for trading purposes, approximate
their
carrying value because of the short term maturity of these
instruments.
Stock
-Based Compensation
In
December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No.
123R, "Share Based Payment: An Amendment of FASB Statements No. 123 and 95"
("SFAS 123R"). This statement requires that the cost resulting from all
share-based payment transactions be recognized in the Company’s consolidated
financial statements. In addition, in March 2005 the Securities and Exchange
Commission ("SEC") released SEC Staff Accounting Bulletin No. 107, "Share-Based
Payment" ("SAB 107"). SAB 107 provides the SEC’s staff’s position regarding the
application of SFAS 123R and certain SEC rules and regulations, and also
provides the staff’s views regarding the valuation of share-based payment
arrangements for public companies. Generally, the approach in SFAS 123R is
similar to the approach described in SFAS 123. However, SFAS 123R requires
all
share-based payments to employees, including grants of employee stock options,
to be recognized in the statement of operations based on their fair values.
Pro
forma disclosure of fair value recognition, as prescribed under SFAS 123,
is no
longer an alternative.
The
Company issued its first employee options in October of 2005 granting an
option
to Mr. Crain to purchase 2,000,000 shares of common stock, 1,000,000 of which
are exercisable at $0.50 per share and the balance of which are exercisable
at
$0.75 per share. The options vest over a five year term. Concurrent with
this
initial grant, the Company adopted the fair value recognition provisions
of
SFAS123R. Compensation cost recognized during the three months ended December31, 2005 includes compensation cost for all share-based payments granted
to
date, based on the grant-date fair value estimated in accordance with the
provisions of SFAS 123R. No options have been exercised as of December 31,2005.
The
weighted average fair value of employee options granted during 2005 was $0.35.
The fair value of options granted were estimated on the date of grant using
the
Black-Scholes option pricing model, with the following assumptions:
2005
Dividend
yield
None
Expected
volatility
117
%
Average
risk free interest rate
3.75
%
Average
expected lives
5.00
years
For
the
three months and year ended December 31, 2005, the Company recognized
compensation costs of $29,238, as a result of the adoption of SFAS 123R.
In
November 2004, the FASB issued SFAS No. 151 "Inventory Costs, an amendment
of
ARB No. 43, Chapter 4. The amendments made by Statement 151 clarify that
abnormal amounts of idle facility expense, freight, handling costs, and wasted
materials (spoilage) should be recognized as current-period charges and require
the allocation of fixed production overheads to inventory based on the normal
capacity of the production facilities. The guidance is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. Earlier
application is permitted for inventory costs incurred during fiscal years
beginning after November 23, 2004. The Company has evaluated the impact of
the
adoption of SFAS 151, and does not believe the impact will be significant
to the
Company's overall results of operations or financial position.
In
December 2004, the FASB issued SFAS No.152, "Accounting for Real Estate
Time-Sharing Transactions--an amendment of FASB Statements No. 66 and 67"
("SFAS
152) The amendments made by Statement 152 This Statement amends FASB Statement
No. 66, Accounting for Sales of Real Estate, to reference the financial
accounting and reporting guidance for real estate time-sharing transactions
that
is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real
Estate Time-Sharing Transactions. This Statement also amends FASB Statement
No.
67, Accounting for Costs and Initial Rental Operations of Real Estate Projects,
to state that the guidance for (a) incidental operations and (b) costs incurred
to sell real estate projects does not apply to real estate time-sharing
transactions. The accounting for those operations and costs is subject to
the
guidance in SOP 04-2. This Statement is effective for financial statements
for
fiscal years beginning after June 15, 2005. The Company has evaluated the
impact
of the adoption of SFAS 152, and does not believe the impact will be significant
to the Company's overall results of operations or financial
position.
In
December 2004, the FASB issued SFAS No.153, "Exchanges of Nonmonetary Assets,
an
amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions."The
amendments made by Statement 153 are based on the principle that exchanges
of
nonmonetary assets should be measured based on the fair value of the assets
exchanged. Further, the amendments eliminate the narrow exception for
nonmonetary exchanges of similar productive assets and replace it with a
broader
exception for exchanges of nonmonetary assets that do not have commercial
substance. Previously, Opinion 29 required that the accounting for an exchange
of a productive asset for a similar productive asset or an equivalent interest
in the same or similar productive asset should be based on the recorded amount
of the asset relinquished. Opinion 29 provided an exception to its basic
measurement principle (fair value) for exchanges of similar productive assets.
The Board believes that exception required that some nonmonetary exchanges,
although commercially substantive, be recorded on a carryover basis. By focusing
the exception on exchanges that lack commercial substance, the Board believes
this Statement produces financial reporting that more faithfully represents
the
economics of the transactions. The Statement is effective for nonmonetary
asset
exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier
application is permitted for nonmonetary asset exchanges occurring in fiscal
periods beginning after the date of issuance. The provisions of this Statement
shall be applied prospectively. The Company has evaluated the impact of the
adoption of SFAS 153, and does not believe the impact will be significant
to the
Company's overall results of operations or financial position.
In
December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based
Payment". Statement 123(R) will provide investors and other users of financial
statements with more complete and neutral financial information by requiring
that the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on the
fair
value of the equity or liability instruments issued. Statement 123(R) covers
a
wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights,
and
employee share purchase plans. Statement 123(R) replaces FASB Statement No.
123,
Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. Statement 123, as originally issued
in
1995, established as preferable a fair-value-based method of accounting for
share-based payment transactions with employees. However, that Statement
permitted entities the option of continuing to apply the guidance in Opinion
25,
as long as the footnotes to financial statements disclosed what net income
would
have been had the preferable fair-value-based method been used. Public entities
(other than those filing as small business issuers) will be required to apply
Statement 123(R) as of the first interim or annual reporting period that
begins
after June 15, 2005. The Company adopted Statement 123(R) in December of
2005.
In
December 2004, the Financial Accounting Standards Board issued two FASB Staff
Positions - FSP FAS 109-1, Application of FASB Statement 109 "Accounting
for
Income Taxes" to the Tax Deduction on Qualified Production Activities Provided
by the American Jobs Creation Act of 2004, and FSP FAS 109-2 Accounting and
Disclosure Guidance for the Foreign Earnings Repatriation Provision within
the
American Jobs Creation Act of 2004. Neither of these affected the Company
as it
does not participate in the related activities.
In
March
2005, the SEC released Staff Accounting Bulletin No. 107, “Share-Based Payment”
(“SAB 107”), which provides interpretive guidance related to the interaction
between SFAS 123(R) and certain SEC rules and regulations. It also provides
the
SEC staff’s views regarding valuation of share-based payment arrangements. In
April 2005, the SEC amended the compliance dates for SFAS 123(R), to allow
companies to implement the standard at the beginning of their next fiscal
year,
instead of the next reporting period beginning after June 15, 2005. Management
is currently evaluating the impact SAB 107 will have on our consolidated
financial statements.
In
March
2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional
Asset Retirement Obligations” (“FIN 47”). FIN 47 provides guidance relating to
the identification of and financial reporting for legal obligations to perform
an asset retirement activity. The Interpretation requires recognition of
a
liability for the fair value of a conditional asset retirement obligation
when
incurred if the liability’s fair value can be reasonably estimated. FIN 47 also
defines when an entity would have sufficient information to reasonably estimate
the fair value of an asset retirement obligation. The provision is effective
no
later than the end of fiscal years ending after December 15, 2005. The Company
will adopt FIN 47 beginning the first quarter of fiscal year 2006 and does
not
believe the adoption will have a material impact on its consolidated financial
position or results of operations or cash flows.
In
May
2005, the FASB issued FASB Statement No. 154, “Accounting Changes and Error
Corrections.” This new standard replaces APB Opinion No. 20, “Accounting
Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim
Financial Statements,” and represents another step in the FASB’s goal to
converge its standards with those issued by the IASB. Among other changes,
Statement 154 requires that a voluntary change in accounting principle be
applied retrospectively with all prior period financial statements presented
on
the new accounting principle, unless it is impracticable to do so. Statement
154
also provides that (1) a change in method of depreciating or amortizing a
long-lived non-financial asset be accounted for as a change in estimate
(prospectively) that was effected by a change in accounting principle, and
(2)
correction of errors in previously issued financial statements should be
termed
a “restatement.” The new standard is effective for accounting changes and
correction of errors made in fiscal years beginning after December 15, 2005.
Early adoption of this standard is permitted for accounting changes and
correction of errors made in fiscal years beginning after June 1,2005.
The
Company has evaluated the impact of the adoption of Statement 154 and does
not
believe the impact will be significant to the Company's overall results of
operations or financial position.
In
February of 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
Financial Instruments”, which is intended to simplify the accounting and improve
the financial reporting of certain hybrid financial instruments (i.e.,
derivatives embedded in other financial instruments). The statement amends
SFAS
No. 133, “Accounting for Derivative Instruments and Hedging Activities”, and
SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities—a replacement of FASB Statement No. 125.” SFAS
No. 155 is effective for all financial instruments issued or acquired after
the
beginning of an entity's first fiscal year that begins after September 15,2006.. The Company is
currently evaluating the impact SFAS No. 155 will have on its consolidated
financial statements, if any.
NOTE
2 - RELATED PARTY TRANSACTIONS
Office
Space
Prior
to
the change of control transaction, a stockholder of the Company provided
office
space to the Company at $100 per month on a month-to-month basis, which was
recorded as a contribution to capital. Total office expense for the years
ended
December 31, 2005 and 2004 amounted to $900 and $1,200, respectively, and
for
the period from March 15, 2001 (inception) to December 31, 2005 amounted
to
$6,200.
On
November 5, 2003, the Company borrowed $50,000 from a stockholder in exchange
for a promissory note with principal due and payable on November 5, 2008
and
interest payable on the unpaid balance at 4% per annum. During October of
2005
and in conjunction with the change in control transaction, the stockholder
to
whom the Company owed the $50,000 note and $3,500 in accrued interest agreed
to
cancel the note and discharge all such indebtedness which is reflected as
additional equity contributions to capital. Total interest expense for the
years
ended December 31, 2005 and 2004 amounted to $1,500 and $2,000, respectively,
and for the period from March 15, 2001 (inception) to December 31, 2005 amounted
to $3,500.
On
March1, 2005, the Company borrowed $24,909 from a stockholder in exchange for
a
non-interest bearing promissory note with principal due and payable in five
years. During October of 2005 and in conjunction with the change in control
transaction, the stockholder to whom the Company owed the $24,909 note agreed
to
cancel the note and discharge all such indebtedness which is reflected as
additional equity contributions to capital.
Change
of Control Transaction
On
October 18, 2005, Bohn H. Crain and Stephen M. Cohen acquired 17,616,666
shares
of the Company’s outstanding shares of common stock (constituting 67.9% of the
Company’s outstanding shares) in privately negotiated purchases from the former
officers and directors of the Company. Mr. Crain (through a control affiliate)
acquired an aggregate of 13,212,500 shares from Mr. David Bennett and Mr.
Daniel
Bernstein for total consideration of $18,149. Mr. Cohen (through an affiliate)
acquired 4,404,166 shares from Mr. Bernstein for total consideration of $6,050.
Mr. Crain and Mr. Cohen used personal funds in order to purchase the shares
from
Mr. Bennett and Mr. Bernstein. The number of shares purchased gives effect
to
the stock dividend paid on October 21, 2005 discussed in Note 3.
NOTE
3 - 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, 2005, none of the shares were issued
or
outstanding.
Common
Stock
In
March
2001, the Company issued 19,775,000 shares of its common stock in exchange
for
services to incorporate the Company. In February 2002, the Board of Directors
declared that the Company had not received consideration for the issuance
of
11,637,500 of the previously issued shares and canceled those shares leaving
8,137,500 shares outstanding totaling $2,325. The forgoing shares (before
the
3.5:1 stock split) were valued at the par value of the Company's common stock,
which represented the fair market value of such shares on the date of issuance.
The Company has not recognized the issuance of the cancelled shares in the
financial statements.
In
February 2002, 10,500,000 shares of common stock were issued in exchange
for
prior services rendered for a total of $90,000, which represented the fair
market value of such shares on the date of issuance.
In
April
2002, the Company completed a private placement and issued 7,326,679 shares
of
its common stock for aggregate gross proceeds of $62,800.
In
September 2005, the Company’s Board of Directors approved a 3.5 for 1 split of
its issued and outstanding common stock which was effectuated through a dividend
of 2.5 shares for each share of common stock outstanding as of the record
date.
The dividend was payable on October 21, 2005 to shareholders of record on
October 20, 2005. The stock split has been reflected in the Company’s financial
statements for all periods presented. The common stock will continue to have
a
par value of $0.001 per share. Fractional shares were rounded
upward.
In
October 2005, the Company completed a private placement and issued 2,272,728
shares of its common stock at a purchase price of $0.44 per share for aggregate
gross proceeds of $1,000,000. This
placement yielded net proceeds of $986,222 for the Company, after the payment
of
out-of-pocket costs associated with the placement.
In
December, 2005, the Company completed a private placement and issued 10,098,943
shares of its common stock at a purchase price of $0.44 per share for aggregate
gross proceeds of $4.4 million. This
placement yielded net proceeds of $4.2 million for the Company, after the
payment of placement agent fees and other out-of-pocket costs associated
with
the placement.
In
December, 2005, a total of 7,700,001 shares of common stock were surrendered
to
the Company for cancellation, including 5,712,500 shares surrendered by Bohn
H.
Crain our Chief Executive Officer and Chairman of the Board of Directors
and
1,904,166 shares surrendered by Stephen M. Cohen, our Secretary General Counsel
and a Director.
In
December, 2005, the Company issued 500,000 shares of its common stockat a
price
of $0.44 per share in exchange for financial advisory and investment banking
services provided in connection with, among other things, our transition
to a
third-party logistics.
NOTE
4 - 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.
As
of
December 31, 2005, the Company had a net federal operating loss carryforward
of
$342,272, expiring in 2025. Utilization
of the net operating loss and tax credit carryforwards is subject to significant
limitations imposed by the change in control under I.R.C. 382, limiting its
annual utilization to the value of the Company at the date of change in control
times the federal discount rate. A significant portion of the NOL may expire
before it can be utilized.
During
the year ended December 31, 2005, the valuation allowance increased by $149,034.
Deferred tax assets resulting from the net operating losses are reduced by
a
valuation allowance, when, in the opinion of management, utilization is not
reasonably assured.
In
January of 2006, the Company acquired 100 percent of the outstanding stock
of
Airgroup Corporation (“Airgroup”). Airgroup is a Seattle, Washington based
non-asset based logistics company that provides domestic and international
freight forwarding services through a network of 34 exclusive agent offices
across North America. Airgroup services a diversified account base including
manufacturers, distributors and retailers using a network of independent
carriers and over 100 international agents positioned strategically around
the
world. See the Company’s Form 8-K filed on January 18, 2006 for additional
information.
The
transaction was valued at up to $14.0
million. This consists of: (i) $9.5 million payable in cash at closing; (ii)
an
additional base payment of $0.6 million payable in cash on the one-year
anniversary of the closing, provided at least 90% of Airgroup’s locations remain
operational through the first anniversary of the closing (the “Additional Base
Payment”); (iii) a subsequent cash payment of $0.5 million in cash on the
two-year anniversary of the closing; (iv) a base earn-out payment of $1.9
million payable in Company common stock over a three-year earn-out period
based
upon Airgroup achieving income from continuing operations of not less than
$2.5
million per year; and (v) as additional incentive to achieve future earnings
growth, an opportunity to earn up to an additional $1.5 million payable in
Company common stock at the end of a five-year earn-out period (the “Tier-2
Earn-Out”). Under Airgroup’s Tier-2 Earn-Out, the former shareholders of
Airgroup are entitled to receive 50% of the cumulative income from continuing
operations in excess of $15,000,000 generated during the five-year earn-out
period up to a maximum of $1,500,000. With respect to the base earn-out payment
of $1.9 million, in
the
event there is a shortfall in income from continuing operations, the earn-out
payment will be reduced on a dollar-for-dollar basis to the extent of the
shortfall. Shortfalls may be carried over or carried back to the extent that
income
from continuing operations in
any
other payout year exceeds the $2.5 million level.
The
following unaudited pro forma information is presented as if the acquisition
of
Airgroup had occurred on January 1, 2004 (in thousands, except earnings per
share):
In
January of 2006, the Company entered into a $10.0 million secured credit
facility with Bank of America, N.A with a term of two years (the “Facility”).
The Facility is collateralized by the Company’s 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 prime (7.25% at December 31, 2005) minus 1.00% or LIBOR
(4.39% at December 31, 2005) plus 1.55% 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 75% of the
Company’s eligible accounts receivable.
In
January of 2006, the Company issued 1,009,093 shares of its common stock
to a
limited number of Airgroup shareholders and employees for aggregate gross
proceeds of $444,000; from which no underwriting discounts or commissions
were
paid.
In
February 2006,the
Company issued 1,466,697 shares of its common stock to a limited number of
Airgroup exclusive sales agents and their employees, key Airgroup employees
and
a limited number of other investors for aggregate gross proceeds of $645,000;
from which no underwriting discounts or commissions were paid.
On
February 10, 2006, the Company reimbursed Radiant Capital Partners LLC (“Capital
Partners”), a control affiliate of Bohn H. Crain, $75,000 for amounts Capital
Partners had paid on behalf of the Company for financial advisory
services.
We
have
audited the accompanying balance sheet of Golf Two, Inc. (a development stage
company) as of December 31, 2004 and the related statements of operations,
stockholders' deficit and cash flows for the years ended December 31, 2004
and
2003 and for the period from March 15, 2001 (inception) to December 31, 2004.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based
on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit includes 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 also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Golf Two, Inc. (a development
stage
company) as of December 31, 2004, and the results of its operations and cash
flows for the years ended December 31, 2004 and 2003 and for the period from
March 15, 2001 (inception) to December 31, 2004, in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the accompanying
financial statements, the Company has no established source of revenue, which
raises substantial doubt about its ability to continue as a going concern.
Management's plan in regard to these matters is also discussed in Note
1.
These
financial statements do not include any adjustments that might result from
the
outcome of this uncertainty.
CASH
FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net
loss
$
(25,293
)
$
(30,070
)
$
(193,238
)
ADJUSTMENTS
TO RECONCILE NET LOSS TO NET CASH PROVIDED BY (USED FOR) OPERATING
ACTIVITIES:
Non-cash
issuance of common stock for services
—
—
92,325
Non-cash
contribution to capital
1,200
1,500
5,600
INCREASE
(DECREASE) IN LIABILITIES -
accounts
payable and accrued expenses
(7,150
)
2,150
2,000
Total
adjustments
(5,950
)
3,650
99,925
Net
cash used for operating activities
(31,243
)
(26,420
)
(93,313
)
CASH
FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Proceeds
from note payable-related party
—
50,000
60,000
Payments
on note payable-related party
—
—
(10,000
)
Proceeds
from issuance of common stock
—
—
62,800
Net
cash provided by financing activities
—
50,000
112,800
NET
INCREASE (DECREASE) IN CASH
(31,243
)
23,580
19,487
CASH,
beginning of year
50,730
27,150
—
CASH,
END OF YEAR
$
19,487
$
50,730
$
19,487
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
Income
taxes paid
$
—
$
—
$
—
Interest
paid
$
—
$
—
$
—
SUPPLEMENTAL
DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
In
April
2001, the Company entered into a $10,000 non-interest bearing note with
a
stockholder. The note was due upon demand and repaid in April 2002. The
Company
recorded $800 of interest expense on this note at 8% per annum as a contribution
to capital for the period from March 15, 2001 (inception) to December31, 2002.
An
officer of the Company provides office space to the Company for $100 per
month
on
a month-to-month basis, which was recorded as a contribution to capital.
Total office expense for the years ended December 31, 2004 and 2003 and
for
the
period from March 15, 2001 (inception) to December 31, 2004 amounted to
$1,200,
1,200, and $5,300, respectively.
In
March15, 2001, the Company issued 2,325,000 shares of its common stock in
exchange
for services to incorporate the Company, totaling $2,325. The Founder
Shares
were valued at the par value of the Company's common stock, which represented
its fair market value on the date of issuance.
In
February 2002, 3,000,000 shares of common stock were issued at $0.03 per
share
in
exchange for prior services rendered for a total of $90,000, which represented
its fair market value on the date of issuance.
Golf
Two,
Inc. (the "Company") is currently a development stage company under the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 7
and was
incorporated under the laws of the State of Delaware on March 15, 2001. The
Company plans to operate retail golf stores that will feature indoor golf
instruction and sell custom golf clubs throughout California. As of December31,2004, the Company has not produced revenues since inception and will continue
to
report as a development stage company until significant revenues are
produced.
BASIS
OF PRESENTATION:
The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America,
which
contemplate continuation of the Company as a going concern. However, the
Company
has no established source of revenue and, without realization of additional
capital, it would be unlikely for the Company to continue as a going concern.
This matter raises substantial doubt about the Company's ability to continue
as
a going concern.
Management
recognizes that the Company must generate additional resources to enable
it to
continue operations. Management intends to continue to raise additional
financing through debt financing and equity financing or other means and
interests that it deems necessary, with a view to moving forward and sustaining
a prolonged growth in its strategy phases. However, no assurance can be given
that the Company will be successful in raising additional capital. Furthermore,
there can be no assurance, assuming the Company successfully raises additional
equity, that the Company will achieve profitability or positive cash flow.
If
management is unable to raise additional capital and expected significant
revenues do not result in positive cash flow, the Company will not be able
to
meet its obligations and may have to cease operations.
The
Company's expenses will significantly increase as it begins to implement
its
business plan and currently has no source of revenue. Management hopes that
the
Company's initial source of revenue will be sales from its proposed website.
On
November 5, 2003, the Company entered into a promissory note for $50,000
with
one of its shareholders, payable by November 5, 2008, at the rate of 4% per
year
calculated yearly, in order to engage a web developer. However, management
estimates that its proposed website will not be operational until the second
quarter of 2005 at the earliest. Management's plans to establish a operational
website have been hindered by its inability to raise the necessary funds.
Management hopes that, once operational, the website will become a source
of
revenue to the Company.
(1)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
BASIS
OF PRESENTATION, CONTINUED:
Subsequently,
the Company plans to locate and begin developing its first brick and mortar
retail location, which management anticipates will not occur before the fourth
quarter of 2005 at the earliest. Management's plans to establish a brick
and
mortar retail location have been hindered by its inability to raise the
necessary funding. To begin that step, management recognizes that the Company's
funding needs will be significantly greater and it will require additional
sources of funding since the Company is not yet able to generate revenues
from
operations. Because the Company does not currently have the funds it believes
are needed to open its first retail location, and because revenues that may
be
generated from operation of the Company's proposed website are likely not
to be
sufficient, the Company hopes to raise an additional $475,000, the amount
management estimates it needs need to open its first retail location. Management
projects that such financing will need to be raised through borrowings and
equity financing. Management hopes to begin raising this amount during the
second quarter of 2005. If the Company fails to raise this amount by the
end of
2005, management will focus the Company's efforts on its proposed internet
operations and website. If the Company is unable to raise the necessary funds
to
finance its proposed internet operations and website, the Company will likely
reevaluate its business plan.
USE
OF ESTIMATES:
The
preparation of financial statements in conformity 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 revenues and expenses
during the reported periods. Actual results could materially differ from
those
estimates.
CASH:
EQUIVALENTS
For
purposes of the statement of cash flows, cash equivalents include all highly
liquid debt instruments with original maturities of three months or less
which
are not securing any corporate obligations.
CONCENTRATION
The
Company maintains its cash in bank deposit accounts, which, at times, may
exceed
federally insured limits. The Company has not experienced any losses in such
accounts.
(1)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
COMPREHENSIVE
INCOME:
For
the
years ended December 31, 2004 and 2003, and period from March 15, 2001
(inception) to December 31, 2004, Comprehensive Income consists only of net
income (loss) and, therefore, a Statement of Other Comprehensive Income has
not
been included in the financial statements.
BASIC
AND DILUTED INCOME (LOSS) PER SHARE:
In
accordance with SFAS No. 128, "Earnings Per Share," basic income (loss) per
common share is computed by dividing net income (loss) available to common
stockholders by the weighted average number of common shares outstanding.
Diluted income
(loss)
per common share is computed similar to basic income per common 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 had
been
issued and if the additional common shares were dilutive. As of December31,2004, the Company did not have any equity or debt instruments outstanding
that
can be converted into common stock.
PROVISION
FOR INCOME TAXES:
The
Company accounts for income taxes under SFAS 109, "Accounting for Income
Taxes."
Under the asset and liability method of SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statements carrying amounts of existing
assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to
be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
the
enactment occurs. A valuation allowance is provided for certain deferred
tax
assets if it is more likely than not that the Company will not realize tax
assets through future operations.
FAIR
VALUE OF FINANCIAL INSTRUMENTS:
The
estimated fair values of cash, accounts receivable, accounts payable, and
accrued expenses, none of which are held for trading purposes, approximate
their
carrying value because of the short term maturity of these
instruments.
(1)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
STOCK-BASED
COMPENSATION:
The
Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No.
25,
"Accounting for Stock Issued to Employees" and complies with the disclosure
provisions of SFAS 123, "Accounting for Stock-Based Compensation". Under
APB 25,
compensation cost is recognized over the vesting period based on the excess,
if
any, on the date of grant of the deemed fair value of the Company's shares
over
the employee's exercise price. When the exercise price of the employee share
options is less than the fair value price of the underlying shares on the
grant
date, deferred stock compensation is recognized and amortized to expense
in
accordance with FASB Interpretation No. 28 over the vesting period of the
individual options. Accordingly, because the exercise price of the Company's
employee options equals or exceeds the market price of the underlying shares
on
the date of grant, no compensation expense is recognized. Options or shares
awards issued to non-employees are valued using the fair value method and
expensed over the period services are provided. As of December 31, 2004,
there
were no outstanding stock options.
In
November 2004, the FASB issued SFAS No. 151 "Inventory Costs, an amendment
of
ARB No. 43, Chapter 4. The amendments made by Statement 151 clarify that
abnormal amounts of idle facility expense, freight, handling costs, and wasted
materials (spoilage) should be recognized as current-period charges and require
the allocation of fixed production overheads to inventory based on the normal
capacity of the production facilities. The guidance is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. Earlier
application is permitted for inventory costs incurred during fiscal years
beginning after November 23, 2004. . The Company has evaluated the impact
of the
adoption of SFAS 151, and does not believe the impact will be significant
to the
Company's overall results of operations or financial position.
In
December 2004, the FASB issued SFAS No.152, "Accounting for Real Estate
Time-Sharing Transactions--an amendment of FASB Statements No. 66 and 67"
("SFAS
152) The amendments made by Statement 152 This Statement amends FASB Statement
No. 66, Accounting for Sales of Real Estate, to reference the financial
accounting and reporting guidance for real estate time-sharing transactions
that
is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real
Estate Time-Sharing Transactions. This Statement also amends FASB Statement
No.
67, Accounting for Costs and Initial Rental Operations of Real Estate Projects,
to state that the guidance for (a) incidental operations and (b) costs incurred
to sell real estate projects does not apply to real estate time-sharing
transactions. The accounting for those operations and costs is subject to
the
guidance in SOP 04-2. This Statement is effective for financial statements
for
fiscal years beginning after June 15, 2005. with earlier
application
(1)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
RECENT
ACCOUNTING PRONOUNCEMENTS, CONTINUED:
encouraged
The Company has evaluated the impact of the adoption of SFAS 152, and does
not
believe the impact will be significant to the Company's overall results of
operations or financial position.
In
December 2004, the FASB issued SFAS No.153, "Exchanges of Nonmonetary Assets,
an
amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions."The
amendments made by Statement 153 are based on the principle that exchanges
of
nonmonetary assets should be measured based on the fair value of the assets
exchanged. Further, the amendments eliminate the narrow exception for
nonmonetary exchanges of similar productive assets and replace it with a
broader
exception for exchanges of nonmonetary assets that do not have commercial
substance. Previously, Opinion 29 required that the accounting for an exchange
of a productive asset for a similar productive asset or an equivalent interest
in the same or similar productive asset should be based on the recorded amount
of the asset relinquished. Opinion 29 provided an exception to its basic
measurement principle (fair value) for exchanges of similar productive assets.
The Board believes that exception required that some nonmonetary exchanges,
although commercially substantive, be recorded on a carryover basis. By focusing
the exception on exchanges that lack commercial substance, the Board believes
this Statement produces financial reporting that more faithfully represents
the
economics of the transactions. The Statement is effective for nonmonetary
asset
exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier
application is permitted for nonmonetary asset exchanges occurring in fiscal
periods beginning after the date of issuance. The provisions of this Statement
shall be applied prospectively. The Company has evaluated the impact of the
adoption of SFAS 152, and does not believe the impact will be significant
to the
Company's overall results of operations or financial position.
In
December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based
Payment". Statement 123(R) will provide investors and other users of financial
statements with more complete and neutral financial information by requiring
that the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on the
fair
value of the equity or liability instruments issued. Statement 123(R) covers
a
wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights,
and
employee share purchase plans. Statement 123(R) replaces FASB Statement No.
123,
Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. Statement 123, as originally issued
in
1995, established as preferable a fair-value-based method of accounting for
share-based payment transactions with employees. However, that Statement
permitted entities the option of continuing to apply the guidance in Opinion
25,
as long as the footnotes to financial statements disclosed what net income
would
have been had the preferable fair-value-based method been used. Public entities
(other than those filing as small business issuers) will be required to apply
Statement 123(R) as of the first interim or annual
(1)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
RECENT
ACCOUNTING PRONOUNCEMENTS, CONTINUED:
reporting
period that begins after June 15, 2005. The Company has evaluated the impact
of
the adoption of SFAS 123(R), and does not believe the impact will be significant
to the Company's overall results of operations or financial
position.
In
December 2004, the Financial Accounting Standards Board issued two FASB Staff
Positions - FSP FAS 109-1, Application of FASB Statement 109 "Accounting
for
Income Taxes" to the Tax Deduction on Qualified Production Activities Provided
by the American Jobs Creation Act of 2004, and FSP FAS 109-2 Accounting and
Disclosure Guidance for the Foreign Earnings Repatriation Provision within
the
American Jobs Creation Act of 2004. Neither of these affected the Company
as it
does not participate in the related activities.
(2)
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, 3004, none of the shares were issued
or
outstanding.
Common
Stock
In
March
2001, the Company issued 19,775,000 shares of its common stock in exchange
for
services to incorporate the Company. In February 2002, the Board of Directors
declared that the Company had not received consideration for the issuance
of
11,637,500 shares of the previously issued shares and canceled those shares
leaving 8,137,500 shares totaling $2,325. The Founder Shares were valued
at the
par value of the Company's common stock, which represented its fair market
value
on the date of issuance. The Company has not recognized the issuance of the
cancelled shares in the financial statements.
In
February 2002, 10,500,000 shares of common stock were issued at $0.03 per
share
in exchange for prior services rendered for a total of $90,000, which
represented its fair market value on the date of issuance.
In
April
2002, the Company performed a private placement and issued 7,326,679 shares
of
its common stock at $0.03 per share for an aggregate total of
$62,800.
(3)
RELATED PARTY TRANSACTIONS:
OFFICE
SPACE
A
stockholder of the Company provided office space to the Company at $100 per
month on a month-to-month basis, which was recorded as a contribution to
capital. Total office expense for the years ended December, 2004 and 2003
amounted to $1,200 and $1,200, respectively, and for the period from March15,2001 (inception) to December 31, 2004 amounted to $5,300.
On
November 5, 2003, the Company was loaned $50,000 by a stockholder in exchange
for a promissory note. The principal is due and payable on November 5, 2008
with
interest payable on the unpaid balance at 4% per annum. Total interest expense
for the years ended December 31, 2004 and 2003 amounted to $2,000 and $300,
respectively, and for the period from March 15, 2001 (inception) to December31,2004 amounted to $2,300.
(4)
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.
As
of
December 31, 2004, the Company had a net federal operating loss carryforward
of
$193,238, expiring in 2024. During the year ended December 31, 2004, the
valuation allowance increased by $25,293. Deferred tax assets resulting from
the
net operating losses are reduced by a valuation allowance, when, in the opinion
of management, utilization is not reasonably assured.
A
summary
is as follows:
Net
operating loss carryforward
$
193,238
Effective
tax rate
34
%
Deferred
tax asset
65,701
Valuation
allowance
(65,701
)
Net
deferred tax asset
$
—
(5)
SUBSEQUENT EVENT:
On
March1, 2005, the Company was issued a note in the amount of $24,909 by an unrelated
party, with principal due in five years and is non-interest
bearing.
We
have
audited the accompanying balance sheets of Airgroup Corporation as of June30,2005 and 2004, and the related statements of income and retained earnings
and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with auditing standards generally accepted
in
the United States of America. Those stan-dards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis,
evidence supporting the amounts and disclosures in the financial statements.
An
audit also includes assessing the accounting principles used and significant
estimates made by manage-ment, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Airgroup Corporation as of June30,2005 and 2004 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 of America.
(Information
with respect to the three months ended September 30, 2005 and
2004 is
unaudited)
1.
Summary
of Significant Accounting
Policies
Nature
of business -Airgroup
Corporation (the "Company") is a non-asset based freight forwarding and
logistics provider and has a network of offices in cities throughout the
United
States. The Company was incorporated in the State of Washington.
The
Company's freight forwarding services involve arranging for the total transport
of customers' freight from the shipper's location to the designated recipients,
including the preparation of shipping documents and the providing of handling,
packing and containerization services. The Company’s network of offices is in 35
cities throughout the United States, 34 of which have exclusive agency
relationships and one operated by the Company.
Revenue
recognition -
As a
non-asset based carrier, the Company does not own transportation assets.
The
Company generates the major portion of its air and ocean freight revenues
by
purchasing transportation services from direct (asset-based) carriers and
reselling those services to its customers.
In
accordance with Emerging Issues Task Force ("EITF") 91-9 "Revenue and Expense
Recognition for Freight Services in Process", revenue from freight forwarding
and export services is recognized at the time the freight is tendered to
the
direct carrier at origin, and direct expenses associated with the cost
of
transportation are accrued concurrently. Ongoing provision is made for
doubtful
receivables, discounts, returns and allowances.
The
Company recognizes revenue on a gross basis, in accordance with EITF 99-19,
"Reporting Revenue Gross versus Net", as a result of the following: The
Company
is the primary obligor responsible for providing the service desired by
the
customer and is responsible for fulfillment, including the acceptability
of the
service(s) ordered or purchased by the customer. The Company, at its sole
discretion, sets the prices charged to 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. The Company, in most cases,
does
determine the nature, type, characteristics, and specifications of the
service(s) ordered by the customer. The Company assumes credit risk for
the
amount billed to the customer.
Cash
and cash equivalents -
The
Company considers all short-term instruments purchased with maturities
of three
months or less to be cash equivalents.
Restricted
cash - Restricted
cash consists of cash bonds posted in connection with surety
agreements.
Allowance
for doubtful accounts -
Losses
from uncollectible accounts are provided for by utilizing the allowance
for
doubtful accounts method based upon management's estimate of uncollectible
accounts. Management specifically analyzed accounts receivable and analyzes
potential bad debts, customer concentrations, credit worthiness, current
economic trends and changes in customer payment terms when evaluating the
allowance for doubtful accounts.
Equipment
and furniture -
Equipment and furniture are recorded at cost and are depreciated over the
estimated useful lives using the straight-line method. Expenditures for
maintenance and repairs are charged to operations as incurred. Significant
renovations are capitalized.
Use
of estimates -
The
preparation of financial statements in conformity with generally accepted
accounting principles 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 statement
and the
reported amounts of revenues and expenses during the reporting period.
Actual
results could differ from those estimates. The primary estimates underlying
the
Company's financial statements include allowance for doubtful accounts,
accruals
for transportation and other direct costs, and accruals for cargo
insurance.
(Information
with respect to the three months ended September 30, 2005 and
2004 is
unaudited)
Income
taxes -
Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of
existing assets and liabilities and their respective tax bases. Deferred
tax
assets and liabilities are measured using enacted tax rates expected to
apply in
the year in which those temporary differences are expected to be recovered
or
settled. The effect on the deferred tax assets and liabilities of a change
in
tax rates is recognized in income in the period that includes the enactment
date.
Concentration
of credit risk
- The
Company invests its excess cash in deposits and money market accounts with
major
financial institutions and has not experienced losses related to these
investments.
The
Company's accounts receivable is composed of significant foreign and domestic
accounts. Historically, the Company has not experienced significant losses
related to receivables from individual customers or groups of customers
in any
particular geographic area.
Foreign
Currency Transactions
- In the
normal course of business the Company has accounts receivable and accounts
payable that are transacted in foreign currencies. The Company accounts
for
transaction differences in accordance with Statement of Financial Accounting
Standard Number 52, "Foreign Currency Translation", and accounts for the
gains
or losses in operations. For all periods presented, these amounts were
immaterial to the Company's operations.
Recent
Accounting Pronouncements -In
November 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standard (“SFAS”) No. 151 "Inventory Costs, an
amendment of ARB No. 43, Chapter 4". The amendments made by Statement 151
clarify that abnormal amounts of idle facility expense, freight, handling
costs,
and wasted materials (spoilage) should be recognized as current-period
charges
and require the allocation of fixed production overheads to inventory based
on
the normal capacity of the production facilities. The guidance is effective
for
inventory costs incurred during fiscal years beginning after June 15, 2005.
Earlier application is permitted for inventory costs incurred during fiscal
years beginning after November 23, 2004. This pronouncement will not affect
the
Company as the Company does not engage in these types of transactions.
In
December 2004, the FASB issued SFAS No.153, "Exchanges of Nonmonetary Assets,
an
amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions."
The
amendments made by Statement 153 are based on the principle that exchanges
of
nonmonetary assets should be measured based on the fair value of the assets
exchanged. Further, the amendments eliminate the narrow exception for
nonmonetary exchanges of similar productive assets and replace it with
a broader
exception for exchanges of nonmonetary assets that do not have commercial
substance. Previously, Opinion 29 required that the accounting for an exchange
of a productive asset for a similar productive asset or an equivalent interest
in the same or similar productive asset should be based on the recorded
amount
of the asset relinquished. Opinion 29 provided an exception to its basic
measurement principle (fair value) for exchanges of similar productive
assets.
The Statement is effective for nonmonetary asset exchanges occurring in
fiscal
periods beginning after June 15, 2005. Earlier application is permitted
for
nonmonetary asset exchanges occurring in fiscal periods beginning after
the date
of issuance. The pronouncement will not affect the Company as the Company
does
not engage in these types of transactions.
In
December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based
Payment". Statement 123(R) will provide investors and other users of financial
statements with more complete and neutral financial information by requiring
that the compensation cost relating to share-based payment transactions
be
recognized in financial statements. That cost will be measured based on
the fair
value of the equity or liability instruments issued. Statement 123(R) covers
a
wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights,
and
employee share purchase plans. Statement 123(R) replaces FASB Statement
No. 123,
Accounting for Stock-Based Compensation, and supersedes APB Opinion No.
25,
Accounting for Stock Issued to Employees. Statement 123, as originally
issued in
1995, established as preferable a fair-value-based method of accounting
for
share-based payment transactions with employees. However, that Statement
permitted entities the option of continuing to apply the guidance in Opinion
25,
as long as the footnotes to financial statements disclosed what net income
would
have been had the preferable fair-value-based method been used. Non-public
entities will be required to apply Statement 123(R) as of the first annual
reporting period that begins after December 15, 2005. The Company has evaluated
the impact of the adoption of SFAS 123(R), and does not believe the impact
will
be significant to the Company's overall results of operations or financial
position.
(Information
with respect to the three months ended September 30, 2005 and
2004 is
unaudited)
In
December 2004, the FASB issued two Staff Positions, FSP 109-1 "Accounting
for
Income Taxes" to the tax deduction on "Qualified Production Activities
Provided
by the American Job Creation Act of 2004", and FSP FAS 109-2, "Accounting
and
Disclosure Guidance for the Foreign Earnings Repatriation Provision with
the
American Jobs Creation Act of 2004." Neither of these pronouncements had
an
effect on the Company as the Company does not participate in the related
activities.
In
March
2005, the staff of the SEC issued Staff Accounting Bulletin No. 107 ("SAB
107").
The interpretations in SAB 107 express views of the staff regarding the
interaction between SFAS 123(R) and certain SEC rules and regulations and
provide the staff's views regarding the valuation of share-based payment
arrangements for public companies. In particular SAB 107 provides guidance
related to share-based payment transactions with nonemployees, the transition
from public entity status, valuation methods (including assumptions such
as
expected volatility and expected term), the accounting for certain redeemable
financial instruments issued under share-based payment arrangements, the
classification of compensation expense, non-GAAP financial measures, first-time
adoption of SFAS 123(R) in an interim period, capitalization of compensation
cost related to share-based payment arrangements, the accounting for income
tax
effects of share-based payment arrangements upon adoption of SFAS 123(R)
and the
modification of employee share options prior to adoption of SFAS
123(R).
In
May
2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections”
which replaces Accounting Principles Board Opinion No. 20 "Accounting Changes"
and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements-An
Amendment of APB Opinion No. 28." SFAS 154 provides guidance on the accounting
for and reporting of accounting changes and error corrections. SFAS 154
is
effective for accounting changes and corrections of errors made in fiscal
years
beginning after December 15, 2005 and is required to be adopted by the
Company
in the first quarter of fiscal 2006.
On
December 23, 2003, the FASB issued FASB Statement No. 132 (Revised 2003),
"Employers' Disclosures about Pensions and Other Postretirement Benefits".
This
standard increases the existing GAAP disclosure requirements by requiring
more
details about pension plan assets, benefit obligations, cash flows, benefit
costs and related information. Companies will be required to segregate
plan
assets by category, such as debt, equity and real estate, and provide certain
expected rates of return and other informational disclosures. Statement
132R
also requires companies to disclose various elements of pension and
postretirement benefit costs in interim-period financial statements for
quarters
beginning after December 15, 2003. The new standard provides that companies
with
foreign plans may defer certain disclosures associated with those plans
until
fiscal years ending after June 15, 2004. Finally, like the original Statement
132, the FASB permits reduced disclosures for nonpublic entities, and many
of
the additional disclosures required of nonpublic entities may be deferred
until
fiscal years ending after June 15, 2004. To assist companies in understanding
the new rules and their purpose, the FASB has also issued FASB Statement
No. 132
(Revised 2003), "Employers’ Disclosures about Pensions and Other Postretirement
Benefits, Frequently Asked Questions". In addition, FASB Staff Position
(FSP)
FAS 106-1, "Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003", addresses
certain
situations with respect to employers which provide for prescription drug
coverage as part of their benefit plans. The FSP requires additional disclosures
beyond that required by Statement 132(R) and permits companies to reflect
the
provisions in FSP FAS 106-1 in calendar year-end financial statements in
certain
situations. FSP FAS 106-2, which has the same title as FSP FAS 106-1, supersedes
FSP FAS 106-1 upon its effective date. This pronouncement will not affect
the
Company, as the Company does not engage in these types of
transactions.
(Information
with respect to the three months ended September 30, 2005 and
2004 is
unaudited)
Interim
Financial Statements - The
unaudited financial statements as of September 30, 2005 and for the three
months
ended September 30, 2005 and 2004 reflect all adjustments necessary (consisting
only of normal recurring nature) to present fairly the Company’s financial
position as of September 30, 2005, and the results of operations and cash
flows
for the three month periods ended September 30, 2005 and 2004.
2.
Equipment
and Furniture,
Net
Equipment
and furniture, at cost, consists of the following:
June
30,
September
30,
Useful
Lives
2005
2004
2005
(Unaudited)
Computers
and Equipment
3
to 7 years
$
1,215,354
$
1,054,510
$
1,233,990
Furniture
and Fixtures
5
to 7 years
182,176
178,252
182,176
Vehicles
5
years
64,097
64,097
64,097
1,461,627
1,296,859
1,480,263
Less
Accumulated Depreciation
1,200,556
1,093,176
1,229,306
$
261,071
$
203,683
$
250,957
3.
Employee
Loan
Receivable
Employee
loan receivable at June 30, 2005 and September 30, 2005 consists of a $200,000
loan, to an officer of the Company, which bears interest at 4% per annum,
until
November 2009 when any outstanding principal and accrued interest is due
and
payable.
4.
Income
Taxes
The
Company files U.S. federal income tax returns. There is no state or local
tax on
income in Washington State; as such no provision for state and local
taxes has
been made.
The
provision for income taxes is comprised of the
following:
The
Company leases various office and warehouse space under non-cancelable
operating
leases expiring at various dates through December 2010. Certain leases
also
require the Company to pay a monthly common area maintenance charges. Rent
expense approximated $201,000 and $192,000, respectively, for the years
ended
June 30, 2005 and 2004, and $60,000 and $75,000 for the three months ended
September 30, 2005 and 2004.
The
approximate minimum future lease commitments as of June 30, 2005 are
as
follows:
During
the years ended June 30, 2005 and 2004, cash paid for interest totaled
approximately $30 and $150, respectively. During the three months ended
September 30, 2005 and 2004, cash paid for interest totaled approximately
$30
and $0, respectively.
7.
Subsequent
Event
On
September 19, 2005, the Company’s stockholders entered into a letter of intent
to sell all of the outstanding shares of common stock to Radiant Logistics,
Inc.
(a publicly traded company) for an approximate sales price of $10,000,000
in
cash, plus certain earn-out payments, in stock and cash, contingent on future
performance goals of the Company, as defined.
On
January 11, 2006, Radiant Logistics, Inc. (“Radiant”) acquired 100 percent of
the outstanding stock of Airgroup Corporation, a privately held Washington
corporation. The total value of the transaction was $14.0 million, consisting
of
cash of $9.5 million at closing, a subsequent installment payment of $500,000
payable in two years, a contingent payment of $600,000 payable in one year,
and
a five year earn-out arrangement of up to a total of $3.4 million based
upon the
future financial performance of Airgroup payable in shares of Radiant’s common
stock. With respect to the earn-out arrangement, $1.9
million payable in Company common stock in equal installments over a three-year
earn-out period commencing July 1, 2006, and based upon Airgroup achieving
income from continuing operations of not less than $2.5 million per year.
As
additional incentive to achieve future earnings growth, there is 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. Under this arrangement, the former
shareholders of Airgroup are entitled to receive 50% of the cumulative
income
from continuing operations in excess of $15,000,000 generated during the
five-year earn-out period commencing July 1, 2006, up to a maximum of
$1,500,000. With respect to the 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.
These
contingent payments will be accounted for as additional cost of Airgroup
when
the contingencies are resolved and the consideration is issued or becomes
issuable. Accordingly, the purchase price allocation presented herein is
preliminary and includes only the $9.5 million paid at closing financed
plus the
$0.5 million payment due January 11, 2008.
The
following unaudited pro forma condensed consolidated statement of income
for the
fiscal years ended June 30, 2005 and 2004 and the three months ended March31,2005 presents Radiant’s acquisition of Airgroup as if it had occurred at the
beginning of each of those respect reporting period.
The
customer related and intangible asset was valued using an income approach
and is
being amortized using an accelerated method that approximates the expected
future economic benefit of the intangible. The covenant not to compete
is also
valued using an income approach and is being amortized on a straight-line
basis
over the five year life of the agreement. Other detailed assumptions used
to
prepare the unaudited pro forma condensed consolidated financial information
are
contained in the accompanying explanatory notes.
The
unaudited pro forma condensed consolidated financial information is presented
for illustrative purposes only and is not necessarily indicative of the
financial position or results of operations which would have actually been
reported had the transaction been consummated at the dates mentioned above
or
which may be reported in the future. This unaudited pro forma condensed
consolidated financial information is based upon the respective historical
financial statements of Radiant and Airgroup and should be read in conjunction
with those statements and the related notes.
(amounts
in thousands, except share and per share
information)
Historical
Statements
Radiant
Logistics,
Inc
(f/k/a
Golf Two, Inc.)
Airgroup
(Unaudited)
Acquistion
Pro
Forma
Adjustments
Pro
Forma
(Unaudited)
Transportation
revenue
$
-
$
51,521
$
-
$
51,521
Cost
of transportation
-
29,957
-
29,957
Net
transportation revenue
-
21,564
-
21,564
Agent
commission
15,988
15,988
Personnel
Costs
3,399
(1,443
)
(w
)
1,956
Other
SG&A
29
1,313
1,342
Depreciation
& Amortization
114
574
(x
)
688
19,974
Income
from operations
(29
)
750
869
1,590
Other
income (expense)
(2
)
15
(175
)
(y
)
(162
)
Income
before income taxes
(31
)
765
694
1,428
Income
taxes
-
260
226
(z
)
486
Net
income attributable to common
stockholders
$
(31
)
$
505
$
468
$
942
Basic
and diluted earnings per common share
0.04
Basic
and diluted weighted average common shares
outstanding
25,964,179
(w)
To
reflect contractual reduction in officers' and related family members'
compensation at Airgroup.
(x)
To
reflect amortization of acquired identifiable
intangibles.
(y)
To
reflect interest expense on advances under the bank
facility.
(z)
To
reflect estimated federal/state income tax expense at a rate of
34%.
*Supplemental
pro forma information is being provided since historical
data which merely reflects the prior period results of the Company on a
stand-alone basis prior to the acquisition of Airgroup would provide no
meaningful data with respect to our ongoing operations.
(amounts
in thousands, except share and per share
information)
Historical
Statements
Radiant
Logistics,
Inc
(f/k/a
Golf Two, Inc.)
Airgroup
(Unaudited)
Acquistion
Pro
Forma
Adjustments
Pro
Forma
(Unaudited)
Transportation
revenue
$
-
$
42,972
$
-
$
42,972
Cost
of transportation
-
22,832
-
22,832
Net
transportation revenue
-
20,140
-
20,140
Agent
commission
14,912
14,912
Personnel
Costs
3,304
(1,564
)
(w
)
1,740
Other
SG&A
31
1,145
1,176
Depreciation
& Amortization
186
574
(x
)
760
18,588
Income
from operations
(31
)
593
990
1,552
Other
income (expense)
(1
)
13
(175
)
(y
)
(163
)
Income
before income taxes
(32
)
606
815
1,389
Income
taxes
-
199
273
(z
)
472
Net
income attributable to common
stockholders
$
(32
)
$
407
$
542
$
917
Basic
and diluted earnings per common share
0.04
Basic
and diluted weighted average common shares
outstanding
25,964,179
(w)
Toreflect
contractual reduction in officers' and related family members'
compensation at
Airgroup.
(x)
To
reflect amortization of acquired identifiable
intangibles.
(y)
To
reflect interest expense on advances under the bank
facility.
(z)
To
reflect estimated federal/state income tax expense at a rate
of
34%.
*Supplemental
pro forma information is being provided since historical
data which merely reflects the prior period results of the Company
on a
stand-alone basis prior to the acquisition of Airgroup would provide
no
meaningful data with respect to our ongoing operations.
No
dealer, salesman or any other person has been authorized to give any information
or to make any representations other than those contained in this prospectus
in
connection with the offer made by the prospectus and, if given or made, such
information or representation must not be relied upon as having been authorized
by Radiant Logistics, Inc. This prospectus does not constitute an offer to
sell
or solicitation of an offer to buy any securities in any jurisdiction in which
such offer or solicitation is not authorized, or in which the person making
such
offer or solicitation is not qualified to do so, or to any person to whom it
is
unlawful to make such offer or solicitation. Neither the delivery of this
prospectus nor any sale made hereunder shall, under any circumstance, create
any
implication that there has been no change in the affairs of Radiant Logistics,
Inc. or that the information contained herein is correct as of any time
subsequent to the date hereof.
