10-Q 1 rlgt-10q_20170930.htm 10-Q rlgt-10q_20170930.htm

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended September 30, 2017

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

For the transition period from                      to                      

Commission File Number 001-35392

 

RADIANT LOGISTICS, INC.

(Exact name of Registrant as Specified in Its Charter)

 

 

Delaware

 

04-3625550

 

 

(State or Other Jurisdiction of

Incorporation or Organization)

 

(IRS Employer

Identification No.)

 

 

 

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

 

 

(Address of principal executive offices)

 

 

 

 

 

(425) 943-4599

 

 

(Registrant’s telephone number, including area code)

 

 

 

 

 

N/A

 

(Former name, former address, and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

 

Accelerated filer

 

 

 

 

 

 

Non-accelerated filer

 

  

  

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

Emerging growth company

 

  

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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

There were 49,100,802 shares outstanding of the registrant’s common stock, par value $.001 per share, as of November 1, 2017.

 

 

 

 


RADIANT LOGISTICS, INC.

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

Item 1.

 

 

Condensed Consolidated Financial Statements - Unaudited

  

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2017 and June 30, 2017

  

3

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended September 30, 2017 and 2016

  

4

 

 

 

Condensed Consolidated Statement of Stockholders’ Equity for the three months ended September 30, 2017

  

5

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2017 and 2016

  

6

 

 

 

Notes to Condensed Consolidated Financial Statements

  

8

 

Item 2.

 

 

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

  

22

 

Item 3.

 

 

Quantitative and Qualitative Disclosures About Market Risk

  

29

 

Item 4.

 

 

Controls and Procedures

  

29

 

PART II. OTHER INFORMATION

 

 

 

Item 1.

 

 

Legal Proceedings

  

30

 

Item 1A.

 

 

Risk Factors

  

30

 

Item 6.

 

 

Exhibits

  

31

 

 

 

2


 

RADIANT LOGISTICS, INC.

Condensed Consolidated Balance Sheets

(unaudited)

 

(In thousands, except share and per share data)

 

September 30,

 

 

June 30,

 

 

 

2017

 

 

2017

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,767

 

 

$

5,808

 

Accounts receivable, net of allowance of $1,830 and $1,599, respectively

 

 

123,260

 

 

 

116,327

 

Employee and other receivables

 

 

271

 

 

 

251

 

Income tax deposit

 

 

658

 

 

 

432

 

Prepaid expenses and other current assets

 

 

6,256

 

 

 

6,902

 

Total current assets

 

 

136,212

 

 

 

129,720

 

 

 

 

 

 

 

 

 

 

Technology and equipment, net

 

 

15,607

 

 

 

15,227

 

 

 

 

 

 

 

 

 

 

Acquired intangibles, net

 

 

73,311

 

 

 

74,729

 

Goodwill

 

 

66,997

 

 

 

66,779

 

Deposits and other assets

 

 

3,158

 

 

 

3,085

 

Total long-term assets

 

 

143,466

 

 

 

144,593

 

Total assets

 

$

295,285

 

 

$

289,540

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued transportation costs

 

$

85,008

 

 

$

85,490

 

Commissions payable

 

 

11,466

 

 

 

10,843

 

Other accrued costs

 

 

5,302

 

 

 

4,778

 

Current portion of notes payable

 

 

3,548

 

 

 

3,382

 

Current portion of contingent consideration

 

 

3,830

 

 

 

4,130

 

Current portion of transition and lease termination liability

 

 

1,343

 

 

 

1,210

 

Other current liabilities

 

 

349

 

 

 

143

 

Total current liabilities

 

 

110,846

 

 

 

109,976

 

 

 

 

 

 

 

 

 

 

Notes payable, net of current portion

 

 

42,083

 

 

 

37,040

 

Contingent consideration, net of current portion

 

 

6,015

 

 

 

5,790

 

Transition and lease termination liability, net of current portion

 

 

622

 

 

 

804

 

Deferred rent liability

 

 

980

 

 

 

857

 

Deferred tax liability

 

 

10,205

 

 

 

10,826

 

Other long-term liabilities

 

 

1,099

 

 

 

782

 

Total long-term liabilities

 

 

61,004

 

 

 

56,099

 

Total liabilities

 

 

171,850

 

 

 

166,075

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 5,000,000 shares authorized; 839,200 shares issued and

   outstanding, liquidation preference of $20,980

 

 

1

 

 

 

1

 

Common stock, $0.001 par value, 100,000,000 shares authorized; 49,187,768 and 49,177,215

   shares issued, and 49,095,970 and 49,085,417 shares outstanding, respectively

 

 

30

 

 

 

30

 

Additional paid-in capital

 

 

116,570

 

 

 

116,172

 

Treasury stock, at cost, 91,798 shares

 

 

(253

)

 

 

(253

)

Retained earnings

 

 

7,713

 

 

 

7,397

 

Accumulated other comprehensive income (loss)

 

 

(740

)

 

 

65

 

Total Radiant Logistics, Inc. stockholders’ equity

 

 

123,321

 

 

 

123,412

 

Non-controlling interest

 

 

114

 

 

 

53

 

Total stockholders’ equity

 

 

123,435

 

 

 

123,465

 

Total liabilities and stockholders’ equity

 

$

295,285

 

 

$

289,540

 

 

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

 

 

3


 

RADIANT LOGISTICS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(unaudited)

 

(In thousands, except share and per share data)

 

Three Months Ended September 30,

 

 

 

2017

 

 

2016

 

Revenues

 

$

197,977

 

 

$

195,133

 

Cost of transportation

 

 

151,829

 

 

 

146,124

 

Net revenues

 

 

46,148

 

 

 

49,009

 

 

 

 

 

 

 

 

 

 

Operating partner commissions

 

 

19,692

 

 

 

23,351

 

Personnel costs

 

 

13,993

 

 

 

12,778

 

Selling, general and administrative expenses

 

 

6,848

 

 

 

5,782

 

Depreciation and amortization

 

 

3,575

 

 

 

3,006

 

Transition and lease termination costs

 

 

107

 

 

 

476

 

Change in contingent consideration

 

 

(300

)

 

 

250

 

Total operating expenses

 

 

43,915

 

 

 

45,643

 

 

 

 

 

 

 

 

 

 

Income from operations

 

 

2,233

 

 

 

3,366

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

7

 

 

 

4

 

Interest expense

 

 

(771

)

 

 

(639

)

Foreign exchange gain (loss)

 

 

(85

)

 

 

201

 

Other

 

 

130

 

 

 

194

 

Total other expense:

 

 

(719

)

 

 

(240

)

 

 

 

 

 

 

 

 

 

Income before income tax expense

 

 

1,514

 

 

 

3,126

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

(626

)

 

 

(1,252

)

 

 

 

 

 

 

 

 

 

Net income

 

 

888

 

 

 

1,874

 

Less: Net income attributable to non-controlling interest

 

 

(61

)

 

 

(12

)

 

 

 

 

 

 

 

 

 

Net income attributable to Radiant Logistics, Inc.

 

 

827

 

 

 

1,862

 

Less: Preferred stock dividends

 

 

(511

)

 

 

(511

)

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders

 

$

316

 

 

$

1,351

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

 

(805

)

 

 

221

 

Comprehensive income (loss)

 

$

(489

)

 

$

1,572

 

 

 

 

 

 

 

 

 

 

Net income per common share - basic and diluted

 

$

0.01

 

 

$

0.03

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic shares

 

 

49,085,545

 

 

 

48,861,511

 

Diluted shares

 

 

50,642,953

 

 

 

49,534,395

 

 

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

 

 

 

4


 

RADIANT LOGISTICS, INC.

Condensed Consolidated Statement of Stockholders’ Equity

(unaudited)

 

 

RADIANT LOGISTICS, INC. STOCKHOLDERS' EQUITY

 

 

 

 

 

(In thousands, except share data)

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Treasury

 

 

Retained

 

 

Accumulated

Other

Comprehensive

 

 

Non-

Controlling

 

 

Total

Stockholders’

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Earnings

 

 

Income (Loss)

 

 

Interest

 

 

Equity

 

Balance as of June 30, 2017

 

839,200

 

 

$

1

 

 

 

49,085,417

 

 

$

30

 

 

$

116,172

 

 

$

(253

)

 

$

7,397

 

 

$

65

 

 

$

53

 

 

$

123,465

 

Issuance of common stock to former

   shareholders of acquired operations

 

 

 

 

 

 

 

10,019

 

 

 

 

 

 

50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

350

 

Cashless exercise of stock options

 

 

 

 

 

 

 

534

 

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

Preferred dividends paid

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(511

)

 

 

 

 

 

 

 

 

(511

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

827

 

 

 

 

 

 

61

 

 

 

888

 

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(805

)

 

 

 

 

 

(805

)

Balance as of September 30, 2017

 

839,200

 

 

$

1

 

 

 

49,095,970

 

 

$

30

 

 

$

116,570

 

 

$

(253

)

 

$

7,713

 

 

$

(740

)

 

$

114

 

 

$

123,435

 

 

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

 

 

5


 

RADIANT LOGISTICS, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

(In thousands)

 

Three Months Ended September 30,

 

 

 

 

2017

 

 

 

2016

 

CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

888

 

 

$

1,874

 

ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

share-based compensation expense

 

 

350

 

 

 

331

 

amortization of intangibles

 

 

2,494

 

 

 

2,074

 

depreciation and leasehold amortization

 

 

1,081

 

 

 

932

 

deferred income tax benefit

 

 

(512

)

 

 

(422

)

amortization of loan fees

 

 

62

 

 

 

80

 

change in contingent consideration

 

 

(300

)

 

 

250

 

transition and lease termination costs

 

 

107

 

 

 

21

 

loss (gain) on disposal of technology and equipment

 

 

(4

)

 

 

9

 

change in provision for doubtful accounts

 

 

231

 

 

 

46

 

CHANGE IN OPERATING ASSETS AND LIABILITIES:

 

 

 

 

 

 

 

 

accounts receivable

 

 

(6,592

)

 

 

(13,294

)

employee and other receivables

 

 

(20

)

 

 

239

 

income tax deposit

 

 

(233

)

 

 

1,380

 

prepaid expenses, deposits and other assets

 

 

712

 

 

 

(2,129

)

accounts payable and accrued transportation costs

 

 

(939

)

 

 

9,642

 

commissions payable

 

 

623

 

 

 

1,805

 

other accrued costs

 

 

503

 

 

 

451

 

other liabilities

 

 

473

 

 

 

327

 

deferred rent liability

 

 

112

 

 

 

85

 

transition and lease termination liability

 

 

(213

)

 

 

(221

)

Net cash provided by (used for) operating activities

 

 

(1,177

)

 

 

3,480

 

 

 

 

 

 

 

 

 

 

CASH FLOWS USED FOR INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Acquisitions during the fiscal year

 

 

(1,025

)

 

 

(50

)

Purchases of technology and equipment

 

 

(1,383

)

 

 

(662

)

Proceeds from sale of technology and equipment

 

 

41

 

 

 

37

 

Payments to former shareholders of acquired operations

 

 

 

 

 

(50

)

Net cash used for investing activities

 

 

(2,367

)

 

 

(725

)

 

 

 

 

 

 

 

 

 

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from credit facility, net

 

 

4,975

 

 

 

1,712

 

Payments of loan fees

 

 

(87

)

 

 

 

Repayments of notes payable

 

 

(835

)

 

 

(585

)

Purchases of treasury stock

 

 

 

 

 

(253

)

Payments of preferred stock dividends

 

 

(511

)

 

 

(511

)

Distribution to non-controlling interest

 

 

 

 

 

(42

)

Payments of employee tax withholdings related to cashless stock option exercises

 

 

(2

)

 

 

(30

)

Net cash provided by financing activities

 

 

3,540

 

 

 

291

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(37

)

 

 

(10

)

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

(41

)

 

 

3,036

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

 

5,808

 

 

 

4,768

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

5,767

 

 

$

7,804

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Income taxes paid

 

$

1,404

 

 

$

333

 

Interest paid

 

$

701

 

 

$

570

 

 

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

 

6


 

RADIANT LOGISTICS, INC.

Consolidated Statements of Cash Flows (continued)

Supplemental disclosure of non-cash investing and financing activities:

In September 2017, the Company issued 10,019 shares of common stock at a fair value of $4.99 per share in satisfaction of $50 of the Sandifer-Valley Transportation & Logistics, Ltd. purchase price, resulting in an increase to common stock and additional paid-in capital of $50.

 

 

 

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

 

 

 

7


 

RADIANT LOGISTICS, INC.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

(All amounts in these footnotes other than share amounts and per share amounts are in thousands)

 

NOTE 1 – THE COMPANY AND BASIS OF PRESENTATION

The Company

Radiant Logistics, Inc. (the “Company”) operates as a third-party logistics company, providing multi-modal transportation and logistics services primarily to customers based in the United States and Canada. The Company services a large and diversified account base which it supports from an extensive multi-brand network of over 100 operating locations (including 20 Company-owned offices) across North America, as well as an integrated international service partner network located in other key markets around the globe. As a third-party logistics company, the Company has a carrier network of approximately 10,000 asset-based transportation companies, including motor carriers, railroads, airlines and ocean lines. The Company believes shippers value its services because it is able to objectively arrange the most efficient and cost-effective means, type and provider of transportation service since it is not influenced by the ownership of transportation assets. In addition, the Company’s minimal investment in physical assets affords it the opportunity for a higher return on invested capital and net cash flows than the Company’s asset-based competitors.

Through its operating locations across North America, the Company offers domestic and international air and ocean freight forwarding services and freight brokerage services including truckload services, less than truckload services and intermodal services, which is the movement of freight in trailers or containers by combination of truck and rail. The Company’s primary business operations involve arranging the shipment, on behalf of its customers, of materials, products, equipment and other goods that are generally larger than shipments handled by integrated carriers of primarily small parcels, such as FedEx, DHL and UPS, including arranging and monitoring all aspects of material flow activity utilizing advanced information technology systems. The Company also provides other value-added logistics services, including customs brokerage, order fulfillment, inventory management and warehousing services to complement its core transportation service offering.

The Company expects to grow its business organically and by completing acquisitions of other companies with complementary geographical and logistics service offerings. The Company’s organic growth strategy will continue to focus on strengthening existing and expanding new customer relationships leveraging the benefit of the Company’s truck brokerage and intermodal service offerings, while continuing its efforts on the organic build-out of the Company’s network of strategic operating partner locations. In addition, as the Company continues to grow and scale its business, the Company believes that it is creating density in its trade lanes which creates opportunities for the Company to more efficiently source and manage its transportation capacity.

In addition to its focus on organic growth, the Company will continue to search for acquisition candidates that bring critical mass from a geographic and purchasing power standpoint, along with providing complementary service offerings to the current platform. As the Company continues to grow and scale its business, it also remains focused on leveraging its back-office infrastructure and technology systems to drive productivity improvement across the organization.

Interim Disclosure

The condensed consolidated financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. The Company’s management believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2017.

The interim period information included in this Quarterly Report on Form 10-Q reflects all adjustments, consisting of normal recurring adjustments, that are, in the opinion of the Company’s management, necessary for a fair statement of the results of the respective interim periods. Results of operations for interim periods are not necessarily indicative of results to be expected for an entire year.

Basis of Presentation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries as well as a single variable interest entity, Radiant Logistics Partners, LLC (“RLP”), which is 40% owned by Radiant Global Logistics, Inc. (“RGL”), and 60% owned by Radiant Capital Partners, LLC (“RCP”, see Note 8), an affiliate of Bohn H. Crain, the Company’s Chief Executive Officer, whose accounts are included in the condensed consolidated financial statements. All significant intercompany balances and transactions have been eliminated. All amounts in the condensed consolidated financial statements are stated in thousands, except share and per share amounts.

 

8


 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a)

Use of Estimates

The preparation of financial statements and related disclosures in accordance with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates include revenue recognition, accruals for the cost of purchased transportation, the fair value of acquired assets and liabilities, changes in contingent consideration, accounting for the issuance of shares and share-based compensation, the assessment of the recoverability of long-lived assets and goodwill, and the establishment of an allowance for doubtful accounts. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period that they are determined to be necessary. Actual results could differ from those estimates.

b)

Fair Value Measurements

In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

c)

Fair Value of Financial Instruments

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

d)

Cash and Cash Equivalents

For purposes of the statements of cash flows, cash equivalents include all highly liquid investments with original maturities of three months or less. Cash balances may at times exceed federally insured limits. Checks issued by the Company that have not yet been presented to the bank for payment are reported as accounts payable and commissions payable in the accompanying condensed consolidated balance sheets. Accounts payable and commissions payable includes outstanding payments which had not yet been presented to the bank for payment in the amounts of $6,775 and $9,238 as of September 30, 2017 and June 30, 2017, respectively.

e)

Concentrations

The Company maintains its cash in bank deposit accounts that, at times, may exceed federally-insured limits. The Company has not experienced any losses in such accounts.

f)

Accounts Receivable

The Company’s receivables are recorded when billed and represent claims against third-parties that will be settled in cash. The carrying value of the Company’s receivables, net of the allowance for doubtful accounts, represents their estimated net realizable value. The Company evaluates the collectability of accounts receivable on a customer-by-customer basis. The Company records a reserve for bad debts against amounts due in order to reduce the net recognized receivable to an amount the Company believes will be reasonably collected. The reserve is a discretionary amount determined from the analysis of the aging of the accounts receivables, historical experience and knowledge of specific customers.

9


 

The Company derives a substantial portion of its revenue through independently-owned strategic operating partner locations operating under various Company brands. Each individual strategic operating partner is responsible for some or all of the bad debt expense related to the underlying customers being serviced by such strategic operating partner. To facilitate this arrangement, certain strategic operating partners are required to maintain a security deposit with the Company that is recognized as a liability in the Company’s financial statements. The Company charges each individual strategic operating partner’s bad debt reserve account for any accounts receivable aged beyond 90 days. However, the bad debt reserve account may carry a deficit balance when amounts charged to this reserve exceed amounts otherwise available in the bad debt reserve account. In these circumstances, deficit bad debt reserve accounts, as well as other deficit balances owed to us by strategic operating partners, are recognized as a receivable in the Company’s financial statements. Other strategic operating partners are not required to establish a bad debt reserve, however, they are still responsible for deficits and their strategic operating partner agreements provide that the Company may withhold all or a portion of future commission checks payable to the individual strategic operating partner in satisfaction of any deficit balance. Currently, a number of the Company’s strategic operating partners have a deficit balance in their bad debt reserve account. The Company expects to replenish these funds through the future business operations of these strategic operating partners. However, to the extent any of these strategic operating partners were to cease operations or otherwise be unable to replenish these deficit accounts, the Company would be at risk of loss for any such amount.

g)

Technology and Equipment

Technology (computer software, hardware, and communications), vehicles, furniture and equipment are stated at cost, less accumulated depreciation over the estimated useful lives of the respective assets. Depreciation is computed using three to fifteen year lives for vehicles, communication, office, furniture, and computer equipment using the straight line method of depreciation. Computer software is depreciated over a three to five year life using the straight line method of depreciation. For leasehold improvements, the cost is amortized over the shorter of the lease term or useful life on a straight line basis. Upon retirement or other disposition of these assets, the cost and related accumulated depreciation or amortization are removed from the accounts and the resulting gain or loss, if any, is reflected in other income or expense. Expenditures for maintenance, repairs and renewals of minor items are charged to expense as incurred. Major renewals and improvements are capitalized.

h)

Goodwill

Goodwill represents the excess of purchase price over the value assigned to the net tangible and identifiable intangible assets of a business acquired. The Company typically performs its annual goodwill impairment test effective as of April 1 of each year, unless events or circumstances indicate impairment may have occurred before that time. The Company assesses qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. After assessing qualitative factors, the Company determined that no further testing was necessary. If further testing was necessary, the Company would determine the fair value of each reporting unit, and compare the fair value to the reporting unit’s carrying amount. As of September 30, 2017, management believes there are no indications of impairment.

i)

Long-Lived Assets

Acquired intangibles consist of customer related intangibles, trade names and trademarks, and non-compete agreements arising from the Company’s acquisitions. Customer related intangibles are amortized using the straight-line method over a period of up to 10 years, trademarks and trade names are amortized using the straight line method over 15 years, and non-compete agreements are amortized using the straight line method over the term of the underlying agreements.

The Company reviews long-lived assets to be held-and-used for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. If the sum of the undiscounted expected future cash flows over the remaining useful life of a long-lived asset is less than its carrying amount, the asset is considered to be impaired. Impairment losses are measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risks associated with the recovery of the asset. Assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. Management has performed a review of all long-lived assets and has determined no impairment of the respective carrying value has occurred as of September 30, 2017.

10


 

j)

Business Combinations

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

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

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

k)

Commitments

The Company has operating lease commitments for equipment rentals, office space, and warehouse space under non-cancelable operating leases expiring at various dates through November 2022. Rent expense is recognized straight line over the term of the lease. Minimum future lease payments (excluding the lease payments included in the transition and lease termination liability) under these non-cancelable operating leases for each of the next five fiscal years ending June 30 and thereafter are as follows:

 

(In thousands)

 

 

 

2018 (remaining)

$

6,592

 

2019

 

8,121

 

2020

 

7,807

 

2021

 

6,582

 

2022

 

4,074

 

Thereafter

 

598

 

 

 

 

 

Total minimum lease payments

$

33,774

 

 

Rent expense amounted to $2,142 and $1,217 for the three months ended September 30, 2017 and 2016, respectively.

l)

Lease Termination and Transition Costs

Lease termination costs consist of expenses related to future rent payments for which the Company no longer intends to receive any economic benefit. A liability is recorded when the Company ceases to use leased space. Lease termination costs are calculated as the present value of lease payments, net of expected sublease income, and the loss on disposition of assets. Retention costs consist of retention bonuses expected to be paid in connection with the winding-down of the historical back-office of Service by Air, Inc. (“SBA”).

The transition and lease termination liability consists of the following:

 

(In thousands)

Lease Termination

Costs

 

 

Retention Costs

 

 

Total

 

Balance as of June 30, 2017

$

1,614

 

 

$

400

 

 

$

2,014

 

Lease termination and transitions costs

 

107

 

 

 

 

 

 

107

 

Payments and other

 

(95

)

 

 

(61

)

 

 

(156

)

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of September 30, 2017

$

1,626

 

 

$

339

 

 

$

1,965

 

 

11


 

m)

401(k) Savings Plans

The Company has an employee savings plan under which the Company provides safe harbor matching contributions. The Company’s contributions under the plan were $195 and $182 for the three months ended September 30, 2017 and 2016, respectively.

n)

Income Taxes

Deferred income taxes are reported using the asset and liability method. Deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

The Company reports a liability for unrecognized tax benefits resulting from uncertain income tax positions taken or expected to be taken in an income tax return. Estimated interest and penalties, if any, are recorded as a component of interest expense or other expense, respectively.

o)

Revenue Recognition and Purchased Transportation Costs

The Company is the primary obligor responsible for providing the service desired by the customer and is responsible for fulfillment, including the acceptability of the service(s) ordered or purchased by the customer. At the Company’s sole discretion, it sets the prices charged to its customers, and is not required to obtain approval or consent from any other party in establishing its prices. The Company has multiple suppliers for the services it sells to its customers, and has the absolute and complete discretion and right to select the supplier that will provide the product(s) or service(s) ordered by a customer, including changing the supplier on a shipment-by-shipment basis. In most cases, the Company determines the nature, type, characteristics, and specifications of the service(s) ordered by the customer. The Company also assumes credit risk for the amount billed to the customer.

As a non asset-based carrier, the Company generally does not own transportation assets. The Company generates the major portion of its freight forwarding revenues by purchasing transportation services from direct (asset-based) carriers and reselling those services to its customers. Based upon the terms in the contract of carriage, revenues related to shipments where the Company issues a House Airway Bill or a House Ocean Bill of Lading are recognized at the time the freight is tendered to the direct carrier at origin net of duties and taxes. Costs related to the shipments are also recognized at this same time based upon anticipated margins, contractual arrangements with direct carriers, and other known factors. The estimates are routinely monitored and compared to actual invoiced costs. The estimates are adjusted as deemed necessary by the Company to reflect differences between the original accruals and actual costs of purchased transportation.

This method generally results in recognition of revenues and purchased transportation costs earlier than the preferred methods under GAAP which does not recognize revenue until a proof of delivery is received or which recognizes revenue as progress on the transit is made. The Company’s method of revenue and cost recognition does not result in a material difference from amounts that would be reported under such other methods.

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

p)

Share-Based Compensation

The Company has issued restricted stock awards, restricted stock units and stock options to certain directors, officers and employees. The Company accounts for share-based compensation under the fair value recognition provisions such that compensation cost is measured at the grant date based on the value of the award and is expensed ratably over the vesting period. Determining the fair value of share-based awards at the grant date requires judgment about, among other things, stock volatility, the expected life of the award, and other inputs. The Company accounts for forfeitures as they occur. The Company issues new shares of common stock to satisfy exercises and vesting of awards granted under its stock plans.

The Company recorded share-based compensation expense of $350 and $331 for the three months ended September 30, 2017 and 2016, respectively.

q)

Basic and Diluted Income Per Share

 

Basic income per share is computed by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding. Diluted income per share is computed similar to basic income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares, such as stock awards and stock options, had been issued and if the additional common shares were dilutive. Net income attributable to common stockholders is calculated after earned preferred stock dividends, whether or not declared.

12


 

 

The following table reconciles the numerator and denominator of the basic and diluted per share computations for earnings per share as follows:

 

 

Three Months Ended September 30,

 

 

2017

 

 

2016

 

Weighted average basic shares outstanding

 

49,085,545

 

 

 

48,861,511

 

Dilutive effect of share-based awards

 

1,557,408

 

 

 

672,884

 

 

 

 

 

 

 

 

 

Weighted average dilutive shares outstanding

 

50,642,953

 

 

 

49,534,395

 

 

 

 

 

 

 

 

 

Potentially dilutive common shares excluded

 

1,102,731

 

 

 

2,231,119

 

 

r)

Foreign Currency Translation

For the Company’s significant foreign subsidiaries that prepare financial statements in currencies other than U.S. dollars, the local currency is the functional currency. All assets and liabilities are translated at period-end exchange rates and all income statement amounts are translated at the weighted average rates for the period. Translation adjustments are recorded in accumulated other comprehensive (loss) income. Gains and losses on transactions of monetary items are recognized in the condensed consolidated statements of operations.

s)

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, to clarify the principles used to recognize revenue for all entities. In March 2016, the FASB issued ASU 2016-08 to further clarify the implementation guidance on principal versus agent considerations. The guidance is effective for the Company beginning July 1, 2018 and permits the use of either a retrospective or cumulative effect transition method. The Company is in the process of evaluating the adoption impact for each of the Company’s services, including any impact on gross versus net revenue recognition. As the Company completes the overall evaluation, it is identifying and preparing to implement changes to the Company’s accounting policies, practices, and controls to support the new standard.

In February 2016, the FASB issued ASU 2016-02, Leases, to replace existing guidance. The guidance requires the recognition of right-of-use assets and lease liabilities for operating leases with terms more than 12 months on the balance sheet. Guidance is also provided for the presentation of leases within the statement of operations and cash flows. The guidance is effective for annual and interim periods beginning after December 15, 2018, and early adoption is permitted. The adoption of this standard will impact the Company’s consolidated financial statements as future minimum lease payments under noncancelable leases totaled approximately $33.8 million as of September 30, 2017. The Company is currently evaluating the impact that the adoption of this guidance will have on the Company’s consolidated financial statements and related disclosures.

In October 2016, the FASB issued ASU 2016-16, Income Taxes, allowing the recognition of income tax consequences on intra-entity asset transfers. Current GAAP prohibits recognizing current and deferred income tax consequences for an intra-entity asset transfer until the asset has been sold to an outside party. The guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is permitted. The Company has approximately $1.8 million of such assets recorded in deposits and other assets in the consolidated balance sheets and is currently evaluating the impact and timing that the adoption of this guidance will have on the Company’s consolidated financial statements and related disclosures.

 

t)

Recently Adopted Accounting Pronouncements

In the prior fiscal year, the Company adopted ASU 2016-09, Stock Compensation, ASU 2016-15, Statement of Cash Flows, and ASU 2017-04, Intangibles—Goodwill and Other.

 

 

13


 

NOTE 3 – BUSINESS ACQUISITIONS

Fiscal Year 2018 Acquisitions

On September 1, 2017, the Company, through a wholly-owned subsidiary, RGL, the Company acquired the operations and assets of Sandifer-Valley Transportation & Logistics, Ltd., a Texas based company providing a full range of domestic and international cross-border services with Mexico. The Company has structured the transaction similar to previous acquisitions, with a portion of the expected purchase price payable in subsequent periods based on future performance of the acquired operation. The consideration paid, purchase price allocation, and pro forma results of operations and other disclosures have not been presented because the effect of this acquisition was not material to the financial statements. The results of operations for the business acquired are included in the financial statements as of the date of purchase.

Fiscal Year 2017 Acquisitions

On April 1, 2017, the Company, through a wholly-owned subsidiary acquired Lomas Logistics (“Lomas”), a division of L.V. Lomas Limited. Lomas operates as a third-party logistics provider serving companies across a range of industries including consumer goods, healthcare, food, chemicals and technology and operates from locations in Ontario and British Columbia, Canada. The Lomas acquisition was financed with proceeds from the Integrated Private Debt Fund V LP loan (as defined in Note 6). The results of operations for the business acquired are included in the financial statements as of the date of purchase.

On June 1, 2017 the Company, through a wholly-owned subsidiary acquired the assets and operations of its strategic operating partner Dedicated Logistics Technologies, Inc. (“DLT”), a Newark, New Jersey based company. DLT is expected to transition to the Radiant brand and will combine with existing company owned operations in Newark while maintaining separate facilities in Los Angeles, California. The Company recorded non-recurring transition and lease termination costs of $107 for the three months ended September 30, 2017 associated with the facility consolidation of the former Radiant Newark facility to the DLT location. The DLT acquisition was financed with proceeds from the Company’s Credit Facility (as defined in Note 6). The Company has structured the transaction similar to previous acquisitions, with a portion of the expected purchase price payable in subsequent periods based on future performance of the acquired operation. The fair value of the contingent consideration was estimated using future projected earnings relative to the corresponding future earn-out payments. To calculate fair value, the future earn-out payments were then discounted using Level 3 inputs. The Company believes the discount rate used to discount the earn-out payments reflect market participant assumptions. The results of operations for the business acquired are included in the financial statements as of the date of purchase.

 

 

NOTE 4 – TECHNOLOGY AND EQUIPMENT

 

(In thousands)

September 30,

 

 

June 30,

 

 

2017

 

 

2017

 

Computer software

$

13,499

 

 

$

12,848

 

Trailers and related equipment

 

4,290

 

 

 

4,682

 

Leasehold improvements

 

2,821

 

 

 

2,363

 

Office and warehouse equipment

 

2,266

 

 

 

2,005

 

Computer equipment

 

1,882

 

 

 

1,745

 

Furniture and fixtures

 

818

 

 

 

788

 

 

 

 

 

 

 

 

 

 

 

25,576

 

 

 

24,431

 

Less: Accumulated depreciation and amortization

 

(9,969

)

 

 

(9,204

)

 

 

 

 

 

 

 

 

 

$

15,607

 

 

$

15,227

 

 

Depreciation and amortization expense related to technology and equipment was $1,081 and $932 for the three months ended September 30, 2017 and 2016, respectively. Computer software includes approximately $4,610 and $4,021 of software currently in development as of September 30, 2017 and June 30, 2017, respectively.

 

 

14


 

NOTE 5 – ACQUIRED INTANGIBLE ASSETS

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

 

(In thousands)

September 30,

 

 

June 30,

 

 

Weighted-

Average

 

2017

 

 

2017

 

 

Life

Customer related

$

97,152

 

 

$

96,106

 

 

6.85 years

Trade names and trademarks

 

14,977

 

 

 

14,977

 

 

10.99 years

Covenants not to compete

 

880

 

 

 

850

 

 

2.36 years

 

 

 

 

 

 

 

 

 

 

 

 

113,009

 

 

 

111,933

 

 

 

Less: Accumulated amortization

 

(39,698

)

 

 

(37,204

)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

73,311

 

 

$

74,729

 

 

 

 

Amortization expense amounted to $2,494 and $2,074 for the three months ended September 30, 2017 and 2016, respectively. Future amortization expense for each of the next five fiscal years ending June 30 and thereafter are as follows:

 

(In thousands)

 

 

 

2018 (remaining)

$

7,485

 

2019

 

9,865

 

2020

 

9,668

 

2021

 

9,520

 

2022

 

8,967

 

Thereafter

 

27,806

 

 

 

 

 

 

$

73,311

 

 

 

NOTE 6 – NOTES PAYABLE

Notes payable consist of the following:

 

(In thousands)

September 30,

 

 

June 30,

 

 

2017

 

 

2017

 

Long-term Credit Facility

$

18,791

 

 

$

13,780

 

Senior Secured Loans

 

27,804

 

 

 

27,514

 

Other notes payable

 

101

 

 

 

149

 

Less: Loan issuance costs

 

(1,065

)

 

 

(1,021

)

 

 

 

 

 

 

 

 

Total notes payable

 

45,631

 

 

 

40,422

 

Less: Current portion

 

(3,548

)

 

 

(3,382

)

 

 

 

 

 

 

 

 

Total notes payable, net of current portion

$

42,083

 

 

$

37,040

 

 

Future maturities of notes payable for each of the next five fiscal years ending June 30 and thereafter are as follows:

 

(In thousands)

 

 

 

2018 (remaining)

$

2,664

 

2019

 

3,623

 

2020

 

3,871

 

2021

 

4,137

 

2022

 

23,211

 

Thereafter

 

9,190

 

 

 

 

 

 

$

46,696

 

 

15


 

Bank of America Credit Facility

The Company has a $75.0 million senior credit facility (the “Senior Credit Facility”) with Bank of America, N.A. (the “Lender”) on its own behalf and as agent to the other lenders named therein, currently consisting of the Bank of Montreal (as the initial member of the syndicate under such loan), pursuant to a Second Amendment to Amended and Restated Loan and Security Agreement. The Senior Credit Facility includes a $3.5 million sublimit to support letters of credit and matures July 14, 2022.

Borrowings accrue interest based on the Company’s average daily availability at the Lender’s base rate plus 0.25% to 0.75% or for a LIBOR contract, LIBOR plus 1.25% to 1.75%. The Senior Credit Facility provides for advances of up to 85% of the eligible Canadian and domestic accounts receivable, 75% of eligible accrued but unbilled domestic receivables and eligible foreign accounts receivable, all of which are subject to certain sub-limits, reserves and reductions. The Senior Credit Facility is collateralized by a first-priority security interest in all of the assets of the U.S. co-borrowers, a first-priority security interest in all of the accounts receivable and associated assets of the Canadian co-borrowers (the “Canadian A/R Assets”) and a second-priority security interest on the other assets of the Canadian borrowers.

Borrowings are available to fund future acquisitions, capital expenditures, repurchase of Company stock or for other corporate purposes. The terms of the Senior Credit Facility are subject to customary financial and operational covenants, including covenants that may limit or restrict the ability to, among other things, borrow under the Senior Credit Facility, incur indebtedness from other lenders, and make acquisitions. As of September 30, 2017, the Company was in compliance with all of its covenants.

As of September 30, 2017, based on available collateral and $0.3 million in outstanding letter of credit commitments, there was $46.6 million available for borrowing under the Senior Credit Facility.

Senior Secured Loans

In connection with the Company’s acquisition of Wheels, International Inc. (“Wheels”), Wheels obtained a CAD$29.0 million senior secured Canadian term loan from Integrated Private Debt Fund IV LP (“IPD IV”) pursuant to a CAD$29,000,000 Credit Facilities Loan Agreement. The Company and its U.S. and Canadian subsidiaries are guarantors of the Wheels obligations thereunder. The loan matures on April 1, 2024 and accrues interest at a rate of 6.65% per annum. The Company is required to maintain five months interest in a debt service reserve account to be controlled by IPD IV. This amount is recorded as deposits and other assets in the accompanying condensed consolidated financial statements. The Company made interest-only payments for the first 12 months followed by blended principal and interest payments that will be paid through maturity.

In connection with the Company’s acquisition of Lomas, Wheels obtained a CAD$10.0 million senior secured Canadian term loan from Integrated Private Debt Fund V LP pursuant to a CAD$10,000,000 Credit Facilities Loan Agreement. The Company and its U.S. and Canadian subsidiaries are guarantors of the Wheels obligations thereunder. The loan matures on June 1, 2024 and accrues interest at a rate of 6.65% per annum. The loan repayment consists of monthly blended principal and interest payments.

The loans may be prepaid in whole at any time upon providing at least 30 days prior written notice and paying the difference between (i) the present value of the loan interest and the principal payments foregone discounted at the Government of Canada Bond Yield for the term from the date of prepayment to the maturity date, and (ii) the face value of the principal amount being prepaid.

The loans are collateralized by a (i) first-priority security interest in all of the assets of Wheels except the Canadian A/R Assets, (ii) a second-priority security interest in the Canadian A/R Assets, and (iii) a second-priority security interest on all of the Company’s assets.

As of September 30, 2017, the Company was in compliance with all of its covenants.

 

 

NOTE 7 – STOCKHOLDERS’ EQUITY

The Company is authorized to issue 5,000,000 shares of preferred stock, par value at $0.001 per share and 100,000,000 shares of common stock, $0.001 per share.

Series A Preferred Stock

The Company has 839,200 shares of 9.75% Series A Cumulative Redeemable Perpetual Preferred Stock (“Series A Preferred Shares”), which have a liquidation preference of $25.00 per share.

16


 

Dividends on the Series A Preferred Shares are cumulative from the date of original issue and are payable on January 31, April 30, July 31 and October 31, as and if declared by the Company’s board of directors. If the Company does not pay dividends in full on any two payment dates (whether consecutive or not), the per annum dividend rate will increase an additional 2.0% per annum per $25.00 stated liquidation preference, up to a maximum of 19.0% per annum. If the Company fails to maintain the listing of the Series A Preferred Shares on the NYSE American or other exchange for 30 days or more, the per annum dividend rate will increase by an additional 2.0% per annum so long as the listing failure continues. The Series A Preferred Shares require the Company to maintain a Fixed Charge Coverage Ratio of at least 2.0. If the Company is not in compliance with this ratio, then it cannot pay any dividend on its common stock. As of September 30, 2017, the Company was in compliance with this ratio.

Commencing on December 20, 2018, the Company may redeem, at its option, the Series A Preferred Shares, in whole or in part, at a cash redemption price of $25.00 per share plus accrued and unpaid dividends (whether or not declared). Among other things, the Series A Preferred Shares have no stated maturity, are not subject to any sinking fund or other mandatory redemption, and are not convertible into or exchangeable for any of the Company’s other securities. Holders of Series A Preferred Shares generally have no voting rights, except if the Company fails to pay dividends on the Series A Preferred Shares for six or more quarterly periods (whether consecutive or not). Under such circumstances, holders of Series A Preferred Shares will be entitled to vote to elect two additional directors to the Company’s board of directors, until all unpaid dividends have been paid or declared and set aside for payment. In addition, certain changes to the terms of the Series A Preferred Shares cannot be made without the affirmative vote of the holders of two-thirds of the outstanding Series A Preferred Shares, voting as a separate class. The Series A Preferred Shares are senior to the Company’s common stock with respect to dividends and distributions, including distributions upon liquidation, dissolution or winding up. The Series A Preferred Shares are listed on the NYSE American under the symbol “RLGT-PA.”

For the three months ended September 30, 2017, the Company’s board of directors declared and paid cash dividends to holders of Series A Preferred Shares in the amount of $0.609375 per share, totaling $511.

 

 

 

NOTE 8 – VARIABLE INTEREST ENTITY AND RELATED PARTY TRANSACTIONS

RLP is owned 40% by RGL and 60% by RCP, a company for which the Chief Executive Officer of the Company is the sole member. RLP is a certified minority business enterprise that was formed for the purpose of providing the Company with a national accounts strategy to pursue corporate and government accounts with diversity initiatives. RCP’s ownership interest entitles it to a majority of the profits and distributable cash, if any, generated by RLP. The operations of RLP are intended to provide certain benefits to the Company, including expanding the scope of services offered by the Company and participating in supplier diversity programs not otherwise available to the Company. In the course of evaluating and approving the ownership structure, operations and economics emanating from RLP, a committee consisting of the independent Board member of the Company, considered, among other factors, the significant benefits provided to the Company through association with a minority business enterprise, particularly as many of the Company’s largest current and potential customers have a need for diversity offerings. In addition, the committee concluded that the economic relationship with RLP was on terms no less favorable to the Company than terms generally available from unaffiliated third-parties.

Certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have the sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties are considered “variable interest entities”. RLP qualifies as a variable interest entity and is included in the Company’s condensed consolidated financial statements.

RLP recorded $102 in profits, of which RCP’s distributable share was $61 for the three months ended September 30, 2017. RLP recorded $20 in profits, of which RCP’s distributable share was $12 for the three months ended September 30, 2016. The non-controlling interest recorded as a reduction of income on the condensed consolidated statements of operations represents RCP’s distributive share.

 

 

 

NOTE 9 – FAIR VALUE MEASUREMENTS

The following table sets forth the Company’s financial liabilities measured at fair value on a recurring basis:

 

(In thousands)

Fair Value Measurements as of September 30, 2017

 

 

Level 3

 

 

Total

 

Contingent consideration

$

9,845

 

 

$

9,845

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements as of June 30, 2017

 

 

Level 3

 

 

Total

 

Contingent consideration

$