Global Traffic Network 10Q 2011 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q


þ		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2010


o		TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 0-51838

Global Traffic Network, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Nevada (State or other jurisdiction of incorporation or organization)		33-1117834 (I.R.S. Employer Identification No.)

880 Third Avenue, 6th Floor New York, New York (Address of principal executive offices)		10022 (Zip Code)

(212) 896-1255
(Issuer’s telephone number, including area code)

(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 preceding 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. Yesþ Noo

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o
(Do not check if a smaller reporting company)

Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

As of February 9, 2011, the registrant had 18,548,420 shares of common stock outstanding.

Global Traffic Network, Inc.

Index


	Page
	Number
Part I. Financial Information		3
Item 1. Financial Statements		3
Consolidated Balance Sheets as of December 31, 2010 and June 30, 2010		3
Consolidated Statements of Income for the three and six months ended December 31, 2010 and 2009		4
Consolidated Statements of Cash Flows for the six months ended December 31, 2010 and 2009		5
Notes to Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3. Qualitative and Quantitative Disclosures About Market Risk		22
Item 4. Controls and Procedures		23

Part II. Other Information		23
Item 5. Other Information		23
Item 6. Exhibits		23
Signatures		24
Exhibit Index		25
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32.1
EX-99.1

Part 1 Financial Information

Item 1 — Financial Statements

GLOBAL TRAFFIC NETWORK, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)


	December 31,		June 30,
	2010		2010
	(Unaudited)		(Unaudited)
ASSETS:

Current Assets:
Cash and cash equivalents	$	29,504	$	19,564
Accounts receivable net of allowance for doubtful accounts of $117 and $69 at December 31, 2010 and June 30, 2010		26,291		18,790
Prepaids and other current assets		1,653		1,989
Deferred tax assets		337		239


Total current assets		57,785		40,582

Property and equipment, net		6,482		6,693
Intangible assets, net		12,269		13,013
Goodwill		4,447		4,257
Deferred tax assets		170		129
Other assets		383		414


Total assets	$	81,536	$	65,088


LIABILITIES AND SHAREHOLDERS’ EQUITY:

Current Liabilities:
Accounts payable and accrued expenses	$	15,175	$	11,709
Deferred revenue		339		810
Income taxes payable		2,236		1,306


Total current liabilities		17,750		13,825
Deferred tax liabilities		2,936		2,747
Other liabilities		447		349


Total liabilities		21,133		16,921


Preferred stock, $.001 par value; 10,000,000 authorized; 0 issued and outstanding as of December 31, 2010 and June 30, 2010		—		—
Common stock, $.001 par value; 100,000,000 shares authorized; 18,474,731 shares issued and outstanding as of December 31, 2010 and 18,409,834 shares issued and outstanding as of June 30, 2010		18		18
Additional paid in capital		52,066		51,391
Accumulated other comprehensive income		6,866		389
Retained earnings (accumulated deficit)		1,453		(3,631	)


Total shareholders’ equity		60,403		48,167


Total liabilities and shareholders’ equity	$	81,536	$	65,088

See accompanying notes to the consolidated financial statements

GLOBAL TRAFFIC NETWORK, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except share and per share amounts)


	Three Months Ended						Six Months Ended
	December 31						December 31
	2010			2009			2010			2009
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues	$	31,811		$	25,624		$	57,114		$	45,981


Operating expenses (exclusive of depreciation and amortization shown separately below)		18,189			16,727			34,321			31,687
Selling, general and administrative expenses		6,743			5,664			12,096			10,416
Depreciation and amortization expense		1,486			1,310			2,913			2,557


Net operating income		5,393			1,923			7,784			1,321
Interest expense		—			9			—			15
Other (income) (including interest income of $290 and $162 for the three months ended December 31, 2010 and 2009 and interest income of $540 and $313 for the six months ended December 31, 2010 and 2009)		(297	)		(199	)		(548	)		(508	)
Other expense		4			3			7			30


Net income before income taxes		5,686			2,110			8,325			1,784
Income tax expense		1,936			1,288			3,241			1,996


Net income (loss)	$	3,750		$	822		$	5,084		$	(212	)


Income (loss) income per common share:
Basic	$	0.21		$	0.05		$	0.28		$	(0.01	)
Diluted	$	0.20		$	0.05		$	0.27		$	(0.01	)
Weighted average common shares outstanding:
Basic		18,178,570			18,091,502			18,173,925			18,091,502
Diluted		18,742,974			18,121,113			18,528,757			18,091,502

See accompanying notes to the consolidated financial statements

GLOBAL TRAFFIC NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)


	Six Months
	Ended
	December 31,
	2010			2009
	(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net income (loss)	$	5,084		$	(212	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		2,913			2,557
Allowance for doubtful accounts		48			(3	)
Non-cash compensation expense		675			633
Change in deferred taxes		12			(274	)
Foreign currency translation income		—			(101	)
Loss on disposal or write-down of assets		92			26

Changes in assets and liabilities (net of effects from purchase of controlled entity):
Accounts receivable		(4,581	)		(1,576	)
Prepaid and other current assets and other assets		566			151
Accounts payable and accrued expenses and other liabilities		1,756			1,293
Deferred revenue		(563	)		(782	)
Income taxes payable		599			(711	)


Net cash provided by operating activities		6,601			1,001


Cash flows from investing activities:
Purchase of property and equipment		(737	)		(1,072	)
Acquisition of business		—			(3,488	)


Net cash used in investing activities		(737	)		(4,560	)


Cash flows from financing activities:
Repayment of long term debt		—			(414	)


Net cash used in financing activities		—			(414	)


Effect of exchange rate changes on cash and cash equivalents		4,076			1,586


Net increase (decrease) in cash and cash equivalents		9,940			(2,387	)
Cash and cash equivalents at beginning of fiscal period		19,564			21,419


Cash and cash equivalents at end of fiscal period	$	29,504		$	19,032


Supplemental disclosures of cash flow information:
Cash paid during fiscal period for:

Interest	$	—		$	15


Income taxes	$	2,625		$	3,010

See accompanying notes to the consolidated financial statements

GLOBAL TRAFFIC NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share amounts unless noted)

Information as of December 31, 2010 and 2009 and for the six months ended December 31,
2010 and 2009 is unaudited

NOTE 1 — Description of the Company’s Business

Global Traffic Network, Inc. (the “Company”) provides traffic and news information reports to radio and television stations in international markets. The Company provides traffic information reports to radio and television stations in Australia and Canada and traffic information reports to radio stations in the United Kingdom, provides news and information reports to radio stations in Canada, entertainment news reports to radio stations in the United Kingdom and has an inventory of commercial advertising embedded in radio news reports in Australia. The Company derives a substantial majority of its revenues from the sale of commercial advertising embedded within these information reports. The Company obtains this advertising inventory from radio and television stations in exchange for providing stations with information reports and/or cash compensation. The Company also derives revenues from providing traffic related reporting services to government agencies in the United Kingdom.

NOTE 2 — Basis of Presentation

The consolidated financial statements consist of the Company and its four wholly owned subsidiaries, The Australia Traffic Network Pty Limited (“ATN”), Global Traffic Canada, Inc. (“GTC”) including its wholly owned subsidiary Canadian Traffic Network ULC (“CTN”), Global Traffic Network (UK) Limited (“UKTN”) including its wholly owned subsidiary Global Traffic Network (UK) Commercial Limited (“UK-Commercial”) and Global Alert Network, Inc. (“GAN”). Effective October 12, 2010, GAN changed its name from Mobile Traffic Network, Inc. (“MTN”). GTC is a holding company and had no assets or liabilities other than its ownership of CTN at December 31, 2010 and June 30, 2010. Because the financial statements are presented on a consolidated basis, all material intercompany transactions and balances have been eliminated in the consolidation. All adjustments that in the opinion of management are necessary for a fair presentation have been included. All such adjustments are of a normal and recurring nature. The results of operation for the period ended December 31, 2010 is not necessarily indicative of the operating results for a full fiscal year.

Although ATN’s functional currency is Australian dollars, CTN’s functional currency is Canadian dollars and UKTN and UK-Commercial’s functional currency is British pounds, for reporting purposes the Company’s financial statements are presented in United States dollars. The financial statements have been translated into United States dollars in accordance with FASB Statement No. 52, “Foreign Currency Translation” (“SFAS 52”). Effective July 1, 2009, the provisions of SFAS 52 were incorporated in the Codification under FASB ASC 830. Income statement amounts are translated from Australian dollars, Canadian dollars, or British pounds to United States dollars based on the average exchange rate for each quarterly period. Assets and liabilities are translated based on the exchange rate as of the applicable balance sheet date. Equity contributions are translated based on the exchange rate at the time of the applicable investment. Foreign currency translation adjustments upon translation of the Company’s financial statements to United States dollars are recognized as other comprehensive income (loss). Realized gains and losses resulting from currency translation adjustments are recognized in the accompanying statements of income as other expense (income).

These financial statements should be read in conjunction with the audited financial statements and footnotes included in the Company’s Annual Report on Form 10-K filed on September 15, 2010. Certain amounts reported in prior years have been reclassified to conform to the current year presentation.

Subsequent events have been evaluated up to the date on which these financial statements were filed.

NOTE 3 — Earnings per Share

Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share is based upon the sum of the weighted average number of shares of common stock outstanding plus all additional common stock equivalents outstanding during the period, when dilutive. For the periods ended December 31, 2010 and 2009, there were common equivalent shares outstanding due to outstanding stock options of 1,265,900 and 1,148,400, respectively, restricted common shares of 288,328 and 218,332, respectively, and warrants issued to the underwriter of the Company’s IPO to purchase common shares of 360,000 and 380,000, respectively, that have a strike price of $6.00 and expire March 23, 2011.

There were common stock equivalents due to stock options of 316,514 and 6,874, respectively, for the three month periods ended December 31, 2010 and 2009. There were common stock equivalents due to stock options of 196,458 for the six month period ended December 31, 2010. Due to the net loss for the six month period ended December 31, 2009, the impact of the stock options on fully diluted earnings per share would be anti-dilutive and therefore is not included in common stock equivalents. For the three month period ended December 31, 2009, 783,400 stock options with exercise prices between and $4.66 and $8.70 were excluded from the calculation of diluted shares outstanding because they were anti-dilutive. For the six month period ended December 31, 2010, 260,000 stock options with exercise prices between $6.68 and $7.05 were excluded from the calculation of diluted shares outstanding because they were anti-dilutive.

For the three month periods ended December 31, 2010 and 2009 there were 162,756 and 22,737, respectively, common stock equivalents due to restricted stock. For the six month period ended December 31, 2010 there were 128,122 common stock equivalents due to restricted stock. Due to the net loss for the six month period ended December 31, 2009, the impact of the restricted stock on fully diluted earnings per share would be anti-dilutive, and therefore is not included in the calculation of fully diluted earnings per share.

There were common stock equivalents due to warrants of 85,134 and 0, respectively, for the three month periods ended December 31, 2010 and 2009. For the three month period ended December 31, 2009, 380,000 warrants with an exercise price of $6.00 were excluded from the calculation of diluted shares outstanding because they were anti-dilutive. There were common stock equivalents due to warrants of 30,252 for the six month period ended December 31, 2010. Due to the net loss for the six month period ended December 31, 2009, the impact of the warrants on fully diluted earnings per share would be anti-dilutive and therefore is not included in common stock equivalents. Since December 31, 2010, 8,443 additional warrants have been exercised (in a cashless manner) resulting in the issuance of 3,578 additional common shares.


	Three Months		Three Months		Six Months		Six Months
	Ended		Ended		Ended		Ended
	December 31, 2010		December 31, 2009		December 31, 2010		December 31, 2009
Basic Shares Outstanding		18,178,570		18,091,502		18,173,925		18,091,502
Stock Options, Restricted Stock & Warrants		564,404		29,611		354,832		N/A
Diluted Shares Outstanding		18,742,974		18,121,113		18,528,757		18,091,502

NOTE 4 — Recent Accounting Pronouncements

In December 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts” (“ASU 2010-28”) which amends FASB ASC Topic 350 (Intangibles — Goodwill and Other) to modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts to require performing Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. ASU 2010-28 is effective for fiscal years and the interim periods within those years beginning after December 15, 2010. Early adoption is not permitted. The Company intends to adopt the provisions of ASU 2010-28 effective July 1, 2011 and does not expect the adoption to have a material impact on its consolidated financial position or results of operations.

NOTE 5 — Concentration of Credit Risk

The Company maintains cash balances with what management believes to be high credit quality financial institutions. Balances have exceeded and continue to exceed those amounts insured and the majority of the Company’s cash is maintained in instruments not subject to FDIC or other insurance. In addition, a substantial majority of the Company’s cash balances is held in one financial institution located in Australia. Furthermore, a majority of the Company’s cash is maintained in foreign currencies, which is also subject to currency exchange rate fluctuation risk.


	December 31,		June 30,
	2010		2010
Cash and cash equivalents consist of the following:
Domestic currency	$	714	$	234
Foreign currencies		28,790		19,330


Total cash and cash equivalents	$	29,504	$	19,564

Money market investments with a fair value of $26 are included in cash and cash equivalents as of December 31, 2010. Fair value has been determined based on the fair value of identical investments in active markets. All cash and cash equivalents are classified as level 1 as defined in FASB ASC 820.

NOTE 6 — Major Suppliers

Approximately 18% of the Company’s radio commercial airtime inventory in Australia (which, when sold to advertisers, generates a material amount of the Company’s Australian revenues) comes from a large broadcaster in Australia, which includes inventory received from this broadcaster under a four year agreement effective July 1, 2008 to provide radio traffic reporting services and receive radio traffic and news commercial airtime inventory. At December 31, 2010, trade payables to this supplier comprised approximately 29% of the Company’s trade payables balance.

Approximately 17% of the Company’s radio commercial airtime inventory in Australia (which, when sold to advertisers, generates a material amount of the Company’s Australian revenues) comes from a different large broadcaster in Australia. Radio commercial advertising inventory is received from this broadcaster under a four year agreement effective July 1, 2008 to provide radio traffic reporting services and receive radio traffic commercial airtime inventory and agreements through May 31, 2012 to receive radio news commercial airtime inventory. At December 31, 2010, trade payables to this supplier comprised approximately 9% of the Company’s trade payables balance.

Twenty three of the Company’s Canadian radio station affiliates, which represent approximately 34% of the Canadian radio stations (excluding regional suburban stations) with which the Company has contracted to provide radio traffic reports, are owned by one company. These stations account for approximately 45% of the Company’s radio commercial airtime inventory (excluding regional suburban stations) in Canada. The sale of such inventory constitutes a substantial portion of the Company’s Canadian revenues. The Company’s provision of traffic reports to 22 of these radio stations is governed by a four year agreement effective January 1, 2009. At December 31, 2010, trade payables to this supplier comprised approximately 9% of the Company’s trade payables balance. Effective February 1, 2011, four of these stations were sold and are no longer subject to the agreement.

Approximately 19% of the Company’s radio traffic commercial airtime inventory in the United Kingdom (which, when sold to advertisers, generates a material amount of the Company’s United Kingdom revenues) comes from a large broadcaster in the United Kingdom. In addition,

this commercial airtime inventory comprises approximately 28% of the audience delivery (“impacts”) of the Company’s United Kingdom radio traffic network. The Company provides radio traffic reports and receives radio traffic commercial inventory under a three year agreement effective November 1, 2010. The agreement may be cancelled prior to the end date by either party upon 90 days prior notice during the period commencing August 31, 2012 and ending October 1, 2012. At December 31, 2010, trade payables to this supplier comprised approximately 5% of the Company’s trade payables balance.

Approximately 15% of the Company’s radio traffic commercial airtime inventory in the United Kingdom (which, when sold to advertisers, generates a material amount of the Company’s United Kingdom revenues) comes from another large broadcaster in the United Kingdom. This commercial airtime inventory comprises approximately 26% of the impacts of the Company’s United Kingdom radio traffic network. The Company provides radio traffic reports and receives radio traffic commercial inventory to sell (on a variable cost basis) under the terms of an agreement that expired effective August 31, 2010. This broadcaster also provides a material portion of the Company’s radio entertainment news commercial airtime inventory under the terms of a separate agreement that expired effective August 31, 2010. At December 31, 2010, trade payables to this supplier comprised approximately 5% of the Company’s trade payables balance. Pending negotiation and execution of a renewal of the Company’s agreements with this broadcaster, the Company has continued to provide service to and receive inventory from such broadcaster under the terms of the expired agreements.

NOTE 7 — Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income and all changes to shareholders’ equity except those due to investment by, distributions to and repurchases from shareholders.


	Six months		Six months
	ended		ended
	December 31,		December 31,
	2010		2009
Net income (loss)	$	5,084	$	(212	)
Foreign currency translation adjustment		6,477		2,201


Comprehensive income	$	11,561	$	1,989

NOTE 8 — Income Taxes

Tax expense for the six months ended December 31, 2010 and 2009 was $3,241 and $1,996, respectively. The effective tax rate for the six months ended December 31, 2010 and 2009 was 38.9% and 111.9%, respectively. The rates differ from the United States federal statutory rate of approximately 35% primarily due to the Company’s Australian operations reporting a taxable profit and tax expense while the Company’s Canadian operations generate a net loss without recording an income tax benefit.

Although UK-Commercial is profitable on a tax basis, the Company’s United Kingdom operations are unable to utilize the group relief provision of the United Kingdom tax code until UK-Commercial’s net operating loss carry forwards have been exhausted. The valuation allowance for the period ending December 31, 2010 was reduced due to the use of previously valued deferred tax assets of $1,460 pertaining primarily to ATN net income that was recognized by Global Traffic Network, Inc. (the unconsolidated parent) (“GTN”) during the period, which was partially offset by $964 of additions to the valuation allowance primarily for net operating losses of CTN as well as certain other deferred tax assets. Prior to July 1, 2009, the Company considered all earnings of ATN to be indefinitely reinvested abroad and therefore did not recognize a deferred tax liability with regards to the undistributed earnings of ATN. As a result of the change in permanent investment status, GTN has recognized deferred tax liabilities of $14,147 for undistributed earnings and profits of ATN to date which are partially offset by foreign tax credit deferred tax assets of $10,840.

The Company realized a tax benefit of $365 due to a reduction of the deferred tax liability that was established due to the acquisition of Unique. The initial amount of this tax liability was $4,342 and the current carrying value is $3,400 (the balance has decreased less than the cumulative tax benefit realized due to increases in currency exchange rates). The Company has not recorded any other tax benefit for the periods ended December 31, 2010 and 2009 because the Company recorded a valuation allowance against all of the Company’s net deferred tax assets for GTN/MTN and CTN, as well as certain deferred tax assets of UKTN at December 31, 2010 and June 30, 2010 due to the uncertainty surrounding the realization of the tax deductions in future tax returns. This valuation allowance will be reduced to the extent the Company determines that the deferred tax assets will more likely than not be realized. The Company had tax carried forward losses (prior to the valuation allowance) of $5,424 and $5,292 as of December 31, 2010 and June 30, 2010, respectively. As of December 31, 2010, all of the tax carried forward losses related to the Company’s foreign operations. The Company recorded a deferred tax asset of $1,252 associated with the net operating losses of Unique which the Company acquired March 1, 2009. The Company has not recorded a valuation allowance against this deferred tax asset since it believes it is more likely than not that it will be able to utilize these net operating losses against future taxable income of UK-Commercial. The deferred tax asset related to the UK-Commercial net operating losses was $464 as of December 31, 2010 and the Company recognized $430 of non-cash income tax expense for the six months ended December 31, 2010 due to the utilization of this asset. The Company will continue to assess this position and, if necessary, establish a valuation allowance in order that the net carrying value of the deferred tax asset approximates its net realizable value. UK-Commercial has generated taxable income since its acquisition date.


	December 31,			June 30,
	2010			2010
Tax carried forward losses	$	5,424		$	5,292
Other deferred tax assets		5,246			4,272


Total deferred tax assets		10,670			9,564
Total deferred tax liabilities		6,726			5,074

Net deferred tax assets before valuation allowance		3,944			4,490
Valuation allowance		(6,373	)		(6,869	)


Net deferred tax (liabilities)	$	(2,429	)	$	(2,379	)

NOTE 9 — Commitments

The Company has various non-cancelable, long-term operating leases for its facilities and office equipment. The facility leases have escalation clauses and provisions for payment of taxes, insurance, maintenance and repair expenses. Total rent expense under these leases is recognized ratably over the lease terms. Future minimum payments, by year and in the aggregate, under such non-cancelable operating leases with initial or remaining terms of one year or more, consists of the following as of December 31, 2010:


	December 31,
	2010
Year 1	$	911
Year 2		643
Year 3		430
Year 4		164
Year 5		118
Thereafter		157


Total	$	2,423

Total rent expense charged to expenses in the accompanying statements of income for the three and six months ended December 31, 2010 and 2009 was $317, $297, $611 and $620, respectively. Rent expense on an annualized basis exceeds rental commitments primarily due to many of the Company’s operations and hangar arrangements being short term in nature.

The Company generally enters into multi-year contracts with radio and television stations. These contracts require the Company to provide various levels of service (including, but not limited to providing professional broadcasters, gathering information, communications and aviation services) and, in some cases, cash compensation or reimbursement of expenses. Station compensation and reimbursement is a component of operating expense and is recognized over the term of the applicable contracts, which is not materially different than when the services are performed.

Contractual station commitments by year and in the aggregate are as follows:


	As of
	December 31,
	2010
Year 1	$	38,444
Year 2		26,012
Year 3		8,616
Year 4		370
Year 5		—
Thereafter		—


Total	$	73,442

The Company’s UK-Commercial subsidiary outsources the majority of its radio traffic and entertainment news operations pursuant to contracts with unrelated third parties. Expenses associated with these arrangements are a component of operating expense and are recognized over the term of the applicable contracts, which is not materially different than when the services are provided. The minimum future payments under these contracts by year and in the aggregate are as follows:


	As of
	December 31,
	2010
Year 1	$	3,132
Year 2		3,044
Year 3		—
Year 4		—
Year 5		—
Thereafter		—


Total	$	6,176

In January 2011, CTN committed to rebuild the engine of one of its owned helicopters. This is a normal and recurring expenditure as the helicopter engines need to be regularly rebuilt based on the number of hours flown. The expected capital expenditure is approximately $300.

NOTE 10 — Stock based compensation

The Company maintains an Amended and Restated 2005 Stock Incentive Plan (the “Plan”) under which 2,400,000 shares are authorized for issuance. Adoption of the Plan and all amendments thereto have been approved by the Company’s stockholders, including an amendment on December 15, 2010 to increase the number of shares authorized for issuance under the Plan from 1,800,000 to 2,400,000. Stock options and restricted stock that are issued, outstanding or available for future issuance under the Plan are summarized below:


	As of
	December 31,
	2010
Shares authorized under plan		2,400,000
Stock options outstanding		(1,265,900	)
Stock options exercised		(43,268	)
Restricted shares outstanding		(288,328	)
Restricted shares converted into common shares upon lapse of restrictions		(121,672	)


Shares available for issuance under plan		680,832

Stock Options

The Company is required to determine the fair value of employee and director stock options issued under the Plan. The fair value of these options was estimated at the date of grant using the Black-Scholes option pricing model based on the following assumptions:


	Six months
	Ended
	December 31,
	2010
Risk-free interest rate		1.41-2.11	%
Volatility factor		70.05-70.55	%
Weighted volatility		70.53	%
Dividend yield		—
Option price	$	5.30-$5.51
Weighted average expected life of options	6 years
Weighted average grant date fair value per share	$	3.50

The following table summarizes the Company’s stock option activity for the six month period ended December 31, 2010:


						Weighted
				Weighted		Average
				Average		Remaining		Aggregate			Aggregate
				Exercise		Contractual		Fair			Intrinsic
	Options			Price		Term		Value			Value
Balance, June 30, 2010		1,148,401		$	5.14		—	$	3,309		$	—
Exercisable, June 30, 2010		763,737		$	5.38		—	$	2,173		$	—
Grants		145,000		$	5.50		—	$	508		$	—
Exercised		(18,334	)	$	4.69		—	$	(53	)	$	35
Forfeitures/expirations		(9,167	)	$	7.60		—	$	(40	)	$	—
Balance, December 31, 2010		1,265,900		$	5.17	7.04 years		$	3,724		$	5,227
Exercisable, December 31, 2010		817,909		$	5.21	6.19 years		$	2,287		$	3,343

Based on the following assumptions, the fair value with regards to all options issued and outstanding as of December 31, 2010 is $3,724. As of December 31, 2010, there was $1,063 of unrecognized compensation expense related to non-vested share-based compensation under the Plan. The cost of the unrecognized compensation is expected to be recognized over a weighted average period of 1.6 years. This expense assumes that there will be no forfeitures, and this assumption is based on the positions of the option recipients within the Company and the low number of past forfeitures. Since the Plan was adopted, the largest previous forfeitures were due to outside directors becoming employees of the Company. In such instances, the forfeited director stock options were simultaneously replaced with a like number of employee stock options. Stock option expense for the six months ended December 31, 2010 and 2009 was $280 and $388, respectively, and is included in selling, general and administrative expenses. There is no income tax benefit reflected in the accompanying income statements because a valuation allowance has been created for the net deferred tax assets of GTN as of December 31, 2010.

The total fair value of options vesting during the six months ended December 31, 2010 and 2009 was $207 and $93, respectively. The total intrinsic value of options exercised during the six months ended December 31, 2010 and 2009 was $35 and $0, respectively.

Restricted Stock

The Company has awarded restricted shares of its common stock under the Plan to certain employees and directors. The awards, which are comprised of shares of common stock that are subject to transfer and forfeiture restrictions, have restriction periods tied solely to continued employment or service on the Company’s board of directors and vest over three years. The value of these restricted stock awards is calculated at the fair market value of the shares on the date of grant, net of estimated forfeitures, and is expensed pro rata over the vesting period.

The following table summarizes the restricted stock activity for the six month period ended December 31, 2010:


				Six months
				Ended
				December 31,
				2010
				Weighted
				Average Grant
				Date Fair
				Value
	Shares			Per Share
Unvested, beginning of period		248,329		$	5.47
Grants		55,000			5.51
Converted to common stock upon lapse of restrictions		(15,001	)		—
Forfeited		—			—
Unvested, end of period		288,328		$	5.56

As of December 31, 2010, there was $1,003 of unrecognized compensation expense related to restricted stock grants. The unrecognized compensation expense is expected to be recognized over a weighted average period of 2.2 years. Total compensation expense with regards to restricted stock for the six month periods ended December 31, 2010 and 2009 was $395 and $245, respectively and is included in selling, general and administrative expenses.

On February 9, 2011, the compensation committee of the Company granted an additional 72,725 shares of restricted stock. The restriction period of this restricted stock grant is comparable to those previously granted by the Company.

NOTE 11 — Segment Reporting

The Company primarily operates in three geographic areas, Australia, Canada and United Kingdom, through its wholly owned subsidiaries ATN, GTC, which operates through its wholly owned subsidiary CTN, and UKTN, including its wholly owned subsidiary UK-Commercial. Select income statement information and capital expenditures for the periods ended December 31, 2010 and 2009 and select balance sheet information as of December 31, 2010 and 2009 is provided below. The All Other category consists primarily of GAN (previously MTN and renamed effective October 12, 2010) and corporate overhead and assets of GTN. Management fees charged are treated as a contra-expense and eliminate on consolidation. All revenue is from external clients and there is no intersegment revenue. Intercompany advances are treated as non-current assets or liabilities and eliminate on consolidation.


	Three months		Three months			Six months			Six months
	Ended		Ended			Ended			Ended
	December 31,		December 31,			December 31,			December 31,
Australia	2010		2009			2010			2009
Revenues	$	19,189	$	15,925		$	34,518		$	28,017
Interest expense		—		9			—			15
Interest revenue		285		161			535			311
Depreciation & amortization expense		284		260			533			499
Intercompany management fee expense		445		407			853			791
Income tax expense		1,937		1,460			3,160			2,241
Segment profit		4,518		3,363			7,360			5,179
Expenditure for property and equipment		55		210			301			261

						December 31,			December 31,
						2010			2009
Segment assets							43,639			32,180
Current assets							40,884			28,989
Property & equipment, net							2,272			2,589
Deferred tax assets, net							507			390
Intangible assets, net							40			35
Goodwill							—			—
Segment liabilities							11,272			9,204

	Three months		Three months			Six months			Six months
	Ended		Ended			Ended			Ended
	December 31,		December 31,			December 31,			December 31,
Canada	2010		2009			2010			2009
Revenues	$	4,631	$	2,498		$	7,484		$	3,809
Interest expense		—		—			—			—
Interest revenue		—		—			—			—
Depreciation & amortization expense		484		291			959			533
Intercompany management fee expense		—		—			—			—
Income tax expense		—		—			—			—
Segment profit (loss)		167		(971	)		(569	)		(2,544	)
Expenditure for property and equipment		120		306			430			734


							December 31,			December 31,
							2010			2009
Segment assets								10,376			8,282
Current assets								6,458			3,128
Property & equipment, net								3,787			4,988
Deferred tax assets (liabilities), net								—			—
Intangible assets, net								87			150
Goodwill								—			—
Segment liabilities								29,692			24,167

	Three months			Three months			Six months			Six months
	Ended			Ended			Ended			Ended
	December 31,			December 31,			December 31,			December 31,
United Kingdom	2010			2009			2010			2009
Revenues	$	7,991		$	7,200		$	15,112		$	14,124
Interest expense		—			—			—			—
Interest revenue		5			1			5			1
Depreciation & amortization expense		717			734			1,420			1,472
Intercompany management fee expense		—			—			—			—
Income tax (benefit) expense		(2	)		(172	)		65			(245	)
Segment profit (loss)		41			(532	)		215			(960	)
Expenditure for property and equipment		6			34			6			77

							December 31,			December 31,
							2010			2009
Segment assets								26,755			27,382
Current assets								9,677			6,805
Property & equipment, net								423			640
Deferred tax (liabilities), net								(2,936	)		(3,108	)
Intangible assets, net								12,142			15,263
Goodwill								4,447			4,606
Segment liabilities								31,525			32,226

	Three months			Three months			Six months			Six months
	Ended			Ended			Ended			Ended
	December 31,			December 31,			December 31,			December 31,
All Other	2010			2009			2010			2009
Revenues	$	—		$	1		$	—		$	31
Interest expense		—			—			—			—
Interest revenue		—			—			—			1
Depreciation & amortization expense		1			25			1			53
Intercompany management fee revenue		(445	)		(407	)		(853	)		(791	)
Income tax expense		1			—			16			—
Segment loss		(976	)		(1,038	)		(1,922	)		(1,887	)
Expenditure for property and equipment		—			—			—			—

							December 31,			December 31,
							2010			2009
Segment assets								56,419			51,221
Current assets								766			547
Property & equipment (net)								—			1
Deferred tax assets (liabilities), net								—			—
Intangible assets, net								—			50
Goodwill								—			—
Segment liabilities								3,416			2,661

							December 31,			December 31,
Intercompany eliminations							2010			2009
Segment assets							$	(55,653	)	$	(50,623	)
Current assets								—			—
Property & equipment (net)								—			—
Deferred tax assets (liabilities), net								—			—
Intangible assets, net								—			—
Goodwill								—			—
Segment liabilities								(54,772	)		(49,742	)


	Three months		Three months		Six months			Six months
	Ended		Ended		Ended			Ended
	December 31,		December 31,		December 31,			December 31,
Total	2010		2009		2010			2009
Revenues	$	31,811	$	25,624	$	57,114		$	45,981
Interest expense		—		9		—			15
Interest revenue		290		162		540			313
Depreciation & amortization expense		1,486		1,310		2,913			2,557
Intercompany management fee expense		—		—		—			—
Income tax expense		1,936		1,288		3,241			1,996
Net profit (loss)		3,750		822		5,084			(212	)
Expenditure for property and equipment		181		550		737			1,072

					December 31,			December 31,
					2010			2009
Total assets						81,536			68,442
Current assets						57,785			39,469
Property & equipment, net						6,482			8,218
Deferred tax (liabilities) assets, net						(2,429	)		(2,718	)
Intangible assets, net						12,269			15,498
Goodwill						4,447			4,606
Total liabilities						21,133			18,516

Non-cash stock based compensation is not allocated to the operating subsidiaries and is a component of the All Other segment above. Non-cash stock based compensation expense was $350, $315, $675 and $633 for the three and six month periods ended December 31, 2010 and 2009, respectively.

Effective February 2011, the Company converted a majority of the intercompany advance to UKTN to an equity investment, which significantly reduced the UK segment liabilities. There was no impact on the consolidated balance sheet of the Company as the advance/equity eliminates in consolidation.

The Company offers four primary products in the markets in which it operates. The products consist of radio traffic advertising commercials, radio news advertising commercials, television advertising commercials and government services relating to traffic. Not all products are offered in all markets or in all periods covered by the financial statements. These products are not operated as separate segments but are the responsibility of the regional management of the various segments outlined above. All revenues are generated from external clients.


Revenues	Traffic		News		Television		Government		Total
Three months ended December 31, 2010	$	23,946	$	6,046	$	775	$	1,044	$	31,811
Three months ended December 31, 2009	$	19,116	$	5,125	$	729	$	654	$	25,624

Six months ended December 31, 2010	$	43,546	$	9,986	$	1,594	$	1,988	$	57,114
Six months ended December 31, 2009	$	34,830	$	8,047	$	1,494	$	1,610	$	45,981

NOTE 12 — Change in Accounting Estimate

Effective March 1, 2010, the Company changed its estimate of the useful lives of helicopters owned by CTN from eight years to six years and the lives of CTN helicopter engine rebuilds from three years to two years. This change was implemented because the Company determined that the annual flight hours are more than originally anticipated. The life of a helicopter is based upon a blend of the life of the engine, which is approximately 2,200 flight hours, and the life of the airframe. The Company does not anticipate getting less use from the helicopters due to this change in useful life. Also, ATN helicopters were unaffected by this change in useful life as their annual flight hours have been in line with expectations. This change had the effect of increasing depreciation expense $148 and $292, reducing net operating income and net income $148 and $292 and reducing both basic and diluted earnings per share $0.01 and $0.02 for the three and six month periods ended December 31, 2010.

NOTE 13 — Termination of Agreement

In October 2010, UKTN was informed that the its Traffic Radio services contract with the United Kingdom’s Highways Agency would not be extended beyond its current expiration date of August 31, 2011 due to budgetary constraints of the Highways Agency. For the three and six month periods ended December 31, 2010, revenue related to this contract was $1,044 and $1,988, operating income and net income was $260 and $467 and basic and diluted earnings per share was $0.01 and $0.03, respectively.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Company’s unaudited consolidated financial statements and notes thereto included elsewhere in this quarterly report on Form 10-Q and the annual audited financial statements and notes thereto included in the Company’s annual report onForm 10-K for the fiscal year ended June 30, 2010, as filed with the Securities and Exchange Commission.

Executive Overview

We provide traffic and news information reports to radio and television stations in international markets. We are the largest provider of traffic information reports to radio stations in Australia, Canada and the United Kingdom and we provide traffic information reports to television stations in Australia and Canada. We also provide news information reports to radio stations in Canada, entertainment news reports to radio stations in the United Kingdom and we believe that we maintain the largest inventory of commercial advertising embedded in radio news reports in Australia. We derive a substantial majority of our revenues from the sale to advertisers of commercial advertising inventory associated with these information reports. We obtain this advertising inventory from radio and television stations in exchange for providing stations with information reports and/or, for certain broadcasters, cash compensation. Although we are a Nevada corporation with principal executive offices located in New York, New York, we do not provide, nor do we currently intend to provide traffic or news reports to radio or television stations in the United States. However, we do offer our mobile traffic products to radio and television stations in the United States.

Our operations are conducted through the following wholly owned direct and indirect subsidiaries:

	•		The Australia Traffic Network Pty Limited (“Australia Traffic Network”);

	•		Canadian Traffic Network ULC (“Canadian Traffic Network”);

	•		Global Traffic Network (UK) Limited and Global Traffic Network (UK) Commercial Limited (“UK Traffic Network” and “UK Commercial Traffic Network,” respectively); and

	•		Global Alert Network, Inc. (“Global Alert Network”), formerly named Mobile Traffic Network, Inc. (“Mobile Traffic Network”).

Global Traffic Network, Inc. is a holding company and conducts no operations. Unless we indicate otherwise, the discussions below regarding our financial condition and results of operations present information on a consolidated basis and all material inter-company transactions and balances have been eliminated.

The Services We Provide — Radio Traffic Reports, Radio News Reports and TV Reports.

The information reports we provide to radio and television stations are divided into three categories, radio traffic reports, radio news reports and TV reports, based on the content of the report and the medium in which it is delivered. Collectively, we refer to these reports as our “information reports.” In addition, we provide radio traffic reports under a Traffic Radio service contract with the United Kingdom’s Highways Agency, which is an executive agency of the United Kingdom Department of Transport.

The radio stations that contract to provide us with traffic and news report advertising inventory become members of our “Radio Network.” Likewise, the television stations that contract to receive our TV reports become members of our “TV Network.” Collectively, we refer to the members of these networks as our “network affiliates.” We currently offer radio traffic and television traffic reports and video footage to our network affiliates in Australia, while obtaining radio news report advertising inventory by paying cash compensation to our news network affiliates. References to the provision of news reports in Australia throughout this report refer to our purchase from radio stations of news advertising inventory embedded in news reports that we then make available to our advertisers. We provide radio traffic reports and TV reports to our network affiliates in Canada, as well as news, weather, business and sports reports to radio network affiliates on a limited basis. In the United Kingdom, we provide radio stations with traffic and entertainment news information and reports that are primarily provided through third party out-source providers that we compensate. Our network affiliates by market and product currently are as follows:


			Radio News,
			Sports,
			Weather,
			Business
			and
			Entertainment
	Radio Traffic		News		TV Reports
Australia		84		28		14
Canada		76		22		4
United Kingdom		275		129		—

Our Sources of Revenue — Sale of Commercial Airtime Inventory

In exchange for providing our information reports and/or, for certain broadcasters, cash compensation, our network affiliates provide us with commercial advertising inventory. We generate revenues by packaging and selling this commercial advertising inventory for cash to advertisers on a local, regional or national network basis, except in the United Kingdom where it is sold on a national basis only. To date, we have

recognized no revenue related to the bartering of goods and services and do not anticipate entering into barter transactions for the sale of our commercial advertising inventory in the future. The main factors that determine the amount of revenue we generate from our commercial advertising inventory include the audience reach of our networks, which is determined by the number of advertising spots we have to sell as well as the audience of our network affiliates, the percentage of the available market that our network covers, the advertising rates in the markets in which we operate networks, the length of time we have been established in the market and the training and abilities of our sales staffs. Although the number of network affiliates that we maintain in a market may influence certain of these factors, the number may not be directly correlated to the amount of revenue that we generate in that market.

The majority of our revenues have been generated from our Australian operations, including approximately $34.5 million, or 60%, of our revenues for the six month period ended December 31, 2010, of which approximately $24.9 million, or 44% of our total revenues, has been generated from the sale of commercial advertising inventory related to our Australian radio traffic reports. For the six month period ended December 31, 2009, approximately $28.0 million, or 61% of our revenues, was generated by our Australian operations, of which approximately $20.1 million, or 44%, was generated from the sale of commercial advertising inventory related to our Australian radio traffic reports. We expect to accumulate increasing amounts of commercial advertising inventory from our Australian operations as we continue to obtain more news report inventory in Australia. We began accumulating commercial advertising inventory from our Canadian operations in December 2005 and began generating limited revenue in Canada in January 2006. Currently, we have operations in eight Canadian cities: Calgary, Toronto, Hamilton, Vancouver, Montreal, Ottawa, Edmonton and Winnipeg. We anticipate expanding our radio and television advertising inventory primarily by adding new network affiliates in our existing markets, as we have not penetrated the Canadian markets to the extent that we have done so in Australia or United Kingdom. However, we will continue to explore the expansion of our advertising inventory by both the introduction of new products as well as entering new Canadian markets. We obtained the majority of our United Kingdom radio advertising inventory as a result of our acquisition of The Unique Broadcasting Company Limited (“Unique”) on March 1, 2009, which we subsequently renamed UK Commercial Traffic Network. We are actively seeking to expand the amount of our traffic and entertainment news inventory from both new and existing radio affiliates in the United Kingdom. As commercial advertising inventory generated from our Australian, Canadian and United Kingdom operations increase, we expect to sell the increased commercial advertising inventory in the same manner as we have sold commercial advertising inventory generated from our provision of radio traffic reports in Australia. Our experience indicates, however, that there is generally a delay between acquiring commercial advertising inventory from new or expanded operations and the realization of increasing revenues from the sale of such inventory. We experienced such a delay when we added Austereo as a network affiliate of our Radio Network in fiscal year 2004. Although the additional commercial advertising inventory we acquired from Austereo led to increased revenues during fiscal year 2004, the full impact on revenues from the sale of such inventory was not realized until fiscal year 2005. We also experienced a similar lag when we began to receive news report inventory from Austereo in July 2006. We expect to experience similar delays in realizing revenues from the sale of commercial advertising inventory associated with additional radio news reports in Australia, our provision of radio traffic reports in Canada and increases in radio advertising inventory in the United Kingdom.

Our Expenses

Our expenses are primarily comprised of three categories: operating expenses, selling expenses and general and administrative expenses. Operating expenses consist of station compensation and all expenses related to the gathering, producing, and broadcasting of our information reports, including aviation costs and expenses, salaries and benefits for our on-air personalities who deliver the information reports and payments to third parties that provide information and reporting services. Station compensation consists of the reimbursement of expenses incurred by stations which we would otherwise incur in providing services to the station, as well as any additional cash consideration paid to a network affiliate in exchange for commercial advertising inventory. We may incur increased expenses in the form of station compensation in connection with adding certain broadcasters to our base of network affiliates. As mentioned above, our experience indicates that in such instances there is generally a delay between acquiring commercial advertising inventory from new network affiliates and the realization of increased revenues from the sale of such inventory. Aviation costs relate to the costs of our airborne surveillance, an integral part of our information gathering, and consist both of payments to outside vendors to lease aircraft and the operating costs (including fuel, maintenance, and insurance costs) associated with the operation of the fleet of aircraft we own. Our fleet of leased and owned aircraft currently consists of:


	Australia				Canada				United Kingdom
	Leased		Owned		Leased		Owned		Leased		Owned
Fixed-wing aircraft		0		1		2		0		0		2
Helicopters		0		4		0		7		0		0

Selling expenses include salaries and benefits for our sales personnel and commissions paid on sales of our commercial advertising inventory. General and administrative expenses consist of corporate overhead, including administrative salaries, real property lease payments, insurance, salaries and benefits for our corporate executive officers, compensation expense related to stock options and restricted stock and legal and accounting fees. Expenses other than selling expenses are generally expensed evenly over the applicable fiscal year.

Seasonality of Business

We believe that advertising revenues in general vary moderately over the calendar year, with the three month period ending December 31 generally resulting in the highest revenues and the three month period ending March 31 generally resulting in the lowest revenues. This industry trend is mainly attributable to increases in the level of advertiser demand, and resulting increases in average advertising spot rates and/or number of spots sold, during the months leading up to the Christmas holiday season and lower advertiser demand following the end of the holiday season which leads to lower average advertising spot rates and/or number of spots sold during that time. We believe that this general trend in advertising revenues is applicable to our business. During certain previous years, the impact of seasonality on our results of operations has been offset by the rapid revenue growth of our business and, in certain cases, favorable exchange rate movements. As a result, our revenues for the quarter ending March 31 have frequently exceeded our revenues for the preceding quarter ended September 30. Our

expenses other than sales costs are generally spread evenly over the fiscal year. As a result, we generally experience seasonality in the amount of our net income absent growth due to the addition of new network affiliates.

Basis of Presentation

We have derived substantially all of our revenues to date from our Australian, Canadian and United Kingdom operations. However, the financial information contained in this report, including the financial statements, report our financial condition and results of operation in United States dollars and, unless stated otherwise, all references to dollar amounts refer to United States dollars. Income statement amounts are converted from Australian dollars, Canadian dollars or British pounds to United States dollars based on the average exchange rate for the period covered. Assets and liabilities are converted based on the exchange rate as of the applicable balance sheet date. Equity is converted based on the prevailing exchange rate at the time of the applicable investment. Foreign currency translation adjustments occur when the income statement and balance sheet are converted at different exchange rates and are recognized as other comprehensive income or loss in the financial statements. For reference, the exchange rates to United States dollars from Australian dollars, Canadian dollars and British pounds applicable to our income statement data for each of the three months periods ended September 30 and December 31, 2010 and 2009 and applicable to our balance sheet data as of December 31, 2010 and June 30, 2010 are set forth below:

Australia

Balance

Income Statement Period

Exchange Rate

Sheet Date

Exchange Rate

Three month period ended December 31, 2010

0.9887

December 31, 2010

1.0233

Three month period ended September 30, 2010

0.9057

Three month period ended December 31, 2009

0.9094

Three month period ended September 30, 2009

0.8340

June 30, 2010

0.8408

Canada


			Balance
Income Statement Period	Exchange Rate		Sheet Date	Exchange Rate
Three month period ended December 31, 2010		0.9873	December 31, 2010		1.0020
Three month period ended September 30, 2010		0.9623
Three month period ended December 31, 2009		0.9469
Three month period ended September 30, 2009		0.9115
			June 30, 2010		0.9399

United Kingdom


			Balance
Income Statement Period	Exchange Rate		Sheet Date	Exchange Rate
Three month period ended December 31, 2010		1.5803	December 31, 2010		1.5612
Three month period ended September 30, 2010		1.5510
Three month period ended December 31, 2009		1.6344
Three month period ended September 30, 2009		1.6411
			June 30, 2010		1.4945

We estimate that the impact from currency changes on our operating results for the three and six month periods ended December 31, 2010 compared to the three and six month periods ended December 31, 2009 has been to increase (decrease) income statement amounts as follows:


	Three months		Six months
	Ended		Ended
	December 31,		December 31,
	2010		2010
	(in thousands)		(in thousands)
Australia
Revenues	$	1,539	$	2,753
Operating expenses (exclusive of depreciation and amortization)		720		1,363
Sales, general & administrative expenses		301		549
Canada
Revenues		189		340
Operating expenses (exclusive of depreciation and amortization)		110		234
Sales, general & administrative expenses		53		93


	Three months			Six months
	Ended			Ended
	December 31,			December 31,
	2010			2010
	(in thousands)			(in thousands)
United Kingdom
Revenues		(274	)		(688	)
Operating expenses (exclusive of depreciation and amortization)		(217	)		(535	)
Sales, general & administrative expenses		(31	)		(71	)
Australia, Canada and United Kingdom combined
Revenues		1,454			2,405
Operating expenses (exclusive of depreciation and amortization)		613			1,062
Sales, general & administrative expenses		323			571

When discussing changes in income statement accounts from the three and six month periods ended December 31, 2009, the analysis under “Results of Operations” below includes both the impact of currency changes and changes in revenues and expenditures in the local currency.

Foreign currency exchange rates in the markets in which we operate have been subject to substantial fluctuation. Any fluctuation between the U.S. dollar and the currencies of the countries in which we operate will impact the amount of our revenues and expenses. To the extent foreign currencies depreciate relative to the U.S. dollar, there will be a negative impact on the revenues we report due to such fluctuation. It is possible that the impact of currency fluctuations will result in a decrease in reported sales even though we have experienced an increase in sales when reported in the applicable foreign currency. This occurred in Australia for the fiscal year ended June 30, 2009. For example, for the three months ended March 31, 2009, although revenue increased approximately 11.7% when measured in Australian dollars, our reported Australia revenue in U.S. dollars decreased approximately 18.1% from the three months ended March 31, 2008. Conversely, a weak U.S. dollar may mask lower performance in local currencies as it is possible for us to report higher revenues in U.S. dollars despite revenue declines in local currency in the markets in which we operate.

For our second fiscal quarter ended December 31, 2010, the Australian dollar was stronger than during the quarter ended December 31, 2009. This trend has continued to date during the third fiscal quarter of 2011. Should the exchange rate between the U.S. and Australian dollar remain at current levels, this will have the effect of increasing revenues and expenses reported in U.S. dollars from our Australian operations (which constitute the majority of our business) for our third fiscal quarter ended March 31, 2011 absent any change in performance in local currency.

In October 2010, UKTN was informed that its Traffic Radio services contract with the United Kingdom’s Highways Agency would not be extended beyond its current expiration date of August 31, 2011 due to budgetary constraints of the Highways Agency. We expect the contract will continue under its current terms until the expiration date and thus will have no impact on our financial results for the remainder of the current fiscal year. For the three and six months ended December 31, 2010, revenue related to this contract was $1,044 and $1,988, operating income and net income was $260 and $467 and basic and diluted earnings per share was $0.01 and $0.03. Assuming stable exchange rates, we expect that the contract’s quarterly contribution to our results throughout its remaining term will be consistent with that results seen during the second fiscal quarter of 2011, as the revenue and expenses related to the contract are fairly consistent on a quarter to quarter basis.

Results of Operations

Three Months Ended December 31, 2010 Compared With Three Months Ended December 31, 2009

Revenues.Revenues increased from approximately $25.6 million for the three months ended December 31, 2009 to approximately $31.8 million for the three months ended December 31, 2010, an increase of approximately 24.2%. Australian revenues increased approximately $3.3 million, or approximately 20.8%, compared to the quarter ended December 31, 2009. The increase in Australian revenues pertained primarily to our radio network. Approximately $1.5 million of the overall increase in Australian revenues was due to the Australian dollar being stronger in the second fiscal quarter 2011 compared to the second fiscal quarter 2010, while the remaining approximately $1.8 million increase was due to increased sales in local currency. As reflected inChanges in Key Operating Statistics in Local Currencies, Australian revenues increased approximately 10.8% when measured in local currency compared to the three month period ended December 31, 2009. The Australian revenue increase in local currency was driven primarily by an increase in the number of spots sold compared to the previous year quarter. The increase in spots sold was due both to an increase in the amount of advertising inventory as well as a higher percentage of available spots being sold compared to the previous year period. The percentage of spots sold in Australia increased from approximately 89% for the three months ended December 31, 2009 to approximately 93% for the three months ended December 31, 2010. Revenues from our United Kingdom operations increased approximately $0.8 million (approximately 11.1%) which related primarily to our traffic and entertainment news network advertising sales. Unlike the Australian and Canadian dollar, the British pound was actually weaker in the second fiscal quarter of this year compared to the second fiscal quarter of last year. As reflected inChanges in Key Operating Statistics in Local Currencies, United Kingdom revenues increased approximately 14.8% when measured in British pounds. Revenues from the sale of inventory related to our Canadian operations increased approximately $2.1 million, or approximately 84.0%, from the previous year quarter. The revenue increase in local currency was driven mainly by an increase in rate, which increased almost 70% compared to the three months ended December 31, 2009. The rate in the previous period had been impacted by “per inquiry” and guaranteed bonus spots, which became less prevalent in the current quarter due to increased advertiser demand. As reflected inChanges in Key Operating Statistics in Local Currencies, Canadian revenues increased approximately 77.8% when measured in Canadian dollars.

Operating expenses (exclusive of depreciation and amortization discussed below).Operating expenses increased from approximately $16.7 million for the three months ended December 31, 2009 to approximately $18.2 million for the three months ended December 31, 2010, an increase of approximately 9.0%. Australian operating expenses increased approximately $1.1 million primarily due to an increase in station compensation of approximately $1.0 million and an increase in employee costs of approximately $0.2 million. Approximately $0.7 million of the approximately $1.1 million overall increase in Australian operating expenses discussed above was related to currency movements as the Australian dollar was stronger in the current fiscal quarter when compared to the quarter ended December 31, 2009. As reflected inChanges in Key Operating Statistics in Local Currencies,Australian operating expenses increased by approximately 4.7% when measured in local

currency. Operating costs related to our United Kingdom operations increased approximately $0.1 million compared to the quarter ended December 31, 2009. Employee costs were reduced approximately $0.1 million, third party traffic out source provider costs were reduced approximately $0.2 million and station compensation was approximately $0.5 million higher than during the previous year period. The increase in station compensation was due to increases in fixed compensation related to certain contract renewals as well as higher variable compensation resulting from the increased revenue during the quarter. As reflected inChanges in Key Operating Statistics in Local Currencies,United Kingdom operating expenses increased by approximately 5.6% in local currency. Operating expenses related to our Canadian operations increased approximately $0.3 million due to an increase in station compensation and approximately $0.1 million loss on the write-off of a blown helicopter engine. As reflected inChanges in Key Operating Statistics in Local Currencies, Canadian operating expenses increased by approximately 6.3% in local currency.

Selling, general and administrative expenses.Selling, general and administrative expenses increased from approximately $5.7 million for the three months ended December 31, 2009 to approximately $6.7 million for the three months ended December 31, 2010, an increase of approximately 17.5%. Australia Traffic Network selling, general and administrative expenses increased approximately $0.7 million dollars compared to the quarter ended December 31, 2009, of which approximately $0.3 million related to currency translation differences as the Australia dollar was stronger relative to the U.S. dollar compared to the year ago period. The majority of the increase in Australian selling, general and administrative in local currency pertained to higher sales employee compensation mainly resulting from the higher revenues for the period. Sales expense as a percentage of revenue in Australia decreased from approximately 13.7% for the three months ended December 31, 2009 to approximately 13.5% for the three months ended December 31, 2010. Canada Traffic Network selling, general and administrative expenses increased approximately $0.5 million primarily due to a $0.4 million increase in costs related to our sales staff due to commissions on increased sales as well as the hiring of additional sales representatives and sales managers. Selling, general and administrative expenses decreased approximately $0.1 million in the United Kingdom primarily due to lower employee sales compensation. Non-cash compensation expense resulting from grants of employee and director stock options and restricted stock was approximately $0.35 million for the three month period ended December 31, 2010 compared to approximately $0.3 million for the three months ended December 31, 2009.

Depreciation and amortization expense.Depreciation and amortization expense increased from approximately $1.3 million for the three months ended December 31, 2009 to approximately $1.5 million for the three months ended December 31, 2010. Approximately $0.1 million of the increase related to shortening the useful lives of the Canadian Traffic Network helicopters from eight years to six years and reducing the Canadian Traffic Network helicopter engine rebuild useful lives from three years to two years in March 2010. This change in estimate was made due to our flying more hours per year in Canada than originally anticipated.

Interest expense.Interest expense was $0 for the three months ended December 31, 2010 as the Company has no outstanding debt.

Other income.Other income was approximately $0.3 million for the three months ended December 31, 2010, compared to approximately $0.2 million for the three months ended December 31, 2009. Other income consists primarily of interest income on our cash balances.

Income tax expense.Income tax expense increased from approximately $1.3 million for the three months ended December 31, 2009 to approximately $1.9 million for the three months ended December 31, 2010. The increase was primarily due to higher net profit in Australia when measured in U.S. dollars for the three months ended December 31, 2010 compared to the three month period ended December 31, 2009. The effective tax rate in Australia was 30.0% for the three month period ended December 31, 2010 and 30.3% for the three month period ended December 31, 2009 compared to the statutory federal rate of 30.0%. There was no income tax benefit for the United States or Canada as a valuation allowance has been created for 100% of the Company’s net deferred tax assets in those countries. In addition, tax benefit related to our United Kingdom operations decreased approximately $0.2 million due to increased performance from UK Commercial Traffic Network. The UK Traffic Network realized approximately $0.2 million tax benefit due primarily to the utilization of the deferred tax liability created by the Unique acquisition. The UK Traffic Network tax benefit was offset by approximately $0.2 million of tax expense related to the utilization of UK Commercial Traffic Network’s net operating loss carry-forwards. UK Commercial Traffic Network’s tax benefit and expense are both non-cash items.

Net income.Net income increased from approximately $0.8 million for the three months ended December 31, 2009 to approximately $3.75 million for the three months ended December 31, 2010. The increase is primarily attributable to Canadian Traffic Network being profitable for the first time due in large part to significantly higher sales in that market, increased Australia Traffic Network net income resulting from higher sales and favorable currency movements and the financial performance of UK Traffic Network improving from a net loss to net income, primarily based upon the performance of UK Commercial Traffic Network.

Changes in Key Operating Statistics in Local Currencies

The table below sets forth changes in certain of our key operating statistics for our Australian operations for the comparable periods presented without taking into account foreign currency exchange rates. Amounts are expressed in Australian dollars. The exchange rates from Australian dollars to United States dollars applicable to the three month periods ended December 31, 2010 and 2009 were 0.9887 and 0.9094, respectively.


	Three Months			Three Months
	Ended			Ended			Percentage
	December 31,			December 31,			Increase
Key operating statistic	2010			2009			(Decrease)
	(In thousands)			(In thousands)
Revenues	$	19,406		$	17,511			10.8	%
Operating expenses		9,079			8,673			4.7	%
Selling, general and administrative expenses		3,802			3,418			11.2	%
Depreciation and amortization expense		287			286			0.3	%
Interest expense		—			9			(100.0	)%
Other (income)		(291	)		(179	)		62.6	%
Income tax expense		1,960			1,605			22.1	%
Net income		4,569			3,699			23.5	%

The table below sets forth changes in certain of our key operating statistics for our Canadian operations for the comparable periods presented without taking into account foreign currency exchange rates. Amounts are expressed in Canadian dollars. The exchange rates from Canadian dollars to United States dollars applicable to the three month periods ended December 31, 2010 and 2009 were 0.9873 and 0.9469, respectively.


	Three Months		Three Months
	Ended		Ended			Percentage
	December 31,		December 31,			Increase
Key operating statistic	2010		2009			(Decrease)
	(In thousands)		(In thousands)
Revenues	$	4,690	$	2,638			77.8	%
Operating expenses		2,719		2,558			6.3	%
Selling, general and administrative expenses		1,312		797			64.6	%
Depreciation and amortization expense		490		308			59.1	%
Interest expense		—		—			—
Other expense		—		1			(100.0	)%
Income tax expense		—		—			—
Net income (loss)		169		(1,026	)	NM

The table below sets forth changes in certain of our key operating statistics for our United Kingdom operations for the comparable periods presented without taking into account foreign currency exchange rates. Amounts are expressed in British pounds. The exchange rates from British pounds to United States dollars applicable to the three month periods ended December 31, 2010 and 2009 were 1.5803 and 1.6344, respectively.


	Three Months			Three Months
	Ended			Ended			Percentage
	December 31,			December 31,			Increase
Key operating statistic	2010			2009			(Decrease)
	(In thousands)			(In thousands)
Revenues	£	5,057		£	4,405			14.8	%
Operating expenses		4,011			3,800			5.6	%
Selling, general and administrative expenses		570			610			(6.6	)%
Depreciation and amortization expense		454			450			0.9	%
Interest expense		—			—			—
Other (income)		(4	)		(23	)		(82.6	)%
Income tax (benefit)		(1	)		(105	)		(99.0	)%
Net income (loss)		27			(327	)	NM

Six Months Ended December 31, 2010 Compared With Six Months Ended December 31, 2009

Revenues.Revenues increased from approximately $46.0 million for the six months ended December 31, 2009 to approximately $57.1 million for the six months ended December 31, 2010, an increase of approximately 24.1%. Australian revenues increased approximately $6.5 million, or approximately 23.2%, compared to the six months ended December 31, 2009. The increase in Australian revenues pertained primarily to our radio network. Approximately $2.8 million of the overall increase in Australian revenues was due to the Australian dollar being stronger in the first two fiscal quarters 2011 compared to fiscal 2010, while the remaining approximately $3.7 million was due to increased sales in local currency. As reflected inChanges in Key Operating Statistics in Local Currencies, Australian revenues increased approximately 13.5% when measured in local currency compared to the six month period ended December 31, 2009. Revenues from our United Kingdom operations increased approximately $1.0 million (approximately 7.1%) which primarily related to our traffic and entertainment news network advertising sales. Unlike the Australian and Canadian dollar, the British pound was actually weaker in the first two fiscal quarters of this year compared to the same period of last year. As reflected inChanges in Key Operating Statistics in Local Currencies, United Kingdom revenues increased approximately 11.9% when measured in British pounds. Revenues from the sale of inventory related to our Canadian operations increased approximately $3.7 million, or approximately 97.4%, from the previous year period. As reflected inChanges in Key Operating Statistics in Local Currencies, Canadian revenues increased approximately 87.8% when measured in Canadian dollars.

Operating expenses (exclusive of depreciation and amortization discussed below).Operating expenses increased from approximately $31.7 million for the six months ended December 31, 2009 to approximately $34.3 million for the six months ended December 31, 2010, an increase of approximately 8.2%. Australian operating expenses increased approximately $2.5 million primarily due to an increase in station compensation of approximately $2.1 million and an increase in employee costs of approximately $0.4 million. Approximately $1.4 million of the approximately $2.5 million overall increase in Australian operating expenses discussed above was related to currency movements as the Australian dollar was stronger in the current fiscal year to date period when compared to the period ended December 31, 2009. As reflected inChanges in Key Operating Statistics in Local Currencies,Australian operating expenses increased by approximately 7.9% when measured in local currency. Operating costs related to our United Kingdom operations decreased approximately $0.3 million compared to the period ended December 31, 2009. Employee costs were reduced approximately $0.2 million, third party traffic out source provider costs were reduced

approximately $0.3 million while station compensation was approximately $0.3 million higher than during the previous year period. The overall decrease in UK operating expenses was due to the weakening of the British pound during the current period. As reflected inChanges in Key Operating Statistics in Local Currencies,United Kingdom operating expenses increased by approximately 2.2% in local currency. Operating expenses related to our Canadian operations increased approximately $0.3 million due to an increase in station compensation of approximately $0.2 million and approximately $0.1 million loss on write-off of a blown helicopter engine. As reflected inChanges in Key Operating Statistics in Local Currencies,Canadian operating expenses increased by approximately 2.6% in local currency.

Selling, general and administrative expenses.Selling, general and administrative expenses increased from approximately $10.4 million for the six months ended December 31, 2009 to approximately $12.1 million for the six months ended December 31, 2010, an increase of approximately 16.3%. Australian selling, general and administrative expenses increased approximately $1.1 million compared to the period ended December 31, 2009, of which approximately $0.5 million related to currency translation differences as the Australia dollar was stronger relative to the U.S. dollar compared to the year ago period. The majority of the increase in Australian selling, general and administrative in local currency pertained to higher sales employee compensation mainly resulting from the higher revenues for the period. Sales expense as a percentage of revenue in Australia decreased from approximately 14.0% for the six months ended December 31, 2009 to approximately 13.5% for the six months ended December 31, 2010. Canada Traffic Network selling, general and administrative expenses increased approximately $1.0 million primarily due to a $0.7 million increase in costs related to our sales staff due to commissions on increased sales as well as the hiring of additional sales representatives and sales managers. Selling, general and administrative expenses decreased approximately $0.2 million in the United Kingdom primarily due to lower employee sales compensation. Non-cash compensation expense resulting from grants of employee and director stock options and restricted stock was approximately $0.7 million for the six months ended December 31, 2010 and approximately $0.6 million for the six months ended December 31, 2009.

Depreciation and amortization expense.Depreciation and amortization expense increased from approximately $2.6 million for the six months ended December 31, 2009 to approximately $2.9 million for the six months ended December 31, 2010. Approximately $0.2 million of the increase related to shortening the useful lives of the Canadian Traffic Network helicopters from eight years to six years and reducing the Canadian Traffic Network helicopter engine rebuild useful lives from three years to two years in March 2010. This change in estimate was made due to our flying more hours per year in Canada than originally anticipated.

Interest expense.Interest expense was $0 for the six months ended December 31, 2010 as the Company has no outstanding debt.

Other income.Other income was approximately $0.5 million for the six months ended December 31, 2010 and 2009. Other income consists primarily of interest income on our cash balances. For the six month period ended December 31, 2009, there was approximately $0.1 million of foreign translation income. This income resulted from the repayment of balances due the Company by Australia Traffic Network during the prior year period. Intercompany balances between the Company and its subsidiaries are translated from the local currencies to U.S. dollars at each balance sheet date. To the extent these balances are intended to be ongoing, that is, settlement is neither planned nor anticipated, the translation adjustments to balance intercompany are reflected as a component of other comprehensive income. The repayment of the Australia Traffic Network intercompany balance triggered a realized foreign exchange income during the period ended December 31, 2009.

Income tax expense.Income tax expense increased from approximately $2.0 million for the six months ended December 31, 2009 to approximately $3.2 million for the six months ended December 31, 2010. The increase was primarily due to higher net profit in Australia when measured in U.S. dollars for the six months ended December 31, 2010 compared to the six month period ended December 31, 2009. The effective tax rate in Australia was 30.0% for the six month period ended December 31, 2010 and 30.2% for the six month period ended December 31, 2009 compared to the statutory federal rate of 30.0%. There was no income tax benefit for the United States or Canada as a valuation allowance has been created for 100% of the Company’s net deferred tax assets in those countries. In addition, tax expense related to our United Kingdom operations increased approximately $0.3 million due to increased profits from UK Commercial Traffic Network. The UK Traffic Network realized approximately $0.4 million tax benefit due primarily to the utilization of the deferred tax liability created by the Unique acquisition. The UK Traffic Network tax benefit was offset by approximately $0.4 million of tax expense related to the utilization of UK Commercial Traffic Network’s net operating loss carry-forwards. UK Commercial Traffic Network’s tax benefit and expense are both non-cash items.

Net income (loss).Net income increased from a net loss of approximately $0.2 million for the six months ended December 31, 2009 to net income of approximately $5.1 million for the six months ended December 31, 2010. The increase is primarily attributable to a smaller Canadian Traffic Network net loss due in large part to significantly higher sales in that market, increased Australia Traffic Network net income resulting from higher sales and favorable currency movements and the financial performance of UK Traffic Network improving from a net loss to net income, primarily based upon the performance of UK Commercial Traffic Network.

Changes in Key Operating Statistics in Local Currencies

The table below sets forth changes in certain of our key operating statistics for our Australian operations for the comparable periods presented without taking into account foreign currency exchange rates. Amounts are expressed in Australian dollars. The exchange rates from Australian dollars to United States dollars for each of the applicable periods is set forth in the Executive Overview section of Management Discussion and Analysis of Financial Condition and Results of Operations under the heading “Basis of Presentation”.


	Six Months			Six Months
	Ended			Ended			Percentage
	December 31,			December 31,			Increase
Key operating statistic	2010			2009			(Decrease)
	(In thousands)			(In thousands)
Revenues	$	36,331		$	32,006			13.5	%
Operating expenses		18,053			16,737			7.9	%
Selling, general and administrative expenses		7,266			6,622			9.7	%
Depreciation and amortization expense		562			573			(1.9	)%
Interest expense		—			17			(100.0	)%
Other (income)		(567	)		(359	)		57.9	%
Income tax expense		3,310			2,541			30.3	%
Net income		7,707			5,875			31.2	%

The table below sets forth changes in certain of our key operating statistics for our Canadian operations for the comparable periods presented without taking into account foreign currency exchange rates. Amounts are expressed in Canadian dollars. The exchange rates from Canadian dollars to United States dollars for each of the applicable periods is set forth in the Executive Overview section of Management Discussion and Analysis of Financial Condition and Results of Operations under the heading “Basis of Presentation”.


	Six Months			Six Months
	Ended			Ended			Percentage
	December 31,			December 31,			Increase
Key operating statistic	2010			2009			(Decrease)
	(In thousands)			(In thousands)
Revenues	$	7,655		$	4,076			87.8	%
Operating expenses		5,165			5,032			2.6	%
Selling, general and administrative expenses		2,099			1,228			70.9	%
Depreciation and amortization expense		984			573			71.7	%
Interest expense		—			—			—
Other expense (income)		2			(6	)	NM
Income tax expense		—			—			—
Net loss		(595	)		(2,751	)		(78.4	)%

The table below sets forth changes in certain of our key operating statistics for our United Kingdom operations for the comparable periods presented without taking into account foreign currency exchange rates. Amounts are expressed in British pounds. The exchange rates from British pounds to United States dollars for each of the applicable periods is set forth in the Executive Overview section of Management Discussion and Analysis of Financial Condition and Results of Operations under the heading “Basis of Presentation”.


	Six Months			Six Months
	Ended			Ended			Percentage
	December 31,			December 31,			Increase
Key operating statistic	2010			2009			(Decrease)
	(In thousands)			(In thousands)
Revenues	£	9,648		£	8,624			11.9	%
Operating expenses		7,545			7,385			2.2	%
Selling, general and administrative expenses		1,019			1,128			(9.7	)%
Depreciation and amortization expense		907			899			0.9	%
Interest expense		—			—			—
Other (income)		(4	)		(51	)		(92.2	)%
Income tax expense (benefit)		42			(150	)	NM
Net income (loss)		139			(587	)	NM

Liquidity and Capital Resources

At December 31, 2010, the Company’s primary source of liquidity was cash and cash equivalents of approximately $29.5 million. At December 31, 2010, the Company also had approximately $2.0 million available under its overdraft credit line. The overdraft credit line is denominated in Australian dollars and has been translated into U.S. dollars for purposes of this report. The Company’s excess cash has been mainly invested in short term bonds, short term agencies, short term commercial paper and money market accounts, all of which have maturities of 90 days or less. None of the Company’s cash and cash equivalents consisted of auction rate securities at December 31, 2010.

Operating activities.Cash provided by operating activities was approximately $6.6 million for the six months ended December 31, 2010, due mainly to positive cash generation from operations (after the net income was adjusted for non-cash expenses) which was partially offset by negative changes in working capital. The largest use of working capital was $4.6 million due to an increase in accounts receivable associated with the higher revenue in the period.

Investing activities.Cash used in investing activities was approximately $0.7 million for the six month period ended December 31, 2010. The cash used for investing activities consisted of capital expenditures, the majority of which was for the periodic rebuilding of helicopter engines in Canada and Australia.

Financing activities.Cash used in financing activities was $0 for the six months ended December 31, 2010. The Company currently has no long term debt or amounts outstanding under its bank overdraft line of credit.

Effect of exchange rate changes.Cash and cash equivalents were increased approximately $4.1 million for the six months ended December 31, 2010 due primarily to the significant strengthening of the Australian dollar, as a significant majority of our cash and cash equivalents are denominated in Australian dollars.

We believe our cash and cash equivalents on hand and our overdraft line of credit of approximately $2.0 million provides adequate resources to fund ongoing operations, including any net losses generated by certain of our subsidiaries. However, our capital requirements depend on many factors, including, without limitation, the amount, if any, of cash provided by our operating activities, cash requirements of our expansion in the United Kingdom, the occurrence and timing of any expansion efforts in new geographic markets, the cost associated with development and commercialization of Global Alert Network’s mobile telephone technology and the introduction of products in our existing and/or new markets. Our capital requirements will also depend on the factors identified in the “Risk Factors” section of our annual report on Form 10-K for the fiscal year ended June 30, 2010, as filed with the Securities and Exchange Commission.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Cautionary Statement Concerning Forward-Looking Statements and Factors Affecting Forward-Looking Statements

Some of the statements made in this report are forward-looking statements. These forward-looking statements are based upon our current expectations and projections about future events. When used in this report, the words “believe,” “anticipate,” “intend,” “estimate,” “expect” and similar expressions, or the negative of such words and expressions, are intended to identify forward-looking statements, although not all forward-looking statements contain such words or expressions. The forward-looking statements in this report are primarily located in the material set forth under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are found in other locations as well. These forward-looking statements generally relate to our plans, objectives and expectations for future operations and are based upon management’s current estimates and projections of future results or trends. Although we believe that our plans and objectives reflected in or suggested by these forward-looking statements are reasonable, we may not achieve these plans or objectives. You should read this report completely and with the understanding that actual future results may be materially different from what we expect. We will not update forward-looking statements even though our situation may change in the future.

Specific factors that might cause actual results to differ from our expectations or may affect the value of the common stock, include, but are not limited to:

	•		our inability to compete successfully with current or future competitors within our industry;

	•		our inability to retain members of our executive management or other key employees;

	•		the termination or impairment of our relationships with key network affiliates;

	•		the termination or impairment of our advertiser relationships;

	•		our inability to manage our growth effectively;

	•		our ability to expand successfully into additional international markets;

	•		the effect on our financial performance of fluctuations in foreign currency exchange rates and results of any hedging transactions;

	•		the availability to us of additional financing, if required;

	•		the occurrence of unforeseen litigation; and

	•		our inability to integrate our recent acquisition of The Unique Broadcasting Company Limited or to manage future acquisitions.

Other factors that could cause actual results to differ from those implied by the forward-looking statements in this report are more fully described in the “Risk Factors” section of our annual report on Form 10-K for the year ended June 30, 2010, as filed with the Securities and Exchange Commission.

Item 3. Qualitative and Quantitative Disclosures about Market Risk

We are exposed to market risks. Market risk is the potential loss arising from adverse changes in interest rates and foreign currency exchange rates. We do not enter into derivative or other financial instruments for speculative purposes.

Interest Rate Risk

We are subject to market risk exposure related to changes in interest rates. Our financial instruments include cash and cash equivalents. We consider all highly liquid instruments purchased with a maturity of less than 90 days to be cash equivalents. Our cash and cash equivalents are not subject to significant interest rate risk due to the short maturities of these instruments. However, due to the large cash and cash equivalents balances, a one percentage point decrease in the interest rates we earn on these balances would reduce interest income approximately $0.3 million on an annual basis based on the balances at December 31, 2010. We have no derivative financial instruments or auction rate securities in our cash and cash equivalents. We had no outstanding long-term debt as December 31, 2010 nor did we have any balance outstanding under our bank overdraft line of credit that bears interest at a variable rate. We do not see variable interest rate long-term debt as a significant interest rate risk.

Foreign Currency Exchange Risk

We have significant foreign subsidiaries located in Australia, Canada and the United Kingdom. The assets and liabilities of these subsidiaries are denominated in Australian dollars, Canadian dollars and British pounds, respectively, and as such are translated into United States dollars. Income statement amounts are translated from Australian dollars, Canadian dollars or British pounds to United States dollars based on the average exchange rate for the period covered. Assets and liabilities are converted based on the exchange rate as of the applicable balance sheet date. Equity investments are converted based on the exchange rate at the time of the applicable investment. Foreign currency translation adjustments occur when the income statement and balance sheet are converted at different exchange rates and are recognized as other comprehensive income or loss in the financial statements. We do not currently hedge for currency fluctuations with our foreign subsidiaries. Since July 1, 2008, the U.S. dollar has fluctuated significantly in relation to the Australian dollar, Canadian dollar and British pound. These fluctuations have caused our quarterly reported revenues and expenses to be both significantly higher and lower than would have been reported had we experienced constant foreign currency exchange rates.

Accounts Receivable

The Company’s accounts receivable do not represent a significant concentration of credit risk due to the large number of customers and the fact that no one customer represents more than 6% of our annual revenue. However, one advertising agency that represents a number of our advertising clients in Australia, Canada and the United Kingdom constituted approximately 27% of our revenues for the six months ended December 31, 2010 and approximately 27% of our net accounts receivable as of December 31, 2010. Another advertising agency representing a number of our advertising clients in Australia constituted approximately 13% of our revenues for the six months ended December 31, 2010 and approximately 11% of our net account receivable as of December 31, 2010. Two other advertising agencies that represent a number of our advertising clients in Australia, Canada and United Kingdom each constituted approximately 11% of our revenues for the six months ended December 31, 2010 and approximately 10% and 13%, respectively of our net accounts receivable as of December 31, 2010. In addition to the aforementioned agencies, it is likely other advertising agencies may exceed 10% of our revenues and/or 10% of our net accounts receivable in the future based on the current or past billing levels of certain agencies. In the United Kingdom, substantially all our advertising related revenues come from five agency groups (including one agency group placing approximately 44% of our UK advertising revenues for the six months ending December 31, 2010); therefore our concentration of revenue by agency is greater in the UK market than for our Company as a whole.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) or 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.

Changes in internal control over financial reporting

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 promulgated under the Exchange Act that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

Item 5. Other Information.

Employment Agreement with William L. Yde III

Effective February 9, 2011, the Company entered into an employment agreement with William L. Yde III that governs Mr. Yde’s employment with the Company as its President and Chief Executive Officer through June 30, 2014. The employment agreement superseded Mr. Yde’s prior employment agreement with Company in its entirety.

Pursuant to the employment agreement, Mr. Yde will receive an annual base salary of $595,000 and is eligible for $25,000 increases in his base salary on July 1 of each year, commencing June 30, 2012, provided that the Company achieves certain operating profit goals to be determined by the Company’s board of directors or the compensation committee thereof. Mr. Yde is also eligible to receive an annual performance-based bonus of up to 50% of his annual base salary for each of fiscal year 2011, 2012, 2013, and 2014. The amount of each year’s bonus, if any, will be determined and paid based upon satisfaction of certain operating profit goals to be determined by the Company’s board of directors or the compensation committee thereof for the applicable fiscal year and is contingent upon Mr. Yde remaining an active employee of the Company through the end of the applicable fiscal year. The employment agreement provides that unless and until the Company elects to provide its United States based employees with medical insurance, the Company will pay Mr. Yde $1,000 per month in lieu providing him with medical insurance. Also pursuant to the employment agreement, the Company’s board of directors, in its sole discretion, may grant Mr. Yde up to 500,000 shares of common stock if the Company’s stock has traded at an average closing sales price of $30.00 per share for 20 consecutive trading days, as reported on the NASDAQ (or such other market or exchange if the Company’s common stock is then quoted or listed on a market or exchange other than the NASDAQ).

Upon entry in the employment agreement and pursuant thereto, the Company granted Mr. Yde 50,000 shares of restricted common stock under the Company’s Amended and Restated 2005 Stock Incentive Plan. The restricted stock grant is subject to transfer and forfeiture restrictions that lapse with respect to 16,666 shares on each of February 9, 2012 and 2013, and with respect to 16,668 shares on February 9, 2014. The employment agreement provides that all unvested stock options, shares of restricted stock, or other equity-based incentives awarded to Mr. Yde will immediately vest upon the closing of an acquisition of the Company through the sale of substantially all of its assets or through a merger, exchange, reorganization or liquidation or a similar event as determined by the Company’s board of directors or the compensation committee thereof.

If the employment agreement terminated voluntarily by Mr. Yde or upon his death or disability, or if the Company terminates the employment agreement for “cause,” Mr. Yde will only be entitled to compensation and benefits accrued through the effective date of termination. If the Company terminates the employment agreement without “cause” or if Mr. Yde terminates the employment agreement as a result of a material breach by the Company or his being required to report directly to anyone other than the Company’s board of directors (or a committee thereof), Mr. Yde will also be entitled to severance in the form of continuation of his base salary for 18 months following the effective date of termination in accordance with the Company’s normal payroll business practices but subject to compliance with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended. In the event that severance payments and/or accelerated vesting of equity awards would result in Mr. Yde receiving “excess parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, the severance payments will be reduced to the extent that the reduction would result in Mr. Yde receiving a greater net-after-tax amount. The term “cause” under the employment agreement includes the following events: (i) Mr. Yde’s conviction of a felony; (ii) Mr. Yde’s material breach of the employment agreement; (iii) Mr. Yde’s material violation of a Company policy that has a materially adverse effect on the Company; (iv) Mr. Yde’s failure to perform his duties as the Company’s President and Chief Executive Officer as required by the employment agreement, which failure has not been cured following ten days after written notice is given; or (v) Mr. Yde’s habitual intoxication, drug use or chemical substance abuse by any intoxicating or chemical substance.

The employment agreement contains standard provisions regarding protection of the Company’s confidential information (as defined in the employment agreement) and, subject to certain exceptions, prohibits Mr. Yde from directly or indirectly engaging in the following actions during the period he is employed by the Company and continuing for one year following the termination of the employment agreement, without the Company’s prior express written consent:

• render services, advice or assistance to any corporation, person, organization or other entity which engages in the provision of traffic and/or news information to radio or television stations anywhere outside of the United States, or engage in any such activities in any capacity whatsoever, including without limitation as an employee, independent contractor, officer, director, manager, beneficial owner, partner, member or shareholder of any provider of traffic and/or news information;

• soliciting or attempting to induce any of the Company’s customers, suppliers, licensees, licensors or other business relations to cease doing business with the Company or in any way interfering with the Company’s relationship with any such customer, vendor, licensee, licensor or other business relation; or

• soliciting or attempting to induce any of the Company’s employees to leave the employ of the Company, or to work for, render services or provide advice to or supply our confidential business information or trade secrets to any third person or entity.

Employment Agreement with Scott E. Cody

Effective February 9, 2011, the Company entered into an employment agreement with Scott E. Cody that governs Mr. Cody’s employment with the Company as its Chief Financial Officer and Chief Operating Officer. The employment agreement, which is for an indefinite term, superseded Mr. Cody’s prior employment agreement with Company in its entirety.

Pursuant to the employment agreement, Mr. Cody will initially receive an annual base salary of $347,287.50 through June 30, 2011, which annual base salary will be increased to $395,000 commencing July 1, 2011. Mr. Cody is also eligible to receive an annual performance-based bonus of $100,000 for the fiscal year ending June 30, 2011, and thereafter will be eligible to receive an annual performance-based bonus of up to 40% of his annual base salary commencing with fiscal year 2012. The amount of each year’s bonus, if any, will be determined and paid based upon satisfaction of certain operating profit goals to be determined by the Company’s board of directors or the compensation committee thereof for the applicable fiscal year and is contingent upon Mr. Cody remaining an active employee of the Company through the end of the applicable fiscal year. The employment agreement provides that unless and until the Company elects to provide its United States based employees with medical insurance, the Company will pay Mr. Cody $1,000 per month in lieu providing him with medical insurance.

Upon entry in the employment agreement and pursuant thereto, the Company granted Mr. Cody 22,725 shares of restricted common stock under the Company’s Amended and Restated 2005 Stock Incentive Plan. The restricted stock grant is subject to transfer and forfeiture restrictions that lapse with respect to 7,575 shares on each of February 9, 2012, 2013 and 2014. The employment agreement provides that all unvested stock options, shares of restricted stock, or other equity-based incentives awarded to Mr. Cody will immediately vest upon the closing of an acquisition of the Company through the sale of substantially all of its assets or through a merger, exchange, reorganization or liquidation or a similar event as determined by the Company’s board of directors or the compensation committee thereof.

If the employment agreement terminated voluntarily by Mr. Cody or upon his death or disability, or if the Company terminates the employment agreement for “cause,” Mr. Cody will only be entitled to compensation and benefits accrued through the effective date of termination. If the Company terminates the employment agreement without “cause” or if Mr. Cody terminates the employment agreement as a result of a material breach by the Company or his being required to report directly to anyone other than the Company’s Chief Executive Officer, President or board of directors (or a committee thereof), Mr. Cody will also be entitled to severance in the form of continuation of his base salary for 12 months following the effective date of termination in accordance with the Company’s normal payroll business practices but subject to compliance with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended. In the event that severance payments and/or accelerated vesting of equity awards would result in Mr. Cody receiving “excess parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, the severance payments will be reduced to the extent that the reduction would result in Mr. Cody receiving a greater net-after-tax amount. The term “cause” under the employment agreement includes the following events: (i) Mr. Cody’s conviction of a felony; (ii) Mr. Cody’s material breach of the employment agreement; (iii) Mr. Cody’s material violation of a Company policy that has a materially adverse effect on the Company; (iv) Mr. Cody’s failure to perform his duties as the Company’s Chief Financial Officer and Chief Operating Officer as required by the employment agreement, which failure has not been cured following ten days after written notice is given; or (v) Mr. Cody’s habitual intoxication, drug use or chemical substance abuse by any intoxicating or chemical substance.

The employment agreement contains standard provisions regarding protection of the Company’s confidential information (as defined in the employment agreement) and, subject to certain exceptions, prohibits Mr. Cody from directly or indirectly engaging in the following actions during the period he is employed by the Company and continuing for one year following the termination of the employment agreement, without the Company’s prior express written consent:

Item 6. Exhibits

(a) Exhibits

10.1		Employment Agreement dated February 9, 2011 by and between Global Traffic Network, Inc. and William L. Yde III.

10.2		Employment Agreement dated February 9, 2011 by and between Global Traffic Network, Inc. and Scott E. Cody.

31.1		Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-15(e)/15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-15(e)/15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.1		Press release of Global Traffic Network, Inc. dated February 10, 2011.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



Dated: February 10, 2011	By:	/s/ William L. Yde III
		Name:	William L. Yde III
		Title:	Chairman, Chief Executive Officer and President (Principal Executive Officer)


Dated: February 10, 2011	By:	/s/ Scott E. Cody
		Name:	Scott E. Cody
		Title:	Chief Financial Officer, Chief Operating Officer and Treasurer (Principal Financial and Accounting Officer)

Exhibit Index


10.1		Employment Agreement dated February 9, 2011 by and between Global Traffic Network, Inc. and William L. Yde III.

10.2		Employment Agreement dated February 9, 2011 by and between Global Traffic Network, Inc. and Scott E. Cody.

31.1		Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-15(e)/15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-15(e)/15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.1		Press release of Global Traffic Network, Inc. dated February 10, 2011

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Global Traffic Network Inactive 10-Q2011 Q2 Quarterly report

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