Global Traffic Network 10-Q 2007 Q1 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 September 30, 2006

OR

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)

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

800 Second Avenue, 5th Floor
New York, New York 10017
(Address of principal executive offices)(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 (the 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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerate filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filero      Accelerated Filero       Non-Accelerated Filerþ

     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 November 9, 2006, the registrant had 12,870,000 shares of common stock outstanding.

Global Traffic Network, Inc.

Index

	Page
	Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2006 and June 30, 2006		3
Consolidated Statements of Income for the three months ended September 30, 2006 and 2005		4
Consolidated Statements of Cash Flows for the three months ended September 30, 2006 and 2005		5
Notes to Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3. Qualitative and Quantitative Disclosures About Market Risk		25
Item 4. Controls and Procedures		25
Part II. Other Information
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		26
Item 5. Other Information		26
Item 6. Exhibits		26
Signatures		27
Exhibit Index		28
302 Certification of Chief Executive Officer
302 Certification of Chief Financial Officer
Certification of CEO and CFO
Press Release

Part 1 Financial Information

Item 1 – Financial Statements

GLOBAL TRAFFIC NETWORK, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

	September 30,			June 30,
	2006			2006
	(Unaudited)
ASSETS:
Current Assets:
Cash and cash equivalents	$	11,471		$	14,649
Accounts receivable net of allowance for doubtful accounts of $11 and $11 at September 30 and June 30, 2006		4,886			4,715
Prepaids and other current assets		253			350
Income tax receivable		27			26
Deferred tax assets		153			134
Total current assets		16,790			19,874
Property and equipment, net		4,115			4,188
Intangibles		29			29
Deferred tax assets		91			87
Other assets		111			110
Total assets	$	21,136		$	24,288
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current Liabilities:
Bank overdraft line of credit	$	—		$	611
Accounts payable and accrued expenses		4,110			3,872
Deferred revenue		7			—
Income taxes payable		209			132
Current portion of long term debt		567			557
Current portion of shareholder notes payable		—			2,000
Total current liabilities		4,893			7,172
Long term debt, less current portion		1,151			1,286
Other liabilities		235			222
Total liabilities		6,279			8,680
Common stock, $.001 par value; 100,000,000 shares authorized; 12,870,000 shares issued and outstanding as of September 30 and June 30, 2006		13			13
Preferred stock, $.001 par value; 10,000,000 authorized; 0 issued and outstanding as of September 30 and June 30, 2006		—			—
Additional paid in capital		18,227			18,169
Accumulated other comprehensive income		320			314
Accumulated deficit		(3,703	)		(2,888	)
Total shareholders’ equity		14,857			15,608
Total liabilities and shareholders’ equity	$	21,136		$	24,288

See accompanying notes to the consolidated financial statements

3

GLOBAL TRAFFIC NETWORK, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands except per share amounts)

	Three Months Ended
	September 30
	2006			2005
	(Unaudited)			(Unaudited)
Revenues	$	6,108		$	4,181
Operating expenses		4,720			3,292
Selling, general and administrative expenses		2,058			1,435
Depreciation and amortization expense		185			127
Net operating loss		(855	)		(673	)
Interest expense		78			35
Other (income) expense		(174	)		6
Net loss before income taxes		(759	)		(714	)
Income tax expense (benefit)		56			(114	)
Net loss	$	(815	)	$	(600	)
Loss per common share:
Basic and diluted	$	(0.06	)	$	(0.07	)
Weighted average common shares outstanding:
Basic and diluted		12,870,000			8,500,000

See accompanying notes to the consolidated financial statements

4

GLOBAL TRAFFIC NETWORK, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

	Three Months
	Ended
	September 30,
	2006			2005
	(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net loss	$	(815	)	$	(600	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		185			127
Allowance for doubtful accounts		—			34
Non-cash compensation expense		58			—
Changes in assets and liabilities:
Accounts receivable		(171	)		51
Deferred taxes, net		(23	)		(114	)
Prepaid and other current assets and other assets		96			(88	)
Accounts payable and accrued expenses and other liabilities		251			540
Deferred revenue		7			(50	)
Income taxes payable		76			(37	)
Net cash used in operating activities		(336	)		(137	)
Cash flows from investing activities:
Purchase of property and equipment		(112	)		(111	)
Net cash used in investing activities		(112	)		(111	)
Cash flows from financing activities:
Repayment of long term debt		(125	)		(100	)
Net (repayments) proceeds of bank overdraft line of credit		(611	)		620
Repayment of shareholder notes payable		(2,000	)		(22	)
Deferred offering costs		—			(100	)
Dividends paid		—			(38	)
Proceeds from issuance of stock		—			3
Due from related parties, net		—			(4	)
Net cash (used in) provided by financing activities		(2,736	)		359
Effect of exchange rate changes on cash and cash equivalents		6			(7	)
Net (decrease) increase in cash and cash equivalents		(3,178	)		104
Cash and cash equivalents at beginning of fiscal period		14,649			51
Cash and cash equivalents at end of fiscal period	$	11,471		$	155
Supplemental disclosures of cash flow information:
Cash paid during fiscal period for:
Interest	$	78		$	40
Income taxes	$	—		$	38
Non-cash financing and investing activities:
Property acquired under long-term debt	$	—		$	63

See accompanying notes to the consolidated financial statements

5

GLOBAL TRAFFIC NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except share and per share amounts)

Information as of September 30, 2006 and for the three months ended September 30, 2006 is unaudited

NOTE 1 — Description of the Company’s Business

     Global Traffic Network, Inc. (the “Company”) is a Delaware corporation that was formed on May 16, 2005 as a holding company for the purpose of becoming the ultimate parent company of Canadian Traffic Network, ULC (“CTN”) and The Australia Traffic Network Pty Limited (“ATN”). At the time of the Company’s formation, ATN was a separate entity controlled by the same shareholders as the Company. On December 13, 2005, the Company entered into a Securities Exchange Agreement with ATN and the holders of all of the outstanding shares of ATN pursuant to which the Company exchanged 4,000,000 shares of its common stock and issued $1,400 in promissory notes to the ATN shareholders for all of the outstanding ordinary shares of ATN. The share exchange became effective on March 23, 2006, the effective date of the Company’s initial public offering (“IPO”), at which time ATN became a wholly-owned subsidiary of the Company.

NOTE 2 — Basis of Presentation

     The accompanying consolidated balance sheet as of September 30, 2006, the consolidated statements of income for the three month periods ended September 30, 2006 and 2005, and the consolidated statements of cash flows for the three month periods ended September 30, 2006 and 2005 are unaudited, but in the opinion of management include all adjustments necessary for a fair presentation of the financial position, the results of operations and cash flows for the periods presented and have been prepared in a manner consistent with the audited financial statements for the year ended June 30, 2006. Results of operations for interim periods are not necessarily indicative of annual results. These financial statements should be read in conjunction with the audited financial statements and footnotes for the year ended June 30, 2006, included in the Company’s annual report on Form 10-K (SEC File No. 333-130417) filed with the Securities and Exchange Commission.

     The financial statements presented herein assume that the share exchange had occurred as of July 1, 2003 such that ATN had been a wholly owned subsidiary of the Company for all periods presented. Any activity or balances prior to May 16, 2005 (the Company’s date of formation) pertain to ATN. Because GTN and ATN are presented on a consolidated basis, all material intercompany transactions and balances have been eliminated in the consolidation.

     The consolidated financial statements consist of the Company and its two wholly-owned subsidiaries, ATN and Global Traffic Canada, Inc. (“GTC”). As of July 5, 2005 the consolidated financial statements consist of the Company, ATN and GTC, as well as GTC’s wholly-owned subsidiary CTN. GTC is a holding company and had no assets or liabilities at September 30, 2006 or June 30, 2006.

NOTE 3 — Summary of Significant Accounting Policies

a) Use of Estimates

     The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities. Management continually evaluates its estimates and judgments including those related to allowances for doubtful accounts, useful lives of property, plant and equipment and intangible assets, income taxes and other contingencies. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from those estimates under different assumptions or conditions.

6

b) Revenue recognition

     Revenue is earned and recognized at the time commercial advertisements are broadcast. Payments received or amounts invoiced in advance are deferred until earned and such amounts are included as a component of deferred revenue in the accompanying balance sheets. All revenue pertains to cash sales and the company recognized no revenue related to the bartering of goods and services.

c) Operating expenses

     The cost of producing and distributing the radio and television traffic and news reports and services are considered operating expenses. These consist mainly of personnel, aviation costs, facility costs and station compensation. Operating expenses are recognized when incurred.

d) Station compensation and reimbursement

     The Company generally enters into multi year contracts with radio and television stations. These contracts call for the provision of various levels of service (including, but not limited to providing professional broadcasters, gathering of information, communications costs 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 monthly per the contractual terms, which is not materially different than when the services are performed.

     Contractual station commitments are as follows:

	September 30,		June 30,
	2006		2006
	(Unaudited)
Year 1	$	10,666	$	6,312
Year 2		8,127		5,655
Year 3		607		883
Year 4		—		—
Year 5		—		—
Thereafter		—		—

e) Cash and cash equivalents

     The company considers all highly liquid instruments purchased with a maturity of less than three months to be cash equivalents. The carrying amount of cash equivalents approximates fair value because of the short maturity of these instruments.

f) Accounts Receivable

     Accounts receivable are recorded at the invoice amount and are not interest bearing. The Company performs credit evaluations of its new customers and generally requires no collateral. The Company provides for losses from uncollectible accounts based on analyzing historical data and current trends and such losses have historically been insignificant. Past due amounts are written off against the allowance for doubtful accounts when collection is deemed unlikely and all collection efforts have ceased. An allowance for doubtful accounts of $11 and $11 has been established for the periods ended September 30, 2006, and June 30, 2006.

7

Allowance for Doubtful Accounts

	Balance at
	beginning of		Additions		Deductions			Balance at end of
	period		Expense		Write-offs			period
Three months ended September 30, 2006 (unaudited)	$	11	$	8	$	(8	)	$	11
Year ended June 30, 2006	$	—	$	63	$	(52	)	$	11

g) Property and Equipment

     Property and equipment are stated at cost. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets, as follows:

Recording, broadcasting and studio equipment	5 years
Furniture, and equipment and other	5 years
Motor vehicles	7 years
Helicopters and fixed wing aircraft	8 years

     Leasehold improvements and leased assets are amortized over the shorter of the lease term or the asset’s useful life. Depreciation expense was $185 and $127 for the three month periods ended September 30, 2006 and 2005. Maintenance, repairs and minor replacements are charged to operations as incurred. Major replacements and betterments are capitalized and amortized over their useful lives.

h) Intangible assets

     Intangible assets reflected on the balance sheets primarily consist of costs relating to obtaining aircraft licenses. Due to the long term and indefinite nature of these assets, amortization expense is not reflected and the Company regularly reviews the assets for impairment. As of September 30, 2006 and June 30, 2006, there was no impairment of the assets. Amortization expense was $0 for both three month periods ended September 30, 2006 and 2005.

i) Income taxes

     The Company has adopted Statement of Financial Accounting Standards No. 109 (“SFAS 109”), “Accounting for Income Taxes.” Under the asset and liability method of SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to net operating loss carry-forwards and to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS 109, the effect of a change in tax rates on deferred tax assets or liabilities is recognized in the statement of income in the period that included the enactment. A valuation allowance is established for deferred tax assets unless their realization is considered more likely than not.

j) Per share data

     Basic and diluted earnings per share is calculated in accordance with FASB Statement No. 128, “Earnings per Share.” In calculating basic earnings per share, net income is divided by the weighted average number of common shares outstanding for the period. Diluted earnings per share is based upon the weighted average number of common and common equivalent shares outstanding during the fiscal year. There were no common equivalent shares outstanding during the period ended September 30, 2005. For the year ended June 30, 2006 and the period ended September 30, 2006, there were common equivalent shares outstanding due to the issuance of stock options during the periods, none of which were vested or exercisable and a warrant issued to the underwriter of the Company’s IPO to purchase 380,000 common shares, which also was not exercisable. As a result of the Company’s negative net income for the periods, all common stock equivalents were anti-dilutive and, therefore, were not considered in the calculation of diluted earnings per share.

k) Fair value of financial instruments

     FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments” requires disclosure of fair value information about financial instruments for which it is practical to estimate that value. The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair value because of their short-term maturities. The carrying amounts of the Company’s shareholder notes payable and long-term debt approximate fair value of these obligations based upon management’s best estimate of interest rates that would be available for similar debt obligations as of September 30, 2006 and June 30, 2006.

8

l) Foreign currency translation

     ATN’s functional currency is Australian dollars and CTN’s functional currency is Canadian dollars, while 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.” Realized gains and losses resulting from currency transaction adjustments are recognized in the accompanying statements of income as a component of other expense (income). Foreign currency translation adjustments upon translation of the Company’s financial statements to United States dollars are recognized as other comprehensive income (loss).

m) Recent Accounting Pronouncements

     In December 2004, the Financial Accounting Standards Board, or FASB, issued Statement No. 123 (revised 2004), “Share-Based Payment” (SFAS 123(R)), which is a revision of Statement No. 123, “Accounting for Stock-Based Compensation.” SFAS 123(R) supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB Opinion No. 25), and amends FASB Statement No. 95, “Statement of Cash Flows.” SFAS 123(R) requires all share-based payments to employees, including grants of stock options, to be recognized in the financial statements based on their fair values. Under SFAS 123(R), pro forma disclosure is no longer an alternative to financial statement recognition for stock option awards made after the Company’s adoption of SFAS 123(R). The Company adopted SFAS 123(R) on January 1, 2006. When the Company adopted SFAS 123(R) on January 1, 2006, the Company began recognizing the expense associated with these awards in the income statement over the awards’ vesting periods. The expense associated with stock options awarded to employees and directors for the three month period ended September 30 and the year ended June 30, 2006 is $58 and $53 respectively and is included in selling, general and administrative expenses on the income statement.

     Prior to the IPO, the Company had no stock options issued.

n) Concentration of Credit Risk

     The Company maintains cash balances with what management believes to be high credit quality financial institutions. Balances have 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.

o) Major Supplier

     A significant portion 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 two year agreement effective July 1, 2006 to provide radio traffic reporting services and a three year agreement dated July 1, 2005 to provide radio news reporting services.

     As of September 30, 2006, the majority of the Canadian radio stations with which the Company has contracted to provide radio traffic reports are owned by one company. The sale of such inventory constitutes a majority of the Company’s Canadian revenue. The agreement governs the Company’s delivery of radio traffic reports in seven different Canadian markets for three year terms that commence on various dates between November 2005 and January 2006, depending on the market. However, either party may terminate the agreement after eighteen months by giving six months notice, effectively making the agreement a two year agreement if such notice is given.

p) Deferred offering costs

     Deferred offering costs primarily consist of costs related to the IPO. As of the closing of the IPO, the deferred offering costs were offset against the proceeds of the IPO and the difference between the gross IPO proceeds less expenses related to the IPO (including the deferred offering costs) was credited to shareholders’ equity.

9

NOTE 4 — Related Party Transactions

     ATN has entered into a management agreement with Wisconsin Information Systems, Inc., an Ohio corporation doing business as Milwaukee Traffic Network (“MTN”), which is owned by certain shareholders of the Company. ATN has historically compensated MTN with an annual fee as determined by the board of directors. Additionally, the management agreement provides MTN the opportunity to earn an incentive bonus if ATN exceeds pre-determined targeted cash flows approved by the board of directors of ATN. For the fiscal year ended June 30, 2006, ATN paid MTN $337 pursuant to this management agreement. For the three month periods ended September 30, 2006 and 2005, ATN paid MTN $0 and $114, respectively. The management agreement was terminated on March 31, 2006.

     The Company employs and or contracts for services with certain stockholders, relatives of certain stockholders or entities controlled by such stockholders. For the year ended June 30, 2006, the Company paid these stockholders $466. For the three month periods ended September 30, 2006 and 2005, the Company paid these stockholders $140 and $93 respectively. The majority of these payments pertain to salaries paid to these stockholders and their relatives for their services to the Company.

     In addition to the services described above, on November 9, 2005, CTN entered a mutual sales representation agreement with a stockholder under which both parties agree to market the others commercial spot inventory in their respective markets. For the year ended June 30, 2006, CTN recognized net revenues of $44 and incurred $1 of expense due to bad debt. For the three month periods ended September 30, 2006 and 2005, CTN recognized net revenues of $27 and $0, respectively.

     The Company has also entered into note payable agreements with certain stockholders. (see Note 8)

NOTE 5 — Property and Equipment, Net

     Property and equipment, net is as follows as of September 30, 2006 and June 30, 2006:

	September 30,		June 30,
	2006		2006
	(Unaudited)
Helicopters and fixed wing aircraft	$	3,676	$	3,588
Recording, broadcasting and studio equipment		1,319		1,304
Furniture and equipment and other		679		666
Less: Accumulated depreciation and amortization		1,559		1,370
Property and equipment, net	$	4,115	$	4,188
Plant and equipment held as security under specific loans:	$	1,738	$	1,773

10

NOTE 6 — Accounts Payable and Accrued Expenses

     Accounts payable and accrued expenses consist of the following as of September 30, 2006 and June 30, 2006:

	September 30,		June 30,
	2006		2006
	(Unaudited)
Trade payables	$	2,919	$	2,936
Accrued payroll expenses		813		640
Accrued expenses and other liabilities		378		296
Total	$	4,110	$	3,872

NOTE 7 — Long Term Debt

     Long-term debt consists of the following as of:

	September 30,		June 30,
	2006		2006
	(Unaudited)
Term loan with bank, bearing variable interest rate of ANZ Mortgage Index rate plus .33% (8.5% at September 30, 2006), monthly principal and interest payments of $13 secured by all Company assets, matures on June 30, 2008	$	273		309
Financial leases with financing company, bearing fixed interest of 7.67% and 6.99%, monthly principal and interest payments of $2 and $2, secured by automobiles, matures August 25, 2010 and April 16, 2008		100		108
Note payable to bank, bearing fixed interest of 8.43%, monthly principal and interest payments of $12, secured by a helicopter, matures November 6, 2008		261		288
Notes payable to bank bearing fixed interest of 6.97%, Monthly principal and interest payments of $27, secured by 2 helicopters, matures September 6, 2010		1,084		1,138
		1,718		1,843
Less current portion		567		557
Long term debt less current portion		1,151		1,286

11

     On April 3, 2005, the Company increased its existing over draft line of credit facility from $1,525 to $2,287 (“new facility”) until September 9, 2005, at which time it reverted to its original amount. Interest on the new facility is variable at the ANZ Mortgage Index rate plus .83% (9.0% at September 30, 2006) and is secured by all ATN’s assets. The new facility contains covenants relating to dividends, liens, indebtedness, capital expenditures and interest coverage and leverage ratios. In connection with the closing of the new facility, the Company utilized $1,372 of the facility to purchase two new helicopters. The next review date for the over draft line of credit is May 12, 2007.

     On September 6, 2005, the helicopters were refinanced under $1,372 bank term loans (“Helicopter II Loan”). The Helicopter II Loan has a fixed interest rate of 6.97% with principal and interest payments due under a 60 month amortization schedule and is secured by the two helicopters. The balance of the bank overdraft was $611 at June 30, 2006 and, based on the rates of exchange on that date, $874 was available to the Company. The balance of the bank overdraft was $0 on September 30, 2006 and, based on the rates of exchange on that date, $1,492 was available to the Company.

     The aggregate maturities of long term debt as of September 30 and June 30, 2006, are as follows (excluding market value adjustments, if any):

	September 30,		June 30,
	2006		2006
	(Unaudited)
Year 1	$	567	$	557
Year 2		537		570
Year 3		316		343
Year 4		298		320
Year 5		—		53

NOTE 8 – Shareholder Notes Payable

     On November 9, 2005, CTN entered into a $2 million note purchase agreement with a stockholder. The note bears interest at 10% and is payable quarterly. The note is due on March 29, 2007 (the first anniversary of the closing date of the IPO). The note is secured by substantially all the assets of CTN (subject to certain conditions) and is guaranteed by the Company, GTC and ATN.

     For the year ended June 30, 2006 the Company incurred interest expense of $126 under the CTN shareholder note payable. For the three month period ended September 30, 2006 the Company incurred interest expense of $38 under the CTN shareholder note payable.

     On September 7, 2006 the Company repaid the CTN shareholder note payable in full.

     ATN issued notes payable to shareholders in order to fund the start of its operations and later to fund its cash needs. These notes were issued between 1998 and 2004. Each note bears interest at 5% and the interest is due upon maturity of the notes as stipulated in the note payable agreements. During the year ended June 30, 2006, ATN incurred interest expense of $1 under shareholder notes payable. For the three month periods ended September 30, 2006 and 2005, the Company incurred interest expense of $0 and $1, respectively, under shareholder notes payable.

     The balance of notes payable in respect of directors at June 30, 2006 and at September 30, 2006 was $0 and $0, respectively. The interest expense in respect of notes held by directors during the year ended June 30, 2006 and the three month periods ended September 30, 2006 and 2005 was: $0, $0 and $1, respectively.

     During September 2005, ATN repaid all outstanding shareholder notes payable and the related interest in full.

12

NOTE 9 — Income Taxes

     Income tax expense consists of the following:

				Three
				months
				Ended
				September									Year
				30,									ended
				2006									June 30,
				(Unaudited)									2006
	Domestic			Foreign			Total			Domestic			Foreign			Total
Income tax provision	$	—		$	77		$	77		$	—		$	128		$	128
Current deferred tax asset (liability), net		20			(17	)		3			78			(22	)		56
Non-current deferred tax asset (liability), net		20			9			29			24			6			30
Tax carried forward losses		(135	)		342			207			235			864			1,099
Valuation allowance		95			(355	)		(260	)		(337	)		(888	)		(1,225	)
Income tax expense	$	—		$	56		$	56		$	—		$	88		$	88

     Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities on the Company’s balance sheets and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:

	Period ended			Year ended
	September 30,			June 30,
	2006			2006
	(Unaudited)
Deferred tax assets:
Depreciation	$	55		$	43
Deferred rent		43			43
Capital losses		4			4
Foreign tax credit		132			132
Stock option expense		38			18
Accrued expenses and other		185			161
Tax carried forward losses		1,361			1,154
Total deferred tax assets		1,818			1,555
Deferred tax liabilities
Prepaid expenses		34			54
Total deferred tax liabilities		34			54
Net deferred tax assets before valuation allowance		1,784			1,501
Valuation allowance		(1,540	)		(1,280	)
Net deferred tax assets	$	244		$	221

13

	Three months
	ended		Year ended
	September 30,		June 30,
	2006		2006
	(Unaudited)
Income tax expense consists of the following:
Domestic	$	—	$	—
Foreign		56		88
Income tax expense	$	56	$	88

     The reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate is:

	Three months
	ended			Year ended
	September 30,			June 30,
	2006			2006
	(Unaudited)
Federal statutory rate		35.0	%		35.0	%
State taxes net of federal benefit		0.6			0.2
Differences between U.S. and foreign tax rates		0.7			1.1
Permanent differences between book and tax income		(2.2	)		2.8
Impact of valuation allowance		(41.5	)		(42.1	)
Effective tax rate		(7.4	)%		(3.0	)%

     Management evaluates the recoverability of the deferred tax asset and the amount of the required valuation allowance. Due to the uncertainty surrounding the realization of the tax deductions in future tax returns, the Company has recorded a valuation allowance against its net deferred tax asset for Global Traffic Network, Inc. (unconsolidated) (“GTN”) and CTN at September 30 and June 30, 2006. At such time as it is determined that it is more likely than not that the deferred tax assets will be realized, the valuation allowance will be reduced. The Company has recorded a valuation allowance for the deferred tax assets of ATN at September 30 and June 30, 2006 of $4 and $4, respectively.

     NOTE 10 — 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, consist of the following as of September 30 and June 30, 2006:

	September 30,		June 30,
	2006		2006
	(Unaudited)
Year 1	$	456	$	463
Year 2		255		253
Year 3		259		256
Year 4		275		265
Year 5		199		223
Thereafter		476		524

     Total rent expense charged to operating expenses for the fiscal year ending June 30, 2006 was $414. Total rent expense charged to operating expenses in the accompanying statements of income for the three months ended September 30, 2006 and 2005 was $121 and $73, respectively.

14

     With respect to ATN’s leased office premises in Sydney, should ATN vacate the premises prior to the expiration of the lease term, ATN will be required to make the following payments to the lessor:

Vacation of premises prior to:
September 8, 2007	$	91
September 8, 2008	$	66
September 8, 2009	$	41
September 8, 2010	$	17

     In June 2006, the Company made a $35 deposit on the purchase of a helicopter. The total purchase price is approximately $656. In October 2006, the Company paid the remaining purchase price of the helicopter and took delivery in November 2006. In October 2006, the Company made two $35 deposits for the purchase of two additional helicopters. The total purchase price is approximately $1,340. The Company is scheduled to take delivery of the helicopters in December 2006. The Company can cancel the purchase of the helicopters by forfeiting the deposit.

NOTE 11 — Capital Stock

     On March 29, 2006, the Company consummated an initial public offering (the “IPO”) in which it sold 3,800,000 shares of its common stock at a price to the public of $5.00 per share. Prior to the IPO, ATN was a separate entity which was controlled by the same shareholder base that controlled the Company. Pursuant to a Securities Exchange Agreement dated December 13, 2005, immediately prior to the effective time of the IPO, the Company exchanged 4,000,000 shares of its common stock and issued an aggregate of $1.4 million in promissory notes to ATN shareholders for all of the outstanding ordinary shares of ATN (the “Share Exchange”), at which time ATN became a wholly-owned subsidiary of the Company. The promissory notes (the “Share Exchange Notes”), which were intended to cover the estimated tax consequences to such shareholders of the Share Exchange, were paid in their entirety on the closing date of the IPO out of the net proceeds from the IPO. The issuance of the Share Exchange Notes reduced the additional paid in capital of the Company from the IPO. The net proceeds to the Company of the IPO was approximately $16,494. Due to the identical voting control of the Company and ATN prior to the Share Exchange, the transaction was treated as a combination and the equity section of the balance sheet reflects the combination of ATN and the Company’s equity.

NOTE 12 — Stock based compensation

     On September 30, 2005, the Company’s board of directors adopted the Global Traffic Network, Inc. 2005 Stock Incentive Plan (the “Plan”). Under the Plan, there are an aggregate of 1,200,000 shares of common stock available for issuance, of which 325,000 were outstanding under previously issued incentive grants as of September 30 and June 30, 2006. Options granted under the Plan vest one third per year over three years and expire after ten years from the date of the grant.

     As prescribed by SFAS 123(R), the Company is required to determine the fair value of the employee and director stock options issued under the Global Traffic Network, Inc. 2005 Stock Incentive Plan. The fair value of these options was estimated at the date of the grant using the Black-Scholes option pricing model with the following assumptions (no options were issued during any period prior to January 1, 2006):

	September 30,
	2006
Risk-free interest rate		4.95-5.12	%
Volatility factor		32.52	%
Dividend yield		—
Option price	$	6.28-5.00
Weighted average expected life of options	6 years
Weighted average grant date fair value	$	702

15

     The Company’s outstanding stock options as of September 30, 2006 were as follows:

					Weighted
			Weighted		Average
			Average		Remaining			Aggregate
			Exercise		Contractual			Fair
	Shares		Price		Term			Value
Balance, June 30, 2006		325,000	$	5.22	9.79		years	$	702
Grants		—		—		—			—
Exercised		—		—		—			—
Forfeitures/expirations		—		—		—			—
Balance, September 30, 2006		325,000	$	5.22	9.54		years	$	702
Exercisable, September 30, 2006		—		—		—			—

     No options were issued during the three month period ended September 30, 2006. Based on the following assumptions, the expense with regards to the options issued as of September 30, 2006 is $702, which will be expensed by the straight line method over the three year vesting period of the options. This expense is based on an assumption that there will be no forfeitures; this assumption is based on the positions of the grantees of the options and the lack of history with regards to forfeitures. The only previous forfeiture was due to an outside director becoming an employee of the Company and the forfeited director stock options were simultaneously replaced with employee stock options. The expense for the year ended June 30, 2006 is $53. The expense for the three months ended September 30, 2006 is $58 and is included in selling, general and administrative expenses on the accompanying statements of income.

     Black-Scholes was developed for estimating the fair value of traded options which have no vesting restrictions and are freely transferable. The options issued under the Global Traffic Network, Inc. 2005 Stock Incentive Plan provide for limited transferability by the employee or director, and become exercisable with respect to one third of their shares on each of the first three anniversaries of the date of grant. In addition, volatility is a subjective estimate that is further made difficult by the fact that, due to the very limited trading history of the Company’s stock, a proxy for the Company’s volatility must be used. Since the Company believes it is the only public company offering traffic services outside the United States, the Company chose a recent six year volatility of the largest provider of traffic information in the United States, which is a much larger and longer established company than the Company. The impact of volatility on the expense recognized is that, all things being equal, the greater the volatility, the larger the expense. In addition, because the Company has no experience with regards to the expected life of the options granted with regards to both expected forfeiture rates and expected exercise dates, the Company elected to utilize the weighted mid-point between the vesting period of one third per year for three years and the maximum life of ten years, which is the point in time at which the options expire. The impact of weighted average life on the expense recognized is to the extent all other factors are the same, the expense increases as the time to exercise (life) increases. The risk free rate of interest was based on yields for five year United States Treasury bonds at the time of the grants, which most closely matched the expected life of the options.

     Due to the net loss for the three month period ended September 30, 2006 and the year ended June 30, 2006, the impact of the stock options on fully diluted earnings per share would be anti-dilutive, and therefore is not included in the calculation of fully diluted earnings per share.

     Since September 30, 2006 the Company has granted an additional 10,000 options to an employee. In addition, the board of directors has approved the issuance of up to 35,000 additional options to two individuals, contingent on their becoming employees of the Company. Such options, if granted, will have an exercise price equal to the fair market value of the Company’s common stock on the commencement date of employment. The Company has also agreed to grant an employee an additional 50,000 share options on May 8, 2007 and May 8, 2008, each at an exercise price equal to the fair market value on the date of grant, provided he remains employed by the Company on such dates. The employee’s employment arrangement has no definitive term.

NOTE 13 — Warrant

     Pursuant to the underwriting agreement entered into in connection with the IPO, the Company issued a warrant to the underwriter to purchase 380,000 shares of its common stock at a purchase price equal to $6.00 per share, which represents 120% of the $5.00 price to public in the IPO. The underwriter may exercise the warrant at any time commencing on March 24, 2007 and ending on March 23, 2011 (the fifth anniversary of the date of the final prospectus used in the IPO).

NOTE 14 — Segment Reporting

     The Company operates in two geographic areas, Australia and Canada, through its wholly owned subsidiaries ATN and GTC, which operates through its wholly owned subsidiary CTN. Select income statement information and capital expenditures for the three months ended September 30, 2006 and the year ended June 30, 2006 and select balance sheet information as of September 30 and June 30, 2006 is provided below. Comparative information is not provided for the period ended September 30, 2005 since the Canadian segment did not exist prior to July 5, 2005 and did not begin operations until December 2005. The All Other category consists primarily of corporate overhead and assets of GTN.

16

September 30, 2006 (unaudited)

	Australia		Canada			All Other		Total
Revenues		5,514		594			—		6,108
Interest expense		40		38			—		78
Depreciation/amortization		150		35			—		185
Income tax expense		56		—			—		56
Segment profit (loss)		123		(1,048	)		110		(815	)
Segment assets		8,110		1,883			11,143		21,136
Deferred tax assets, net		244		—			—		244
Expenditure for segment assets		96		16			—		112

June 30, 2006

	Australia		Canada			All Other			Total
Revenues		19,007		495			—			19,502
Interest expense		193		126			—			319
Depreciation/amortization		530		57			—			587
Income tax expense		88		—			—			88
Segment profit (loss)		165		(2,601	)		(560	)		(2,996	)
Segment assets		8,037		1,597			14,654			24,288
Deferred tax assets, net		221		—			—			221
Expenditure for segment assets		1,023		965			—			1,988

NOTE 15 — New Accounting Standards and Interpretations Not Yet Adopted

     In June 2006, FASB issued FASB Interpretation No. 48 (“FIN48”), “Accounting for Uncertainty in Income Taxes”, which is an interpretation of SFAS 109. FIN48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with SFAS 109 and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken to be taken in a tax return. The evaluation of a tax position is a two step process. First step is recognition, in which the company determines whether it is more likely than not that a tax position will be sustained upon examination based on the merits of the position. The second step is measurement in which a tax position which meets the more likely than not threshold of the first step is measured to determine the amount of benefit to recognize in its financial statements. FIN48 is effective for fiscal years beginning after December 15, 2006. The Company will adopt FIN48 on July 1, 2007. While the Company is still evaluating the impact of FIN48 on its financial statements, it does not expect FIN48 to have a material impact on its balance sheet, income or cash flows.

NOTE 16 — Contingencies

In October 2006, ATN received a draft lawsuit from a terminated employee alleging, among other things, misrepresentations by ATN and breach of contract. Due to its preliminary nature and that no damages have been specified in the written communications, as of the date of the financial statements, it is not possible to estimate the Company’s liability, if any, should the lawsuit proceed.

NOTE 17 — Subsequent Events

On October 19, 2006 the Company formed a wholly owned subsidiary, Global Traffic Network (UK) Limited (“UKTN”) for the purposes of expanding the Company’s traffic operations into the United Kingdom. In November 2006, UKTN began to offer employment to individuals in the United Kingdom in anticipation of commencing operations in London and certain other cities in England. UKTN has not yet contracted with any radio station to provide traffic services.

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

EXECUTIVE OVERVIEW

     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 on Form 10-K (SEC File No. 333-130417), as filed with the Securities and Exchange Commission.

     We provide customized traffic and news reports to radio and television stations in Australia and began providing customized traffic reports to radio stations in Canada in December 2005. In exchange for providing these services and, in certain circumstances, additional cash consideration, television and radio stations provide us with commercial airtime inventory that we sell to advertisers. Although we are a Delaware corporation with principal offices located in New York, NY, we do not provide nor do we intend to provide traffic or news reports to radio or television stations in the United States.

     On March 29, 2006, we consummated an initial public offering (the “IPO”) in which we sold 3,800,000 shares of our common stock at a price to the public of $5.00 per share. Our Australian operations are conducted by The Australia Traffic Network Pty Limited, an Australian proprietary company registered under the Corporations Act of Australia (“The Australia Traffic Network”). Prior to the IPO, The Australia Traffic Network was a separate entity which was controlled by the same shareholder base that controlled us. Immediately prior to the effective time of the IPO, we exchanged 4,000,000 shares of our common stock and issued an aggregate of $1.4 million in promissory notes to The Australia Traffic Network shareholders for all of the outstanding ordinary shares of The Australia Traffic Network (the “Share Exchange”), at which time The Australia Traffic Network became our wholly-owned subsidiary. The promissory notes (the “Share Exchange Notes”), which were intended to cover the estimated tax consequences to such shareholders of the Share Exchange, were paid in their entirety on the closing date of the IPO out of the net proceeds from the IPO.

     Our Canadian operations are conducted by our wholly owned subsidiary, Global Traffic Canada, Inc., a Delaware corporation that operates through its wholly owned subsidiary, Canadian Traffic Network ULC, an Alberta business corporation.

     We are a holding company and conduct no operations. Unless we indicate otherwise, the discussions below regarding our financial condition and results of operations presents information on a consolidated basis which assumes that the Share Exchange had been completed prior to the periods discussed such that The Australia Traffic Network and Global Traffic Canada, Inc. were each wholly-owned subsidiaries of ours throughout such periods. In that regard, our consolidated balance sheet data as of September 30, 2006 and June 30, 2006 reflect the Share Exchange and discussions regarding our financial information reflect such information on a consolidated basis giving effect to the Share Exchange. Balance sheet information for periods prior to the Share Exchange does not reflect the issuance of the Share Exchange Notes. In each case, all 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 based on the content of the report and the medium in which it is delivered.

• Radio traffic reports:Through our information-gathering infrastructure and the use of external traffic information services, we provide daily scheduled customized traffic reports to radio stations that contract to receive our services.

• Radio news reports:We have recently commenced building upon our radio traffic reports platform to provide general news reports to radio stations that complement our customized traffic reports.

• TV reports:In early 2005, we began providing regularly scheduled video traffic reports to television stations. In addition, because our aircraft are often already in the air covering traffic conditions, they are often first to arrive at the scene of a breaking news story. In a strategic effort to expand our reach into the television markets, we have been using this on-the-scene presence to compile video footage of such breaking news, which we provide to television stations that contract for our regularly scheduled TV reports.

18

     The radio stations that contract to receive our radio traffic reports and radio news reports 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 offer all three categories of information reports to our network affiliates in Australia, but currently offer only provide radio traffic reports to our network affiliates in Canada. We have recently signed an agreement to provide television services to five television stations in five of our Canadian markets and expect to begin providing services under this agreement in the near future. We intend to add radio news reports and TV reports in our remaining Canadian markets as our Canadian operations expand and opportunities present themselves.

  Our Sources of Revenue — Sale of Commercial Airtime Inventory

     In exchange for providing our information reports and, in certain circumstances, additional cash consideration, our network affiliates provide us with commercial airtime inventory comprised of advertising spots that are broadcast immediately adjacent to an information report. We generate revenue by packaging and selling this commercial airtime inventory for cash to advertisers on a local, regional or national network basis.

     The substantial majority of our revenues have been generated from the sale of commercial airtime inventory received in exchange for our radio traffic reports in Australia, including approximately 71% of our fiscal year 2007 revenue through September 30, 2006. We also currently generate revenue from commercial airtime inventory received in exchange for our radio news reports and TV reports in Australia. We expect to accumulate increasing amounts of commercial airtime inventory from our Australian operations as we continue to expand the provision of radio news reports and TV reports in Australia. We began accumulating commercial airtime inventory from our Canadian operations in December 2005 and began generating limited revenue in Canada in January 2006. As of September 30, 2006 we had operations in seven Canadian cities, (Calgary, Toronto, Hamilton, Vancouver, Montreal, Edmonton and Winnipeg). As commercial airtime inventory generated from our new Canadian operations and our expanded Australian operations increases, we expect to sell the increased commercial airtime inventory in the same manner as we have sold commercial airtime inventory generated from our provision of radio traffic reports in Australia. Our experience indicates, however, that there is generally a delay between acquiring commercial airtime inventory from new or expanded operations and the realization of increasing revenue from the sale of such inventory. We experienced such a delay when we added Austereo Pty Ltd, the largest radio broadcaster in Australia (“Austereo”), as a network affiliate of our Radio Network in fiscal year 2004. Although the additional commercial airtime 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 expect to experience similar delays in realizing revenues from the sale of commercial airtime inventory attributable to our provision of radio news reports and TV reports in Australia and our provision of radio traffic reports and television reports in Canada.

  Our Expenses

     Our expenses are primarily comprised of three categories: operating expenses, selling expenses and general and administrative expenses. Operating expenses consists of 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 station compensation. 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 (currently five fixed wing aircraft in Australia and five helicopters and four fixed-wing aircraft in Canada), as well as the operating costs (including fuel, maintenance, and insurance costs) associated with the operation of our fleet of owned aircraft, which currently includes four helicopters and one fixed wing aircraft in Australia and one helicopter in Canada. As our Canadian operations expand, we intend to purchase five additional helicopters to replace our leased helicopters in Canada. We paid the remaining purchase price of our second helicopter in Canada in October 2006 and took delivery in November 2006 and have currently made deposits on two additional helicopters. Until we are able to purchase the number of helicopters necessary to support our operations, we intend to continue to lease such helicopters. Station compensation consists of the reimbursement of expenses incurred by the stations that would otherwise be incurred by us as part of providing services to the station and the purchase of commercial airtime inventory. Selling expenses include salaries and benefits for our sales personnel and commissions paid on sales of our commercial airtime inventory. General and administrative expenses consists of corporate overhead, including administrative salaries, real property lease payments, salaries and benefits for our corporate executive officers and legal and accounting fees. Expenses other than selling expenses are generally spread evenly over the applicable fiscal year.

19

     Although we incurred expenses in fiscal year 2005 related to our provision of TV reports in Australia and start-up costs for our Canadian operations, because our provision of radio traffic reports in Australia has comprised almost all of our historical operations, substantially all of our historical expenses prior to the year ending June 30, 2005 were associated with the provision of such services and sales efforts related to the resulting commercial airtime inventory. Commencing in July 2005, however, we began incurring additional expenses attributable to the introduction of radio news reports and the continued expansion of the provision of TV reports in Australia, as well as start-up expenses related to our Canadian operations.

  Basis of Presentation

     We have derived substantially all of our revenue to date from our Australian and Canadian operations. However, the financial information contained in this Form 10Q, 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 or Canadian dollars 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 exchange rate in place 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 from United States dollars to Australian dollars and Canadian dollars applicable to our income statement data for each of the three months periods ended September 30, 2006 and 2005, and applicable to our balance sheet data as of September 30, 2006 and June 30, 2006 are set forth below:

Australia

Income Statement Period	Exchange Rate		Balance Sheet Date	Exchange Rate
Three month period ended September 30, 2006		0.7541	September 30, 2006		0.7459
Three month period ended September 30, 2005		0.7593	June 30, 2006		0.7423

Canada

Income Statement Period	Exchange Rate		Balance Sheet Date	Exchange Rate
Three month period ended September 30, 2006		0.8922	September 30, 2006		0.8945
Three month period ended September 30, 2005		0.8315	June 30, 2006		0.8958

  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. 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.

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Results of Operations

  Three Months Ended September 30, 2006 Compared With Three Months Ended September 30, 2005

     During the three months ended September 30, 2005, in excess of 90% of our expenses resulted from our provision of radio traffic, radio news and television reports to network affiliates in Australia and all of our revenues were derived from sales of commercial airtime inventory acquired by us in exchange for such reports and, in some cases, cash consideration. Our operating results for the three months ended September 30, 2006 reflect our provision of radio traffic reports, radio news reports and TV reports in Australia, the provision of radio traffic reports in Canada and corporate overhead.

     Revenue.Revenue increased from approximately $4.2 million for the three months ended September 30, 2005 to approximately $6.1 million for the three months ended September 30, 2006, an increase of approximately 45.2%. The increase in revenue was primarily driven by $1.3 million increase in revenue from our Australian operations. Additionally, revenue from the sale of inventory related to our Canadian operations increased to $0.6 million from $0 in the previous year quarter. Our Australian revenue increase consisted of approximately $0.9 million from our radio network and $0.4 million from our TV network in Australia. The increase in revenue from our radio network was approximately $0.6 million from our traffic network and $0.3 million from our news network.

     Operating expenses.Operating expenses increased from approximately $3.3 million for the three months ended September 30, 2005 to approximately $4.7 million for the three months ended September 30, 2006, an increase of approximately 42.4%. Approximately, $1.0 million of the increase pertains to our operations in Canada. During the three months ended September 30, 2005, we did not broadcast any traffic reports since we had not yet commenced operations. During the three months ended September 30, 2006, we provided traffic reports to 35 radio stations in seven Canadian markets (Toronto, Vancouver, Montreal, Edmonton, Calgary, Winnipeg, Hamilton). Approximately $0.3 million of the increase pertained to our Australian operations. Of that amount approximately $0.2 million pertained to providing traffic reports and $0.2 million pertained to our news operations. The increase in traffic operations expenses were primarily a result of approximately $0.1 million increase in employee costs and approximately $0.1 million increase in station compensation. The majority of the increase from news operations pertained to increases in station compensation due to contractual increases and an additional news affiliate added subsequent to September 30, 2005. We had 10 news network affiliates during the quarter ended September 30, 2005 and 11 news network affiliates during the quarter ended September 30, 2006.

     Selling, general and administrative expenses.Selling, general and administrative expenses increased from approximately $1.4 million for the three months ended September 30, 2005 to approximately $2.1 million for the three months ended September 30, 2006, an increase of approximately 50.0%. Approximately $0.3 million of the increase pertains to corporate overhead, including costs associated with the expansion of our corporate staff to hire an executive vice president /director of international sales and costs related to being a public company incurred during the three months ended September 30, 2006. During the three months ended September 30, 2005, we were not yet a public company. We expect that our corporate overhead costs will continue at current levels for the foreseeable future. Effective July 1, 2006, we began to allocate our corporate overhead costs to the Australian and Canadian operating companies. The amount allocated for the three month period ended September 30, 2006 was approximately $446,000 to The Australia Traffic Network and $49,000 to Canadian Traffic Network ULC. The net impact to The Australia Traffic Network as a result of this allocation, after factoring in the $0.1 million management fee charged to The Australia Traffic Network by the Milwaukee Traffic Network for the three month period ended September 30, 2005, was an increase in selling, general and administrative expenses of approximately $0.3 million. In addition, selling, general and administrative expenses increased approximately $0.2 million in Canada due to increased staffing of our sales department. As discussed in operating expenses, during the three months ended September 30, 2005, we had no inventory available for sale. Selling, general and administrative expenses increased approximately $0.1 million in Australia due to higher sales personnel costs primarily associated with increased sales during the period. Expense from the granting of employee and director stock options was approximately $0.1 million for the three months ended September 30, 2006 and $0 for the three months ended September 30, 2005. Sales expense as a percentage of revenue in Australia decreased from approximately 15.8% for the three months ended September 30, 2005 to approximately 14.1% for the three months ended September 30, 2006.

21

     Depreciation and amortization expenses.Depreciation and amortization expense increased from approximately $0.1 million for the three months ended September 30, 2005 to approximately $0.2 million for the three months ended September 30, 2006. The increase is mainly due to our acquisition of two helicopters since September 30, 2005, and two helicopters which were placed in service during the quarter ended September 30, 2005, three of which are used in our Australian operations and one of which is used in Canada. We have taken delivery of one additional helicopter and expect to take delivery of two additional helicopters currently on order in Canada and to purchase two additional helicopters for use in our Canadian operations and, consequently, we anticipate that depreciation and amortization will continue increase accordingly in future quarters.

     Interest expense.Interest expense increased from approximately $35,000 for the three months ended September 30, 2005 to approximately $78,000 for the three months ended September 30, 2006. The increase was primarily due to Canadian Traffic Network, ULC’s $2.0 million shareholder note, which was incurred subsequent to September 30, 2005. This note was repaid in full on September 7, 2006.

     Other (income) expense.Other (income) expense increased from approximately $6,000 of expense for the three months ended September 30, 2005 to approximately $0.2 million of income for the three months ended September 30, 2006. The increase was primarily due to interest income on the unused proceeds of our IPO. As we use the proceeds from our IPO, we expect our cash balances to decrease and our interest income to decrease accordingly.

     Income tax expense (benefit).Income tax expense increased from approximately $0.1 million of benefit for the three months ended September 30, 2005 to approximately $0.1 million of expense for the three months ended September 30, 2006. The increase was primarily due to the net profit for Australia for the three months ended September 30, 2006 compared to net loss in the comparable period. The effective tax rate in Australia was 31.3% for the three months ended September 30, 2006 and 29.5% for the three months ended September 30, 2005, compared to the statutory federal rate of 30.0%. There was no income tax expense or benefit for the United States or Canada as a valuation allowance has been created for 100% of the tax loss carry forwards.

     Net (loss) income.Net loss increased from a $(0.6) million net loss for the three months ended September 30, 2005 to a net loss of approximately $(0.8) million for the three months ended September 30, 2006. The net loss primarily pertained to losses from Canadian Traffic Network ULC of $(1.0) million. Net (loss) income for The Australia Traffic Network increased from a $(0.3) million net loss for the three months ended September 30, 2005 to net income of approximately $0.1 million for the three months ended September 30, 2006, despite the $0.3 million net increase in corporate overhead discussed under selling, general and administrative expenses. Due primarily to the allocation of its corporate overhead to Australia and Canada and interest income on the unused IPO proceeds, Global Traffic Network, Inc. (the unconsolidated holding company) increased net income from a loss of approximately $(0.1) million for the three months ended September 30, 2005 to net income of approximately $0.1 million for the three months ended September 30, 2006.

     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 United States dollars to Australian dollars applicable to the three month periods ended September 30, 2006 and 2005 were 0.7541 and 0.7593, respectively. Changes in key operating statistics for our Canadian operations are not presented because our Canadian operations had not yet commenced during the three month period ended September 30, 2005.

	Three Months			Three Months
	Ended			Ended			Percentage
	September 30,			September 30,			Increase
Key operating statistic	2006			2005			(Decrease)
	(In thousands)			(In thousands)
Revenue	$	7,312		$	5,506			32.8	%
Operating expenses		4,756			4,266			11.5	%
Selling, general and administrative expenses		2,074			1,536			35.0	%
Depreciation and amortization expense		199			167			19.2	%
Interest expense		53			46			15.2	%
Other (income) expense		(8	)		1			900.0	%
Income tax expense (benefit)		75			(150	)		(150.0)	%
Net income (loss)		163			(360	)		145.3	%

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Liquidity and Capital Resources

     At September 30, 2006 the Company’s primary source of liquidity was cash and cash equivalents of approximately $11.5 million. At September 30, 2006 the Company also had approximately $1.5 million available under its overdraft credit line. The overdraft credit line is denominated in Australia dollars and has been translated into US 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.

     Operating activities.Cash used in operating activities was approximately $0.3 million for the three months ended September 30, 2006, due mainly to the net loss for the period adjusted for non-cash expenses and partially offset by positive changes in working capital. The loss is attributable to a loss of $1.0 million from our nascent operations in Canada, partially offset by a profit of approximately $0.1 million for the parent company (Global Traffic Network, Inc.) and a profit of approximately $0.1 million for our Australia operations.

     Investing activities.Cash used in investing activities was approximately $0.1 million for the three month period ended September 30, 2006. The cash used for investing activities was for capital expenditures, mainly helicopter equipment purchased for our new helicopter in Australia, which was purchased in the previous quarter. In October 2006, we paid the remaining balance of approximately $0.6 million for a helicopter previously ordered for our Canadian operations and took delivery in November 2006. In addition we made deposits on two additional helicopters with an aggregate purchase price of approximately $1.3 million and expect to purchase two additional helicopters for our Canadian operations at an aggregate estimated cost of approximately $0.7 to $1.3 million. The purchase price of the final two helicopters will be determined by whether we purchase radio or television ships. Currently we do not have any agreements to provide television services to the markets in question.

     Financing activities.Cash used in financing activities was approximately $2.7 million for the three months ended September 30, 2006. The majority of the cash was used to prepay the $2.0 million shareholder note, the maturity date of which was accelerated upon the closing of our IPO and was due March 29, 2007. We chose prepay the note because the interest rate (10%) significantly exceeded the interest income generated by our cash on hand. The remaining cash used for financing activities included $0.6 million to repay our overdraft line of credit and $0.1 million of scheduled principal repayments on our long term debt.

     The Company believes its cash and cash equivalents on hand and its overdraft line of credit provide adequate resources to fund ongoing operations, including any net losses generated by the Company.

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Contractual Commitments

     The table below sets forth our contractual obligations as of June 30, 2006:

	Payments due by period
			Less than						More than
Contractual Obligations	Total		1 Year		1-3 Years		4-5 Years		5 Years
	(in thousands)
Long-Term Debt Obligations		3,843		2,557		913		373		—
Interest on Long-Term Debt Obligations		392		265		110		17		—
Operating Lease Obligations		1,984		463		509		488		524
Station Obligations		12,850		6,312		6,538		—		—
Total	$	19,069	$	9,597	$	8,070	$	878	$	524

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 expansion into international markets is unsuccessful;

• fluctuations in foreign currency exchange rates and results of hedging transactions, if any;

• additional financing, if required, is unavailable; and

• unforeseen litigation.

     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 (SEC File No. 333-130417) filed with the Securities and Exchange Commission.

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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 and long-term debt. 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 percent decrease in the interest rates we earn on these balances would reduce interest income approximately $0.1 million on annual basis based on the balances at September 30, 2006. We have no derivative financial instruments in our cash and cash equivalents. Our total outstanding long-term debt as September 30, 2006 was approximately $1.7 million. Of the outstanding long-term debt, only approximately $0.3 million consists of a variable interest rate while the remainder was subject to a fixed interest rate. In addition, we had no money outstanding under our bank overdraft line of credit that bears interest at a variable rate. We do not see the variable interest rate long-term debt as a significant interest rate risk. Assuming our level of borrowings (including the bank overdraft line of credit) as of September 30, 2006, a one percentage point increase in interest rates under these borrowings would have increased our interest expense approximately $3,000 annually.

Foreign Currency Exchange Risk

     We have significant foreign subsidiaries located in Australia and Canada. The assets and liabilities of these subsidiaries are denominated in Australian and Canadian dollars, respectively, and as such are translated into United States dollars. Income statement amounts are translated from Australian or Canadian dollars 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. 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.

Accounts receivable

     The Company’s receivables 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 5% of our annual revenue.

Off-Balance Sheet Arrangements

     We have no off-balance sheet arrangements.

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.

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     Part II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     Unregistered Sales of Equity Securities

          None

     Use of Proceeds

     The SEC declared the Company’s registration statement filed on Form S–1 under the Securities Act (File No. 333–130417) effective on March 23, 2006, in connection with the IPO. The underwriter for the IPO was Feltl and Company. The aggregate net proceeds of the offering was approximately $19.0 million, after deducting underwriting discounts and commissions and estimated offering expenses.

          As of June 30, 2006, the Company had remaining proceeds from the IPO of approximately $14.6 million. During the quarter ended September 30, 2006, the Company used approximately $3.2 million of the proceeds from the IPO, including: $2.0 million to repay a shareholder note payable; approximately $0.6 million in connection with paying off the Company’s overdraft line of credit (which now has approximately $1.5 million available to the Company); and approximately $0.6 million for general working capital purposes, which included funding the Company’s $0.8 million loss for the quarter. Except for employee salaries paid in the ordinary course and the repayment of the shareholder note, none of the IPO proceeds used during the quarter ended September 30, 2006 were directly or indirectly paid to any of the Company’s directors, officers, their respective associates, 10% shareholders or affiliates. As of September 30, 2006, the Company had remaining proceeds from the IPO of approximately $11.4 million.

Item 5 Other Information.

     Results of Operations and Financial Condition.

     The information in this Item 5 is furnished to, but not filed with, the Securities and Exchange Commission in lieu of furnishing such information pursuant to a separate Form 8-K, Item 2.02 “Results of Operations and Financial Condition.”

     On November 14, 2006, Global Traffic Network, Inc. issued a press release reporting the financial results for its first quarter ended September 30, 2006. A copy of the press release is furnished as Exhibit 99.1 to this report and is incorporated herein by reference.

     Other Events.

     On October 19, 2006 the Company formed a wholly owned subsidiary, Global Traffic Network (UK) Limited (“UKTN”) for the purposes of expanding the Company’s traffic operations into the United Kingdom. In November 2006, UKTN began to offer employment to individuals in the United Kingdom in anticipation of commencing operations in London and certain other cities in England. UKTN has not yet contracted with any radio station to provide traffic services.

Item 6. Exhibits

     (a) Exhibits

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 November 14, 2006.

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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.

GLOBAL TRAFFIC NETWORK, INC.
By:	/S/ William L. Yde III
Name:	William L. Yde III
Title:	Chairman, Chief Executive Officer and President
	(Principal Executive Officer)
By:	/S/ Scott E. Cody
Name:	Scott E. Cody
Title:	Chief Financial Officer and Chief Operating Officer (Principal Financial and Accounting Officer)
Dated: November 14, 2006

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Exhibit Index

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 November 14, 2006.

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