Summary of GLOBAL TRAFFIC NETWORK, INC.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
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 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 intend to provide traffic or news reports to radio or television stations in the United States.
Our operations are conducted through the following wholly owned direct and indirect subsidiaries:
• Australia Traffic Network
• Canadian Traffic Network
• UK Traffic Network & UK Commercial Traffic Network
• 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. Financial information prior to May 16, 2005 (the date of our formation) pertains solely to Australia Traffic Network.
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." 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. 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 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 substantial majority of our revenues have been generated from our Australian operations, including approximately $42.7 million, or 71%, of our revenues for year ended June 30, 2009. Of such amount, approximately $32.1 million, or 53%, has been generated from the sale of commercial advertising inventory related to our Australian radio traffic reports. For the year ended June 30, 2008, approximately $44.3 million, or 87% of our revenues, were generated by our Australian operations and approximately $33.9 million, or 67%, was generated from the sale of commercial advertising inventory related to our Australian radio traffic reports. For the year ended June 30, 2007, approximately $28.4 million, or 90% of our revenues, was generated by our Australian operations and approximately $21.5 million, or 68%, 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 expand the provision of TV reports and 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. As commercial advertising inventory generated from our new Canadian operations and our expanded Australian operations increases, we expect to sell the increased commercial advertising inventory in the same manner as we

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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 revenue 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 and our provision of radio traffic and information reports and TV reports in Canada.
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 revenue 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        2         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. Basis of Presentation
We derive substantially all of our revenue and incur a substantial majority of our expenses from our Australian, Canadian and United Kingdom operations. However, the financial information contained in this Form 10-K, including the financial statements, report our financial condition and results of operation in United States dollars and unless stated otherwise, all references to monetary 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 each quarterly 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 Australian dollars, Canadian dollars and British pounds to United States dollars applicable to our income statement data for each of the three month periods ended June 30, 2009, 2008, and 2007, March 31, 2009, 2008 and 2007, December 31, 2008, 2007 and 2006 and September 30, 2008, 2007 and 2006 and applicable to our balance sheet data as of June 30, 2009 and 2008 are set forth below:

Australia

                                                           Exchange            Balance
Income Statement Period                                      Rate             Sheet Date          Exchange Rate
Three month period ended June 30, 2009                      0.7611          June 30, 2009               0.8064
Three month period ended March 31, 2009                     0.6645
Three month period ended December 31, 2008                  0.6654
Three month period ended September 30, 2008                 0.8875
Three month period ended June 30, 2008                      0.9444          June 30, 2008               0.9586
Three month period ended March 31, 2008                     0.9060
Three month period ended December 31, 2007                  0.8890
Three month period ended September 30, 2007                 0.8483
Three month period ended June 30, 2007                      0.8314
Three month period ended March 31, 2007                     0.7863
Three month period ended December 31, 2006                  0.7718
Three month period ended September 30, 2006                 0.7541

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Canada

                                                           Exchange            Balance
Income Statement Period                                      Rate             Sheet Date          Exchange Rate
Three month period ended June 30, 2009                      0.8567          June 30, 2009               0.8604
Three month period ended March 31, 2009                     0.8037
Three month period ended December 31, 2008                  0.8259
Three month period ended September 30, 2008                 0.9598
Three month period ended June 30, 2008                      0.9902          June 30, 2008               0.9790
Three month period ended March 31, 2008                     0.9954
Three month period ended December 31, 2007                  1.0189
Three month period ended September 30, 2007                 0.9566
Three month period ended June 30, 2007                      0.9103
Three month period ended March 31, 2007                     0.8534
Three month period ended December 31, 2006                  0.8776
Three month period ended September 30, 2006                 0.8922


United Kingdom

                                                           Exchange           Balance
Income Statement Period                                      Rate           Sheet Date         Exchange Rate
Three month period ended June 30, 2009                      1.5522         June 30, 2009             1.6458
Three month period ended March 31, 2009                     1.4369
Three month period ended December 31, 2008                  1.5681
Three month period ended September 30, 2008                 1.8921
Three month period ended June 30, 2008                      1.9718         June 30, 2008             1.9923
Three month period ended March 31, 2008                     1.9783
Three month period ended December 31, 2007                  2.0438
Three month period ended September 30, 2007                 2.0217
Three month period ended June 30, 2007                      1.9850
Three month period ended March 31, 2007                     1.9551
Three month period ended December 31, 2006                  1.9174

As reflected above, the U.S. dollar has strengthened significantly compared to the currencies of the markets in which we operate since the year ended June 30, 2008. This strengthening of the U.S. dollar causes our Australian, Canadian and United Kingdom revenue and expenses to be lower than they otherwise would be if the exchange rates were consistent for both periods. We estimate that the impact from the currency changes in Australia, Canada and United Kingdom on our operating results for the fiscal years ended June 30, 2009 and 2008 compared to the fiscal years ended June 30, 2008 and 2007, respectively has been increase or (decrease) income statement data as follows:

                                                        Year               Year
                                                       ended              ended
                                                   June 30, 2009      June 30, 2008
                                                   (in thousands)     (in thousands)

  Australia
  Net revenue                                      $      (8,690 )     $      5,488
  Operating expense                                       (4,711 )            2,762
  Sales, general & administrative expense                 (1,752 )            1,216
  Canada
  Net revenue                                             (1,042 )              720
  Operating expense                                       (1,113 )              730
  Sales, general & administrative expense                   (307 )              247
  United Kingdom
  Net revenue                                             (2,969 )               NM
  Operating expense                                       (2,857 )               NM
  Sales, general & administrative expense                   (322 )               NM
  Australia, Canada and United Kingdom combined
  Net revenue                                            (12,701 )            6,208
  Operating expense                                       (8,681 )            3,492
  Sales, general & administrative expense                 (2,381 )            1,463

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Our United Kingdom operations are not included in the table for the year ended June 30, 2008 since our United Kingdom operations did not commence until the second fiscal quarter of the year ended June 30, 2007 so there is not a full year of exchange rates to compare.
When discussing changes in income statement accounts from the year ended June 30, 2008 to the year ended June 30, 2009 and from the year ended June 30, 2007 to the year ended June 30, 2008, the analysis under "Results of Operations" below includes both the impact of currency changes and changes in revenues and expenditures in the local currency.
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. Over the past five fiscal years prior to the year ended June 30, 2009 however, the impact of seasonality has been offset by the rapid revenue growth, and in certain cases, favorable exchange rate movements, as revenues for the quarter ending March 31 have exceeded revenues for the quarter ended September 30 during these fiscal years. In addition, over the three fiscal years prior to the year ended June 30, 2009 our revenue in the quarter ending June 30 has exceeded the quarter ended December 31, also due to our rapid revenue growth. Our revenue in the quarter ended June 30, 2009 exceeded our revenue in the quarter ended December 31, 2008 primarily due to incremental revenue attributable to our acquisition of Unique on March 1, 2009. 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.
Results of Operations
Year Ended June 30, 2009 Compared With Year Ended June 30, 2008 Revenues. Revenues increased from approximately $51.0 million for year ended June 30, 2008 to approximately $60.3 million for the year ended June 30, 2009, an increase of approximately 18.2%. Revenues from our Australian operations in fiscal 2009 decreased approximately $1.6 million from the prior year period, with revenues from our Australian radio network decreasing approximately $0.2 million and revenues from our TV network decreasing approximately $1.3 million. The decrease in revenues from our Australian radio networks reflects a decrease of approximately $1.0 million from our traffic network that was partially offset by an approximate $0.8 million increase from our news radio network. Revenues from the sale of inventory related to our Canadian operations in fiscal 2009 increased approximately $0.2 million over the prior year period, to approximately $6.9 million. Revenues for our 2009 United Kingdom operations were approximately $10.7 million compared to $0 for the year ended June 30, 2008. Approximately $6.6 million of our UK revenues was attributable to the Unique business operations that we acquired on March 1, 2009.
As reflected in Basis of Presentation, revenues were negatively impacted by unfavorable exchange rate movements in Australia and Canada during the year ended June 30, 2009. When measured in local currencies, Australian revenue increased approximately 16.4% and our Canadian revenue increased 19.7%. The most significant portion of the revenue increase in Canada (when measured in local currency) was due to the sale of more spots albeit at a lower rate. The increase in the number of spots sold was primarily due to increased utilization of existing spot inventory. The most significant factors in the increase in revenue in Australia (when measured in local currency) was an increase in the average rate per advertising spot and the number of spots sold. The increase in advertising spots sold was primarily driven by obtaining additional inventory compared to the prior year period.
Operating expenses. Operating expenses increased from approximately $30.5 million for the year ended June 30, 2008 to approximately $40.9 million for the year ended June 30, 2009, an increase of approximately 34.1%. Approximately $0.3 million of the increase pertained to our Australian operations, which was mainly attributable to higher news station compensation. As reflected in Changes in Key Operating Statistics in Local Currencies, Australian operating expenses increased approximately 22.2% when measured in local currency. Canadian operating expenses during fiscal 2009 increased approximately $0.4 million over the fiscal 2008 period, due primarily to an approximately $1.3 million increase in station compensation that was partially offset by reductions of approximately $0.2 million in employee costs and approximately $0.6 million in aviation expenses. As reflected in Changes in Key Operating Statistics in Local Currencies, the percentage increase in Canadian operating expenses was greater when measured in local currency. Canadian operating expenses increased approximately 22.5% when measured in local currency. Approximately $9.2 million of the increase in operating expenses resulted from costs incurred by UK Traffic Network, the majority of which was related to the cost of providing service under our contract with the United Kingdom's Highways Agency, which commenced July 1, 2008, and our operation of the Unique business, which we acquired on March 1, 2009. Operating costs related to the Unique business were approximately $5.6 million. The increase in our operating expenses for Mobile Traffic Network was approximately $0.7 million for the year ended June 30, 2009. Mobile Traffic Network was formed March 8, 2008 and therefore was not in existence for a substantial portion of the year ended June 30, 2008.
Selling, general and administrative expenses. Selling, general and administrative expenses increased from approximately $15.2 million for the year ended June 30, 2008 to approximately $15.6 million for the year ended June 30, 2009, an increase of approximately 2.6%.

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Approximately $0.4 million of the increase pertains to corporate overhead, including an increase of approximately $0.4 million related to the granting of stock options and restricted stock. Non-cash compensation expense from the granting of employee and director stock options and restricted stock was approximately $1.2 million for the year ended June 30, 2009 and $0.8 million for the year ended June 30, 2008. Selling, general and administrative expenses in Australia decreased by approximately $1.1 million mainly due to reductions of approximately $0.5 million in general and administrative costs, approximately $0.3 million in the management fee due Global Traffic Network and approximately $0.3 million in selling costs primarily associated with sales staff compensation. The decrease in management fees resulted entirely from changes in currency exchange rates, was offset by a comparable increase on the unconsolidated income statement of Global Traffic Network and was eliminated in consolidation. As reflected in Changes in Key Operating Statistics in Local Currencies, Australian selling, general and administrative expenses increased approximately 6.8% in local currency. Selling, general and administrative expenses in Canada decreased approximately $0.3 million, primarily due to decreases of approximately $0.2 million in sales employee compensation and approximately $0.1 million in general and administrative expenses. As reflected in Changes in Key Operating Statistics in Local Currencies, Canadian selling, general and administrative expenses increased approximately 3.0% when measured in local currency. Our selling, general and administrative expenses for the year ended June 30, 2009 for Mobile Traffic Network increased approximately $0.5 million. Mobile Traffic Network was formed March 8, 2008 and therefore was not in existence for a substantial portion of the year ended June 30, 2008. UK Traffic Network selling, general and administrative expenses increased approximately $0.8 million, of which approximately $0.7 million was associated with the newly acquired Unique business operations. Sales expense as a percentage of revenue in Australia decreased from approximately 13.7% for the year ended June 30, 2008 to approximately 13.4% for the year ended June 30, 2009.
Depreciation and amortization expense. Depreciation and amortization expense increased from approximately $1.5 million for the year ended June 30, 2008 to approximately $2.5 million for the year ended June 30, 2009. Approximately $1.0 million of the increase pertains UK Traffic Network including approximately $0.8 million of amortization of intangibles acquired in the Unique purchase. As reflected in Changes in Key Operating Statistics in Local Currencies, Australian and Canadian depreciation and amortization expense increased in local currencies and was largely offset due to changes in exchange rates.
Interest expense. Interest expense decreased from approximately $90,000 for the year ended June 30, 2008 to approximately $39,000 for the year ended June 30, 2009. The decrease was mainly due to lower amounts of debt outstanding in Australia primarily as a result of regularly scheduled principal amortization.
Other income. Other income decreased from approximately $1.6 million for the year ended June 30, 2008 to approximately $1.0 million for the year ended June 30, 2009. Other income consists primarily of interest income on our cash balances and the reduction was primarily due to lower interest rates in the current period, unfavorable movement in Australia dollar/U.S. dollar exchange rates and a reduction in cash balances due to purchasing Unique for an initial payment of approximately $12.9 million.
Income tax expense. Income tax expense decreased from approximately $3.6 million for the year ended June 30, 2008 to approximately $3.3 million for the year ended June 30, 2009. The decrease was primarily due to the decreased net profit in Australia in U.S. dollars for the year ended June 30, 2009 compared to the year ended June 30, 2008 due to the changes in currency exchange rates as well as the income tax benefit in the United Kingdom discussed below. As reflected in Changes in Key Operating Statistics in Local Currencies income tax expense from our Australian operations in local currency increased approximately 15.5%. The effective tax rate in Australia was 30.0% and 30.2% for the years ended June 30, 2009 and 2008, respectively, 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 tax loss carry forwards in those countries. The UK Commercial Traffic Network realized approximately $0.1 million in tax benefit due to approximately $0.2 million related to the amortization of the deferred tax liability created by the Unique acquisition offset by approximately $0.1 million tax expense related to UK Commecial Traffic Network taxable income for the period March 1, 2009 through June 30, 2009. The tax expense was a non-cash item and was offset against the deferred tax asset acquired as part of the Unique acquisition.
Net income (loss). Net income (loss) decreased from net income of approximately $1.7 million for the year ended June 30, 2008 to net loss of approximately $1.1 million for the year ended June 30, 2009. Our decrease in net income is primarily attributable to higher non-cash equity compensation and . . .