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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: JUNE 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. 333-60608
JANEL WORLD TRADE, LTD.
(Exact name of registrant as specified in its charter)
NEVADA 86-1005291
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
150-14 132ND AVENUE, JAMAICA, NY 11434
(Address of principal executive offices) (Zip Code)
(718) 527-3800
(Registrant's telephone number, including area code)
WINE SYSTEMS DESIGN, INC., 3838 CAMINO DEL RIO NORTH, SUITE 333,
SAN DIEGO, CA 92108
FORMER FISCAL YEAR END WAS JUNE 30
(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 Exchange Act 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. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities under
a plan confirmed by a court.
Yes ___ No ___
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 15,000,000
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
(a) Pro forma financial information relating to the reverse merger between
C and N Corp., a predecessor of the company, and Wine Systems Design, Inc.,
which was completed in July 2002 and reported in the company's Form 8-K report
filed July 18, 2002, has been omitted because at the time of the merger Wine
Systems Design, Inc. had no assets, no liabilities and no business operations.
(b) Janel's unaudited, interim financial statements for its third fiscal
quarter (the nine months ended June 30, 2002) have been set forth below:
ACCOUNTANTS' REVIEW REPORT
Board of Directors
JANEL WORLD TRADE, LTD. AND SUBSIDIARIES
(FORMERLY C AND N CORP.)
Jamaica, New York
We have reviewed the accompanying consolidated balance sheet of JANEL WORLD
TRADE, LTD. AND SUBSIDIARIES (FORMERLY C AND N CORP.) as of June 30, 2002 and
the related consolidated statements of income and cash flows for the nine and
three months ended June 30, 2002 and 2001, in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants. All information included in these consolidated
financial statements is the representation of the management of JANEL WORLD
TRADE, LTD. AND SUBSIDIARIES (FORMERLY C AND N CORP.) .
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
examination in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements in order for them
to be in conformity with generally accepted accounting principles.
Paritz & Company, P.A.
Hackensack, New Jersey
August 9, 2002
2
JANEL WORLD TRADE, LTD. AND SUBSIDIARIES
(FORMERLY C AND N CORP.)
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
JUNE 30, 2002 SEPTEMBER 30, 2001
-------------- ------------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash $ 950,008 $ 1,429,082
Accounts receivable 3,262,190 2,738,513
Marketable securities 39,536 37,592
Loans receivable - officers 192,766 138,837
- other 10,858 20,682
Prepaid expenses and sundry current assets 188,865 108,739
-------------- ------------
TOTAL CURRENT ASSETS 4,644,223 4,473,445
-------------- ------------
PROPERTY AND EQUIPMENT, NET 126,123 165,805
-------------- ------------
OTHER ASSETS:
Cash surrender value of life insurance 44,469 44,469
Security deposits 48,458 48,651
-------------- ------------
TOTAL OTHER ASSETS 92,927 93,120
-------------- ------------
TOTAL ASSETS $ 4,863,273 $ 4,732,370
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable - bank $ 300,000 $ 325,000
Accounts payable 2,036,191 1,833,782
Accrued expenses and taxes payable 128,232 169,234
Current portion of long-term debt 28,457 80,924
-------------- ------------
TOTAL CURRENT LIABILITIES 2,492,880 2,408,940
-------------- ------------
OTHER LIABILITIES:
Deferred compensation 123,037 123,037
Long-term debt 11,873 30,582
-------------- ------------
TOTAL OTHER LIABILITIES 134,910 153,619
-------------- ------------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value
225,000,000 shares authorized
15,000,000 shares issued and outstanding at June 30, 2002 15,000 3,200
Additional paid-in capital 217,087 228,887
Retained earnings 2,003,396 1,937,724
-------------- ------------
TOTAL STOCKHOLDERS' EQUITY 2,235,483 2,169,811
-------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,863,273 $ 4,732,370
============== ============
See notes to financial statements, which are an integral part of these financial
statements
3
JANEL WORLD TRADE, LTD. AND SUBSIDIARIES
(FORMERLY C AND N CORP.)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
- --------------------------------------------------------------------------------
NINE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------------- --------------------------
2002 2001 2002 2001
-------------- ----------------- ------------ ------------
REVENUES:
Forwarding revenue $ 30,999,567 $ 35,755,567 $ 11,456,431 $11,972,445
Interest and dividends 9,027 33,399 878 7,164
-------------- ----------------- ------------ ------------
TOTAL REVENUES 31,008,594 35,788,966 11,457,309 11,979,609
-------------- ----------------- ------------ ------------
COSTS AND EXPENSES:
Forwarding expenses 26,940,160 31,356,924 10,103,182 10,454,305
Selling, general and administrative 3,953,251 4,309,262 1,283,417 1,491,234
Interest 16,333 25,601 3,798 8,304
-------------- ----------------- ------------ ------------
TOTAL COSTS AND EXPENSES 30,909,744 35,691,787 11,390,397 11,953,843
-------------- ----------------- ------------ ------------
INCOME BEFORE INCOME TAXES 98,850 97,179 66,912 25,766
Income taxes 34,500 34,000 23,500 9,000
-------------- ----------------- ------------ ------------
NET INCOME $ 64,350 $ 63,179 $ 43,412 $ 16,766
============= ================= ============ ===========
OTHER COMPREHENSIVE INCOME
(LOSS), NET OF TAX:
Unrealized gain (loss) from available
for sale securities $ 1,322 $ (18,933) $ (3,064) $ 3,059
============= ================= ============ ===========
Basic and diluted earnings per share $ .00429 N/A $ .00289 N/A
============= ================= ============ ===========
Weighted number of shares outstanding* 15,000,000 N/A 15,000,000 N/A
============= ================= ============ ===========
*Assumes all shares were outstanding for the entire periods
See notes to financial statements, which are an integral part of these financial
statements
4
JANEL WORLD TRADE, LTD. AND SUBSIDIARIES
(FORMERLY C AND N CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
- --------------------------------------------------------------------------------
NINE MONTHS ENDED JUNE 30,
-------------------------------
2002 2001
--------------- --------------
OPERATING ACTIVITIES:
Net income $ 65,672 $ 44,246
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 41,461 30,951
Changes in operating assets and liabilities:
Accounts receivable (523,677) 330,694
Loans receivable (44,105) (14,620)
Prepaid expenses and sundry current assets (80,126) 57,023
Security deposits 193 673
Accounts payable and accrued expenses 161,407 (391,333)
--------------- --------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (379,175) 57,634
--------------- --------------
INVESTING ACTIVITIES:
Acquisition (disposal) of property and equipment, net (1,779) 6,919
Sale/purchase of marketable securities (1,944) 11,640
--------------- --------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (3,723) 18,559
--------------- --------------
FINANCING ACTIVITIES:
Repayment of long-term debt, net (71,176) (75,665)
Bank borrowings (25,000) 125,000
--------------- --------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (96,176) 49,335
--------------- --------------
INCREASE (DECREASE) IN CASH (479,074) 125,528
CASH - BEGINNING OF PERIOD 1,429,082 858,879
--------------- --------------
CASH - END OF PERIOD $ 950,008 $ 984,407
=============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest $ 16,333 $ 25,601
=============== ==============
Income taxes $ 32,896 $ 30,829
=============== ==============
Non-cash investing activities:
Unrealized gain (loss) on
marketable securities $ 1,322 $ (18,933)
=============== ==============
See notes to financial statements, which are an integral part of these financial
statements
5
JANEL WORLD TRADE, LTD. AND SUBSIDIARIES
(FORMERLY C AND N CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(Unaudited)
- --------------------------------------------------------------------------------
1 BASIS OF PRESENTATION
The attached consolidated financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. As a
result, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The Company believes that the
disclosures made are adequate to make the information presented not misleading.
The consolidated financial statements reflect all adjustments which are, in the
opinion of management, necessary to a fair statement of the results for the
interim periods presented. These consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and
related notes included in the Company's Form 8-K /A as filed with the Securities
and Exchange Commission on or about August 1, 2002.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
FORWARD LOOKING STATEMENTS
The statements contained in all parts of this document that are not
historical facts are, or may be deemed to be, "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Such forward-looking statements include,
but are not limited to, those relating to the following: the effect and benefits
of the recent reverse merger transaction; Janel's plans to reduce costs
(including the scope, timing, impact and effects thereof); potential annualized
cost savings; plans for direct entry into the trucking and warehouse
distribution business (including the scope, timing, impact and effects thereof);
the company's ability to improve its cost structure; plans for opening
additional domestic and foreign branch offices (including the scope, timing,
impact and effects thereof); the sensitivity of demand for the company's
services to domestic and global economic and political conditions; expected
growth; future operating expenses; future margins; fluctuations in currency
valuations; fluctuations in interest rates; future acquisitions and any effects,
benefits, results, terms or other aspects of such acquisitions; ability to
continue growth and implement growth and business strategy; the ability of
expected sources of liquidity to support working capital and capital expenditure
requirements; future expectations and outlook and any other statements regarding
future growth, cash needs, operations, business plans and financial results and
any other statements which are not historical facts.
When used in this document, the words "anticipate," "estimate," "expect,"
"may," "plans," "project," and similar expressions are intended to be among the
statements that identify forward-looking statements. Janel's results may differ
significantly from the results discussed in the forward-looking statements. Such
statements involve risks and uncertainties, including, but not limited to, those
relating to costs, delays and difficulties related to the company's dependence
on its ability to attract and retain skilled managers and other personnel; the
intense competition within the freight industry; the uncertainty of the
company's ability to manage and continue its growth and implement its business
strategy; the company's dependence on the availability of cargo space to serve
its customers; effects of regulation; its vulnerability to general economic
conditions and dependence on its principal customers; accuracy of accounting and
other estimates; risk of international operations; risks relating to
acquisitions; the company's future financial and operating results, cash needs
and demand for its services; and the company's ability to maintain and comply
with permits and licenses; as well as other factors described in Janel's Form
8-K/A filed with the SEC on August 1, 2002. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual outcomes may vary materially from those projected.
OVERVIEW
The following discussion and analysis addresses the results of operations
for the three months ended June 30, 2002, as compared to the results of
operations for the three months ended June 30, 2001. The discussion and
analysis then addresses the results of Janel's operations for the nine months
ended June 30, 2002, as compared to the results of operations for the nine
months ended June 30, 2001. The discussion and analysis then addresses the
liquidity and financial condition of the company, and other matters.
RESULTS OF OPERATIONS
Janel operates its business as a single segment comprised of full-service
cargo transportation logistics management, including freight forwarding - via
air, ocean and land-based carriers -customs brokerage services, warehousing and
distribution services, and other value-added logistics services.
7
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001
REVENUES. Total revenues for the third quarter of fiscal 2002 were
$11,457,309 as compared to $11,979,609 for the same period of 2001, a
year-over-year decrease of $522,300, or 4.4%. The lower level of revenues was
primarily due to the general decline in international trade following the events
of September 11, 2001.
FORWARDING EXPENSE. Forwarding expenses are primarily comprised of the
fees paid by Janel directly to cargo carriers to handle and transport its actual
freight shipments on behalf of its customers between initial and final terminal
points. Forwarding expenses also include any duties and/or trucking charges
related to the shipments. For the third quarter of fiscal 2002, forwarding
expenses decreased by $351,123, or 3.4%, to $10,103,182 as compared to
$10,454,305 for the third quarter of fiscal 2001. The decline was consistent
with the lower level of forwarding revenues year-over-year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expenses decreased $207,817, or 13.9%, to $1,283,417 in the third
quarter of fiscal 2002 as compared to $1,491,234 in the third quarter of fiscal
2001. As a percentage of revenues, quarterly SG&A expense in third quarter of
fiscal 2002 declined to 11.2% as compared to 12.4% in the prior year's
comparable period. The year-over-year decline in SG&A primarily reflected the
concurrent decrease in overall revenues.
INCOME BEFORE TAXES. Primarily as a result of the proportionately greater
declines in forwarding and SG&A expenses relative to the decline in revenues in
the third quarter of fiscal 2002 as compared to the third quarter of 2001,
Janel's income before taxes rose 159.7% to $66,912 in third quarter of fiscal
2002 as compared to $25,766 in the third quarter of fiscal 2001. Despite the
marginal year-over-year decline in revenues, the pretax profit margin on net
revenue (total revenues less forwarding expenses) increased by 325 basis points
from 1.69% in third quarter of fiscal 2001 to 4.94% in third quarter of fiscal
2002.
INCOME TAXES. The effective income tax rate in both the 2002 and 2001
periods reflects the U.S. federal statutory rate and applicable state income
taxes.
NET INCOME. Net income for the third quarter of fiscal 2002 were $43,412,
an increase of 158.9% as compared to net income of $16,766 for the third quarter
of fiscal 2001. This reflects an increase in Janel's net profit margin (net
income as a percent of net revenues) of 211 basis points from 1.10% in the third
quarter of fiscal 2001 to 3.21% in the third quarter of fiscal 2002.
NINE MONTHS ENDED JUNE 30, 2002 COMPARED TO NINE MONTHS ENDED JUNE 30, 2001
REVENUES. Total revenues for the nine months ended June 30, 2002, were
$31,008,594, a decline of $4,780,372, or 13.4%, as compared to $35,788,966 for
the first nine months of fiscal 2001. The decline in revenues in fiscal 2002
was primarily due to an industry wide slowdown in the wake of the events of
September 11, 2001.
FORWARDING EXPENSE. For the nine months ended June 30, 2002, forwarding
expenses were $26,940,160. This represented a decrease of $4,416,764, or 14.1%,
as compared to the $31,356,924 of forwarding expenses incurred for the nine
months ended June 30, 2001. The percentage decline was essentially consistent
with the decline in total forwarding revenues for the nine months ended June 30,
2002 as compared to 2001.
8
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. For the nine months ended
June 30, 2002 and 2001, selling, general and administrative expenses were
$3,953,251 and $4,309,262, respectively. This represents a year-over-year
decline of $356,011, or 8.3%. The decrease in SG&A expense year-over-year from
the respective nine months of fiscal 2001 primarily reflected lower sales
commissions paid by Janel as a result of lower revenues. Because of the fixed
component of such expenses, SG&A as a percentage of revenues increased to 12.7%
for the nine months ended June 30, 2002 as compared to 12.0% of revenues for the
nine months ended June 30, 2001.
INCOME BEFORE TAXES. Despite the year-over-year decline in revenues,
Janel's income before taxes rose 1.7% to $98,850 for the nine months ended June
30, 2002 as compared to $97,179 for the nine months ended June 30, 2001.
Janel's pretax profit margin on net revenue (total revenues less forwarding
expenses) increased by 24 basis points from 2.19% for the nine months ended June
30, 2001 to 2.43% in the nine months ended June 30, 2002.
INCOME TAXES. The effective income tax rate in both the 2002 and 2001
periods reflects the U.S. federal statutory rate and applicable state income
taxes.
NET INCOME. Net income for the nine months ended June 30, 2002, were
essentially flat at $64,350 as compared to $63,179 for the nine months ended
June 30, 2001. Janel's net profit margin (net income as a percentage of net
revenues) increased by15 basis points from 1.43% in the nine months ended June
30, 2001 to 1.58% in the nine months ended June 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
Janel's ability to meet its liquidity requirements, which include
satisfying its debt obligations, funding working capital, day-to-day operating
expenses and capital expenditures depends upon its future performance, which is
subject to general economic conditions and other factors, some of which are
beyond its control. During the nine months ended June 30, 2002, Janel's primary
requirements for working capital have been directly related to the funding of
increased accounts receivable and prepaid expenses.
At June 30, 2002, cash decreased by $479,074 to $950,008, from $1,429,082
at September 30, 2001. For the nine months ended June 30, 2002, Janel's primary
uses of cash for operating activities were to finance increases in its accounts
receivable by $523,677 and in its prepaid expenses by $80,126, offset somewhat
by an increase in accounts payable of $161,407. For financing activities, Janel
used cash to repay long-term debt ($71,176) and bank borrowings ($25,000).
Management believes anticipated cash flow from operations and availability
under its line of credit are sufficient to meet its current working capital and
operating needs. Through its third quarter of fiscal 2002, Janel repaid $71,176
of long-term debt (primarily capitalized lease obligations maturing by September
30, 2002) and $25,000 of bank borrowings. At June 30, 2002, Janel had $100,000
of available borrowings remaining under a line of credit with a bank pursuant to
which it may borrow up to $400,000 bearing interest at prime plus one-half of
one percent, which is collateralized by certificates of deposit.
REVERSE MERGER WITH WINE SYSTEMS DESIGN, INC.
In June and July 2002, C and N Corp., a predecessor of the company, entered
into and completed a reverse merger transaction with Wine Systems Design, Inc.,
formally changed the corporate name to Janel World Trade, Ltd. and became a
9
public company traded on the Nasdaq Bulletin Board under the symbol "JLWT." As
a result of the merger transaction and related amendments to the company's
certificate of incorporation, Janel is authorized to issue up to 225,000,000
shares of common stock, $.001 par value each, of which 15,000,000 shares are
currently issued and outstanding.
CURRENT OUTLOOK
Janel is primarily engaged in the business of providing full-service cargo
transportation logistics management, including freight forwarding - via air,
ocean and land-based carriers -customs brokerage services, warehousing and
distribution services, and other value-added logistics services. Its results of
operations are affected by the general economic cycle, particularly as it
influences global trade levels and specifically the import and export activities
of Janel's various current and prospective customers. Historically, the
company's quarterly results of operations have been subject to seasonal trends
which have been the result of, or influenced by, numerous factors including
climate, national holidays, consumer demand, economic conditions, the growth and
diversification of its international network and service offerings, and other
similar and subtle forces.
Based upon the results for the nine months ended June 30, 2002, and its
current expectations for the fourth quarter, Janel projects that gross revenues
for its fiscal year ending September 30, 2002 will be approximately $42-44
million, a slight decline from fiscal 2001.
Janel has developed a business plan and a strategy to grow its revenues and
profitability through its fiscal year ending September 30, 2003. The company's
strategy includes plans to: open additional branch offices both domestically and
in Southeast Asia; introduce additional revenue streams for its existing
headquarters and branch locations; proceed with negotiations and due diligence
with privately held transportation-related firms which may ultimately lead to
their acquisition by the company; expand its existing sales force by hiring
additional commission-only sales representatives with established customer
bases; increase its focus on growing revenues related to export activities;
begin work within the next six months on a substantial telecom transportation
project to Southeast Asia for which Janel has been designated as the exclusive
freight forwarder; evaluate direct entry into the trucking and warehouse
distribution business as a complement to the services already provided to
existing customers; and continue its reduction of current and prospective
overhead and operating expenses, particularly with regard to the efficient
integration of any additional offices or acquisitions. Assuming successful
execution of substantial elements of its growth strategy, the company projects
that gross revenues for fiscal 2003 (which may approximate $80 million) will be
significantly greater than projected gross revenues for fiscal 2002.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On July 22, 2002, James N. Jannello, Janel's executive vice president and
chief executive officer, and Stephen P. Cesarski, the president and chief
operating officer, who are shareholders representing 73.3% of all of the issued
and outstanding shares of Janel common stock, signed a written consent to the
adoption of a resolution electing James N. Jannello, Stephen P. Cesarski and
William J. Lally as the board of directors of Janel to serve until the next
annual meeting of shareholders or until their successors are elected and
qualify.
10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits required by item 601 of Regulation S-K.
Exhibit
Number Description of Exhibit
---------- ----------------------------
99.1 Officers' certification pursuant to the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter for which this report is filed. However, Janel filed a Form 8-K report
on July 18, 2002 reporting information in Item 1, Item 2, Item 5, Item 6 and
Item 7, and a Form 8-K/A report on August 1, 2002 reporting information in Item
4, Item 5, Item 6, Item 7 and Item 8, which also included audited consolidated
financial statements for the fiscal years ended September 30, 2001, 2000 and
1999.
11
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
August 14, 2002
JANEL WORLD TRADE, LTD.
By: /s/ James N. Jannello
-------------------------
James N. Jannello
Chief Executive Officer
12