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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: DECEMBER 31, 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)
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: 16,843,000
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
(a) Janel's unaudited, interim financial statements for its first fiscal
quarter (the three months ended December 31, 2002) have been set forth below.
Management's discussion and analysis of the company's financial condition and
the results of operations for the first quarter will be found at Item 2,
following the financial statements.
2
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
===============================================================================
DECEMBER 31, 2002 SEPTEMBER 30, 2002
----------------- ------------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash $ 904,918 $1,198,941
Accounts receivable 3,569,571 3,059,550
Marketable securities 34,723 33,523
Loans receivable - officers 164,926 159,532
- other 18,906 19,325
Prepaid expenses and sundry current assets 68,442 98,842
------------------ -------------------
TOTAL CURRENT ASSETS 4,761,486 4,569,713
PROPERTY AND EQUIPMENT, NET 98,235 107,876
OTHER ASSETS:
Security deposits 48,926 48,707
------------------ -------------------
TOTAL ASSETS $4,908,647 $4,726,296
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable - bank $ 300,000 $ 300,000
Accounts payable 1,891,676 1,758,204
Accrued expenses and taxes payable 196,327 281,274
Current portion of long-term debt 9,253 11,898
------------------ -------------------
TOTAL CURRENT LIABILITIES 2,397,256 2,351,376
------------------ -------------------
OTHER LIABILITIES:
Deferred compensation 78,568 78,568
------------------ -------------------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value
225,000,000 shares authorized
16,843,000 and 16,801,000 shares issued and outstanding at
December 31, 2002 and September 30, 2002 16,843 16,801
Additional paid-in capital 498,863 483,296
Retained earnings 1,917,117 1,796,255
------------------ -------------------
TOTAL STOCKHOLDERS' EQUITY 2,432,823 2,296,352
------------------ -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,908,647 $4,726,296
================== ===================
See notes to financial statements, which are an integral part of these financial statements
3
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
===============================================================================
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
2002 2001
---- ----
REVENUES:
Forwarding revenue $13,925,183 $ 9,653,543
Interest and dividends 11,484 4,965
----------------- -------------------
TOTAL REVENUES 13,936,667 9,658,508
----------------- -------------------
COSTS AND EXPENSES:
Forwarding expenses 12,382,910 8,304,271
Selling, general and administrative 1,377,859 1,332,373
Interest 5,780 7,065
----------------- -------------------
TOTAL COSTS AND EXPENSES 13,766,549 9,643,709
----------------- -------------------
INCOME BEFORE INCOME TAXES 170,118 14,799
Income taxes 68,000 5,200
----------------- -------------------
NET INCOME $ 102,118 $ 9,599
================= ===================
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized gain from available for sale securities $ 734 $ 4,476
================= ===================
Basic and diluted earnings per share $ .0061 N/A
================= ===================
Weighted number of shares outstanding 16,828,848 N/A
================= ===================
See notes to financial statements, which are an integral part of these financial statements
4
JANEL WORLD TRADE, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
===============================================================================
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
2002 2001
---- ----
OPERATING ACTIVITIES:
Net income $ 102,118 $ 9,599
Adjustments to reconcile net income to net
cash used in operating activities:
Stock issued for services 15,609 -
Depreciation and amortization 11,664 20,450
Changes in operating assets and liabilities:
Accounts receivable (510,021) (336,732)
Loans receivable (4,975) (3,867)
Prepaid expenses and sundry current assets 30,400 (83,575)
Security deposits (219) 203
Accounts payable and accrued expenses 48,525 (91,537)
------------------- -----------------
NET CASH USED IN OPERATING ACTIVITIES (306,899) (485,459)
------------------- -----------------
INVESTING ACTIVITIES:
Acquisition of property and equipment, net (2,022) (8,394)
Purchase of marketable securities (467) (5,090)
------------------- -----------------
NET CASH USED IN INVESTING ACTIVITIES (2,489) (13,484)
------------------- -----------------
FINANCING ACTIVITIES:
Proceeds from sale of common stock 18,010 -
Repayment of long-term debt, net (2,645) (16,028)
------------------- -----------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 15,365 (16,028)
------------------- -----------------
DECREASE IN CASH (294,023) (514,971)
CASH - BEGINNING OF PERIOD 1,198,941 1,429,082
------------------- -----------------
CASH - END OF PERIOD $ 904,918 $ 914,111
=================== =================
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest $ 5,780 $ 7,065
=================== =================
Income taxes $ 68,716 $ -
=================== =================
See notes to financial statements, which are an integral part of these financial statements
5
JANEL WORLD TRADE, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 10-K as filed with the Securities and Exchange Commission on
or about December 31, 2002.
2. RECENT PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets".
SFAS 141 requires that all business combinations be accounted for by the
purchase method of accounting and changes the criteria for recognition of
intangible assets acquired in a business combination. The provisions of
SFAS 141 apply to all business combinations initiated after June 30, 2001.
SFAS 142 requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized; however, these assets must be reviewed
at least annually for impairment. Intangible assets with finite useful
lives will continue to be amortized over their respectful useful lives. The
standard also establishes specific guidance for testing for impairment of
goodwill and intangible assets with indefinite useful lives. Goodwill and
intangible assets acquired after June 30, 2001 are subject immediately to
the non-amortization provisions of SFAS 142.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS 144 establishes a single
accounting model, based on the framework established in SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", for long-lived assets to be disposed of by sale,
and resolves implementation issues related to SFAS 121. The Company is
required to adopt SFAS 144 no later than the first quarter of fiscal 2003.
The Company does not expect the adoption of SFAS 144 to have a material
impact on its operating results or financial position.
3. GENERAL COMMENTS
(A) In October 2002 the Company issued 42,000 unregistered shares of
common stock as payment for legal services.
(B) On December 12, 2002 the Company adopted the "Janel World Trade Ltd.
Stock Option Incentive Plan" (the "Plan") reserving 1,600,000 shares
of the Company's $.001 par value common stock for stock options. No
options have been granted under this plan.
The exercise price of any incentive stock option or unqualified option
granted under the Option Plan may not be less than 100% of the fair
market value of the shares of common stock of the Company at the time
of the grant. In the case of incentive stock options granted to
holders of more than 10% of the voting power of the Company, the
exercise price may not be less than 110% of the fair market value.
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 company's 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 that 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 risk factors described in
Janel's Annual Report on Form 10-K filed with the SEC on December 30, 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
Janel operates its business as a single segment primarily 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.
The following discussion and analysis addresses the results of
operations for the three months ended December 31, 2002, as compared to the
results of operations for the three months ended December 31, 2001. The
discussion and analysis then addresses the liquidity and financial condition of
the company, and other matters.
7
THREE MONTHS ENDED DECEMBER 31, 2002 COMPARED TO THE THREE MONTHS ENDED
DECEMBER 31, 2001
RESULTS OF OPERATIONS
REVENUES. Total revenues for the first quarter of fiscal 2003 were
$13,936,667 as compared to $9,658,508 for the same period of fiscal 2002, a
year-over-year increase of $4,278,159, or 44.3%. The higher level of revenues
was primarily due to the general recovery of international trade across the
company's customer base versus the fiscal first quarter of 2002, which was the
quarter immediately following and most adversely affected by 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 first quarter of fiscal 2003, forwarding
expenses increased by $4,078,639, or 49.1%, to $12,382,910 as compared to
$8,304,271 for the first quarter of fiscal 2002. The increase was consistent
with the higher level of forwarding revenues year-over-year and somewhat higher
freight charges by the carriers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expenses increased $45,486, or 3.4%, to $1,377,859 in the first
quarter of fiscal 2003 as compared to $1,332,373 in the first quarter of fiscal
2002. As a percentage of revenues, quarterly SG&A expense in the first quarter
of fiscal 2002 declined by 390 basis points to 9.9% as compared to 13.8% in the
prior year's comparable period. The year-over-year decline in SG&A as a
percentage of revenues primarily reflected the company's strict cost control
concurrent with the substantial increase in overall revenues.
INCOME BEFORE TAXES. Primarily as a result of the proportionately stable
level of SG&A expenses relative to the substantial increase in revenues in the
first quarter of fiscal 2003 as compared to the first quarter of fiscal 2002,
Janel's income before taxes rose 1,049.5% to $170,118 in first quarter of fiscal
2003 as compared to $14,799 in the first quarter of fiscal 2002. The company's
pretax profit margin on net revenue (total revenues less forwarding expenses)
increased by 986 basis points from 1.09% in third quarter of fiscal 2001 to
10.95% in first quarter of fiscal 2003.
INCOME TAXES. The effective income tax rate in both the 2003 and 2002
periods reflects the U.S. federal statutory rate and applicable state income
taxes.
NET INCOME. Net income for the first quarter of fiscal 2003 was $102,118,
an increase of $92,519, or 963.8% as compared to net income of $9,599 for the
first quarter of fiscal 2002. This reflects an increase in Janel's net profit
margin (net income as a percent of net revenues) of 586 basis points from 0.71%
in the first quarter of fiscal 2002 to 6.57% in the first quarter of fiscal
2003.
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 three months ended December 31, 2002, Janel's
primary requirements for working capital have been directly related to the
funding of increased accounts receivable and prepaid expenses.
8
At December 31, 2002, cash decreased by $294,023 to $904,918, from
$1,198,941 at September 30, 2002. For the three months ended December 31, 2002,
Janel's primary use of cash for operating activities was to finance an increase
in its accounts receivable by $510,021, offset somewhat by increases in accounts
payable of $48,525 and in its prepaid expenses and sundry current assets by
$30,400. In its financing activities, Janel received $18,010 in cash as proceeds
in the sale of common stock.
At December 31, 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. Management believes anticipated cash
flow from operations and availability of cash under its line of credit are
sufficient to meet the working capital and operating needs of its currently
existing sources of business. However, the company is also proceeding with a
growth strategy for fiscal 2003 and beyond, which encompasses a number of
potential elements, as detailed below under "Current Outlook.", The company will
need to secure additional funding, estimated at up to $6,500,000, to
successfully execute principal elements of the growth strategy. There is no
guarantee that such additional capital as necessary to execute the company's
intended growth strategy will be available or, if available, will be extended to
the company on mutually acceptable terms.
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 three months ended December 31, 2002, and
its current expectations for the remainder of its fiscal 2003, Janel projects
that gross revenues for its core business for the fiscal year ending September
30, 2003 will increase by 9-14% to approximately $50 million. The first quarter
results, as reported, remain consistent with the company's previously announced
expectation of a substantial increase in income from operations for all of
fiscal 2003 versus that reported by the company in fiscal 2002.
Janel has developed a business plan and a strategy to additionally 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; increase revenues related to a substantial telecom transportation
project to Southeast Asia for which Janel has been acting 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 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 (principal elements of which require additional financing which has yet
to be committed), the company projects
9
that its total gross revenues for fiscal 2003 (which may then approximate $80
million) could be significantly greater than its gross revenues for fiscal 2002
and significantly greater than the projected increase in gross revenues solely
from its existing core business. The company further expects that its
profitability in fiscal 2003 should exceed Janel's fiscal 2002 results, as well.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On December 12, 2002, Janel's Board of Directors and 71.2% of its
shareholders approved and adopted the Janel World Trade, Ltd. Stock Option
Incentive Plan (the "Option Plan") providing for options to purchase up to
1,600,000 shares of common stock for issuance to valued employees and
consultants of the company as an incentive for superior performance. To date, no
options have been granted under the Option Plan. See Janel's Form 10-K annual
report, filed December 30, 2002, for additional information regarding the Option
Plan.
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.
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.
February 14, 2003
JANEL WORLD TRADE, LTD.
By: /s/ James N. Jannello
-------------------------------
James N. Jannello
Chief Executive Officer
10