Back to GetFilings.com
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, 2003
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
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12-2 of the Exchange Act). Yes No X
--- ---
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
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
(a) Janel's unaudited, interim financial statements for its second fiscal
quarter (the nine months and three months ended June 30, 2003) have been set
forth below. Management's discussion and analysis of the company's financial
condition and the results of operations for the second quarter will be found at
Item 2, following the financial statements.
1
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
================================================================================
JUNE 30, 2003 SEPTEMBER 30, 2002
---------- ----------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash $1,214,211 $1,198,941
Accounts receivable 3,797,046 3,059,550
Marketable securities 39,165 33,523
Loans receivable - officers 187,429 159,532
- other 17,692 19,325
Prepaid expenses and sundry current assets 138,479 98,842
---------- ----------
TOTAL CURRENT ASSETS 5,394,022 4,569,713
---------- ----------
PROPERTY AND EQUIPMENT, NET 117,701 107,876
SECURITY DEPOSITS 52,883 48,707
---------- ----------
TOTAL ASSETS $5,564,606 $4,726,296
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable - bank $ 800,000 $ 300,000
Accounts payable 1,970,651 1,758,204
Accrued expenses and taxes payable 205,546 281,274
Current portion of long-term debt 4,979 11,898
---------- ----------
TOTAL CURRENT LIABILITIES 2,981,176 2,351,376
---------- ----------
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 June 30, 2003 and September 30, 2002 16,843 16,801
Additional paid-in capital 498,863 483,296
Retained earnings 1,989,156 1,796,255
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 2,504,862 2,296,352
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,564,606 $4,726,296
================================================================================
See notes to financial statements, which are an integral part
of these financial statements
2
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
================================================================================
NINE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- -------------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
REVENUES:
Forwarding revenue $ 40,529,477 $ 30,999,567 $ 14,949,933 $ 11,456,431
Interest and dividends 17,189 9,027 2,930 878
------------ ------------ ------------ ------------
TOTAL REVENUES 40,546,666 31,008,594 14,952,863 11,457,309
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Forwarding expenses 35,964,641 26,940,160 13,371,161 10,103,182
Selling, general and administrative 4,285,554 3,953,251 1,474,782 1,283,417
Interest 13,761 16,333 3,601 3,798
------------ ------------ ------------ ------------
TOTAL COSTS AND EXPENSES 40,263,956 30,909,744 14,849,544 11,390,397
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 282,710 98,850 103,319 66,912
Income taxes 113,000 34,500 41,000 23,500
------------ ------------ ------------ ------------
NET INCOME $ 169,710 $ 64,350 $ 62,319 $ 43,412
============ ============ ============ ============
OTHER COMPREHENSIVE INCOME
(LOSS), NET OF TAX:
Unrealized gain (loss) from available
for sale securities $ 5,181 $ 1,322 $ 5,617 $ (3,064)
============ ============ ============ ============
Basic and diluted earnings per share $ .01008 $ .00429 $ .00370 $ .00289
============ ============ ============ ============
Weighted number of shares outstanding 16,838,231 15,000,000 16,843,000 15,000,000
============ ============ ============ ============
================================================================================
See notes to financial statements, which are an integral part
of these financial statements
3
JANEL WORLD TRADE, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
================================================================================
NINE MONTHS ENDED JUNE 30,
-------------------------------------
2003 2002
----------- -----------
OPERATING ACTIVITIES:
Net income $ 169,710 $ 65,672
Adjustments to reconcile net income to net
cash used in operating activities:
Stock issued for services 15,609 --
Depreciation and amortization 39,618 41,461
Changes in operating assets and liabilities:
Accounts receivable (737,496) (523,677)
Prepaid expenses and sundry current assets (39,637) (80,126)
Security deposits (4,176) 193
Accounts payable and accrued expenses 136,719 161,407
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (419,653) (335,070)
----------- -----------
INVESTING ACTIVITIES:
Acquisition of property and equipment, net (49,443) (1,779)
Purchase of marketable securities (461) (1,944)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (49,904) (3,723)
----------- -----------
FINANCING ACTIVITIES:
Increase in loans receivable (26,264) (44,105)
Proceeds from sale of common stock 18,010 --
Repayment of long-term debt, net (6,919) (71,176)
Bank borrowing 500,000 (25,000)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 484,827 (140,281)
----------- -----------
INCREASE (DECREASE) IN CASH 15,270 (479,074)
CASH - BEGINNING OF PERIOD 1,198,941 1,429,082
----------- -----------
CASH - END OF PERIOD $ 1,214,211 $ 950,008
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest $ 13,761 $ 16,333
=========== ===========
Income taxes $ 142,472 $ 32,896
=========== ===========
Non-cash investing activities:
Unrealized gain (loss) on marketable securities $ 5,181 $ 1,322
=========== ===========
================================================================================
See notes to financial statements, which are an integral part
of these financial statements
4
JANEL WORLD TRADE, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
(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 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.
3. In March 2003 the Company increased its line of credit with a
bank from $400,000 to $1,500,000. Advances under this facility
bear interest at prime plus 1% per annum, are due on March 31,
2004 and are collateralized by substantially all assets of the
Company. In addition, all borrowing under this agreement is
personally guaranteed by certain stockholders of the Company.
5
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
The following discussion and analysis addresses the results of
operations for the three months ended June 30, 2003, as compared to the results
of operations for the three months ended June 30, 2002. The discussion and
analysis then addresses the results of Janel's operations for the nine months
ended June 30, 2003, as compared to the results of operations for the nine
months ended June 30, 2002. 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
6
brokerage services, warehousing and distribution services, and other value-added
logistics services.
THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THREE MONTHS ENDED JUNE 30, 2002
REVENUES. Total revenues for the third quarter of fiscal 2003 were
$14,952,863 as compared to $11,457,309 for the same period of 2002, a
year-over-year increase of $3,495,554, or 30.5%. The higher level of revenues
was primarily due to the both greater shipping activity across the company's
base of customers, in particular, among its customers in the wearing
apparel/finished garments industry, as well as the higher overall level of
international trade in third quarter fiscal 2003 as compared to third quarter
fiscal 2002.
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 2003, forwarding
expenses increased by $3,267,979, or 32.3%, to $13,371,161, as compared to
$10,103,182 for the third quarter of fiscal 2002. The percentage increase was
generally consistent with the increased level of forwarding revenues
year-over-year, although forwarding expenses as a percentage of forwarding
revenues did increase slightly from 88.2% to 89.4% year-over-year, mainly
reflecting a pass-through of higher rates paid by Janel to its cargo carriers,
while the company's ability to obtain increased margins was limited by
competitive conditions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. As a percentage of
revenues, selling, general and administrative expense in third quarter of fiscal
2003 declined 134 basis points to 9.86%, as compared to 11.20% in the prior
year's comparable period. However, in absolute dollar terms, SG&A expense
increased $191,365, or 14.9%, to $1,474,782 in the third quarter of fiscal 2003,
as compared to $1,283,417 in the third quarter of fiscal 2002. The
year-over-year dollar increase in SG&A incurred by Janel primarily reflected
three factors: 1) incremental sales commissions payable on the $3.5 million
increase in year-over-year revenues; 2) the incremental costs of being a
publicly- held company in fiscal 2003, but not in the third quarter of fiscal
2002 before the company became publicly-held, and 3) to a lesser extent, some
incremental expenses related to the headcount expansion of the company's Los
Angeles office in June 2003.
INCOME BEFORE TAXES. Janel's income before taxes for the fiscal 2003
third quarter rose $36,407 from $66,912 in 2002 to $103,319 in 2003, or by
54.4%. On a percentage-of-revenue basis, the year-over-year increase in
forwarding expenses was more than offset by the decreases in SG&A and interest
expenses. Consequently, the pretax profit margin on net revenue (total revenues
less forwarding expenses) increased by 159 basis points year-over-year from
4.94% in fiscal 2002 to 6.53% in 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 third quarter of fiscal 2003 was
$62,319, an increase of $18,907, or 43.6%, as compared to net income of $43,412
for the third quarter of fiscal 2002. This reflects an increase in Janel's net
profit margin (net income as a percent of net revenues) of 73 basis points from
3.21% in the third quarter of fiscal 2002 to 3.94% in the third quarter of
fiscal 2003.
NINE MONTHS ENDED JUNE 30, 2003 COMPARED TO NINE MONTHS ENDED JUNE 30, 2002
REVENUES. Total revenues for the nine months ended June 30, 2003, were
$40,546,666, an increase of $9,538,072, or 30.8%, as compared to $31,008,594 for
the first nine months of fiscal 2002. The increase in revenues in fiscal 2003
was primarily due to increased business activity across
7
the company's customer base and generally improved year-over-year international
trade versus the fiscal 2002 period, which covered the first nine months
following the events of September 11, 2001.
FORWARDING EXPENSE. For the nine months ended June 30, 2003, forwarding
expenses were $35,964,641. This represented an increase of $9,024,481, or 33.5%,
as compared to the $26,940,160 of forwarding expenses incurred for the nine
months ended June 30, 2002. The percentage increase was essentially consistent
with the increase in total forwarding revenues for the nine months ended June
30, 2003, as compared to 2002.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. For the nine-month periods
ended June 30, 2003 and 2002, selling, general and administrative expenses were
$4,285,554 and $3,953,251, respectively. This represents a year-over-year
increase of $332,303, or 8.4%. The increase in SG&A expense year-over-year from
the respective nine months of fiscal 2002 primarily reflected: 1) incremental
expenses incurred by the company subsequent to becoming a public company in July
2002; 2) higher sales commissions payable on the increased level of
year-over-year sales; 3) some one-time expenses incurred in relation to the
relocation of the company's corporate accounting function into new offices in
the second quarter of fiscal 2003, and 4) incremental expenses related to the
headcount expansion in the Los Angeles office incurred beginning in June 2003.
INCOME BEFORE TAXES. Janel's income before taxes rose $183,860, or
186.0%, to $282,710 for the nine months ended June 30, 2003, as compared to
$98,850 for the nine months ended June 30, 2002. Janel's pretax profit margin on
net revenue (total revenues less forwarding expenses) increased by 374 basis
points from 2.43% for the nine months ended June 30, 2002 to 6.17% in the nine
months ended June 30, 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 nine months ended June 30, 2003, was
$169,710, up $105,360, or 163.7%, as compared to $64,350 for the nine months
ended June 30, 2002. Janel's net profit margin (net income as a percentage of
net revenues) increased by 212 basis points from 1.58% in the nine months ended
June 30, 2002 to 3.70% in the nine months ended June 30, 2003.
LIQUIDITY AND CAPITAL RESOURCES
Janel's ability to meet its liquidity requirements, which include
satisfying its debt obligations and 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, 2003, Janel's
primary requirements for working capital have been directly related to the
funding of increased accounts receivable and prepaid expenses partially offset
by increased accounts payable and accrued expenses.
For the nine months ended June 30, 2003, Janel's primary uses of cash
for operating activities were to finance increases in its accounts receivable by
$737,496 and in prepaid expenses and sundry current assets by $39,637. These
uses of cash for operating activities for the nine months ended June 30, 2003
were somewhat offset by an increase in accounts payable of $212,447. For
financing activities, Janel increased a note payable by $500,000 and loans
receivable by $26,264.
In March 2003, the company increased its line of credit with a bank
from $400,000 to $1,500,000. Management believes anticipated cash flow from
operations and availability under its expanded line of credit are sufficient to
meet its current working capital and operating needs. At June 30, 2003, Janel
had $700,000 of available borrowing remaining under a line of credit with a
bank, pursuant to which it may borrow up to $1,500,000 bearing interest at prime
plus one percent per annum, which is collateralized by substantially all the
assets of the company and personally guaranteed by certain shareholders of the
company.
8
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, 2003, and its
current expectations for the fourth quarter of fiscal 2003, Janel projects that
gross revenues for its fiscal year ending September 30, 2003 will exceed $55
million, up from $44.9 million reported in fiscal 2002.
Janel is continuing to implement its business plan and strategy to grow
its revenues and profitability through its fiscal year ending September 30, 2003
and beyond. The company's strategy, some of which has been implemented, 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; 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.
Certain elements of the company's growth strategy, principally proposals for
acquisition, are contingent upon the availability of adequate financing at terms
acceptable to the company. The company is continuing in its efforts to secure
long-term financing, but has to date been unable to complete any such financing
transactions at terms it deems acceptable, and cannot presently anticipate when
or if such financing will become available. Therefore, the implementation of
significant aspects of the company's strategic growth plan may be deferred
beyond the originally anticipated timing.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures.
As required by Rule 13a-15 under the Act, as of the end of the period
covered by this report, the Company carried out an evaluation of the
effectiveness of the design and operation of the company's disclosure controls
and procedures. This evaluation was carried out under the supervision and with
the participation of the Company's Chief Executive Officer and Principal
Financial and Accounting Officer. Based upon that evaluation, the Company's
Chief Executive Officer and Principal Financial and Accounting Officer have
concluded that the Company's disclosure controls and procedures are effective in
timely alerting them to material information relating to the company required to
be included in the Company's periodic SEC filings.
9
Disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed in company
reports filed or submitted under the Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in
company reports filed under the Act is accumulated and communicated to
management to allow timely decisions regarding required disclosures.
Changes in Internal Controls.
There have been no changes in internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of shareholders during the
third fiscal quarter ended June 30, 2003.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits required by item 601 of Regulation S-K.
Exhibit
Number Description of Exhibit
------- ----------------------
31 Rule 13(a)-14(a)/15(d)-14(a) Certifications.
32 Section 1350 Certification.
10
(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.
August 14, 2003
JANEL WORLD TRADE, LTD.
By: /s/ James N. Jannello
---------------------------
James N. Jannello
Chief Executive Officer
11