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, 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.
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(Exact name of registrant as specified in its charter)
NEVADA 86-1005291
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(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
150-14 132nd Avenue, Jamaica, NY 11434
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(Address of principal executive offices) (Zip Code)
(718) 527-3800
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(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 first
fiscal quarter (the three months ended December 31, 2003) 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
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DECEMBER 31, 2003 SEPTEMBER 30, 2003
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(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash $1,272,092 $1,060,406
Accounts receivable, net of allowance for
doubtful accounts of $36,560 at December 31, 2003
and $30,000 at September 30, 2003 4,090,179 4,307,822
Marketable securities 45,452 41,093
Loans receivable - officers 158,032 158,332
- other 15,905 18,479
Prepaid expenses and sundry current assets 71,269 57,844
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TOTAL CURRENT ASSETS 5,652,929 5,643,976
Property and equipment, net 93,622 102,930
OTHER ASSETS:
Security deposits 50,968 51,354
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$5,797,519 $5,798,260
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable - bank $1,000,000 $800,000
Accounts payable 2,020,001 2,273,345
Accrued expenses and taxes payable 104,611 108,640
Current portion of long-term debt 2,048 3,840
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TOTAL CURRENT LIABILITIES 3,126,660 3,185,825
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OTHER LIABILITIES:
Deferred compensation 78,568 78,568
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STOCKHOLDERS' EQUITY
Common stock, $.001 par value
225,000,000 shares authorized
16,843,000 shares issued and outstanding
at December 31, 2003 and September 30, 2003 16,843 16,843
Additional paid-in capital 498,863 498,863
Retained earnings 2,076,585 2,018,161
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TOTAL STOCKHOLDERS' EQUITY 2,592,291 2,533,867
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,797,519 $5,798,260
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3
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
================================================================================
THREE MONTHS ENDED DECEMBER 31,
2003 2002
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REVENUES:
Forwarding revenues $ 16,168,790 $ 13,925,183
Interest and dividends 3,918 11,484
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TOTAL REVENUES 16,172,708 13,936,667
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COSTS AND EXPENSES:
Forwarding expenses 14,515,336 12,382,910
Selling, general and administrative 1,550,006 1,377,859
Interest 10,436 5,780
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TOTAL COSTS AND EXPENSES 16,075,778 13,766,549
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INCOME BEFORE INCOME TAXES 96,930 170,118
Income taxes 42,500 68,000
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NET INCOME $ 54,430 $ 102,118
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OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized gain from available for sale securities $ 3,994 $ 734
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BASIC AND DILUTED EARNINGS PER SHARE $ .0032 $ .0061
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WEIGHTED NUMBER OF SHARES OUTSTANDING 16,843,000 16,828,848
=============== ================
4
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
================================================================================
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
2003 2002
OPERATING ACTIVITIES:
Net income $ 54,430 $ 102,118
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Stock issued for services - 15,609
Depreciation and amortization 12,441 11,664
Changes in operating assets and liabilities:
Accounts receivable 217,643 (510,021)
Loans receivable 2,874 (4,975)
Prepaid expenses and sundry current assets (13,425) 30,400
Security deposits 386 (219)
Accounts payable and accrued expenses (257,373) 48,525
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 16,976 (306,899)
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INVESTING ACTIVITIES:
Acquisition of property and equipment, net (3,133) (2,022)
Purchase of marketable securities (365) (467)
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NET CASH USED IN INVESTING ACTIVITIES (3,498) (2,489)
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FINANCING ACTIVITIES:
Proceeds from sale of common stock - 18,010
Repayment of long-term debt, net (1,792) (2,645)
Bank borrowings 200,000 -
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NET CASH PROVIDED BY FINANCING ACTIVITIES 198,208 15,365
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INCREASE (DECREASE) IN CASH 211,686 (294,023)
CASH - BEGINNING OF PERIOD 1,060,406 1,198,941
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CASH - END OF PERIOD $1,272,092 $904,918
=============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 10,436 $ 5,780
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Income taxes $ 60,245 $ 68,716
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5
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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/A as filed with the Securities
and Exchange Commission on January 12, 2004.
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/A filed with the SEC on January 12, 2004.
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 December 31, 2003, as compared to the
results of operations for the three months ended December 31, 2002. The
discussion and analysis then addresses the liquidity and financial condition of
the company, and other matters.
7
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.
Three Months Ended December 31, 2003 Compared to Three Months Ended December 31,
2002
Revenue. Total revenues for the first quarter of fiscal 2004 were
$16,172,708 as compared to $13,936,667 for the same period of fiscal 2003, a
year-over-year increase of $2,236,041, or 16.0%. The higher level of revenues
was primarily due to greater shipping activity across the company's base of
customers.
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. As a general rule, revenue received by the company for shipments via
ocean freight are marked up at a lower percentage versus their related
forwarding expense than are shipments via airfreight, i.e., forwarding expense
as a percentage of revenue is generally higher (and the company earns less) for
ocean freight than for airfreight.
For the first quarter of fiscal 2004, forwarding expenses increased by
$2,132,426, or 17.2%, to $14,515,336, as compared to $12,382,910 for the first
quarter of fiscal 2003. The percentage increase was generally consistent with
the increased level of forwarding revenue year-over-year, although forwarding
expenses as a percentage of total revenue did increase from 88.9% to 89.8%
year-over-year. The year-over-year percentage increase reflects several
principal factors: (1) as compared to the 2004 period, Janel's year-earlier
revenue reflected a higher-than-normal proportion of airfreight as shippers were
forced to switch to air cargo as a substitute for their usual ocean freight
shipments during the approximately nine-week-long U.S. West Coast dock strike in
October/November 2002; (2) as improving inventory planning processes reduce the
frequency of time-critical shipments, shippers are increasingly utilizing more
ocean freight rather than higher-cost airfreight; (3) worldwide air cargo
shipments in total remained soft during 2003, hampered in part by the
depreciation of the U.S. dollar versus the Euro which, in turn, curtailed the
volume of European imports to the United States, shipments of which typically
utilize a higher proportion of airfreight in the transportation mix; and (4) the
expansion of Janel's Los Angeles office in June 2003 has increased the company's
export business, which is conducted predominantly via ocean freight.
Selling, General and Administrative Expense. As a percentage of
revenues, selling, general and administrative expense in first quarter of fiscal
2004 declined 31 basis points to 9.58%, as compared to 9.89% in the prior year's
comparable period (and decreased 62 basis points as compared to 10.20% in the
immediately preceding fourth quarter of fiscal 2003). However, in absolute
dollar terms, SG&A expense increased $172,147, or 12.5%, to $1,550,006 in the
first quarter of fiscal 2004, as compared to $1,377,859 in the first quarter of
fiscal 2003. The year-over-year dollar increase in SG&A incurred by Janel
primarily reflected two main factors: (1) incremental sales commissions payable
on the $2.2 million increase in year-over-year revenue; and (2) incremental
expenses related to an increase in headcount of nine persons year-over-year due
principally to the expansion of the company's Los Angeles office in June 2003.
8
Income Before Taxes. Janel's income before taxes for the first quarter
of fiscal 2004 fell $73,188 from $170,118 in 2003 to $96,930 in 2004, or by
43.0%. Consequently, the pretax profit margin on net revenue (total revenue less
forwarding expenses) decreased by 510 basis points year-over-year from 10.95% in
fiscal 2003 to 5.85% in fiscal 2004. The principal reason for the decline in
pretax profit, and consequently in pretax profit margin, was the 90-basis-point
increase in forwarding expense as a percentage of total revenue, only partially
offset by the decrease in SG&A expense as a percentage of total revenue.
Income Taxes. The effective income tax rate in both the 2004 and 2003
periods reflects the U.S. federal statutory rate and applicable state income
taxes.
Net Income. Net income for the first quarter of fiscal 2004 was
$54,430, a decrease of $47,688, or 46.7%, as compared to net income of $102,118
for the first quarter of fiscal 2003. This reflects a decrease in Janel's net
profit margin (net income as a percent of net revenue) of 329 basis points from
6.57% in the first quarter of fiscal 2003 to 3.28% in the first quarter of
fiscal 2004.
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,
is subject to general economic conditions and other factors, some of which are
beyond its control. During the three months ended December 31, 2003, Janel's net
incremental requirements for working capital have been minimal, with net income
and the decrease in accounts receivable largely offsetting decreases in both
accounts payable and accrued expenses and taxes payable.
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 December 31, 2003,
Janel had $500,000 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-half of one percent (0.5%) per annum, which is collateralized by
substantially all the assets of the company and is personally guaranteed by
certain shareholders of the company.
Current Outlook
9
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, 2003,
and its current expectations for the remainder of fiscal 2004, Janel currently
projects that gross revenues for its fiscal year ending September 30, 2004,
exclusive of any potential acquisition activity or other extraordinary events,
will fall in the range of $62-$65 million, up from $56.9 million reported in
fiscal 2003.
Janel is continuing to implement its business plan and strategy to grow
its revenues and profitability through its fiscal year ending September 30, 2004
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 financing on acceptable terms 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.
10
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 ("CEO) and Principal
Financial and Accounting Officer ("CFO"). Based upon that evaluation, the
company's management, including the CEO and CFO, 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.
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
first fiscal quarter ended December 31, 2003.
Item 5. Other Information.
Not applicable.
11
Item 6. Exhibits And Reports on Form 8-K.
(a) Exhibits required by item 601 of Regulation S-K.
Exhibit
Number Description of Exhibit
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31 Rule 13(a)-14(a)/15(d)-14(a) Certifications.
32 Section 1350 Certification.
(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 17, 2004
JANEL WORLD TRADE, LTD.
By: /s/ James N. Jannello
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James N. Jannello
Chief Executive Officer
12