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, 2004
|_| 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 first
fiscal quarter (the three ended December 31, 2004) 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
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JANEL WORLD TRADE LTD. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2004
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JANEL WORLD TRADE LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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DECEMBER 31, 2004 SEPTEMBER 30, 2004
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(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash $1,252,600 $1,287,507
Accounts receivable, net of allowance for
doubtful accounts of $39,713 at December 31, 2004
and $31,413 at September 30, 2004 4,051,879 5,280,435
Marketable securities 52,196 46,137
Loans receivable - officers 161,057 160,989
- other 21,130 26,153
Prepaid expenses and sundry current assets 63,124 67,524
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TOTAL CURRENT ASSETS 5,601,986 6,868,745
PROPERTY AND EQUIPMENT, NET 237,256 111,816
OTHER ASSETS:
Security deposits 49,818 49,928
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$5,889,060 $7,030,489
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable - bank $ 600,000 $ 800,000
Accounts payable 2,128,514 3,164,933
Accrued expenses and taxes payable 175,263 153,720
Current portion of long-term debt 8,393 8,393
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TOTAL CURRENT LIABILITIES 2,912,170 4,127,046
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OTHER LIABILITIES:
Long-term debt 19,864 21,962
Deferred compensation 78,568 78,568
---------- ----------
---------- ----------
TOTAL OTHER LIABILITIES 98,432 100,530
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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, 2004 and September 30, 2004 16,843 16,843
Additional paid-in capital 498,863 498,863
Retained earnings 2,362,752 2,287,207
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TOTAL STOCKHOLDERS' EQUITY 2,878,458 2,802,913
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,889,060 $7,030,489
========== ==========
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3
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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THREE MONTHS ENDED DECEMBER 31,
-------------------------------
2004 2003
REVENUES:
Forwarding revenues $15,023,002 $16,168,790
Interest and dividends 4,383 3,918
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TOTAL REVENUES 15,027,385 16,172,708
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COSTS AND EXPENSES:
Forwarding expenses 13,354,994 14,515,336
Selling, general and administrative 1,536,490 1,550,006
Interest 10,878 10,436
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TOTAL COSTS AND EXPENSES 14,902,362 16,075,778
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INCOME BEFORE INCOME TAXES 125,023 96,930
Income taxes 53,800 42,500
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NET INCOME $ 71,223 $ 54,430
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OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized gain from available for sale securities $ 4,322 $ 3,994
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BASIC AND DILUTED EARNINGS PER SHARE $ .0042 $ .0032
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WEIGHTED NUMBER OF SHARES OUTSTANDING 16,843,000 16,843,000
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4
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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THREE MONTHS ENDED DECEMBER 31,
-------------------------------
2004 2003
OPERATING ACTIVITIES:
Net income $ 71,223 $ 54,430
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 17,656 12,441
Changes in operating assets and liabilities:
Accounts receivable 1,228,556 217,643
Loans receivable 4,955 2,874
Prepaid expenses and sundry current assets 4,400 (13,425)
Security deposits 110 386
Accounts payable and accrued expenses (1,014,876) (257,373)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 312,024 16,976
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INVESTING ACTIVITIES:
Acquisition of property and equipment, net (143,096) (3,133)
Purchase of marketable securities (1,737) (365)
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NET CASH USED IN INVESTING ACTIVITIES (144,833) (3,498)
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FINANCING ACTIVITIES:
Repayment of long-term debt, net (2,098) (1,792)
Bank borrowings (repayment) (200,000) 200,000
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (202,098) 198,208
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INCREASE (DECREASE) IN CASH (34,907) 211,686
CASH - BEGINNING OF PERIOD 1,287,507 1,060,406
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CASH - END OF PERIOD $ 1,252,600 $ 1,272,092
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 10,878 $ 10,436
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Income taxes $ 71,644 $ 60,245
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5
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(Unaudited)
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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 28, 2004.
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2 GENERAL COMMENTS
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In March 2004, the Company increased its line of credit with a bank from
$1,500,000 to $2,000,000. Advances under this facility bear interest at prime
plus .5% per annum, are due on March 31, 2005 and are collateralized by
substantially all assets of the Company. In addition, all borrowings under this
agreement are personally guaranteed by certain stockholders of the Company.
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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.
6
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, 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, 2004, as compared to the
results of operations for the three months ended December 31, 2003. 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.
Three Months Ended December 31, 2004 Compared to Three Months Ended December 31,
2003
Revenue. Total revenue for the first quarter of fiscal 2005 was
$15,027,385 as compared to $16,172,708 for the same period of fiscal 2003, a
year-over-year decrease of $1,145,323, or 7.1%. The lower level of revenues
resulted from elimination of nine low margin customer accounts (combined annual
revenue during fiscal 2004 totaled approximately $10.9 million), a reduction in
airfreight shipments in favor of lower cost ocean freight shipment, and reduced
import business related to the decline in the value of the U.S. Dollar.
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 2005, forwarding expenses decreased by
$1,160,342, or 8%, to $13,354,994, as compared to $14,515,336 for the first
quarter of fiscal 2004. The year-over-year percentage decrease was directly
related to the decrease in revenue. Forwarding expenses as a percentage of total
revenue decreased from 89.7% to 88.9% year-over-year.
7
Selling, General and Administrative Expense. As a percentage of revenues,
selling, general and administrative expense in first quarter of fiscal 2005
increased 60 basis points to 10.2%, as compared to 9.6% in the prior year's
comparable period (and increased 230 basis points as compared to 7.9% in the
immediately preceding fourth quarter of fiscal 2004) as a result of the decrease
in revenue. In absolute dollar terms, SG&A expense decreased $13,516, or 1.0%,
to $1,536,490 in the first quarter of fiscal 2005, as compared to $1,550,006 in
the first quarter of fiscal 2004, as a result of a consolidation of jobs within
the company's infrastructure.
Income Before Taxes. Janel's income before taxes for the first quarter of
fiscal 2005 increased $28,093, or by 29.0%, from $96,930 in 2004 to $125,023 in
2005. Consequently, the pretax profit margin on net revenue (total revenue less
forwarding expenses) increased by 170 basis points year-over-year from 5.8% in
fiscal 2004 to 7.5% in fiscal 2005. The principal reason for the increase in
pretax profit, and consequently in pretax profit margin, was the 80 basis-point
decrease in forwarding expense as a percentage of total revenue, only partially
offset by the increase 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 2005 was $71,223,
an increase of $16,793, or 30.9%, as compared to net income of $54,430 for the
first quarter of fiscal 2004. This reflects an increase in Janel's net profit
margin (net income as a percent of net revenue) of 98 basis points, from 3.29%
in the first quarter of fiscal 2004 to 4.27% in the first quarter of fiscal
2005.
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,
and is subject to general economic conditions and other factors, some of which
are beyond its control.
During the three months ended December 31, 2004, Janel's net incremental
requirements for working capital have been minimal, aided by an increase in net
income and a significant decrease in both accounts receivable and accounts
payable, resulting from the elimination of low margin business and reduced
import business related to the decline in the value of the U.S. Dollar. Janel's
past cash flow performance is generally indicative of future cash flow
performance.
In March 2004, Janel increased its line of credit with a bank from
$1,500,000 to $2,000,000. At December 31, 2004, Janel had $1,400,000 of
available borrowing remaining under a line of credit with a bank (during the
first quarter of fiscal 2005, the company had repaid $200,000), pursuant to
which could borrow up to $2,000,000 bearing interest at prime plus one-half of
one percent (0.5%) per annum, collateralized by substantially all the assets of
Janel and is personally guaranteed by certain shareholders of the company. In
January 2005, Janel entered into agreements providing for a transfer of its line
of credit to another bank on identical terms, except that the available line of
credit has been increased to $3,000,000. 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.
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.
Management is reviewing the profitability of various customer accounts
with a view toward eliminating accounts which are only marginally profitable,
and focusing on accounts that are more profitable, with a view to increasing its
overall profit margin. Based upon the results for the three months ended
December 31, 2004, and its current expectations for the remainder of fiscal
2005, Janel currently projects that gross revenues for its fiscal year ending
September 30, 2005, exclusive of any potential acquisition activity or other
extraordinary events, will fall in the range of approximately $65 - $72 million,
as compared to approximately $69 million reported in fiscal 2004.
Janel is continuing to implement its business plan and strategy to
increase revenue and profitability through its fiscal year ending September 30,
2005 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; increase profit margins by avoiding low margin business;
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 (in
January 2005, Janel acquired a sales team which, based on past performance, is
expected to produce additional revenue of approximately $2.5 million in fiscal
2005); 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.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions about future events that affect the
amounts reported in the financial statements and accompanying notes. Since
future events and their effects cannot be determined with absolute certainty,
the determination of estimates requires the exercise of judgment. Actual results
could differ from those estimates, and such difference may be material to the
financial statements. The most significant accounting estimates inherent in the
preparation of our financial statements include estimates as to the appropriate
carrying value of certain assets and liabilities which are not readily apparent
from other sources, primarily allowance for doubtful accounts, accruals for
transportation and other direct costs, and accruals for cargo insurance.
Management bases its estimates on historical experience and on various
assumptions which are believed to be reasonable under the circumstances. We
reevaluate these significant factors as facts and circumstances change.
Historically, actual results have not differed significantly from our estimates.
These accounting policies are described at relevant sections in this discussion
and analysis and in the notes to the consolidated financial statements included
in our Annual Report on Form 10-K for the fiscal year ended September 30, 2004.
Management believes that the nature of the Company's business is such that
there are few, if any, complex challenges in accounting for operations. Revenue
recognition is considered the critical accounting policy due to the complexity
of arranging and managing global logistics and supply-chain management
transactions.
Revenue Recognition
Airfreight revenues include the charges to the company for carrying the
shipments when the company acts as a freight consolidator. Ocean freight
revenues include the charges to the company for carrying the shipments when the
company acts as a Non-Vessel Operating Common Carrier (NVOCC). In each case the
company is acting as an indirect carrier. When acting as an indirect carrier,
the company will issue a House Airway Bill (HAWB) or a House Ocean Bill of
Lading (HOBL) to customers as the contract of carriage. In turn, when the
freight is physically tendered to a direct carrier, the company receives a
contract of carriage known as a Master Airway Bill for airfreight shipments and
a Master Ocean Bill of Lading for ocean shipments. At this point, the risk of
loss passes to the carrier, however, in order to claim for any such loss, the
customer is first obligated to pay the freight charges.
9
Based upon the terms in the contract of carriage, revenues related to
shipments where the company issues an HAWB or an HOBL are recognized at the time
the freight is tendered to the direct carrier at origin. Costs related to the
shipments are also recognized at this same time.
Revenues realized in other capacities, for instance, when the company acts
as an agent for the shipper, and does not issue an HAWB or an HOEL, include only
the commissions and fees earned for the services performed. These revenues are
recognized upon completion of the services. Similarly, revenues related to
customs brokerage and other services are recognized upon completion of the
services.
Arranging international shipments is a complex task. Each actual movement
can require multiple services. In some instances, the company is asked to
perform only one of these services. However, in most instances, the company may
perform multiple services. These services include destination breakbulk services
and value added ancillary services such as local transportation, export customs
formalities, distribution services and logistics management. Each of these
services has an associated fee, which is recognized as revenue upon completion
of the service.
Estimates
While judgments and estimates are a necessary component of any system of
accounting, the company's use of estimates is limited primarily to the following
areas that in the aggregate are not a major component of the company's
consolidated statements of income;
a. accounts receivable valuation,
b. the useful lives of long-term assets,
c. the accrual of costs related to ancillary services the company
provides,
c. accrual of tax expense on an interim basis.
Management believes that the methods utilized in all of these areas are
non-aggressive in approach and consistent in application. Management believes
that there are limited, if any, alternative accounting principles or methods
which could be applied to the company's transactions. While the use of estimates
means that actual future results may be different from those contemplated by the
estimates, the company believes that alternative principles and methods used for
making such estimates would not produce materially different results than those
reported.
Item 3 Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
We maintain a system of disclosure controls and procedures that is
designed to provide reasonable assurance that information, which is required to
be disclosed by the Company in the reports that it files or submits under the
Securities and Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission, and is accumulated and communicated
to management in a timely manner. Our Chief Executive Officer and Chief
Financial Officer have evaluated this system of disclosure controls and
procedures as of the end of the period covered by this quarterly report, and
believe that the system is effective. There have been no changes in our internal
control over financial reporting during the most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
10
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, 2004.
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
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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 16, 2005
JANEL WORLD TRADE, LTD.
By: /s/ James N. Jannello
--------------------------------
James N. Jannello
Chief Executive Officer
11