Attached files
| file | filename |
|---|---|
| EX-31.3 - JANEL CORP | v212040_ex31-3.htm |
| EX-31.1 - JANEL CORP | v212040_ex31-1.htm |
| EX-31.2 - JANEL CORP | v212040_ex31-2.htm |
| EX-32.1 - JANEL CORP | v212040_ex32-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 4)
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x
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Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended September 30, 2008 or
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ________ to ________.
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Commission file number: 333-60608
JANEL WORLD TRADE, LTD.
(Exact name of registrant as specified in its charter)
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NEVADA
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86-1005291
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(State or other jurisdiction
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(I.R.S. Employer
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of incorporation or organization)
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Identification No.)
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150-14 132nd Avenue, Jamaica, NY
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11434
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code
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(718) 527-3800
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Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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None
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None
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Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock, $0.001 par value
Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Act). Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or other information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer o Smaller Reporting Company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The aggregate market value of Common Stock, $0.001 par value, held by non-affiliates of the registrant based on the closing sales price of the Common Stock on the Over-The-Counter (OTC) market on March 31, 2008, was $5,885,700.
The number of shares of Common Stock outstanding as of January 14, 2009 was 17,426,661.
The Registrant hereby amends Items 1, 9A, and 15 of its Annual Report on Form 10-K for the fiscal year ended September 30, 2008, which was filed with the Commission on January 14, 2009, as amended. The purpose of the amendment to Item 15 is to add the Report of the Registrant’s Independent Registered Public Accounting Firm and to correct Exhibit 31.
PART I
ITEM 1. BUSINESS
Background
Janel World Trade, Ltd. (“we”, “the Company” or “Janel”) provides logistics services for importers and exporters worldwide, through its wholly owned subsidiaries. Our principal executive office is located at 150-14 132nd Avenue, Jamaica, NY 11434, adjacent to the John F. Kennedy International Airport, and our telephone number is 718-527-3800. Information about us may be obtained from our website www.janelgroup.net. Copies of our Annual Report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, are available free of charge on the website as soon as they are filed with the Securities and Exchange Commission (SEC) through a link to the SEC’s EDGAR reporting system. Simply select the “Investors” menu item, then click on the “SEC Filings” link. The SEC’s EDGAR reporting system can also be accessed directly at www.sec.gov. The Company was incorporated in Nevada in August 2000 as the successor to operations commenced in 1975 – see history, below.
Description of Business
The Company operates its business as two reportable segments. Primarily we are a non-asset based third party logistics services company, engaged in full-service cargo transportation logistics management, including freight forwarding – via air, ocean and land-based carriers, customs brokerage services, and warehousing and distribution services. Our second, smaller segment is computer software sales, support and maintenance.
Our traditional freight forwarding and customs brokerage activities include various value-added logistics services, such as freight consolidation, insurance, a direct client computer access interface, logistics planning, landed-cost calculations, in-house computer tracking, product repackaging, online shipment tracking and electronic billing. The value-added services and systems are intended to help our customers streamline operations, reduce inventories, increase the speed and reliability of worldwide deliveries and improve the overall management and efficiency of the customer’s supply-chain activities.
We operate out of eight leased locations in the United States: Jamaica (headquarters) and Lynbrook (accounting) in New York; Champaign, Illinois; Elk Grove Village (Chicago, Illinois); Downers Grove (Chicago, Illinois); Forest Park (Atlanta, Georgia); Inglewood (Los Angeles, California) and Miami, Florida. Each Janel office is managed independently, with each manager having over 20 years’ experience with the Company. Our California office has a sales person in Miami, Florida covering our sales development efforts in Central America. In addition to our Company-operated facilities, we operate through a network of independent international agents in approximately 52 countries
around the world: North America (Canada and Mexico); Latin America (Argentina, Brazil, Chile, Columbia, El Salvador, Guatemala, Honduras, Peru, Puerto Rico, and Uruguay); Asia (Bangladesh, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Taiwan, Thailand, and Vietnam); Europe and Africa (Austria, Belgium, Czech Republic, Finland, France, Germany, Hungary, Ireland, Italy, Netherlands, Poland, Portugal, Spain, Sweden, Switzerland, United Kingdom, and South Africa); Middle East and India (Egypt, Greece, India, Lebanon, Pakistan, Saudi Arabia, Sri Lanka, Turkey, and U.A.E.); and Australasia (Australia and New Zealand). Janel Shanghai, Janel Hong Kong and Janel China (Shenzhen) operate as independently owned franchises within the Company’s network.
During fiscal 2008 (Janel’s fiscal year ends September 30), the Company handled approximately 28,000 individual import and export shipments, predominately originating or terminating in the United States, Europe and the Far East. Janel generated gross revenue of approximately $82.7 million in fiscal 2008, $74.9 million in fiscal 2007 and $77.2 million in fiscal 2006. In fiscal 2008, approximately 70% of revenue related to import activities, 5% to export, 20% to break-bulk and forwarding, and 5% to warehousing, distribution and trucking. By operating segment, total 2008 revenue was comprised of $82.3 million for transportation logistics and $484,000 for computer software.
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History
Janel commenced business in 1975 as Janel International Forwarding Company, Inc., a New York corporation. In 1976, the “Janel Group” was established in New York City as a company primarily focused on quality import customs brokerage and related transportation services. Janel’s initial customer base consisted of importers and exporters of machines and machine parts, principally through what was then West Germany. Shortly thereafter, the Company began expanding its business scope into project transportation and high-value general cargo forwarding. In 1979, Janel expanded to the Midwest and West Coast, opening branches in
Chicago and Los Angeles, respectively. Additional locations were opened in Atlanta (1995) and Miami (franchise agent) (1997). In 1980, C and N Corp. was organized as a Delaware corporation to be the corporate parent of the various Janel Group operating subsidiaries.
In 1990, Janel agreed to the use of its name by a Bangkok, Thailand office to facilitate business operations during 1990 and 1992 in which it serviced a United States cellular communications carrier. In 1997, Janel designed and manufactured (through a subcontractor) electronic switching equipment shelters, which it sold to the carrier together with consulting services on transportation logistics and coordination for construction of cellular telephone sites in Thailand.
In 2000, Janel opened the office in Shanghai, China, followed by the opening of the Hong Kong office in 2001 and the opening of an office in Shenzhen, China in 2003.
In June and July 2002, the corporate parent, C and N Corp., entered into and completed a reverse merger transaction with Wine Systems Design, Inc. in which it formally changed its state of incorporation from Delaware to Nevada, changed its corporate name to Janel World Trade, Ltd. and became a public company traded on the Nasdaq Bulletin Board under the symbol “JLWT.”
In October 2007, the Company acquired certain assets of Order Logistics, Inc. (OLI) consisting of proprietary technology, intellectual property (including the name “Order Logistics”), office locations and equipment and customer lists for use in the management and expansion of the Company’s international integrated logistics transport services business.
In July 2008, the Company acquired the customs brokerage “book of business” of Ferrara International Logistics, Inc. (Ferrara), consisting of books, records, forms, manuals, access codes, goodwill, customer lists and contact information, telephone and advertising listings for the expansion of the Company’s international integrated logistics transport services business.
Operations
Freight Forwarding Services. As a cargo freight forwarder, Janel procures shipments from its customers, consolidates shipments bound for a particular destination from a common place of origin, determines the routing over which the consolidated shipment will move, selects a carrier (air, ocean, land) serving that route on the basis of departure time, available cargo capacity and rate, and books the consolidated shipment for transportation with the selected carrier. In addition, Janel prepares all required shipping documents, delivers the shipment to the transporting carrier and, in many cases, and arranges
clearance of the various components of the shipment through customs at the final destination. If so requested by its customers, Janel will also arrange for delivery of the individual components of the consolidated shipment from the arrival terminal to their intended consignees.
As a result of its consolidation of customer shipments and its ongoing volume relationships with numerous carriers, a freight forwarder is usually able to obtain lower rates from such carriers than its customers could obtain directly. Accordingly, a forwarder is generally able to offer its customers a lower rate than would otherwise be available directly to the customer, providing the forwarder with its profit opportunity as an intermediary between the carrier and end-customer. The forwarder’s gross profit is represented by the difference between the rate it is charged by the carrier and the rate it, in turn, charges its customer.
In fulfilling its intermediary role, the forwarder can draw upon the transportation assets and capabilities of any individual carrier or combination thereof comprised of airlines and/or air cargo carriers, ocean shipping carriers and land-based carriers, such as trucking companies. Janel solicits freight from its customers to fill containers, charging rates lower than the rates that would be offered directly to its customers for similar type shipments.
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Customs Brokerage Services. As part of its integrated logistics services, Janel provides customs brokerage clearance services in the United States and in most foreign countries. These services typically entail the preparation and assembly of required documentation in many instances (Janel provides in-house translation services into Chinese, Spanish or Italian), the advancement of customs duties on behalf of importers, and the arrangement for the delivery of goods after the customs clearance process is completed. Additionally, other services may be provided such as the procurement and placement of surety bonds on behalf of
importers and the arrangement of bonded warehouse services, which allow importers to store goods while deferring payment of customs duties until the goods are delivered.
Janel has over 30 years of experience clearing a wide range of goods through U.S. Customs, from automobiles to heavy machinery to textiles. The Company currently has seven fully licensed customs house brokers on staff. Janel is fully certified with U.S. Customs for both ABI and AES transmissions. The Company has established an active “correspondent Customs House Broker Network” of individuals specially chosen for their ability to service customers throughout those locations in the United States where Janel does not have its own branch office. In addition, the Company regularly works with a group of proven independent attorneys, whose specialization in transportation, U.S. Customs law and
classifications has resulted in substantial savings to customers.
In July 2008, the Company acquired the customs brokerage “book of business” of Ferrara International Logistics, Inc. (Ferrara), consisting of books, records, forms, manuals, access codes, goodwill, customer lists and contact information, telephone and advertising listings for the expansion of the Company’s international integrated logistics transport services business. Ferrara will provide the Company with related marketing, advertising, sales, and related administrative services pursuant to a three-year term agreement, which includes non-competition provisions.
Other Logistic Services. In addition to providing air, ocean and land freight forwarding and customs brokerage services, Janel provides its import and export customers with an array of fully integrated global logistics services. These logistics services include warehousing and distribution services, door-to-door freight pickup and delivery, cargo consolidation and de-consolidation, project cargo management, insurance, direct client computer access interface, logistics planning, landed-cost calculations, duty-drawback (recovery of previously paid duties when goods are re-exported), in-house computer tracking, product promotion, product packaging
and repackaging utilizing Janel mobile packaging machinery, domestic pickup and forwarding, “hazmat” certifications for hazardous cargoes, letters of credit, language translation services, online shipment tracking and electronic billing.
In October 2007, Janel completed the acquisition of certain assets of Order Logistics, Inc. (“OLI”), a Delaware corporation, comprised of proprietary technology, intellectual property (including the brand name “Order Logistics”), office locations and equipment, and customer relationships, for use in the management and expansion of Janel’s international integrated logistics transport services business. The Web-based supply-chain technology acquired by Janel enables its customers to collaborate in the planning, execution, management and tracking of shipments, financial settlement, procurement and quality control activities on a worldwide basis. Janel filed a Form 8-K report regarding
the asset acquisition transaction with the SEC on October 22, 2007.
Information Systems. Janel’s information system hardware consists of an IBM AS 400 system that is utilized by all of its offices in the United States. The Company’s information technology capabilities also include DCS/HBU Logistics software (a fully integrated freight forwarding and financial reporting system), a T-1 online national network, recently acquired Web-based supply-chain technology, and a nationwide in-house e-mail network. These systems enable Janel to perform in-house computer tracking and to offer customers landed-cost calculations and online Internet information availability via the Company’s websites relative to
the tracing and tracking of customer shipments. The fully integrated real time performance provides us with accurate and timely financial information.
Customers, Sales and Marketing
While Janel’s customer base represents a multitude of diverse industry groups, the bulk of the Company’s shipments are related to three principal markets: consumer wearing apparel and textiles, machines and machine parts, and household appliances. During fiscal 2008, the Company shipped goods and provided logistics services for approximately 1,330 individual accounts. Janel markets its global cargo transportation and integrated logistics services worldwide. In markets where the Company does not operate its own facilities, its direct sales efforts are supplemented by the referral of business through one or more of the Company’s franchise or agent
relationships. We had one customer that accounted for over 10% of our revenues in fiscal 2008: H.H. Brown Shoe Company (approximately 16% of revenue).
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James N. Jannello and William J. Lally, the Company’s President, are principally responsible for the marketing of the Company’s services. Each branch office manager is responsible for sales activities in their U.S. local market area. Janel attempts to cultivate strong, long-term relationships with its customers and referral sources through high-quality service and management.
Competition
Competition within the freight forwarding industry is intense, characterized by low economic barriers to entry resulting in a large number of highly fragmented participants around the world. Janel competes for customers on the basis of its services and capabilities against other providers ranging from multinational, multi-billion dollar firms with hundreds of offices worldwide to regional and local freight forwarders to “mom-and-pop” businesses with only one or a few customers. Many of our customers utilize more than one transportation provider.
Employees
As of September 30, 2008, Janel employed 79 people; 36 in its Jamaica, New York headquarters, and Lynbrook, New York back office; two in Champaign, Illinois; nine in Elk Grove Village, Illinois; five in Downers Grove, Illinois; eight in Forest Park, Georgia; two in Miami, Florida; and 17 in Inglewood, California. Approximately 62 of the Company’s employees are engaged principally in operations, 11 in finance and administration and six in sales, marketing and customer service. Janel is not a party to any collective bargaining agreement and considers its relations with its employees to be good.
To retain the services of highly qualified, experienced and motivated employees, Janel management emphasizes an incentive compensation program and adopted a stock option plan in December 2002.
Currency Risks
The nature of Janel’s operations requires it to deal with currencies other than the U.S. Dollar. This results in the Company being exposed to the inherent risks of international currency markets and governmental interference. A number of countries where Janel maintains offices or agent relationships have currency control regulations that influence its ability to hedge foreign currency exposure. The Company tries to compensate for these exposures by accelerating international currency settlements among those offices or agents.
Inflation
We do not believe that the relatively moderate rates of inflation in the United States in recent years have had a significant effect on our operations.
Seasonality and Shipping Patterns
Historically, Janel’s quarterly operating results have been subject to seasonal trends. The fiscal first quarter has traditionally been the weakest and the fiscal third and fourth quarters have traditionally been the strongest. This pattern has been the result of, or influenced by, numerous factors including climate, national holidays, consumer demand, economic conditions and other similar and subtle forces. This historical seasonality has also been influenced by the growth and diversification of Janel’s international network and service offerings.
A significant portion of Janel’s revenues are derived from customers in industries with shipping patterns closely tied to consumer demand and from customers with shipping patterns dependent upon just-in-time production schedules. Many of Janel’s customers may ship a significant portion of their goods at or near the end of a quarter. Therefore, the timing of Janel’s revenues are, to a large degree, affected by factors beyond the Company’s control, such as shifting consumer demand for retail goods and manufacturing production delays. The Company cannot accurately forecast many of these factors, nor can it estimate the relative impact of any
particular factor and, as a result, there is no assurance that historical patterns will continue in the future.
Environmental Issues
In the United States, Janel is subject to federal, state and local provisions regulating the discharge of materials into the environment or otherwise for the protection of the environment. Similar laws apply in many foreign jurisdictions in which Janel operates. Although current operations have not been significantly affected by compliance with these environmental laws, governments are becoming increasingly sensitive to environmental issues and the Company cannot predict what impact future environmental regulations may have on its business. Janel does not anticipate making any material capital expenditures for environmental control purposes during the
remainder of the current or succeeding fiscal years.
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Regulation
With respect to Janel’s activities in the air transportation industry in the United States, it is subject to regulation by the Department of Transportation as an indirect air carrier. The Company’s overseas offices and agents are licensed as freight forwarders in their respective countries of operation. Janel is licensed in each of its offices as a freight forwarder by the International Air Transport Association. IATA is a voluntary association of airlines which prescribes certain operating procedures for freight forwarders acting as agents of its members. The majority of the Company’s freight forwarding businesses is conducted with
airlines that are IATA members.
Janel is licensed as a customs broker by the Department of Homeland Security Customs and Border Service. All U.S. customs brokers are required to maintain prescribed records and are subject to periodic audits by the Customs Service. In other jurisdictions in which Janel performs clearance services, it is licensed by the appropriate governmental authority.
Janel is registered as an Ocean Transportation Intermediary and licensed as a NVOCC carrier (non-vessel operating common carrier) by the Federal Maritime Commission. The FMC has established certain qualifications for shipping agents, including certain surety bonding requirements.
Janel does not believe that current U.S. and foreign governmental regulations impose significant economic restraint on its business operations.
Cargo Liability
When acting as an airfreight consolidator, Janel assumes a carrier’s liability for lost or damaged shipments. This legal liability is typically limited by contract to the lower of the transaction value or the released value ($9.07 per pound unless the customer declares a higher value and pays a surcharge), excepted for loss or damages caused by willful misconduct in the absence of an appropriate airway bill. The airline that the Company utilizes to make the actual shipment is generally liable to Janel in the same manner and to the same extent. When acting solely as the agent of an airline or shipper, Janel does not assume any contractual liability for loss or
damage to shipments tendered to the airline.
When acting as an ocean freight consolidator, Janel assumes a carrier’s liability for lost or damaged shipments. This liability is strictly limited by contract to the lower of a transaction value or the released value ($500 for package or customary freight unit unless the customer declares a higher value and pays a surcharge). The steamship line which Janel utilizes to make the actual shipment is generally liable to the Company in the same manner and to the same extent. In its ocean freight forwarding and customs clearance operations, Janel does not assume cargo liability.
When providing warehouse and distribution services, Janel limits its legal liability by contract to an amount generally equal to the lower of fair value or $.50 per pound with a maximum of $50 per “lot,” defined as the smallest unit that the warehouse is required to track. Upon payment of a surcharge for warehouse and distribution services, Janel would assume additional liability.
The Company maintains marine cargo insurance covering claims for losses attributable to missing or damaged shipments for which it is legally liable. Janel also maintains insurance coverage for the property of others stored in company warehouse facilities.
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PART II
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure 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 us in the reports that we file or submit under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), 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, Chief Operating Officer and Chief Financial Officer have evaluated this system of disclosure controls and procedures as of the end of the period covered by this annual
report, and have concluded that the system is effective.
Management’s Annual Report on Internal Control over Financial Reporting
Our management, including our Chief Executive Officer, Chief Operating Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles (GAAP). Internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with US GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
Our Chief Executive Officer, Chief Operating Officer and Chief Financial Officer conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of September 30, 2008.
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the fourth quarter of fiscal 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1. Financial Statements
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Page
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Report of Registered Independent Public Accounting Firm
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F-1
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Consolidated Balance Sheets as of September 30, 2008 and 2007
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F-2
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Consolidated Statements of Operations for the Years Ended September 30, 2008, 2007, and 2006
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F-3
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Consolidated Statements of Shareholders’ Equity for the Years Ended
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September 30, 2008, 2007, and 2006
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F-4
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Consolidated Statements of Cash Flows for the Years Ended September 30, 2008, 2007, and 2006
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F-5
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Notes to Consolidated Financial Statements
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F-6
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(a) 3. Exhibits required to be filed by Item 601 of Regulation S-K
Exhibit No.
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31.1
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Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
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31.2
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Rule 13a-14(a)/15d-14(a) Certification of Chief Operating Officer
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31.3
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Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
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32.1
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Section 1350 Certifications
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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, thereto duly authorized.
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JANEL WORLD TRADE, LTD.
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Date: February 23, 2011
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By:
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/s/ James N. Jannello
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James N. Jannello
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Executive Vice President and
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Chief Executive Officer
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Paritz & Company, P.A.
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15 Warren Street, Suite 25
Hackensack, New Jersey 07601
(201)342-7753
Fax: (201) 342-7598
E-Mail: paritz @paritz.com
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Certified Public Accountants
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REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
Board of Directors
Janel World Trade Ltd. and Subsidiaries
Jamaica, New York
We have audited the accompanying consolidated balance sheets of Janel World Trade Ltd. and Subsidiaries as of September 30, 2008 and 2007 and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the three years in the period ended September 30, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Janel World Trade Ltd. and Subsidiaries as of September 30, 2008 and 2007 and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2008 in conformity with accounting principles generally accepted in the United States of America.
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Paritz & Company, P.A.
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Hackensack, New Jersey
December 29, 2008
F-1
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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SEPTEMBER 30,
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2008
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2007
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ASSETS
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Cash and cash equivalents ( Note 1)
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$ | 2,428,098 | $ | 2,469,727 | ||||
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Accounts receivable, net of allowance for doubtful accounts of $129,953 in 2008 and $42,600 in 2007
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6,102,205 | 5,343,958 | ||||||
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Marketable securities (Note 3)
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52,044 | 70,880 | ||||||
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Loans receivable - officers (Note 4)
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142,574 | 142,440 | ||||||
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- related party (Note 5)
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- | 111,700 | ||||||
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- other
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25,632 | 21,994 | ||||||
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Prepaid expenses and sundry current assets
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228,664 | 156,802 | ||||||
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Tax refund receivable (Note 12)
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83,000 | - | ||||||
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TOTAL CURRENT ASSETS
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9,062,217 | 8,317,501 | ||||||
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Property and equipment, net (Note 6)
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303,855 | 217,528 | ||||||
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OTHER ASSETS:
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Intangible assets, net (Note 7)
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3,300,119 | - | ||||||
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Security deposits
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50,801 | 49,035 | ||||||
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Deferred income taxes (Note 12)
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754,000 | - | ||||||
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TOTAL OTHER ASSETS
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4,104,920 | 49,035 | ||||||
| $ | 13,470,992 | $ | 8,584,064 | |||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Convertible promissory notes (Note 8)
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$ | 400,000 | $ | - | ||||
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Note payable – bank (Note 9)
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750,000 | |||||||
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- other (Note 2A)
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125,000 | |||||||
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Accounts payable – trade
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3,902,719 | 3,822,677 | ||||||
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- related party (Note 5)
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143,422 | |||||||
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Accrued expenses and taxes payable
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303,659 | 205,555 | ||||||
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Current portion of long-term debt (Note 10)
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786,308 | 3,795 | ||||||
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TOTAL CURRENT LIABILITIES
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6,411,108 | 4,032,027 | ||||||
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OTHER LIABILITIES:
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Long-term debt (Note 10)
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2,110,237 | 2,550 | ||||||
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Deferred compensation
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78,568 | 78,568 | ||||||
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TOTAL OTHER LIABILITIES
|
2,188,805 | 81,118 | ||||||
|
STOCKHOLDERS’ EQUITY (Note 11)
|
4,871,079 | 4,470,919 | ||||||
|
|
$ | 13,470,992 | $ | 8,584,064 | ||||
The accompanying notes are an integral part of these consolidated financial statements
F-2
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
YEAR ENDED SEPTEMBER 30,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
REVENUES (Note 1)
|
$ | 82,745,383 | $ | 74,947,442 | $ | 77,220,070 | ||||||
|
COSTS AND EXPENSES:
|
||||||||||||
|
Forwarding expenses
|
72,959,241 | 66,775,078 | 69,167,248 | |||||||||
|
Selling, general and administrative
|
9,536,731 | 7,624,360 | 7,299,039 | |||||||||
|
Amortization of intangible assets
|
702,846 | - | - | |||||||||
|
Stock based compensation
|
- | - | 452,360 | |||||||||
| 83,198,818 | 74,399,438 | 76,918,647 | ||||||||||
| (453,435 | ) | 548,004 | 301,423 | |||||||||
|
OTHER ITEMS:
|
||||||||||||
|
Impairment loss (Note 2)
|
(1,812,750 | ) | - | - | ||||||||
|
Interest and dividend income
|
43,147 | 59,175 | 28,212 | |||||||||
|
Interest expense
|
(149,389 | ) | (500 | ) | (1,140 | ) | ||||||
|
TOTAL OTHER ITEMS
|
(1,918,992 | ) | 58,675 | 27,072 | ||||||||
| (2,372,427 | ) | 606,679 | 328,495 | |||||||||
|
Income taxes (credit) (Note 12)
|
(727,000 | ) | 283,700 | 271,500 | ||||||||
|
NET INCOME (LOSS)
|
(1,645,427 | ) | 322,979 | 56,995 | ||||||||
|
Preferred stock dividends (Note 11)
|
15,000 | 10,833 | - | |||||||||
|
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS
|
$ | (1,660,427 | ) | $ | 312,146 | $ | 56,995 | |||||
|
OTHER COMPREHENSIVE INCOME
|
||||||||||||
|
NET OF TAX:
|
||||||||||||
|
Unrealized gain from available for sale securities
|
$ | (25,270 | ) | $ | 8,897 | $ | 1,147 | |||||
|
Basic earnings (loss) per share
|
$ | (.10 | ) | $ | .02 | $ | .00 | |||||
|
Diluted earnings (loss) per share
|
$ | (.10 | ) | $ | .02 | $ | .00 | |||||
|
Basic weighted average number of shares outstanding
|
17,011,278 | 16,978,142 | 16,955,329 | |||||||||
|
Diluted weighted average number of shares outstanding
|
17,431,552 | 17,378,142 | 17,179,986 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements
F-3
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
|
|
CAPITAL STOCK
|
PREFERRED STOCK
|
TREASURY
|
ADDITIONAL
PAID-IN
|
RETAINED
|
ACCUMULATED
OTHER
COMPREHENSIVE
|
|||||||||||||||||||||||||||||||
|
SHARES
|
$
|
SHARES
|
$
|
STOCK
|
CAPITAL
|
EARNINGS
|
GAIN (LOSS)
|
TOTAL
|
||||||||||||||||||||||||||||
|
BALANCE-SEPTEMBER 30, 2005
|
16,843,000 | $ | 16,843 | - | $ | - | - | $ | 501,003 | $ | 2,721,329 | $ | 1,616 | $ | 3,240,791 | |||||||||||||||||||||
|
Net income
|
- | - | - | - | - | - | 56,995 | - | 56,995 | |||||||||||||||||||||||||||
|
Stock based compensation
|
200,000 | 200 | - | - | - | 452,160 | - | - | 452,360 | |||||||||||||||||||||||||||
|
Other comprehensive gains:
|
||||||||||||||||||||||||||||||||||||
|
Unrealized gains on available-for- sale marketable securities
|
- | - | - | - | - | - | - | 1,147 | 1,147 | |||||||||||||||||||||||||||
|
BALANCE-SEPTEMBER 30, 2006
|
17,043,000 | 17,043 | - | - | - | 953,163 | 2,778,324 | 2,763 | 3,751,293 | |||||||||||||||||||||||||||
|
Net income
|
- | - | - | - | - | - | 322,979 | - | 322,979 | |||||||||||||||||||||||||||
|
Convertible preferred stock issuance net of expenses of $35,605
|
- | - | 1,000,000 | 1,000 | - | 463,395 | - | - | 464,395 | |||||||||||||||||||||||||||
|
Purchase of 137,000 shares treasury stock
|
- | - | - | - | (65,812 | ) | - | - | - | (65,812 | ) | |||||||||||||||||||||||||
|
Dividends to preferred shareholders
|
- | - | - | - | - | - | (10,833 | ) | - | (10,833 | ) | |||||||||||||||||||||||||
|
Other comprehensive gains:
|
||||||||||||||||||||||||||||||||||||
|
Unrealized gains on available-for- sale marketable securities
|
- | - | - | - | - | - | - | 8,897 | 8,897 | |||||||||||||||||||||||||||
|
BALANCE-SEPTEMBER 30, 2007
|
17,043,000 | 17,043 | 1,000,000 | 1,000 | (65,812 | ) | 1,416,558 | 3,090,470 | 11,660 | 4,470,919 | ||||||||||||||||||||||||||
|
Net loss
|
- | - | - | - | - | - | (1,645,427 | ) | - | (1,645,427 | ) | |||||||||||||||||||||||||
|
Common stock issuance
|
520,661 | 521 | - | - | - | 629,479 | - | - | 630,000 | |||||||||||||||||||||||||||
|
Convertible preferred stock issuance
|
285,000 | 285 | - | 1,424,715 | - | - | 1,425,000 | |||||||||||||||||||||||||||||
|
Retirement of treasury stock
|
(137,000 | ) | (137 | ) | - | - | 65,812 | (65,675 | ) | - | - | - | ||||||||||||||||||||||||
|
Dividends to preferred shareholders
|
- | - | - | - | - | - | (15,000 | ) | - | (15,000 | ) | |||||||||||||||||||||||||
|
Deferred financing charges related to
|
||||||||||||||||||||||||||||||||||||
|
Issuance of convertible debt
|
- | - | - | - | - | 33,600 | - | - | 33,600 | |||||||||||||||||||||||||||
|
Purchase of 2,500 shares treasury stock
|
- | - | - | - | (2,743 | ) | - | - | - | (2,743 | ) | |||||||||||||||||||||||||
|
Other comprehensive gains (losses):
|
||||||||||||||||||||||||||||||||||||
|
Unrealized gains (losses) on available-for-sale marketable securities
|
- | - | - | - | - | - | - | (25,270 | ) | (25,270 | ) | |||||||||||||||||||||||||
|
BALANCE-SEPTEMBER 30, 2008
|
17,426,661 | $ | 17,427 | 1,285,000 | $ | 1,285 | $ | (2,743 | ) | $ | 3,438,677 | $ | 1,430,043 | $ | (13,610 | ) | $ | 4,871,079 | ||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
F-4
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
YEAR ENDED SEPTEMBER 30,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
OPERATING ACTIVITIES:
|
||||||||||||
|
Net income (loss)
|
$ | (1,645,427 | ) | $ | 322,979 | $ | 56,995 | |||||
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
||||||||||||
|
Depreciation and amortization
|
838,674 | 99,415 | 107,649 | |||||||||
|
Amortization of imputed interest
|
13,332 | - | - | |||||||||
|
Deferred income taxes
|
(754,000 | ) | ||||||||||
|
Stock based compensation
|
- | - | 452,360 | |||||||||
|
Impairment loss
|
1,812,750 | - | - | |||||||||
|
Changes in operating assets and liabilities:
|
||||||||||||
|
Accounts receivable
|
(758,247 | ) | (534,634 | ) | 524,990 | |||||||
|
Tax refund receivable
|
(83,000 | ) | - | - | ||||||||
|
Loans receivable
|
- | (30,124 | ) | (50,558 | ) | |||||||
|
Prepaid expenses and sundry current assets
|
(53,597 | ) | 383 | - | ||||||||
|
Accounts payable and accrued expenses
|
163,146 | 1,117,750 | (490,156 | ) | ||||||||
|
Security deposits
|
(1,766 | ) | - | - | ||||||||
|
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
(468,135 | ) | 975,769 | 601,280 | ||||||||
|
INVESTING ACTIVITIES:
|
||||||||||||
|
Acquisition of subsidiaries (Note 2)
|
(423,867 | ) | - | - | ||||||||
|
Acquisition of property and equipment, net
|
(57,036 | ) | (138,844 | ) | (43,478 | ) | ||||||
|
Purchase of marketable securities
|
(6,434 | ) | (2,761 | ) | (2,333 | ) | ||||||
|
NET CASH USED IN INVESTING ACTIVITIES
|
(487,337 | ) | (141,605 | ) | (45,811 | ) | ||||||
|
FINANCING ACTIVITIES:
|
||||||||||||
|
Proceeds received from bank loan
|
750,000 | - | - | |||||||||
|
Repayment of long-term debt
|
(84,764 | ) | (7,236 | ) | (8,384 | ) | ||||||
|
Repayment (issuance) of loans receivable
|
(3,772 | ) | (97,736 | ) | 1,629 | |||||||
|
Purchase of treasury stock
|
(2,743 | ) | (65,812 | ) | - | |||||||
|
Proceeds from sale of preferred stock, net of related expenses of $35,605
|
- | 464,395 | - | |||||||||
|
Repayment of loans receivable – related party
|
111,700 | - | - | |||||||||
|
Proceeds from loans payable – related party
|
143,422 | - | - | |||||||||
|
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
913,843 | 293,611 | (6,755 | ) | ||||||||
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(41,629 | ) | 1,127,775 | 548,714 | ||||||||
|
CASH AND CASH EQUIVALENTS – BEGINNING OF YEAR
|
2,469,727 | 1,341,952 | 793,238 | |||||||||
|
CASH AND CASH EQUIVALENTS – END OF YEAR
|
$ | 2,428,098 | $ | 2,469,727 | $ | 1,341,952 | ||||||
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
||||||||||||
|
Cash paid during the year for:
|
||||||||||||
|
Interest
|
$ | 177,583 | $ | 500 | $ | 1,140 | ||||||
|
Income taxes
|
$ | 200,788 | $ | 294,429 | $ | 332,164 | ||||||
|
Non-cash investing activities:
|
||||||||||||
|
Unrealized gain (loss) on marketable securities
|
$ | (25,270 | ) | $ | 8,897 | $ | 1,147 | |||||
|
Dividends declared to preferred shareholders
|
$ | 15,000 | $ | 10,833 | $ | - | ||||||
|
Issuance of common stock, convertible preferred stock and notes payable in connection with business acquisitions
|
$ | 2,941,632 | $ | - | $ | - | ||||||
|
Deferred financing charges
|
$ | 33,600 | $ | - | $ | - | ||||||
The accompanying notes are an integral part of these consolidated financial statements
F-5
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
1
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Business description
Janel World Trade Ltd. and Subsidiaries (“the Company” or “Janel”) operates its business as two reportable segments comprised of: A) full-service cargo transportation logistics management, including freight forwarding – via air, ocean and land-based carriers – custom brokerage services, warehousing and distribution services, and other value-added logistics services, and B) computer software sales, support and maintenance.
Basis of consolidation
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All intercompany transactions and balances have been eliminated in consolidation.
Uses of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during each reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents consist of cash and highly liquid investments with remaining maturities of less than ninety days at the date of purchase.
The Company maintains cash balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000. The Company’s accounts at these institutions may, at times, exceed the federally insured limits. The Company has not experienced any losses in such accounts.
Marketable securities
The Company classifies all of its short-term investments as available-for-sale securities. Such short-term investments consist primarily of mutual funds which are stated at market value, with unrealized gains and losses on such securities reflected as other comprehensive income (loss) in stockholders’ equity. Realized gains and losses on short-term investments are included in earnings and are derived using the specific identification method for determining the cost of securities. Therefore, all securities are considered to be available for sale and are classified as current assets.
Property and equipment and depreciation policy
Property and equipment are recorded at cost. Depreciation is provided for in amounts sufficient to amortize the costs of the related assets over their estimated useful lives on the straight-line and accelerated methods for both financial reporting and income tax purposes.
Maintenance, repairs and minor renewals are charged to expense when incurred. Replacements and major renewals are capitalized.
F-6
Revenues and revenue recognition
|
(a)
|
Full service cargo transportation logistics management
|
Revenues are derived from airfreight, ocean freight and custom brokerage services. The Company is a non-asset based carrier and accordingly, does not own transportation assets. The Company generates the major portion of its air and ocean freight revenues by purchasing transportation services from direct carriers (airlines, steam ship lines, etc.) and reselling those services to its customers. By consolidating shipments from multiple customers and availing itself of its buying power, the Company is able to negotiate favorable rates from the direct carriers, while offering to its customers lower rates than the customers could obtain themselves.
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.
Based upon the terms in the contract of carriage, revenues related to shipments where the Company issues a HAWB or a HOBL are recognized at the time the freight is tendered to the direct carrier. Costs related to the shipments are recognized at the same time.
Revenues realized when the Company acts as an agent for the shipper and does not issue a HAWB or a HOBL include only the commission and fees earned for the services performed. These revenues are recognized upon completion of the services.
Customs brokerage and other services involves providing multiple services at destination, including clearing shipments through customs by preparing required documentation, calculating and providing for payment of duties and other charges on behalf of the customers, arranging for any required inspections, and arranging for final delivery. These revenues are recognized upon completion of the services.
The movement of freight may require multiple services. In most instances, the Company may perform multiple services including destination break-bulk and value added services such as local transportation, distribution services and logistics management. Each of these services has a separate fee which is recognized as revenue upon completion of the service.
Customers will frequently request an all inclusive rate for a set of services, which is known in the industry as “door-to-door services”. In these cases, the customer is billed a single rate for all services from pickup at origin to delivery. The allocation of revenue and expense among the components of service when provided under an all inclusive rate are done in an objective manner on a fair value basis in accordance with Emerging Issues Task Force (EITF) 00-21, “Revenue Arrangements with Multiple Deliverables”.
|
(b)
|
Computer software sales, support and maintenance
|
The Company recognizes revenue, including multiple element arrangements, in accordance with the provisions of the SEC’s Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition, and the Financial Accounting Standards Board’s (“FASB”), and EITF 00-21, Revenue Agreements with Multiple Deliverables. Revenue from the sale of the Company’s products and services are recognized when persuasive evidence of an arrangement exists, delivery has occurred (or services have been rendered), the price is fixed or determinable, and collectability is reasonably
assured. Amounts billed in excess of revenue recognized are recorded as deferred revenue in the balance sheet.
F-7
Income per common share
Basic net income per common share is calculated by dividing net income available to common shareholders by the weighted average of common shares outstanding during the period. Diluted net income per common share is calculated using the weighted average of common shares outstanding adjusted to include the potentially dilutive effect of stock options and warrants.
Comprehensive income
Comprehensive income encompasses all changes in stockholders’ equity other than those arising from stockholders, and generally consists of net income and unrealized gains and losses on unrestricted available-for-sale marketable equity securities. As of September 30, 2008, accumulated other comprehensive income consists of unrealized gains on unrestricted available-for-sale marketable equity securities.
Deferred income taxes
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 (SFAS 109) which requires that deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, SFAS 109 requires recognition of future tax benefits, such as carry-forwards, to the extent that realization of such benefits is more likely than not and that a valuation allowance be provided when it is more likely than not that some portion of the deferred tax asset will not be realized.
Goodwill, other intangibles and long-lived assets
The Company records as goodwill the excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired. Statement of Financial Accounting Standards 142, Goodwill and Other Intangible Assets (SFAS 142), requires goodwill to be tested for impairment annually as well as when an event or change in circumstance indicates an impairment may have occurred. Goodwill is tested for impairment by comparing the fair value of the Company’s individual reporting units to their carrying amount to determine if there is a potential goodwill impairment. If the fair value of the reporting unit is less than its
carrying value, an impairment loss is recorded to the extent that the implied fair value of the goodwill of the reporting unit is less than its carrying value.
Long-lived assets, including fixed assets and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In reviewing for impairment, the carrying value of such assets is compared to the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition. If such cash flows are not sufficient to support the asset’s recorded value, an impairment charge is recognized to reduce the carrying value of the long-lived asset to its estimated fair value. The determination of future cash flows, as well as the estimated fair value of long-lived assets, involve significant
estimates on the part of management. In order to estimate the fair value of a long-lived asset, the Company may engage a third-party to assist with the valuation. If there is a material change in economic conditions or other circumstances influencing the estimate of future cash flows or fair value, the Company could be required to recognize impairment charges in the future. (See Note 2A).
Fair value of financial instruments
The carrying values of cash and cash equivalents, receivables, prepaid expenses and other assets, accounts payable, accrued expenses and other liabilities are reasonable estimates of their fair values because of the short-term nature of these instruments.
F-8
Recent accounting pronouncements
In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”), which identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of non-governmental entities that are presented in conformity with U.S. GAAP. SFAS 162 is effective for the Company sixty days following the SEC’s approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411, “The Meaning of
Present Fairly in Conformity with Generally Accepted Accounting Principles”.
In March 2008, the FASB issued Statement of Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entity’s derivative instruments and hedging activities. This statement requires additional disclosures about the objectives of derivative instruments and hedging activities, the method of accounting for such instruments under SFAS No. 133 and its related interpretations, and a tabular disclosure of the effects of such instruments and
related hedged items on the Company’s financial position, financial performance, and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141R”), which requires most identifiable assets, liabilities, non-controlling interests and goodwill acquired in a business combination to be recorded at “full fair value”. Under SFAS 141R, all business combinations will be accounted for under the acquisition method. Significant changes, among others, from current guidance resulting from SFAS 141R include the requirement that contingent assets and liabilities and contingent consideration shall be recorded at estimated fair value as of the acquisition date, with any subsequent
changes in fair value charged or credited to earnings. Further, acquisition-related costs will be expensed rather than treated as part of the acquisition. SFAS 141R is effective for periods beginning on or after December 15, 2008.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No. 115”. SFAS No. 159 allows companies to choose to measure eligible financial instruments and certain other items at fair value that are not required to be measured at fair value. SFAS No. 159 requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings at each reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007.
On September 15, 2006 FASB issued SFAS No. 157 (“SFAS 157”) “Fair Value Measurements”. SFAS 157 enhances existing guidance for measuring assets and liabilities using fair value. Previously, guidance for applying fair value was incorporated in several accounting pronouncements. The statement provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. While the statement does not add any new fair value measurements, it does change current practice. One such change is a requirement
to adjust the value of non-vested stock for the effect of the restriction even if the restriction lapses within one year. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The adoption of SFAS 157 is not expected to have a material impact on the financial statements of the Company.
In the opinion of management of the Company, the adoption of these new pronouncements will not have a material effect on the financial position or results of operations of the Company.
F-9
|
2
|
ACQUISITIONS AND IMPAIRMENT LOSSES
|
|
(A)
|
ORDER LOGISTICS, INC.
|
On October 18, 2007, Janel World Trade, Ltd. (the “Company”) acquired certain assets of Order Logistics, Inc. (“OLI”) consisting of proprietary technology, intellectual property (including the name “Order Logistics”), office locations and equipment and customer lists for use in the management and expansion of the Company’s international integrated logistics transport services business. The technology acquired by the Company enables it to integrate all of the different aspects of movement and delivery of goods, making the entire process electronically visible in “real time”. The Agreement includes non-competition provisions restricting OLI from
competing with Janel.
The purchase price for the acquired assets was $3,888,429 and was comprised of $2,338,429 cash paid at closing, the issuance of a $125,000 note payable due March 30, 2008 (see Note 15B) and the issuance of 285,000 restricted shares of Janel’s newly-authorized $.001 par value Series B Convertible Preferred Stock (“Series B”), each share of which is convertible into ten shares of Janel’s $.001 par value common stock at any time after October 18, 2009. In connection therewith, the Company borrowed $1,700,000 under its existing line of credit and entered into a term loan agreement for $500,000 with a different bank. The balance of the cash portion was paid from existing
cash.
The Company, with the assistance of a third party, performed its annual goodwill impairment test effective as of September 30, 2008 and determined that there was no impairment of the goodwill relating to Order Logistics. The Company also performed an impairment test on the other identifiable intangible assets acquired relating to Order Logistics and determined that, due to changes in economic circumstances relating to Order Logistics, the carrying value of certain intangible assets exceeded their estimated undiscounted future cash flows and their eventual disposition. Accordingly, the Company recorded an impairment loss of $1,812,750 representing the write-off of:
|
Customer relationships
|
$ | 414,451 | ||
|
Software valuation
|
508,299 | |||
|
Development agreement
|
890,000 | |||
| $ | 1,812,750 |
|
(B)
|
FERRARA INTERNATIONAL LOGISTICS, INC.
|
On July 18, 2008 the Company acquired the customs brokerage “book of business”, as defined, of Ferrara International Logistics, Inc. (“Ferrara”), consisting of books, records, forms, manuals, access codes, goodwill, customer lists and contact information, telephone and advertising listings (the “Business”) for the expansion of the Company’s international integrated logistics transport services business. Ferrara will provide the Company with related marketing, advertising, sales, and related administrative services pursuant to the May 19, 2008 Sales Agency and Service Agreement (the “Sales Agreement”), which has a three-year term and non-competition
provisions restricting Ferrara from competing with the Company.
The purchase price for the acquired assets was $2,077,070 (including transaction costs of $85,438 and net of imputed interest of $108,368), comprised of a $600,000 payment by the Company at closing, the issuance of 520,661 restricted shares of the Company’s $0.001 common stock (the “Shares”) valued at $630,000, based upon the $1.21 per share closing price of the Company’s common stock in the Over-The-Counter market on the Friday immediately preceding the closing date, a non-interest bearing $435,000 payment due one year after closing, and a non-interest bearing $435,000 payment due three years after the closing. The Company has imputed interest on these obligations at 7% per
annum. The Company issued $400,000 of fixed rate convertible promissory notes to unrelated third parties, in part, fund this acquisition (see Note 8). The balance of the cash portion was paid from existing cash.
F-10
If the aggregate earnings of the Business before interest, taxes, depreciation and amortization (“EBITDA”) for the three years immediately following the closing fails to equal $2,100,000, the Company will be entitled to a reduction of the purchase price in an amount equal to three times the total three year EBITDA shortfall (the “Shortfall”). If the final note is not sufficient to satisfy the Shortfall, the appropriate number of Shares, valued at the closing market price on the third anniversary of the closing date, will be cancelled and returned to the Company’s authorized and unissued stock.
The compensation payable to Ferrara pursuant to the Sales Agreement is contingent upon the aggregate EBITDA of the Business for the three years immediately following the closing exceeding $2,100,000, in which event the Company will pay Ferrara 40% of the excess amount for that period, and for the following three years pay Ferrara 40% of the excess amount of annual EBITDA exceeding $700,000.
|
(C)
|
PURCHASE PRICE ALLOCATION
|
In accordance with the purchase method of accounting as prescribed by SFAS No. 141, “Business Combinations”, the Company allocated the consideration to the net tangible and identifiable intangible assets, based on their estimated fair values. Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets. The factors that contributed to the recognition of goodwill included securing buyer-specific synergies that increase revenue and profits and are not otherwise available to a marketplace participant, and the acquisition of a talented workforce.
The consideration has been allocated as follows:
|
ORDER
LOGISTICS, INC.
|
FERRARA
INTERNATIONAL
LOGISTICS, INC.
|
|||||||
|
Tangible assets:
|
||||||||
|
Furniture and equipment
|
$ | 165,117 | $ | - | ||||
|
Intangible assets:
|
||||||||
|
Identifiable intangibles, subject to amortization
|
3,260,000 | 1,530,000 | ||||||
|
Goodwill
|
463,312 | 547,070 | ||||||
| 3,723,312 | 2,077,070 | |||||||
|
Purchase price
|
$ | 3,888,429 | $ | 2,077,070 | ||||
The following table provides unaudited pro forma results of operations for the fiscal years ended September 30, 2008 and 2007 as if the acquisitions had been consummated as of the beginning of each period presented. The pro forma results include the effect of certain purchase accounting adjustments, such as the estimated changes in depreciation and amortization expense on the acquired intangible assets. However, pro forma results do not include any anticipated cost savings or other effects of the planned integration of the companies. Accordingly, such amounts are not necessarily indicative of the results if the acquisition has occurred on the dates indicated, or which may occur in the
future.
|
(Unaudited)
|
Pro Forma Results
|
|||||||
|
(Dollars in Millions except per share data)
|
Year ended September 30,
|
|||||||
|
2008
|
2007
|
|||||||
|
Revenues
|
$ | 86,735 | $ | 83,977 | ||||
|
Loss before income taxes (exclusive of impairment loss for 2008)
|
$ | (33 | ) | $ | (323 | ) | ||
|
Fully diluted earnings per share
|
$ | (.01 | ) | $ | (.02 | ) | ||
F-11
|
3
|
MARKETABLE SECURITIES
|
Marketable securities consist of the following:
|
|
Cost
|
Unrealized
Holding
Gains
|
Fair Value
|
|||||||||
|
As of September 30, 2008:
|
||||||||||||
|
Mutual Funds
|
$ | 77,314 | $ | (25,270 | ) | $ | 52,044 | |||||
|
As of September 30, 2007:
|
||||||||||||
|
Mutual Funds
|
$ | 61,983 | $ | 8,897 | $ | 70,880 | ||||||
|
4
|
LOANS RECEIVABLE – OFFICERS
|
The loans receivable – officers bear interest at 4% per annum and are due on demand.
|
5
|
LOAN RECEIVABLE (PAYABLE) – RELATED PARTY
|
The loan receivable (payable) – related party is due from a company owned by Janel’s President and Executive Vice President. The loan bears interest at 6% per annum and is due on demand.
|
6
|
PROPERTY AND EQUIPMENT
|
A summary of property and equipment and the estimated lives used in the computation of depreciation and amortization is as follows:
|
September 30,
|
|||||||||
|
2008
|
2007
|
Life
|
|||||||
|
Furniture and fixtures
|
$ | 230,780 | $ | 77,108 |
5-7 years
|
||||
|
Computer equipment
|
524,694 | 489,410 |
5 years
|
||||||
| 755,474 | 566,518 | ||||||||
|
Less accumulated depreciation and amortization
|
451,619 | 348,990 | |||||||
| $ | 303,855 | $ | 217,528 | ||||||
|
7
|
INTANGIBLE ASSETS
|
A summary of intangible assets and the estimated useful lives used in the computation of amortization is as follows:
|
Order Logistics, Inc.
|
Ferrara International
Logistics, Inc.
|
|||||||||
|
Customer relationships
|
$ | 110,000 |
8 years
|
$ | 1,530,000 |
9.5 years
|
||||
|
Software valuation
|
350,000 |
5 years
|
- | |||||||
|
Development agreement
|
340,000 |
3 years
|
- | |||||||
|
Goodwill
|
463,312 | 547,070 | ||||||||
| 1,263,312 | 2,077,070 | |||||||||
|
Less accumulated amortization
|
- | 40,263 | ||||||||
| $ | 1,263,312 | $ | 2,036,807 | |||||||
F-12
A summary of the changes in intangible assets is as follows:
|
Order Logistics, Inc.
|
Ferrara International
Logistics, Inc.
|
|||||||
|
Balance – beginning of year
|
$ | - | $ | - | ||||
|
Acquisitions
|
3,723,312 | 2,077,070 | ||||||
|
Amortization
|
(647,250 | ) | (40,263 | ) | ||||
|
Impairment loss
|
(1,812,750 | ) | - | |||||
|
Balance – end of year
|
$ | 1,263,312 | $ | 2,036,807 | ||||
|
8
|
CONVERTIBLE PROMISSORY NOTES
|
In July 2008 the Company issued $400,000 of fixed rate convertible promissory notes which are due in July 2009 and bear interest at a weighted average interest rate of 8.25% per annum, payable at maturity. The Company has the right to pay the principal and interest on these notes in cash or in shares of the Company’s common stock at a weighted average conversion price of $.88 per share. The Company has the right, at its option and at any time prior to the maturity, to convert all or a part of the principal and interest due on this note into Conversion Shares at a weighted average conversion price of $.88 per share. In addition, if the notes are converted prior to or at maturity, the
Company will issue the lender five-year warrants to purchase 15% of the amount of the note exercisable at $1.25 per share. If the notes are not paid in full prior to maturity, they will convert into common shares at a weighted average conversion price of $.88 per share. If the Company pays the notes in cash, it will issue the number of additional shares of common stock to the holders of the note equal to 15% of the face value of the note.
In connection with the issuance of these notes, the Company issued 52,500 two year warrants which are exercisable at $2.00 per share and 7,500 five year warrants which are exercisable at $1.25 per share. In addition, the Company paid the placement agent of the notes $40,000 and issued 40,000 five year warrants exercisable at $2.00.
The fair value of all the warrants as determined using the Black Scholes Option Pricing Model was $33,600, which amount was classified as a deferred finance charge and is being amortized over the term of the notes.
|
9
|
NOTE PAYABLE – BANK
|
The Company has an available line of credit with a bank pursuant to which it may borrow up to $1,500,000. Advances under this facility bear interest at prime minus .75%. All borrowings are personally guaranteed by the president and executive vice president of the Company. The line is secured by a blanket lien on the assets of the Company. As of September 30, 2008 borrowings under this credit line totaled $750,000.
F-13
|
10
|
LONG-TERM DEBT
|
Long-term debt consists of the following:
|
September 30,
|
||||||||
|
2008
|
2007
|
|||||||
|
Term loan payable in monthly installments of $20,238, plus interest at the bank’s prime rate plus .75% per annum, or LIBOR plus 2% per annum with a final payment April 1, 2013. The loan is collateralized by substantially all assets of the Company and is personally guaranteed by certain stockholders of the Company.
|
$ | 1,619,048 | $ | - | ||||
|
Non-interest bearing note payable, net of imputed interest, in payments of $435,000 in July 2009 and July 2011 (see Note 2B).
|
774,964 | - | ||||||
|
Term loan payable in monthly installments of $13,889, plus interest at a bank’s prime rate minus .50% per annum. The loan is collateralized by substantially all assets of a subsidiary of the Company.
|
500,000 | - | ||||||
|
Other
|
2,533 | 6,345 | ||||||
| 2,896,545 | 6,345 | |||||||
|
Less current portion
|
786,308 | 3,795 | ||||||
| $ | 2,110,237 | $ | 2,550 | |||||
These obligations mature as follows:
|
2009
|
$ | 786,308 | ||
|
2010
|
381,996 | |||
|
2011
|
823,876 | |||
|
2012
|
256,741 | |||
|
2013
|
242,856 | |||
|
Thereafter
|
404,768 | |||
| $ | 2,896,545 |
|
11
|
STOCKHOLDERS’ EQUITY
|
Janel is authorized to issue 225,000,000 shares of common stock, par value $.001. In addition, the Company is authorized to issue 5,000,000 shares of preferred stock, par value $.001. The preferred stock is issuable in series with such voting rights, if any, designations, powers, preferences and other rights and such qualifications, limitations and restrictions as may be determined by the Company’s board of directors or a duly authorized committee thereof, without stockholder approval. The board may fix the number of shares constituting each series and increase or decrease the number of shares of any series.
As of September 30, 2008 there were 1,000,000 shares of Series A Convertible Preferred Stock issued and 285,000 shares of Series B Convertible Preferred Stock issued and outstanding.
F-14
|
A.
|
Issuance of convertible preferred stock
|
(1) On January 10, 2007, the Company sold one million unregistered shares of newly-authorized $0.001 par value 3% Series A Convertible Preferred Stock (the “Series A Stock”) for a total of $500,000. The shares are convertible into shares of Janel’s $0.001 par value common stock at any time on a one-share for one-share basis.
(2) See Note 2 in connection with the issuance of Series B Preferred Stock.
|
B.
|
Stock repurchase program
|
On October 12, 2006, the Company’s Board of Directors authorized the purchase of up to 300,000 shares of the Company’s common stock, subject to certain conditions. The repurchase plan may be suspended by the Company at any time. As of September 30, 2008, 139,500 shares of the Company’s common stock have been repurchased under the plan at a cost of $68,555.
|
12
|
INCOME TAXES
|
Income taxes consist of the following:
|
Year Ended September 30,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Federal - current
|
$ | (83,000 | ) | $ | 187,000 | $ | 182,000 | |||||
|
- deferred
|
(754,000 | ) | - | - | ||||||||
|
State and local
|
110,000 | 96,700 | 89,500 | |||||||||
| $ | (727,000 | ) | $ | 283,700 | $ | 271,500 | ||||||
The reconciliation of income tax computed at the Federal statutory rate to the provision for income taxes is as follows:
|
Year Ended September 30,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Federal taxes (credits) at statutory rates
|
$ | (811,160 | ) | $ | 207,700 | $ | 111,700 | |||||
|
Non-deductible expenses
|
11,560 | 12,200 | 100,700 | |||||||||
|
State and local taxes, net of Federal benefit
|
72,600 | 63,800 | 59,100 | |||||||||
| $ | (727,000 | ) | $ | 283,700 | $ | 271,500 | ||||||
The deferred tax asset represents the tax effect of timing differences relating to amortization of intangible assets and the related impairment loss.
|
13
|
PROFIT SHARING AND 401(k) PLANS
|
The Company maintains a non-contributory profit sharing and 401(k) plan covering substantially all full-time employees. The expense charged to operations for the years ended September 30, 2008, 2007, and 2006 aggregated approximately $30,000, $28,000 and $25,000, respectively.
F-15
|
14
|
RENTAL COMMITMENTS
|
The Company conducts its operations from leased premises. Rental expense on operating leases for the years ended September 30, 2008, 2007 and 2006 was approximately $404,000, $331,000 and $324,000, respectively.
Future minimum lease commitments (excluding renewal options) under noncancelable leases are as follows:
|
Year ended September 30, 2009
|
$ | 397,000 | ||
|
2010
|
223,000 | |||
|
2011
|
162,000 | |||
|
2012
|
111,000 | |||
|
2013
|
20,000 | |||
|
15
|
RISKS AND UNCERTAINTIES
|
|
|
(a)
|
Currency risks
|
The nature of Janel’s operations requires it to deal with currencies other than the U.S. Dollar. This results in the Company being exposed to the inherent risks of international currency markets and governmental interference. A number of countries where Janel maintains offices or agent relationships have currency control regulations that influence its ability to hedge foreign currency exposure. The Company tries to compensate for these exposures by accelerating international currency settlements among those officers or agents.
|
(b)
|
Concentration of credit risk
|
The Company’s assets that are exposed to concentrations of credit risk consist primarily of cash and receivables from customers. The Company places its cash with financial institutions that have high credit ratings. The receivables from clients are spread over many customers. The Company maintains an allowance for uncollectible accounts receivable based on expected collectability and performs ongoing credit evaluations of its customers’ financial condition.
|
(c)
|
Legal proceedings
|
(1) Janel is occasionally subject to claims and lawsuits which typically arise in the normal course of business. While the outcome of these claims cannot be predicated with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on the Company’s financial position or results of operations.
(2) On February 11, 2008, The Company filed a lawsuit in the United States District Court for the Southern District of New York against defendants World Logistics Services, Inc. (“World Logistics”), a Delaware Corporation formerly known as “Order Logistics, Inc.”; Richard S. Francis (“Francis”), the President of World Logistics; and Brian P. Griffin (“Griffin”), who was the Chief Executive Officer of World Logistics when Janel completed an acquisition in October 2007 of certain World Logistics assets.
Janel claims that the defendants made false and misleading statements of material facts concerning the exclusivity of the rights to the assets which were sold to Janel by having concealed and withheld the provisions of a settlement agreement with a third-party business associate and creditor made only two days before the closing of the asset sale, in which World Logistics agreed to the cancellation of a restrictive covenant which had prevented the creditor from using World Logistics proprietary computer software, or soliciting its list of valuable customers and employees.
F-16
Janel has charged that the defendants violated the anti-fraud provisions of the Federal securities laws, committed common law fraud, breach of contract and other wrongdoing, with the specific intent to defraud Janel and obtain 285,000 shares of its newly authorized Class B convertible preferred stock, and more than $2,300,000 in payments by Janel of the defendants’ long overdue obligations to suppliers, creditors and tax authorities.
In May 2008, the defendants filed a motion to the court asking it to dismiss the case based upon the defendants’ claim that the complaint “fails to state a claim upon which relief may be granted”. The Company, in turn, filed a brief in opposition to the defendants’ motion showing that it is meritless and should be denied. The motion has not yet been decided.
|
(d)
|
Relationships with officers
|
Janel’s President and Chief Operating Officer and Executive Vice President and Chief Executive Officer (“EVP”), each own a 10% profit interest in each of Janel Shanghai and Janel Hong Kong, as well as 100% ownership in FCL/LCL International Inc. which operates as a “NVOCC” (non-vessel operating common carrier). In addition, the EVP owns 50% of Janel Miami (Florida), which is a franchise using the Janel name, but in which the Company has no equity or other direct economic interest.
These relationships involve actual or potential conflicts of interest between Janel and its officers.
|
(e)
|
Concentration of sales
|
Sales to one customer aggregated approximately 16.5%, 19.9% and 13.5% of consolidated sales for the years ended September 30, 2008, 2007 and 2006, respectively. Amounts due from this customer aggregated $162,000, $860,000 and $705,000 at September 30, 2008, 2007 and 2006 respectively.
F-17
|
16
|
QUARTERLY RESULTS OF OPERATIONS (Unaudited)
|
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||
|
Fiscal 2008
|
||||||||||||||||
|
Net sales
|
$ | 20,067,346 | $ | 18,281,961 | $ | 19,962,837 | $ | 24,433,239 | ||||||||
|
Operating income (loss)
|
56,531 | (181,097 | ) | (192,647 | ) | (136,222 | ) | |||||||||
|
Net income (loss)
|
22,049 | (162,820 | ) | (153,829 | ) | (1,350,827 | ) | |||||||||
|
Per share data (1):
|
||||||||||||||||
|
Basic earnings per share
|
$ | 0.001 | $ | (0.010 | ) | $ | (0.009 | ) | $ | (0.080 | ) | |||||
|
Diluted earnings per share
|
$ | 0.001 | $ | (0.010 | ) | $ | (0.009 | ) | $ | (0.008 | ) | |||||
|
Fiscal 2007
|
||||||||||||||||
|
Net sales
|
$ | 16,727,869 | $ | 18,303,590 | $ | 18,851,199 | $ | 21,064,784 | ||||||||
|
Operating income (loss)
|
79,257 | 52,378 | 227,434 | 188,935 | ||||||||||||
|
Net income (loss)
|
52,198 | 37,018 | 140,490 | 93,273 | ||||||||||||
|
Per share data (1):
|
||||||||||||||||
|
Basic earnings per share
|
$ | 0.003 | $ | 0.005 | $ | 0.008 | $ | 0.006 | ||||||||
|
Diluted earnings per share
|
$ | 0.003 | $ | 0.005 | $ | 0.008 | $ | 0.005 | ||||||||
(1) earnings per share were computed independently for each of the periods presented. Therefore, the sum of the earnings per share amounts for the quarters may not equal the total for the year.
F-18
|
17
|
BUSINESS SEGMENT INFORMATION
|
Prior to the acquisition of Order Logistics, Inc. in October, 2007 (See Note 2A), the Company operated in one reportable segment which was full service cargo transportation logistics management. Commencing with the acquisition of Order Logistics, Inc, the Company began operating in a second reportable segment which is supplying computer software sales, support and maintenance.
The following table presents financial information about the Company’s reportable segments as of and for the year ended September 30, 2008.
|
Consolidated
|
Transportation
Logistics
|
Computer
Software
|
||||||||||
|
Total revenues
|
$ | 82,745,383 | $ | 82,261,746 | $ | 483,637 | ||||||
|
Net revenues
|
$ | 9,786,142 | $ | 9,302,505 | $ | 483,637 | ||||||
|
Operating income (loss)
|
$ | (453,435 | ) | $ | 719,798 | $ | (1,173,233 | ) | ||||
|
Identifiable assets
|
$ | 13,470,992 | $ | 11,879,833 | $ | 1,591,159 | ||||||
|
Capital expenditures
|
$ | 222,153 | $ | 54,789 | $ | 167,364 | ||||||
|
Equity
|
$ | 4,871,079 | $ | 7,809,919 | $ | (2,938,840 | ) | |||||
F-19