UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly period ended June 30, 2012

 

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 333-60608

 

JANEL WORLD TRADE, LTD.

 

(Exact name of registrant as specified in its charter)

 

Nevada	86-1005291
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization	Identification No.)

 

150-14 132nd Avenue
Jamaica, New York	11434
(Address of principal executive offices)	(Zip Code)

 

Registrant’s telephone number, including area code: (718) 527-3800

 

Inapplicable

(Former name, former address and former fiscal year if changed from last report.)

 

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 ¨

 

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 x No ¨

 

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 ¨ Accelerated Filer ¨ Non-Accelerated Filer ¨ 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 ¨ No x

 

The number of shares of Common Stock outstanding as of August 10, 2012 was 21,854,868.

 

 

JANEL WORLD TRADE, LTD.

 

TABLE OF CONTENTS

 

				Page
Part I - Financial Information
	Item 1.	Financial Statements:
		Consolidated Balance Sheets, June 30, 2012 (unaudited) and September 30, 2011 (audited)		3
		Consolidated Statements of  Operations for the Three and Nine Months Ended June 30, 2012 and 2011 (unaudited)		4
		Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended June 30, 2012 (unaudited)		5
		Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2012 and 2011 (unaudited)		6
		Notes to Unaudited Consolidated Financial Statements		7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
	Item 4.	Controls and Procedures		16
Part II - Other Information
	Item 6.	Exhibits		17
		Signatures		18

  

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

JANEL WORLD TRADE LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

		JUNE 30, 2012				SEPTEMBER 30, 2011
		(Unaudited)				(Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	179,228			$	477,141
Accounts receivable, net of allowance for doubtful accounts of $263,054 at June 30, 2012 and $289,547 at September 30, 2011			6,836,269				5,861,779
Marketable securities			63,384				52,352
Loans receivable – officers			-				92,817
Prepaid expenses and sundry current assets			116,146				114,835
Tax refund receivable			-				148,000
“Assets” in discontinued operations			-				633,098
TOTAL CURRENT ASSETS			7,195,027				7,380,022
PROPERTY AND EQUIPMENT, NET			496,120				459,850
OTHER ASSETS:
Intangible assets, net			3,059,360				3,271,649
Security deposits			167,049				97,299
Deferred income taxes			1,541,304				1,184,003
TOTAL OTHER ASSETS			4,767,713				4,552,951
TOTAL ASSETS		$	12,458,860			$	12,392,823
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Note payable – bank		$	1,601,335			$	951,335
Note payable – other			-				100,000
Accounts payable – trade			5,176,797				4,536,815
Accrued expenses and taxes payable			355,321				415,577
Current portion of long-term debt – bank			75,906				86,360
Current portion of long-term debt – related party			289,651				249,618
“Liabilities” in discontinued operations			-				325,601
TOTAL CURRENT LIABILITIES			7,499,010				6,665,306
OTHER LIABILITIES:
Long-term debt – bank			241,275				298,625
Long-term debt – related party			826,666				826,666
Deferred compensation			78,568				78,568
TOTAL OTHER LIABILITIES			1,146,509				1,203,859
STOCKHOLDERS’ EQUITY			3,813,341				4,523,658
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	12,458,860			$	12,392,823

 

See notes to financial statements

 

 

JANEL WORLD TRADE LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		THREE MONTHS ENDED								NINE MONTHS ENDED
		JUNE 30,								JUNE 30,
		2012				2011				2012				2011
REVENUES		$	24,012,080			$	22,446,556			$	69,452,316			$	71,602,195
COSTS AND EXPENSES:
Cost of sales			21,461,733				20,106,380				62,250,610				64,305,060
Selling, general and administrative			2,510,805				2,465,995				7,547,758				7,310,624
Depreciation and amortization			104,916				82,725				286,592				242,747
TOTAL COST AND EXPENSES			24,077,454				22,655,100				70,084,960				71,858,431
LOSS FROM OPERATIONS			(65,374	)			(208,544	)			(632,644	)			(256,236	)
OTHER ITEMS:
Interest and dividend income			-				945				1,644				3,132
Interest expense			(44,872	)			(32,461	)			(126,144	)			(105,246	)
TOTAL OTHER ITEMS			(44,872	)			(31,516	)			(124,500	)			(102,114	)
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES			(110,246	)			(240,060	)			(757,144	)			(358,350	)
Income taxes (credits)			(51,465	)			(95,109	)			(337,724	)			(142,689	)
LOSS FROM CONTINUING OPERATIONS			(58,781	)			(144,951	)			(419,420	)			(215,661	)
Loss from discontinued operations, net of tax			(156,331	)			(102,672	)			(440,435	)			(163,664	)
NET LOSS		$	(215,112	)		$	(247,623	)		$	(859,855	)		$	(379,325	)
OTHER COMPREHENSIVE INCOME NET OF TAX :
Unrealized gain (loss) from available for sale securities			(2,149	)			97				10,788				8,526
TOTAL COMPREHENSIVE LOSS		$	(217,261	)		$	(247,526	)		$	(849,067	)		$	(370,799	)
Basic earnings (loss) per share:
Continuing operations		$	(0.00	)		$	(0.01	)		$	(0.02	)		$	(0.01	)
Discontinued operations		$	(0.01	)		$	(0.00	)		$	(0.02	)		$	(0.01	)
Total		$	(0.01	)		$	(0.01	)		$	(0.04	)		$	(0.02	)
Diluted earnings (loss) per share:
Continuing operations		$	(0.00	)		$	(0.01	)		$	(0.02	)		$	(0.01	)
Discontinued operations		$	(0.01	)		$	(0.00	)		$	(0.02	)		$	(0.01	)
Total		$	(0.01	)		$	(0.01	)		$	(0.04	)		$	(0.02	)
Basic weighted average number of shares
Outstanding			21,732,192				20,982,192				21,696,608				20,851,714
Fully diluted weighted average number of shares outstanding			23,367,442				22,617,442				23,331,858				22,762,715

 

See notes to financial statements

 

 

JANEL WORLD TRADE LTD. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 

		CAPITAL STOCK								PREFERRED STOCK												ADDITIONAL								ACCUMULATED OTHER
		SHARES				$				SHARE				$				TREASURY STOCK				PAID-IN CAPITAL				ACCUMULATED DEFICIT				COMPREHENSIVE LOSS				TOTAL
BALANCE–SEPTEMBER 30, 2011			21,104,868			$	21,105				1,063,525			$	1,064			$	(48,891	)		$	4,695,415			$	(131,003	)		$	(14,032	)		$	4,523,658
Net loss			-				-				-												-				(859,855	)			-				(859,855	)
Dividends to preferred shareholders			-				-				-				-				-				-				(11,250	)			-				(11,250	)
Common stock issuance			750,000				750				-				-				-				149,250				-				-				150,000
Other comprehensive gains:
Unrealized gains on available-for-sale marketable securities			-				-				-				-				-				-				-				10,788				10,788
BALANCE – June 30, 2012			21,854,868			$	21,855				1,063,525			$	1,064			$	(48,891	)		$	4,844,665			$	(1,002,108	)		$	(3,244	)		$	3,813,341

  

See notes to financial statements

  

 

JANEL WORLD TRADE, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		NINE MONTHS ENDED JUNE 30,
		2012				2011
OPERATING ACTIVITIES:
Income (loss) from continuing operations		$	(419,420	)		$	(215,661	)
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Bad debt reserve			26,494				78,283
Depreciation and amortization			286,592				242,747
Amortization of imputed interest			40,000				60,648
Deferred income taxes			(357,301	)			(29,000	)
Changes in operating assets and liabilities:
Accounts receivable			(367,887	)			288,488
Tax refund receivable			148,000				(148,000	)
Prepaid expenses and sundry current assets			(1,311	)			(98,498	)
Accounts payable and accrued expenses			254,159				(119,310	)
Security deposits			(69,750	)			(43,500	)
NET CASH (USED IN) PROVIDED BY CONTINUING OPERATIONS			(460,424	)			16,197
NET CASH USED IN DISCONTINUED OPERATIONS			(436,615	)			(250,219	)
INVESTING ACTIVITIES:
Acquisition of property and equipment, net			(114,393	)			(326,829	)
Purchase of marketable securities			(245	)			(298	)
NET CASH USED IN INVESTING ACTIVITIES			(114,638	)			(327,127	)
FINANCING ACTIVITIES:
Proceeds from the sale of common stock			150,000				-
Dividend paid			(11,250	)			(11,250	)
Purchase of treasury stock			-				(37,625	)
Borrowings under bank line of credit			650,000				-
Borrowings under bank term loan			-				400,000
Repayment of long-term debt			(67,803	)			(136,524	)
Repayment of loans receivable			92,817				2,287
Repayment of note payable – other			(100,000	)			-
Repayment of loan payable – related party			-				(435,000	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES			713,764				(218,112	)
DECREASE IN CASH AND CASH EQUIVALENTS			(297,913	)			(779,261	)
CASH AND CASH EQUIVALENTS – BEGINNING OF PERIOD			477,141				1,354,912
CASH AND CASH EQUIVALENTS – END OF PERIOD		$	179,228			$	575,651
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest		$	89,151			$	44,598
Income taxes		$	5,000			$	325,243
Non-cash financing activities:
Unrealized gain (loss) on marketable securities		$	10,788			$	8,526
Dividends declared to preferred stockholders		$	(11,250	)		$	(11,250	)
Acquisition of business:
Intangible assets acquired						$	1,840,000
Common stock issued							(600,000	)
Long-term debt issued (net of imputed interest)							(1,240,000	)
Effect on cash						$	-

 

See notes to financial statements

  

 

JANEL WORLD TRADE, LTD. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

JUNE 30, 2012

(Unaudited)

 

1

BASIS OF PRESENTATION

 

The attached consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. As a result, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The Company believes that the disclosures made are adequate to make the information presented not misleading. The consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Form 10-K as filed with the Securities and Exchange Commission on or about January 13, 2012.

 

2

DISCONTINUED OPERATION

 

On June 15, 2012, Janel Ferrara Logistics, LLC, a subsidiary of the Company (the “Seller”), entered into an Asset Purchase and Sale and Assumption of Liabilities Agreement (the “Agreement”) with Mann Global Enterprises, LLC (the “Purchaser”) pursuant to which the Purchaser purchased all of the Seller’s assets used in connection with the Company’s food industry vertical sales business. The Company has incurred significant losses since establishing its food industry vertical sales business segment, and the disposition of this segment was recommended by the Company’s outside financial advisers.

 

Under the terms of the Agreement, the Purchaser assumed liabilities of the Seller in the amount of at least $639,000, and agreed to indemnify the Seller against future liabilities of the business operated by the Purchaser.

 

3

DEFERRED COMPENSATION

 

Deferred compensation of $78,568 represents compensation due to an officer of the Company upon termination, retirement or death.  This amount has not changed since 1992 and was accrued during the years 1984 through 1992.

 

4

LONG-TERM DEBT

 

Long-term debt consists of the following:

 

		June 30, 2012				September 30, 2011
Non-interest bearing note payable to a related party, net of imputed interest, due when earned (see Note 6 regarding the earn-out period).		$	1,116,317			$	1,076,285
Term loan payable in monthly installments of $7,735 including interest at 6% per annum due 2016.  The loan is collateralized by substantially all assets of the Company.			317,181				371,095
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.			-				13,889
			1,433,498				1,461,269
Less current portion			365,557				335,978
		$	1,067,941			$	1,125,291
These obligations mature as follows:
2012		$	365,557
2013			493,860
2014			498,826
2015			75,255
		$	1,433,498

 

 

5

ACQUISITIONS

 

On October 4, 2010, the Company acquired the international freight forwarding business of Ferrara International Logistics Inc. (“Ferrara”) consisting of books, records, forms, access codes, goodwill, customer lists and contact information, telephone and advertising listings for the expansion of the Company’s international freight forwarding business pursuant to the terms of an Asset Purchase Agreement (the “Purchase Agreement”) between the Company and Ferrara.

 

The purchase price for the acquired assets was $1,840,000 and consists of $600,000 of common stock and $1,400,000 of future cash to be paid, net of imputed interest of $160,000. Under the terms of the Purchase Agreement, the purchase price consists of (i) cash in an amount equal to 70% of the annual actual earnings before interest, taxes, depreciation and amortization (EBITDA) achieved over the three 12-month periods following the Closing (the “Earn-Out Period”) from revenues generated from the customers included in the purchased assets, and (ii) 1,714,286 restricted shares of the Company’s Common Stock valued at $600,000 based on the closing market price of the stock on October 1, 2010 (the “Share Allocation”). The Share Allocation is subject to decrease if actual EBITDA from revenues generated from the customers included in the purchased assets during the Earn-Out Period is below $2 million, and will be issued in three installments on October 4, 2011, 2012 and 2013. No shares have been issued to date.

 

Purchase price allocation

 

In accordance with the acquisition method of accounting the Company has 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:

 

Tangible assets:
Furniture and equipment		$	-
Intangible assets:
Identifiable intangibles, subject to amortization			1,220,000
Goodwill			620,000
			1,840,000
Purchase price		$	1,840,000

 

 

6

SALE OF COMMON STOCK

 

On October 14, 2011, the Company sold 750,000 shares of the Company’s Common Stock, par value $0.001 per share, at a purchase price of $0.20 per share, or an aggregate of $150,000, to an accredited investor in a private placement in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933 and Regulation D promulgated there under. The Company used the proceeds from the sale for general corporate purposes.

 

7

LEGAL PROCEEDINGS

 

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 predicted 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.

 

8

SUBSEQUENT EVENTS

 

On August 10, 2012, subsequent to the period covered by this report, and pending the completion of an accounts receivable audit by CNB, the maturity of the CNB Facility was extended for two months until September 30, 2012, the maximum amount available under the CNB Facility was reduced from $3.5 million to $2.5 million, subject to the borrowing base limit referenced above, and the personal guarantee of James N. Jannello, the Company’s Chief Executive Officer, was reinstated. Upon completion of the accounts receivable audit and the review of the audit report by CNB, CNB and the Company will discuss the continuation of the CNB Facility and CNB will determine whether it will continue to provide a revolving line of credit to the Company. No assurances can be given that the Company will be successful in finding a replacement credit facility on terms acceptable to the Company in the event CNB determines to not renew the CNB Facility.

 

 

ITEM  2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

As used throughout this Report, “we,” “our,” “Janel”, “the Company” and similar words refers to Janel World Trade, Ltd.

 

forward-looking statements

 

This Quarterly Report on Form 10-Q contains certain forward-looking statements reflecting our current expectations with respect to our operations, performance, financial condition, and other developments. These forward-looking statements may generally be identified by the use of the words “may”, “will”, “believes”, “should”, “expects”, “anticipates”, “estimates”, and similar expressions. These statements are necessarily estimates reflecting management’s best judgment based upon current information and involve a number of risks and uncertainties. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and readers are advised that various factors could affect our financial performance and could cause our actual results for future periods to differ materially from those anticipated or projected. While it is impossible to identify all such factors, such factors include, but are not limited to, those risks identified in our periodic reports filed with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K.

 

overview

 

Janel is 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. From April 2011 until June 2012, we operated a vertical sales and supply chain food industry business segment including supplier selection, manufacturing, transportation, import, distribution, marketing and sales within the food industry. During the June 2012 quarter the Company divested itself of and discontinued the food industry segment and now operates as one reportable business segment. During our 2011 fiscal year we discontinued our computer software sales, support and maintenance business segment.

 

Our headquarters are in Jamaica, New York and we operate through a network which includes five company-owned offices in the United States and independent international agents in approximately 52 countries around the world.

 

As a non-asset based third party logistics provider, we do not own any transportation assets and fulfill our transportation needs by purchasing transportation services from direct (asset-based) carriers and from other transportation providers who generally provide us with favorable rates with priority handling of our shipments. By consolidating multiple shipments from our customers we are able to negotiate favorable pricing from these transportation providers and can offer lower rates to our customers than they could obtain on their own. This non-asset based approach provides us with a variable cost structure and allows for a high level of operating flexibility. Our investment in assets is limited to the purchase of office, warehouse and computer equipment and the leasing of office and warehouse space for our company owned offices.

 

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.

 

results of operations

 

The following discussion and analysis addresses the results of operations for the three and nine months ended June 30, 2012, as compared to the results of operations for the three and nine months ended June 30, 2011. The discussion and analysis then addresses the liquidity and financial condition of the Company, and other matters. As noted above, during the June 2012 quarter, the Company divested itself of the food segment and therefore only has one reportable business segment.

 

 

Three months ended June 30, 2012 and 2011

 

Revenue. Total revenue for the three months ended June 30, 2012 was $24,012,080, as compared to $22,446,556 for the same period of fiscal 2011, an increase of $1,565,524 or 7.0%. This increase is mainly the result of higher ocean freight shipping activity for the three months ended June 30, 2012 when compared to the prior year’s period.

 

Cost of Sales. Cost of sales is 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, and includes any duties, trucking and warehousing charges related to the shipments.

 

For the three months ended June 30, 2012, cost of sales increased by $1,355,353, or 6.7%, to $21,461,733, as compared to $20,106,380 for the same period of 2011. As a percentage of revenue, cost of sales decreased slightly to 89.4% for the three months ended June 30, 2012, from 89.6% for the same period of 2011, an 0.2 percentage point decrease. The changes are primarily a result of the increase in revenue for the three months ended June 30, 2012 as compared to the prior year’s period.

 

Selling, General and Administrative Expense. For the three months ended June 30, 2012 and 2011, selling, general and administrative expenses were $2,510,805 (10.5% of revenue), and $2,465,995 (11.0% of revenue), respectively. This represents a year-over-year increase of $44,810, or 1.8%. When compared to the prior year, this increase is primarily a result of higher rent expense at our New Jersey warehouse resulting from an increase in the amount of square footage leased at this location which are partially offset by lower labor related expenses on a company wide basis when compared to the prior year.

 

Depreciation and Amortization. For the three months ended June 30, 2012 and 2011, depreciation and amortization expenses were $104,916 and $82,725, respectively. This represents a year over year increase of $22,191, or 26.8%, and is mainly the result of the depreciation expenses associated with the new 15,000 square foot walk/drive-in freezer installed in our New Jersey warehouse.

 

Interest Expense. For the three months ended June 30, 2012 and 2011, interest expense was $44,872 and $32,461, respectively. This $12,411 increase is primarily the result of a higher interest rate and increased borrowings under our revolving line of credit with Community National Bank during the three months ended June 30, 2012 versus the same period of 2011.

 

Loss From Continuing Operations Before Taxes. For the reasons stated above, the Company incurred a loss before taxes from continuing operations of ($110,246) for the three months ended June 30, 2012, as compared to a loss before taxes from continuing operations of ($240,060) for the same period of 2011.

 

Income Taxes.   The company recorded a net income tax benefit of ($51,465) and ($95,109) for the three months ended June 30, 2012 and 2011, respectively. Both fiscal periods reflect the U.S. federal statutory rate and applicable state income taxes.

 

Net Loss.   For the three months ended June 30, 2012 and 2011 there was a net loss of ($215,112) and ($247,623), respectively. Net loss available to common shareholders for the three months ended June 30, 2012 and 2011 was ($218,862) or ($0.01) per diluted share and ($251,373) or ($0.01) per diluted share, respectively.

 

Nine months ended June 30, 2012 and 2011

 

Revenue. Total revenue for the nine months ended June 30, 2012 was $69,452,316, as compared to $71,602,195 for the same period of fiscal 2011, a decrease of $2,149,879 (or 3.0%). This decrease is mainly the result of lower ocean freight shipping activity by our top two customers for the nine months ended June 30, 2012 when compared to the prior year’s period.

 

Cost of Sales. Cost of sales is 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, and includes any duties, trucking and warehousing charges related to the shipments.

 

For the nine months ended June 30, 2012, total cost of sales decreased by $2,054,450 (or 3.2%) to $62,250,610, as compared to $64,305,060 for the same period of 2011. As a percentage of revenue, total cost of sales decreased to 89.6% for the nine months ended June 30, 2012, from 89.8% for the same period of 2011, a 0.2 percentage point increase. The changes are primarily a result of the decrease in revenue for the nine months ended June 30, 2012 as compared to the prior year’s period

 

 

Selling, General and Administrative Expense. For the nine months ended June 30, 2012 and 2011, selling, general and administrative expenses were $7,547,758 (10.9% of revenue), and $7,310,624 (10.2% of revenue), respectively. This represents a year-over-year increase of $237,134, or 3.2%. When compared to the prior year, the increases in amount and as a percentage of revenue are primarily the result of higher rent and related expenses at our New Jersey warehouse resulting from an increase in the amount of square footage leased at this location which are partially offset by lower labor related expenses on a company wide basis when compared to the prior year.

 

Depreciation and Amortization. For the nine months ended June 30, 2012 and 2011, depreciation and amortization expenses were $286,592 and $242,747, respectively. This represents a year over year increase of $43,845, or 18.1%, and is mainly the result of the depreciation expenses associated with the new 15,000 square foot walk/drive-in freezer installed in our New Jersey warehouse.

 

Interest Expense. For the nine months ended June 30, 2012 and 2011, interest expense was $126,144 and $105,246, respectively. This $20,898 increase is primarily the result of a higher interest rate and increased borrowings under our revolving line of credit with Community National Bank during the nine months ended June 30, 2012 versus the same period of 2011.

 

Loss From Continuing Operations Before Taxes. For the reasons stated above, the Company incurred a loss before taxes from continuing operations of ($757,144) for the nine months ended June 30, 2012, as compared to a loss before taxes from continuing operations of ($358,350) for the same period of 2011.

 

Income Taxes.   The company recorded a net income tax benefit of ($337,724) and ($142,689) for the nine months ended June 30, 2012 and 2011, respectively. Both fiscal periods reflect the U.S. federal statutory rate and applicable state income taxes.

 

Net Loss.   For the nine months ended June 30, 2012 and 2011 there was a net loss of ($859,855) and ($379,325), respectively. Net loss available to common shareholders for the nine months ended June 30, 2012 and 2011 was ($871,105) or ($0.04) per diluted share and ($390,575) or ($0.02) per diluted share, respectively.

 

liquidity and capital resources

 

General. Our ability to satisfy our liquidity requirements, which include satisfying our debt obligations and funding working capital, day-to-day operating expenses and capital expenditures, depends upon our future performance, which is subject to general economic conditions, competition and other factors, some of which are beyond our control. If we achieve significant near-term revenue growth, we may experience a need for increased working capital financing as a result of the difference between our collection cycles and the timing of our payments to vendors. Generally we do not have a need for significant capital expenditure as we are a non-asset based freight forwarder.

 

Janel’s cash flow performance for the nine months ended June 30, 2012 is not necessarily indicative of future cash flow performance.

 

As of June 30, 2012, and compared with the prior fiscal year applicable period, the Company’s cash and cash equivalents declined by $297,913, or 62.4%, to $179,228 from $477,141, respectively. During the nine months ended June 30, 2012, Janel’s net working capital (current assets minus current liabilities) decreased by $1,018,699, or 142.6%, from $714,716 at September 30, 2011, to a negative ($303,983) at June 30, 2012. This decrease is primarily due to the net loss of ($859,855) for the nine months ended June 30, 2012 and capital expenditures of $114,393 for the period.

 

Cash flows from continuing operating activities. Net cash used in continuing operating activities was ($460,424) for the nine months ended June 30, 2012, compared to net cash provided by continuing operating activities of $16,197 for the nine months ended June 30, 2011. The change was principally driven by a decrease in payments of outstanding accounts receivable, the net loss for the nine months ended June 30, 2012, an increase in security deposits, a change in the deferred tax asset, which were partially offset by a decrease in payments of outstanding accounts payable and the receipt of a federal tax refund.

 

Cash flows from discontinued operating activities. Net cash used in discontinued operating activities were ($436,615) and ($250,219) for the nine months ended June 30, 2012, respectively.

 

 

Cash flows from investing activities. Net cash used for investing activities, primarily capital expenditures for property and equipment, were $114,638 and $327,127 for the nine months ended June 30, 2012 and 2011, respectively.

 

Cash flows from financing activities. Net cash provided by financing activities was $713,764 for the nine months ended June 30, 2012, compared to net cash used in financing activities of ($218,112) for the nine months ended June 30, 2011. The cash provided by financing activities for the nine months ended June 30, 2012, consisted primarily of an increase in the amount of $650,000 in borrowings under our bank line of credit, the sale on October 14, 2011 of 750,000 shares of the Company’s common stock for $150,000 and the repayment of a loan receivable for $92,817. Net cash used in financing activities for the nine months ended June 30, 2011 primarily consisted of the early repayment on October 4, 2010 of the $435,000 non-interest bearing note payable due under the July 2008 FIL asset purchase acquisition (refer to Note 2(B) of our consolidated audited financial statements included in the Company’s Form 10-K for the fiscal year ended September 30, 2011), the repayment of long-term debt in the amount of $136,524 and the purchase of treasury stock for $37,625; which were partially offset by a $400,000 term loan with our bank (refer to Community National Bank Term Loan, below).

 

Community National Bank Borrowing Facility. On August 3, 2010, the Company’s Janel Group of New York, Inc. (“Janel New York”) subsidiary entered into a one year $3.5 million revolving line of credit agreement with Community National Bank (“CNB”). The new credit facility (the “CNB Facility”) replaces Janel New York’s previous term loan agreement with JPMorgan Chase Bank. The interest rate of the CNB Facility was the prime rate plus 1%, with a minimum rate of 5%. Under the CNB Facility, Janel New York may borrow up to $3.5 million limited to 80% of the Company’s aggregate outstanding eligible accounts receivable. On August 3, 2010, $951,190 of the CNB Facility was used to pay off the outstanding balances under the term loan with JPMorgan Chase Bank. While the CNB Facility was initially for a one year term expiring on July 31, 2011, on August 1, 2011 the CNB Facility was renewed for an additional one year term. Obligations under the CNB Facility are secured by all of the assets of the Company, are guaranteed by the Company, and were originally guaranteed by James N. Jannello, the Company’s Chief Executive Officer. Effective November 1, 2011, the terms of the CNB Facility were amended to release James N. Jannello from his personal guarantee of the Company’s obligations to CNB, to increase the minimum interest rate from 5.0% per annum to 7.0% per annum, and an unused line fee equal to one-half of one percent per annum was instituted. All other terms of the CNB Facility remained unchanged. As of June 30, 2012, there were outstanding borrowings of $1,601,335 under the CNB Facility (which represented 50.1% of the amount available thereunder) out of a total amount available for borrowing under the CNB Facility of approximately $3,164,594.

 

On August 10, 2012, subsequent to the period covered by this report, and pending the completion of an accounts receivable audit by CNB, the maturity of the CNB Facility was extended for two months until September 30, 2012, the maximum amount available under the CNB Facility was reduced from $3.5 million to $2.5 million, subject to the borrowing base limit referenced above, and the personal guarantee of James N. Jannello, the Company’s Chief Executive Officer, was reinstated. Upon completion of the accounts receivable audit and the review of the audit report by CNB, CNB and the Company will discuss the continuation of the CNB Facility and CNB will determine whether it will continue to provide a revolving line of credit to the Company. No assurances can be given that the Company will be successful in finding a replacement credit facility on terms acceptable to the Company in the event CNB determines to not renew the CNB Facility.

 

Community National Bank Term Loan. On April 5, 2011 Janel New York entered into a term loan in the amount of $400,000 with CNB (“CNB Term Loan”). The interest rate of the CNB Term Loan is 6%. The CNB Term Loan is for a five year term, expiring April 5, 2016, with monthly installment payments of principal and interest totaling $7,735. Obligations under the CNB Term Loan are secured by all of the assets of the Company, and are guaranteed by the Company and until November 2, 2011 (see above) by James N. Jannello, the Company’s Chief Executive Officer. The borrowings under the CNB Term Loan were used to construct a 15,000 square foot walk/drive-in freezer in our New Jersey warehouse for our traditional freight forwarding and logistics business segment.

 

Working Capital Requirements. The Company’s cash needs are currently met by the CNB Facility and cash on hand. As of June 30, 2012, the Company had $1,563,259 available under its $3.5 million CNB Facility and $179,228 in cash from operations and cash on hand. Following the August 10, 2012 extension and modification of the CNB Facility discussed above, the Company has $898,665 available under the CNB Facility. Our actual working capital needs for the short and long terms will depend upon numerous factors, including our operating results, the availability of a revolving line of credit, competition, and the cost associated with growing the Company either internally or through acquisition, none of which can be predicted with certainty. If our results of operations and our availability under our bank line of credit are insufficient to meet our cash needs, we will be required to obtain additional investment capital or debt funding to continue operations. We are actively pursuing additional investment capital for the short and long term, however there is no assurance that our efforts will be successful. If we are not successful in funding our working capital requirements, the Company’s operations will be materially negatively impacted.

 

 

Current Outlook

 

Our 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. We cannot accurately forecast many of these factors nor can we estimate accurately the relative influence of any particular factor and, as a result, there can be no assurance that historical patterns, if any, will continue in future periods.

 

Our food segment incurred losses and the Company’s Board of Directors determined that it was in the Company’s best interests to divest the food segment and refocus our growth strategy on our transportation logistics business. During June 2012, the company divested itself of the food segment and as a result, the losses from the food segment have been eliminated.

 

Janel is progressing with the implementation of its business plan and strategy to grow its revenue and profitability for fiscal 2012 and beyond through several avenues. During the quarter ended March 31, 2012, we placed in service a new 15,000 square foot walk/drive-in freezer in our New Jersey warehouse to compliment our traditional freight forwarding and logistics business, and we have realized expanded warehouse revenue with higher gross profit margins from this new service. The Company’s strategy for further growth includes plans to: open, as warranted, additional branch offices domestically and/or outside the continental United States; introduce additional revenue streams for its existing headquarters and branch locations; expand its existing sales force by hiring additional commission-only sales representatives with established customer bases; increase its focus on growing revenue 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; seek out and pursue privately held transportation-related firms which may ultimately lead to their acquisition by the Company; and continue its focus on containing current and prospective overhead and operating expenses, particularly with regard to the efficient integration of any additional offices or acquisitions.

 

Certain elements of our profitability and growth strategy are contingent upon the availability of adequate financing on terms acceptable to the Company.  We are currently focused on the renewal of our CNB Facility for the short and long-term, and are continuing our efforts to secure longer-term financing. To date we have been unable to complete any such longer-term financing transactions at terms we deem acceptable, and we cannot presently anticipate when or if financing on acceptable terms will become available. We are also seeking to raise additional investment capital in order to implement our growth strategy. There can be no assurance that we will be successful in raising additional capital on terms acceptable to us. Therefore, the implementation of significant aspects of our strategic growth plan may be delayed.

 

Accordingly, our key milestone in the very short term is the successful renewal of our revolving credit facility, and the raise of additional investment capital in order to grow our traditional freight forwarding and logistics business. If either of these milestones in not reached in a timely manner, the Company’s continued operations and growth plans will be materially negatively impacted.

 

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, accruals for cargo insurance, and deferred income taxes. 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 more fully described in Note 1 of the Notes to the Consolidated Financial Statements.

 

 

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

 

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 for carrying the shipments when the Company acts as a freight consolidator. Ocean freight revenues include the charges 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 provide 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 separate fee that is recognized as revenue upon completion of the service.

 

Customers will frequently request an all-inclusive rate for a set of services that 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 services 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.”

 

Estimates

 

While judgments and estimates are a necessary component of any system of accounting, the Company’s material estimates are limited primarily to the following areas:

 

a.

accounts receivable valuation;

b.

the useful lives of long-term assets;

c.

the accrual of costs related to ancillary services the Company provides; and

d.

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 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 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 quarterly report, and have concluded 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, our internal control over financial reporting.

 

 

PART II - OTHER INFORMATION

 

ITEM 6.          EXHIBITS

 

Exhibit No.
3.1		Articles of Incorporation of Wine Systems Design, Inc. (predecessor name) (incorporated by reference to Exhibit 3A to Wine Systems Design, Inc. (predecessor name) Registration Statement on Form SB-2 filed May 10, 2001, File No. 333-60608)
3.2		Restated and Amended By-Laws of Janel World Trade, Ltd. (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended September 30, 2010, File No. 333-60608)
3.3		Certificate of Designation of Series A Convertible Preferred Stock (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed January 17, 2007 File No. 333-60608)
3.4		Certificate of Designations of Series B Convertible Stock (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed October 22, 2007, File No. 333-60608)
10.1		Janel Stock Option Incentive Plan adopted December 12, 2002 (incorporated by reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the year ended September 30, 2002, File No. 333-60608)
10.2		Asset Purchase Agreement between Janel World Trade, Ltd. and Ferrara International Logistics, Inc. dated October 4, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 8, 2010, File No. 333-60608)
10.3		Sales Agency and Service Agreement between Janel World Trade, Ltd. and Ferrara International Logistics, Inc. entered into May 19, 2008 (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed May 22, 2008, File No. 333-60608)
10.4		Revised Promissory Note dated November 1, 2011, made by Registrant’s subsidiary, The Janel Group of New York, Inc., payable to Community National Bank, and Revised Business Loan Agreement dated November 1, 2011 between Registrant’s subsidiary, The Janel Group of New York, Inc., and Community National Bank (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 7, 2011, File No. 333-60608)
10.5		Commercial Guaranty dated August 2, 2010 made by Registrant with respect to the obligation of Registrant’s subsidiary, The Janel Group of New York, Inc., to Community National Bank (incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the year ended September 30, 2010, File No. 333-60608)
10.6		Commercial Security Agreement dated August 2, 2010 made by Registrant for the benefit of Community National Bank, securing Registrant’s obligations under its guaranty of the obligation of Registrant’s subsidiary, The Janel Group of New York, Inc., to Community National Bank (incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the year ended September 30, 2010, File No. 333-60608)
10.7		Letter agreement with respect to the extension by Community National Bank of the maturity of the line of credit to Registrant’s subsidiary, The Janel Group of New York, Inc.*
10.8		Asset Purchase and Sale and Assumption of Liabilities Agreement by and among Janel Ferrara Logistics, LLC, and Mann Global Enterprises, LLC, dated June 15, 2012 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 20, 2012, File No. 333-60608)
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer*
31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Operating Officer*
31.3		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer*
32.1		Section 1350 Certifications*
99.1		Press release dated August 14, 2012*
101		Interactive data files providing financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets, June 30, 2012 and September 30, 2011, (ii) Consolidated Statements of Income for the three and nine months ended June 30, 2012 and 2011, (iii) Consolidated Statements of Cash Flows for the nine months ended June 30, 2012 and 2011, and (v) Notes to Unaudited Consolidated Financial Statements #

 

*	Filed herewith
#	To be filed by amendment.

 

 

SIGNATURES

 

Pursuant to the requirements 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.

 

Dated: August 14, 2012	JANEL WORLD TRADE, LTD.
	Registrant
	/s/  James N. Jannello
	Executive Vice President and Chief Executive
	Officer (Principal Executive Officer)
	/s/  Philip J. Dubato
	Executive Vice President of Finance and Chief
	Financial Officer (Principal Financial Officer)